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UNITED STATES  SECURITIES AND EXCHANGE COMMISSION


Washington,  D.C. 20549





FORM 10-K /A


(Amendment No. 1)





|(MARK ONE)                                    
|----------------------------------------------
|                                              
|                                              
|FOR    THE FISCAL YEAR ENDED DECEMBER 31, 2004
|                                              
|OR                                            
|                                              
|                                              




FOR THE  TRANSITION PERIOD FROM _________TO_________





COMMISSION  FILE NUMBER 33-18053





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Pruco Life Insurance Company of New Jersey (Exact  Name of Registrant as Specified in its Charter)





|New Jersey                                                           |  | 22-2426091                                   
|-------------------------------------------------------------------- |  | ---------------------------------------------
|(State or    Other Jurisdiction    of Incorporation or Organization) |  | (I.R.S.    Employer    Identification Number)




213  Washington Street   Newark, New Jersey 07102   (973) 802-6000 (Address  and Telephone Number of Registrants Principal Executive Offices)





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  No





Indicate by check mark if disclosure of delinquent filers pursuant to  Item 405 of Regulation S-K is not contained herein, and will not be contained,  to the best of registrants knowledge, in definitive proxy or information  statements incorporated by reference in Part III of this Form 10-K/A or any  amendment to this Form 10-K/A.





Indicate by check mark whether the registrant is an accelerated filer  (as defined in Rule 12b-2 of the Act). Yes    No





Indicate by check mark whether the
    registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
    Yes    No





State the aggregate market value of the voting stock held by  non-affiliates of the registrant: N/A





As of February 28, 2005, 400,000 shares of the registrants common  stock were 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/A  and is therefore filing this Form with reduced disclosure.





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TABLE OF  CONTENTS





|           |          |                                                | Page Number
|---------- | -------- | ---------------------------------------------- | -----------
|           |          |                                                |            
|PART II    |          |                                                |            
|           |          |                                                |            
|           | Item 8.  | Financial Statements and    Supplementary Data | 2          
|           | Item 9A. | Controls and Procedures                        | 2          
|SIGNATURES | 3       




EXPLANATORY NOTE





This Amendment No. 1 on Form 10-K/A
    is being filed for the purpose of amending Items 8 and 9A of Part II of the
    Annual Report on Form 10-K for the year ended December 31, 2004 of Pruco
    Life Insurance Company of New Jersey to reflect the restatement of Pruco
    Life Insurance Company of New Jerseys  Statements of Cash Flows for
    the years ended December 31, 2004, 2003 and 2002, as described in Footnote
    2 to the Financial Statements included in this Form 10-K/A.  All other
    Items of the original filing on Form 10-K made on March 31, 2005 are unaffected
    by the changes to the Statements of Cash Flows and such Items have not been
    included in this Amendment.  Information in this Form  10-K/A is generally
    stated as of December 31, 2004 and does not reflect any subsequent information
    or events other than the restatement of the Statements of Cash Flows.  More
    current information with respect to Pruco Life Insurance Company of New Jersey
    is  contained within its Quarterly Report on Form 10-Q for the quarter ended
    September 30, 2005, and other filings with the Securities and Exchange Commission.





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PART  II





Item 8.  Financial  Statements and Supplementary Data





Information 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  Statement elsewhere in this Annual Report on Form 10-K/A





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,
    previously reviewed and evaluated the effectiveness of our disclosure controls
    and procedures, as defined in Exchange Act Rule 13a-15(e), as of December
    31, 2004.  Based
    on such evaluation, the Chief Executive Officer and Chief Financial Officer
    previously concluded that, as of December 31, 2004, 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.  No change in
    our internal control over financial reporting, as defined in Exchange Act
    Rule 13a-15(f), occurred during the quarter ended December 31, 2004, that
    materially affected, or is reasonably likely to materially affect, our internal
    control
    over financial reporting.  These conclusions are not  affected by the
    misclassifications in the Companys Statements of Cash Flows  discussed
    in the following paragraph, which were identified subsequent to the filing
    of the Companys Quarterly Report on Form 10-Q for the quarter ended
    June 30, 2005.





As reported in a Current Report on
    Form 8-K filed by the Company on February 7, 2006, management of the Company
    concluded that certain amounts were incorrectly classified in the Companys
    audited Statements of Cash Flows for the years ended December 31, 2004, 2003
    and 2002 included in the Companys 2004  Annual Report on Form 10-K
    (the 2004 Form 10-K) and in the Companys  unaudited Statements
    of Cash Flows for the periods ended March 31 and June 30, 2005 and 2004 included
    in the Companys Quarterly Reports on Form 10-Q for the  quarters ended
    March 31 and June 30, 2005 (the 2005 Forms 10-Q).  In connection
    with the preparation of the Companys financial statements for the year
    ended December 31, 2005, management of the Company concluded on February
    1, 2006 that the Company should file this Form 10-K/A and Forms 10-Q/A restating
    the Statements of Cash Flows included in the 2004 Form 10-K and in the  2005
    Forms 10-Q.   The restatements are limited in scope, relating principally
    to the classification of data collected and not to the collection of data
    or to the numerical accuracy of data collected.   The Company has implemented
    enhancements to its internal control over financial reporting, primarily
    with respect to the periodic analysis and review of statements of cash flows,
    designed to provide reasonable assurance that errors of this type in the
    Companys
    Statements of Cash Flows will not recur.





PART IV





Item  15.  Exhibits and Financial Statement  Schedules





| | (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                                                                                                                                                                
| |                                                                                                                                                                                 
| |                                                                                                                                                                                 
| | 24                                                                                                                                                                              
| |                                                                                                                                                                                 
| | 31.1                                                                                                                                                                            
| |                                                                                                                                                                                 
| | 31.2                                                                                                                                                                            
| |                                                                                                                                                                                 
| | 32.1                                                                                                                                                                            
| |                                                                                                                                                                                 
| | 32.2                                                                                                                                                                            




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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 9th
day of February 2006.





| | PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
| | ------------------------------------------
| | (Registrant)                              
| |                                           
| |                                           
| | By:                                       
| |                                           
| |                                           
| |                                           
| |                                           




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 February 9, 2006.





|Signature                                    |   | Title                                 
|-------------------------------------------- | - | --------------------------------------
|                                             |   |                                       
|                                             |   |                                       
|James J. Avery, Jr.  *                       |   | Director                              
|                                             |   |                                       
|James J. Avery, Jr.                          |   |                                       
|                                             |   |                                       
|/s/ Bernard J. Jacob *                       |   | Director and President                
|                                             |   | (Principal Executive Officer)         
|Bernard J. Jacob                             |   |                                       
|                                             |   |                                       
|Ronald Paul Joelson                          | * | Director                              
|                                             |   |                                       
|Ronald Paul Joelson                          |   |                                       
|                                             |   |                                       
|C. Edward Chaplin                            | * | Director                              
|                                             |   |                                       
|C. Edward  Chaplin                           |   |                                       
|                                             |   |                                       
|Helen M. Galt                                | * | Director                              
|                                             |   |                                       
|Helen M. Galt                                |   |                                       
|                                             |   |                                       
|David R. Odenath, Jr.                        | * | Director                              
|                                             |   |                                       
|David R. Odenath, Jr.                        |   |                                       
|                                             |   |                                       
|/s/ John Chieffo                             |   | Chief Financial and Accounting Officer
|                                             |   |                                       
|John Chieffo                                 |   |                                       
|(Principal Accounting and Financial Officer) |   |                                       




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




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PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY


Financial Statements and


Report of Independent Registered Public Accounting Firm





December 31, 2004 and 2003





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PRUCO LIFE INSURANCE COMPANY OF NEW  JERSEY





INDEX TO FINANCIAL STATEMENTS





|                                                        |                                                                                                   | Page No.
|------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | --------
|                                                        |                                                                                                   |         
|Financial    Statements                                 |                                                                                                  
|                                                        |                                                                                                   |         
|PRUCO    LIFE INSURANCE COMPANY OF NEW JERSEY           |                                                                                                  
|                                                        |                                                                                                   |         
|Report of Independent Registered Public Accounting Firm | F-2                                                                                              
|                                                        |                                                                                                   |         
|Financial    Statements:                                |                                                                                                  
|                                                        |                                                                                                   |         
|                                                        | Statements of Financial Position - December 31, 2004 and 2003                                     | F-3     
|                                                        |                                                                                                   |         
|                                                        | Statements of Operations and Comprehensive Income Years Ended    December 31, 2004, 2003 and 2002 | F-4     
|                                                        |                                                                                                   |         
|                                                        | Statements of Stockholders Equity - Years Ended December 31,    2004, 2003 and 2002              | F-5     
|                                                        |                                                                                                   |         
|                                                        | Statements of Cash Flows - Years Ended December 31, 2004, 2003    and 2002 (Restated)             | F-6     
|                                                        |                                                                                                   |         
|                                                        | Notes to Financial Statements                                                                     | F-7     




F - 1


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Report  of Independent Registered Public Accounting Firm





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, 2004 and 2003, and the results of its operations and its cash  flows for each of the three years in the period ended December 31, 2004, 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 the standards of the Public Company Accounting  Oversight Board (United States).  Those standards 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 American Institute of Certified Public Accountants Statement of
      Position 03-1, Accounting and Reporting by Insurance Enterprises for Certain Nontraditional  Long-Duration Contracts and for Separate Accounts as of January 1, 2004, and  the fair value provisions of Statement of Financial Accounting Standards No.  123, Accounting for Stock Based Compensation as
      of January 1, 2003. As described in Note 2 to the Financial Statements, the Company has restated
    its 2004, 2003 and 2002 financial statements.





PricewaterhouseCoopers  LLP


New York, New York


March 25, 2005, except the first paragraph
    of Note 2, for which the date is February 9, 2006





F  - 2


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Pruco  Life Insurance Company of New Jersey





Statements  of Financial Position


As of  December 31, 2004 and December 31, 2003 (in thousands, except share amounts)


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|                                                                                                                                  |  | 2004 |           | 2003 |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | -
|                                                                                                                                  |  |      |           |      |  
|ASSETS                                                                                                                            |  |      |           |      |  
|Fixed maturities available for sale,  at fair value (amortized cost, 2004 -    $874,200; and 2003 - $746,370)                     |  | $    | 903,685   |      | $
|Policy loans                                                                                                                      |  |      | 153,359   |      |  
|Short-term investments                                                                                                            |  |      | 44,549    |      |  
|Other long-term investments                                                                                                       |  |      | 1,977     |      |  
|                                                                                                                                  |  |      |           |      |  
|Total investments                                                                                                                 |  |      | 1,103,570 |      |  
|Cash and cash equivalents                                                                                                         |  |      | 108,117   |      |  
|Deferred policy acquisition costs                                                                                                 |  |      | 183,219   |      |  
|Accrued investment income                                                                                                         |  |      | 15,045    |      |  
|Reinsurance recoverables                                                                                                          |  |      | 67,411    |      |  
|Receivables from affiliates                                                                                                       |  |      | 17,152    |      |  
|Other assets                                                                                                                      |  |      | 13,789    |      |  
|Separate account assets                                                                                                           |  |      | 2,112,866 |      |  
|                                                                                                                                  |  |      |           |      |  
|TOTAL    ASSETS                                                                                                                   |  | $    | 3,621,169 |      | $
|                                                                                                                                  |  |      |           |      |  
|LIABILITIES    AND STOCKHOLDERS EQUITY LIABILITIES                                                                               |  |      |           |      |  
|Policyholders account balances                                                                                                   |  | $    | 796,421   |      | $
|Future policy benefits and other policyholder    liabilities                                                                      |  |      | 189,673   |      |  
|Cash collateral for loaned securities                                                                                             |  |      | 74,527    |      |  
|Securities sold under agreements to repurchase                                                                                    |  |      | 24,754    |      |  
|Income taxes payable                                                                                                              |  |      | 76,878    |      |  
|Other liabilities                                                                                                                 |  |      | 27,788    |      |  
|Separate account liabilities                                                                                                      |  |      | 2,112,866 |      |  
|                                                                                                                                  |  |      |           |      |  
|Total    liabilities                                                                                                              |  |      | 3,302,907 |      |  
|                                                                                                                                  |  |      |           |      |  
|CONTINGENCIES  (See Note 12)                                                                                                      |  |      |           |      |  
|                                                                                                                                  |  |      |           |      |  
|STOCKHOLDERS    EQUITY                                                                                                           |  |      |           |      |  
|Common stock, ($5 par value; 400,000 shares,    authorized; issued and outstanding at December 31, 2004 and December 31,    2003) |  |      | 2,000     |      |  
|Additional paid-in-capital                                                                                                        |  |      | 168,810   |      |  
|Deferred compensation                                                                                                             |  |      | (152      | )    |  
|Accumulated other comprehensive income                                                                                            |  |      | 13,246    |      |  
|Retained earnings                                                                                                                 |  |      | 134,358   |      |  
|                                                                                                                                  |  |      |           |      |  
|Total    stockholders equity                                                                                                     |  |      | 318,262   |      |  
|                                                                                                                                  |  |      |           |      |  
|TOTAL    LIABILITIES AND STOCKHOLDERS EQUITY                                                                                     |  | $    | 3,621,169 |      | $
|                                                                                                                                  |  |      |           |      |  




See Notes to Financial Statements





F  - 3


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Pruco  Life Insurance Company of New Jersey





Statements  of Operations and Comprehensive Income


Years  Ended December 31, 2004, 2003 and 2002 (in thousands)


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|                                                                                         |  | 2004 |         | 2003 |   | 2002    |  
|---------------------------------------------------------------------------------------- |  | ---- | ------- | ---- | - | ------- | -
|                                                                                         |  |      |         |      |   |         |  
|REVENUES                                                                                 |  |      |         |      |   |         |  
|Premiums                                                                                 |  | $    | 31,822  |      | $ | 38,141  |  
|Policy charges and fee income                                                            |  |      | 77,872  |      |   | 70,060  |  
|Net investment income                                                                    |  |      | 52,499  |      |   | 45,148  |  
|Realized investment gains (losses), net                                                  |  |      | 1,885   |      |   | (838    | )
|Asset management fees                                                                    |  |      | 4,976   |      |   | 4,029   |  
|Other income                                                                             |  |      | 1,947   |      |   | 1,717   |  
|                                                                                         |  |      |         |      |   |         |  
|Total    revenues                                                                        |  |      | 171,001 |      |   | 158,257 |  
|                                                                                         |  |      |         |      |   |         |  
|BENEFITS    AND EXPENSES                                                                 |  |      |         |      |   |         |  
|Policyholders benefits                                                                  |  |      | 44,968  |      |   | 50,898  |  
|Interest credited to policyholders account balances                                     |  |      | 29,324  |      |   | 22,641  |  
|General, administrative and other expenses                                               |  |      | 60,742  |      |   | 55,167  |  
|                                                                                         |  |      |         |      |   |         |  
|Total    benefits and expenses                                                           |  |      | 135,034 |      |   | 128,706 |  
|                                                                                         |  |      |         |      |   |         |  
|Income from operations before income taxes and    cumulative effect of accounting change |  |      | 35,967  |      |   | 29,551  |  
|                                                                                         |  |      |         |      |   |         |  
|Income taxes:                                                                            |  |      |         |      |   |         |  
|Current                                                                                  |  |      | 14,584  |      |   | (15,103 | )
|Deferred                                                                                 |  |      | (4,216  | )    |   | 24,037  |  
|                                                                                         |  |      |         |      |   |         |  
|Total income tax expense (benefit)                                                       |  |      | 10,368  |      |   | 8,934   |  
|                                                                                         |  |      |         |      |   |         |  
|Net    Income from Operations Before Cumulative Effect of Accounting Change              |  |      | 25,599  |      |   | 20,617  |  
|Cumulative effect of change in accounting principle,    net of taxes                     |  |      | (184    | )    |   |        |  
|                                                                                         |  |      |         |      |   |         |  
|NET    INCOME                                                                            |  |      | 25,415  |      |   | 20,617  |  
|                                                                                         |  |      |         |      |   |         |  
|Other comprehensive    income, net of tax                                                |  |      |         |      |   |         |  
|Increase (decrease) in net unrealized investment    gains, net of taxes                  |  |      | (479    | )    |   | 3,483   |  
|Cumulative effect of accounting change, net of tax                                       |  |      | 547     |      |   |        |  
|                                                                                         |  |      |         |      |   |         |  
|Other comprehensive    income, net of tax                                                |  |      | 68      |      |   | 3,483   |  
|                                                                                         |  |      |         |      |   |         |  
|COMPREHENSIVE    INCOME                                                                  |  | $    | 25,483  |      | $ | 24,100  |  
|                                                                                         |  |      |         |      |   |         |  




See Notes to Financial Statements





F - 4


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Pruco  Life Insurance Company of New Jersey





Statements  of Stockholders Equity


Periods  Ended December 31, 2004, 2003 and 2002 (in thousands)


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|                                                                  |  | Common    Stock |       | Paid  in     Capital |   | Retained    Earnings |  | Deferred    Compensation |         | Accumulated    Other    Comprehensive    Income (Loss) |   | Total    Stockholders    Equity |  
|----------------------------------------------------------------- |  | --------------- | ----- | --------------------- | - | -------------------- |  | ------------------------ | ------- | ------------------------------------------------------ | - | -------------------------------- | -
|                                                                  |  |                 |       |                       |   |                      |  |                          |         |                                                        |   |                                  |  
|Balance,    January 1, 2002                                       |  | $               | 2,000 |                       | $ | 128,689              |  | $                        | 72,959  |                                                        | $ |                                 |  
|Net income                                                        |  |                 |      |                       |   |                     |  |                          | 15,368  |                                                        |   |                                 |  
|Adjustments to policy    credits issued to eligible policyholders |  |                 |      |                       |   |                     |  |                          | (1      | )                                                      |   |                                 |  
|Change in net    unrealized investment gains, net of     taxes    |  |                 |      |                       |   |                     |  |                          |        |                                                        |   |                                 |  
|                                                                  |  |                 |       |                       |   |                      |  |                          |         |                                                        |   |                                  |  
|Balance,    December 31, 2002                                     |  |                 | 2,000 |                       |   | 128,689              |  |                          | 88,326  |                                                        |   |                                 |  
|Net income                                                        |  |                 |      |                       |   |                     |  |                          | 20,617  |                                                        |   |                                 |  
|Contribution from    Parent                                       |  |                 |      |                       |   | 40,000               |  |                          |        |                                                        |   |                                 |  
|Stock-based compensation    programs                              |  |                 |      |                       |   | 53                   |  |                          |        |                                                        |   | (108                             | )
|Change in net    unrealized investment gains, net of     taxes    |  |                 |      |                       |   |                     |  |                          |        |                                                        |   |                                 |  
|                                                                  |  |                 |       |                       |   |                      |  |                          |         |                                                        |   |                                  |  
|Balance,    December 31, 2003                                     |  |                 | 2,000 |                       |   | 168,742              |  |                          | 108,943 |                                                        |   | (108                             | )
|Net income                                                        |  |                 |      |                       |   |                     |  |                          | 25,415  |                                                        |   |                                 |  
|Stock-based    compensation programs                              |  |                 |      |                       |   | 68                   |  |                          |        |                                                        |   | (44                              | )
|Cumulative effect of    accounting change, net of taxes           |  |                 |      |                       |   |                     |  |                          |        |                                                        |   |                                 |  
|Change in net    unrealized investment gains, net of     taxes    |  |                 |      |                       |   |                     |  |                          |        |                                                        |   |                                 |  
|                                                                  |  |                 |       |                       |   |                      |  |                          |         |                                                        |   |                                  |  
|Balance,    December 31, 2004                                     |  | $               | 2,000 |                       | $ | 168,810              |  | $                        | 134,358 |                                                        | $ | (152                             | )
|                                                                  |  |                 |       |                       |   |                      |  |                          |         |                                                        |   |                                  |  




See Notes to Financial Statements





F  - 5


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Pruco  Life Insurance Company of New Jersey





Statements  of Cash Flows (Restated)


Years  Ended December 31, 2004, 2003 and 2002 (in thousands)


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|                                                                                               |  | 2004 |          | 2003 |   | 2002     |  
|---------------------------------------------------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|                                                                                               |  |      |          |      |   |          |  
|CASH    FLOWS FROM OPERATING ACTIVITIES:                                                       |  |      |          |      |   |          |  
|Net income                                                                                     |  | $    | 25,415   |      | $ | 20,617   |  
|Adjustments to reconcile net income to net cash    (used in) provided by operating activities: |  |      |          |      |   |          |  
|Policy charges and fee    income                                                               |  |      | (16,862  | )    |   | (15,319  | )
|Interest credited to    policyholders account balances                                        |  |      | 29,324   |      |   | 22,641   |  
|Realized investment    (gains) losses, net                                                     |  |      | (1,885   | )    |   | 838      |  
|Amortization and other    non-cash items                                                       |  |      | 8,743    |      |   | 3,859    |  
|Cumulative effect of    accounting change                                                      |  |      | 184      |      |   |         |  
|Change in:                                                                                     |  |      |          |      |   |          |  
|Future policy benefits    and other policyholder liabilities                                   |  |      | 30,691   |      |   | 24,701   |  
|Reinsurance recoverable                                                                        |  |      | (49,561  | )    |   | (9,671   | )
|Accrued investment    income                                                                   |  |      | (784     | )    |   | (2,344   | )
|Receivable from    affiliates                                                                  |  |      | 21       |      |   | 13       |  
|Payable to affiliates                                                                          |  |      | 431      |      |   | 42       |  
|Deferred policy    acquisition costs                                                           |  |      | 1,773    |      |   | (43,138  | )
|Income taxes payable                                                                           |  |      | 25,877   |      |   | 15,778   |  
|Other, net                                                                                     |  |      | 713      |      |   | (2,887   | )
|                                                                                               |  |      |          |      |   |          |  
|Cash    Flows From (used in) Operating Activities                                              |  |      | 54,080   |      |   | 15,130   |  
|                                                                                               |  |      |          |      |   |          |  
|CASH    FLOWS USED IN INVESTING ACTIVITIES:                                                    |  |      |          |      |   |          |  
|Proceeds from the    sale/maturity/prepayment of:                                              |  |      |          |      |   |          |  
|Fixed maturities,    available for sale                                                        |  |      | 449,427  |      |   | 314,546  |  
|Policy loans                                                                                   |  |      | 19,023   |      |   | 21,429   |  
|Payments for the    purchase of:                                                               |  |      |          |      |   |          |  
|Fixed maturities,    available for sale                                                        |  |      | (547,220 | )    |   | (533,088 | )
|Policy loans                                                                                   |  |      | (10,994  | )    |   | (10,781  | )
|Other long-term    investments, net                                                            |  |      | (86      | )    |   | 1,083    |  
|Short-term investments,    net                                                                 |  |      | 2,443    |      |   | (14,254  | )
|                                                                                               |  |      |          |      |   |          |  
|Cash    Flows (Used in) Investing
        Activities                                           |  |      | (87,407  | )    |   | (221,065 | )
|                                                                                               |  |      |          |      |   |          |  
|CASH    FLOWS FROM FINANCING ACTIVITIES:                                                       |  |      |          |      |   |          |  
|Policyholders account    deposits                                                             |  |      | 222,751  |      |   | 216,651  |  
|Policyholders account    withdrawals                                                          |  |      | (159,664 | )    |   | (76,819  | )
|Cash collateral for    loaned securities, net                                                  |  |      | (4,328   | )    |   | 53,820   |  
|Securities sold under    agreements to repurchase, net                                         |  |      | 10,271   |      |   | (17,230  | )
|Contribution from Parent                                                                       |  |      |         |      |   | 40,000   |  
|Cash payments to    eligible policyholders                                                     |  |      |         |      |   |         |  
|Net change in financing arrangements (maturities 90 days or less)                              |  |      | (133     | )    |   | 578      |  
|                                                                                               |  |      |          |      |   |          |  
|Cash    Flows From Financing Activities                                                        |  |      | 68,897   |      |   | 217,000  |  
|                                                                                               |  |      |          |      |   |          |  
|Net increase in cash and cash equivalents                                                      |  |      | 35,570   |      |   | 11,065   |  
|Cash and cash equivalents, beginning of year                                                   |  |      | 72,547   |      |   | 61,482   |  
|                                                                                               |  |      |          |      |   |          |  
|CASH    AND CASH EQUIVALENTS, END OF YEAR                                                      |  | $    | 108,117  |      | $ | 72,547   |  
|                                                                                               |  |      |          |      |   |          |  




See Notes to Financial Statements





F  - 6


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Pruco  Life Insurance Company of New Jersey





Notes  to Financial Statements


---




1.     BUSINESS





Pruco Life Insurance Company of New Jersey or, 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 contracts only in the states of New Jersey and New York.





The Company is a wholly owned subsidiary of Pruco Life Insurance  Company or, 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 or, 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. or, Prudential  Financial.





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





Restatement of Statements of Cash  Flows





The Statements of Cash Flows for the years  ended December 31, 2004, 2003 and 2002 have been restated to reflect the  following:





Changes in the net receivable/payable from  unsettled investment purchases and sales, previously classified within  adjustments to reconcile net income to cash provided by operating activities,  have been reclassified to cash flows from investing activities, to the extent  such balances pertained to investments classified as available for sale.





The net change in the policy loans  receivable, previously reported in cash flows operating activities, is now  reported as a component of cash flows of investing activities.





Changes in the presentation of bank overdrafts and various other items previously reported in cash flows operating  activities, are now reported as a component of cash flows of financing  activities.





As a result of the restatements, previously
    reported cash flows from (used in) operating activities, cash flows (used
    in) investing activities and cash flows from financing activities
    were
    increased
    or reduced for the years ended December 31, 2004 2003 and 2002 as follows:





|                                                      |  | Year-Ended    December 31, |        
|----------------------------------------------------- |  | -------------------------- | -------
|                                                      |  |                            |        
|                                                      |  |                            | 2004   
|                                                      |  |                            |        
|Cash
      flows from (used in) operating activities: |  |                            |        
|As originally reported                                |  | $                          | 56,854 
|Impact of restatements                                |  |                            | (2,774 
|Revised for    restatements                           |  | $                          | 54,080 
|Cash
      flows (used in) investing activities:      |  |                            |        
|As originally reported:                               |  | $                          | (91,363
|Impact of restatements                                |  |                            | 3,956  
|Revised for    restatements                           |  | $                          | (87,407
|Cash
      flows from financing activities:           |  |                            |        
|As originally reported:                               |  | $                          | 70,079 
|Impact of restatements                                |  |                            | (1,182 
|Revised for    restatements                           |  | $                          | 68,897 




The restatements had no impact on the total  change in cash and cash equivalents within Statements of Cash Flows or on the  Statements of Operations or Statements of Financial Position.





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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


---




2.     SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Basis of Presentation


The financial statements have been prepared in accordance with accounting  principles generally accepted in the United States of America or, GAAP.  The Company has extensive transactions and  relationships with Prudential Insurance and other affiliates, as more fully  described in Note 13.  Due to these  relationships, it is possible that the terms of these transactions are not the  same as those that would result from transactions among wholly unrelated  parties.





Use of Estimates


The preparation of financial statements in conformity with GAAP  requires management to make estimates and assumptions that affect the reported  amounts of assets and liabilities, in particular deferred policy acquisition  costs, investments, future policy benefits, provision for income taxes,  disclosure of contingent 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 Options


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 years ended December 31, 2004 and 2003, include costs of  less than $0.1 million and $0.1 million, respectively, associated with employee  stock options issued by Prudential Financial to certain employees of the  Company. 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 equal
to the market value of  Prudential Financials Common Stock on the date of grant.





In December 2004, the FASB issued SFAS No.  123R, Share-Based Payment, which replaces FASB Statement No. 123. SFAS 123R  requires all entities to apply the fair value based measurement method in  accounting for share-based payment transactions with employees except for  equity instruments held by employee share ownership plans. As described above  Prudential Financial had previously adopted the fair value recognition  provisions of the original SFAS 123 for all new awards granted to employees on  or after January 1, 2003. SFAS 123R is effective for interim and annual periods  beginning after June 15, 2005. Prudential Financial will adopt the fair value  recognition provisions of this statement on July 1, 2005 for those awards  issued prior to January 1, 2003. By that date, the unvested stock options  issued prior to January 1, 2003, will be recognized over the remaining vesting  period of approximately six months.





Prudential Financial and the Company account for non-employee stock  options using the fair value method of SFAS No. 123 in accordance with Emerging  Issues Task Force Issue (EITF) No. 96-18 Accounting for Equity Instruments  That Are Issued to Other Than Employees and related interpretations in  accounting for its non-employee stock options.





Investments


Fixed maturities classified as  available for sale are carried at fair value.  The amortized cost of fixed maturities is written down to 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).





Policy loans are carried at unpaid  principal balances.





Securities repurchase and resale agreements  and securities borrowed and loaned transactions are used to generate income, to  borrow funds, or to facilitate trading activity. Securities repurchase and  resale agreements are generally short-term in nature, and therefore, the  carrying amounts of these instruments approximate fair value. Securities  repurchase and resale agreements are collateralized principally by U.S.  government and government agency securities. Securities borrowed or loaned are  collateralized principally by cash or U.S. government securities. For  securities repurchase agreements and securities loaned transactions used to  generate income, the cash received is typically invested in cash equivalents,  short-term investments or fixed maturities.





Securities  repurchase and resale agreements that satisfy certain criteria are treated as  collateralized financing arrangements. These agreements are carried at the  amounts at which the securities will be subsequently resold or reacquired, as  specified in the respective agreements. For securities purchased under  agreements to resell, the Companys policy is to take possession or control of  the securities and to value the securities daily. Securities to be resold are  the same, or substantially the same, as the securities received. For securities  sold under agreements to repurchase, the market value of the securities to be  repurchased is monitored, and additional collateral is obtained where appropriate,  to protect against credit exposure. Securities to be repurchased are the same,  or





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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


---




2.     SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES (continued)





substantially the  same as those sold. Income and expenses related to these transactions executed  within the general are reported as Net investment income, however, for  transactions used to borrow funds, the associated borrowing cost is reported as  interest expense (included in General and administrative expenses).





Securities borrowed and securities loaned  transactions are treated as financing arrangements and are recorded at the  amount of cash advanced or received. With respect to securities loaned  transactions, 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 the securities borrowed and loaned on  a daily basis with additional collateral obtained or provided as necessary.  Substantially all of the Companys securities borrowed transactions are with  brokers and dealers, commercial banks and institutional clients. Substantially  all of the Companys securities loaned transactions are with large brokerage  firms. Income and expenses associated with securities borrowing transactions  are reported as  Net investment  income. Income and expenses associated with securities loaned transactions  used to generate
income are generally reported as Net investment income;  however, for securities loaned transactions used for funding purposes the  associated rebate is reported as interest expense (included in General and  administrative expenses).





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.





Other long-term investments consist of the Companys investments in  joint ventures and limited partnerships in which the Company does not exercise  control, as well as investments in the Companys own separate accounts, which  are carried at estimated fair value, and investment real estate. Joint venture  and partnership interests are generally accounted for using the equity method  of accounting, except in instances in which the Companys interest is so minor  that it exercises virtually no influence over operating and financial policies.  In such instances, the Company applies the cost method of accounting. The  Companys net income from investments in joint ventures and partnerships is  generally included in Net investment income.





Realized investment gains (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) the extent (generally if greater than 20%) and the duration (generally if greater than six  months); (2) the reasons for the decline in value (credit event, interest  related or market fluctuation); (3) the Companys ability and intent to hold  the investments for a period of time to allow for a recovery of value; and (4)  the financial condition of and near-term prospects of the issuer.





There are a number of significant risks and uncertainties inherent in  the process of monitoring impairments and determining if an impairment is other  than temporary. These risks and uncertainties include, but are not limited to:  (1) the risk that our assessment of an issuers ability to meet its obligations  could change, (2) the risk that the economic outlook could be worse than  expected or have more of an impact on the issuer than anticipated, (3) the risk  that we are making decisions based on fraudulent or misstated information in  the financial statements provided by issuers and (4) the risk that new  information obtained by us or changes in other facts and circumstances,  including those not related to the issuer, could lead us to change our intent  to hold the security to maturity or until it recovers in value.  Any of these situations could result in a  change in our impairment determination, and hence a charge to earnings in a  future
period.





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 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 Insurance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 Insurances agency  network and expenses that are considered to be related to the production of new





F - 9


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


---




2.     SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES (continued)





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.





Reinsurance recoverables and payables


Reinsurance recoverables and payables include  receivables and corresponding payables associated with reinsurance arrangements  with affiliates.  See Note 13 for  additional information about these arrangements.





Separate account assets and liabilities


Separate account assets and liabilities are reported at fair value and  represent segregated funds which are invested for certain policyholders,  pension funds and other customers. The assets consist of common stocks, fixed  maturities, real estate related investments, real estate mortgage loans and  short-term investments. The assets of each account are legally segregated and  are generally 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. See Note 8 for additional information regarding  separate account arrangements with contractual guarantees.  The investment income and gains or losses  for separate accounts generally accrue to the policyholders and are not  included in the Statements of Operations. Mortality, policy administration and  surrender
charges assessed against the accounts are included in Policy charges  and fee income. Asset management fees charged to the accounts are included in Asset management fees.





F - 10


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


---




2.     SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES (continued)





Other assets and other liabilities


The Company provides sales inducements to contractholders, which  primarily include an up-front bonus added to the contractholders initial  deposit 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 to policyholders account balances. As of December 31, 2004 and 2003, deferred  sales inducement costs included in other assets were $11 million and $8  million, respectively.





Other assets consist primarily of reinsurance recoverables, premiums  due, 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.





Policyholders  Account Balances


The Companys liability for policyholders account balances represents  the contract value that has accrued to the benefit of the policyholder as of  the balance sheet date. This liability is generally equal to the accumulated  account deposits plus interest credited less policyholder withdrawals and other  charges assessed against the account balance. These policyholders account  balances also include provision for benefits under non-life contingent payout  annuities.





Future Policy  Benefits


The Companys liability for future policy benefits is primarily  comprised of the present value of estimated future payments to or on behalf of  policyholders, where the timing and amount of payment depends on policyholder  mortality, less the present value of future net premiums. For life insurance,  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 premium deficiency reserves. The Companys  liability for future policy benefits is also inclusive of liabilities for  guarantee benefits
related to certain non-traditional long duration life and  annuity contracts, which are discussed more fully in Note 8.





Unpaid Claims


Unpaid claims include estimates of claims that the Company believes  have been incurred, but have not yet been reported (IBNR) as of the balance  sheet date. Consistent with industry accounting practice, we do not establish  loss reserves until a loss has occurred. These IBNR estimates, and estimates of  the amounts of loss we will ultimately incur on reported claims, which are  based in part on our historical experience, are regularly adjusted to reflect  actual claims experience. When actual experience differs from our previous  estimate, the resulting difference will be included in our reported results for  the period of the change in estimate in the Policyholders benefits caption  in our statements of operations. On an ongoing basis, trends in actual  experience are a significant factor in the determination of claim reserve  levels.





Contingencies


Amounts related to contingencies are accrued if it is probable that a  liability has been incurred and an amount is reasonably estimable. Management  evaluates whether there are incremental legal or other costs directly  associated with the ultimate resolution of the matter that are reasonably  estimable and, if so, they are included in the accrual.





Insurance Revenue  and Expense Recognition


Premiums from life insurance policies, excluding interest-sensitive  life contracts, are recognized when due. Benefits are recorded as an expense  when they are incurred. A liability for future policy benefits is recorded when  premiums are recognized using the net level premium method.





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. These  contracts are discussed in further detail in Note 8. Also, as more fully  discussed in Note 8, the liability for the guaranteed minimum death benefit  under these contracts is determined each period end by estimating the  accumulated value of a percentage of the total assessments to date less the  accumulated value of death benefits in excess of the account balance.





F  - 11


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


---




2.     SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Amounts received as payment for  interest-sensitive life, deferred 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 to policyholders account  balances 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 (see Note 13). In addition, the Company  receives fees from policyholders account balances invested in funds managed by  companies other than Prudential Insurance. Asset management fees are recognized  as income when earned.





Derivative Financial  Instruments


Derivatives are  financial instruments whose values are derived from interest rates, foreign  exchange rates, financial indices, or the value of securities or commodities.  Derivative financial instruments used by the Company include swaps and futures,  and may be exchange-traded or contracted in the over-the-counter market.  Derivative positions are carried at 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.





Derivatives are used to manage the characteristics of the Companys  asset/liability mix, manage the interest rate and currency characteristics of  assets or liabilities. Additionally, derivatives may be used to seek to reduce  exposure to interest rate 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 fair value 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, all changes in  its fair value, including net receipts and payments, are included in Realized  investment gains (losses), net without considering changes in the fair value  of the economically associated assets or liabilities.





The Company is a party to financial instruments that may contain  derivative instruments that are embedded in the financial instruments. 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 gains (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 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 the amount expected to be realized.





F  - 12


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


---




2.     SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES (continued)





New Accounting Pronouncements


In March 2004, the EITF of the FASB reached a final consensus on Issue  03-1, The Meaning of Other-Than-Temporary Impairment and its Application to  Certain Investments. This Issue establishes impairment models for determining  whether to record impairment losses associated with investments in certain  equity and debt securities. It also requires income to be accrued on a  level-yield basis following an impairment of debt securities, where reasonable  estimates of the timing and amount of future cash flows can be made. The  Companys policy is generally to record income only as cash is received  following an impairment of a debt security. In September 2004, the FASB issued FASB  Staff Position (FSP) EITF 03-1-1, which defers the effective date of a  substantial portion of EITF 03-1, from the third quarter of 2004, as originally  required by the EITF, until such time as FASB issues further implementation  guidance, which is
expected sometime in 2005. The Company will continue to  monitor developments concerning this Issue and is currently unable to estimate  the potential effects of implementing EITF 03-1 on the Companys consolidated  financial position or results of operations.





In December 2003, the FASB issued FIN No.  46(R), Consolidation of Variable Interest Entities, which revised the  original FIN No. 46 guidance issued in January 2003. FIN No. 46(R) 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,  as the primary beneficiary, it stands to
absorb a majority of the VIEs  expected losses or to receive a majority of the VIEs expected residual  returns. On December 31, 2003, the Company adopted FIN No. 46(R) for all  special purpose entities (SPEs) and for relationships with all VIEs that  began on or after February 1, 2003. On March 31, 2004, the Company implemented  FIN No. 46(R) for relationships with potential VIEs that are not SPEs. The  transition to FIN No. 46(R) did not 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) 03-1, Accounting  and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration  Contracts and for Separate Accounts. AcSEC issued this SOP to address the need  for interpretive guidance in three areas: separate account presentation and  valuation; the classification and valuation of certain long-duration contract  liabilities; and the accounting recognition given sales inducements (bonus interest,  bonus credits and persistency bonuses).





The effect of adopting SOP 03-1 was a charge of $.2 million, net of $.1  million of taxes, which was reported as a Cumulative effect of accounting  change, net of taxes in the results of operations for the year ended December  31, 2004. This charge reflects the net impact of converting certain individual  market value adjusted annuity contracts from separate account accounting  treatment to general account accounting treatment, including carrying the  related liabilities at accreted value, and the effect of establishing reserves  for guaranteed minimum death benefit provisions of the Companys variable  annuity and variable life contracts. The Company also recognized a cumulative  effect of accounting change related to unrealized investment gains within  Other comprehensive income, net of taxes of $.5 million, net of $.3 million  of taxes, for the year ended December 31, 2004. Upon adoption of SOP 03-1,  approximately $40 million
in Separate account assets were reclassified  resulting in an increase in Fixed maturities, available for sale, as well as  changes in other non-separate account assets. Similarly, upon adoption,  approximately $40 million in Separate account liabilities were reclassified  resulting in increases in Policyholders account balances as well as changes  in other non-separate account liabilities.





In June 2004, the FASB issued FSP No.  97-1, Situations in Which Paragraphs 17(b) and 20 of FASB Statement No. 97,  Accounting and Reporting by Insurance Enterprises for Certain Long-Duration  Contracts and for Realized Gains and Losses from the Sale of Investments,  Permit or Require Accrual of an Unearned Revenue Liability. FSP 97-1 clarifies  the accounting for unearned revenue liabilities of certain universal-life type  contracts under SOP 03-1. The Companys adoption of FSP 97-1 on July 1, 2004  did not change the accounting for unearned revenue liabilities and, therefore,  had no impact on the Companys consolidated financial position or results of  operations. In September 2004, the AICPA SOP 03-1 Implementation Task Force  issued a Technical Practice Aid (TPA) to clarify certain aspects of SOP 03-1.  The implementation of this TPA during the third quarter of 2004 had no impact  on the Companys consolidated
financial position or results of operations.





F - 13


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements





2.     SUMMARY  OF SIGNIFICANT ACCOUNTING POLICIES (continued)





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 in 2003 had no impact 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.





Reclassifications


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





F - 14


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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3.     INVESTMENTS





Fixed Maturities


The following tables provide additional information relating to fixed  maturities as of December 31:


|                                                                                         |  |                    |         |                                |   |                                 |  |                |       |  |   |         | 
|---------------------------------------------------------------------------------------- |  | ------------------ | ------- | ------------------------------ | - | ------------------------------- |  | -------------- | ----- |  | - | ------- | 
|                                                                                         |  | 2004               |        
|                                                                                         |  |                    |        
|                                                                                         |  | Amortized     Cost |         | Gross     Unrealized     Gains |   | Gross     Unrealized     Losses |  | Fair     Value |      
|                                                                                         |  |                    |         |                                |   |                                 |  |                |       |  |   |         | 
|                                                                                         |  | (in    thousands)  |        
|Fixed    maturities available for sale                                                   |  |                    |         |                                |   |                                 |  |                |       |  |   |         | 
|U.S. Treasury securities and obligations of U.S.    Government corporations and agencies |  | $                  | 40,178  |                                | $ | 527                             |  | $              | 94    |  | $ | 40,611  | 
|Foreign government bonds                                                                 |  |                    |        |                                |   |                                |  |                |      |  |   |        | 
|Corporate securities                                                                     |  |                    | 795,984 |                                |   | 30,808                          |  |                | 1,788 |  |   | 825,004 | 
|Mortgage-backed securities                                                               |  |                    | 38,038  |                                |   | 200                             |  |                | 168   |  |   | 38,070  | 
|                                                                                         |  |                    |         |                                |   |                                 |  |                |       |  |   |         | 
|Total fixed maturities, available for sale                                               |  | $                  | 874,200 |                                | $ | 31,535                          |  | $              | 2,050 |  | $ | 903,685 | 
|                                                                                         |  |                    |         |                                |   |                                 |  |                |       |  |   |         | 

|                                                                                         |  | 2003               |        
|---------------------------------------------------------------------------------------- |  | ------------------ | -------
|                                                                                         |  |                    |        
|                                                                                         |  | Amortized     Cost |        
|                                                                                         |  |                    |        
|                                                                                         |  | (in    thousands)  |        
|Fixed    maturities available for sale                                                   |  |                    |        
|U.S. Treasury securities and obligations of U.S.    Government corporations and agencies |  | $                  | 31,909 
|Foreign government bonds                                                                 |  |                    | 1,024  
|Corporate securities                                                                     |  |                    | 699,928
|Mortgage-backed securities                                                               |  |                    | 13,509 
|                                                                                         |  |                    |        
|Total fixed maturities, available for sale                                               |  | $                  | 746,370
|                                                                                         |  |                    |        




F  - 15


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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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     Cost    |         | Fair     Value |  
|                                       |  |                       |         |                |   |         | 
|                                       |  | (in    thousands)     |        
|Due in one year or less                |  | $                     | 56,439  |                | $ | 56,990  | 
|Due after one year through five years  |  |                       | 437,557 |                |   | 450,027 | 
|Due after five years through ten years |  |                       | 271,044 |                |   | 283,460 | 
|Due after ten years                    |  |                       | 71,122  |                |   | 75,138  | 
|Mortgage-backed securities             |  |                       | 38,038  |                |   | 38,070  | 
|                                       |  |                       |         |                |   |         | 
|Total                                  |  | $                     | 874,200 |                | $ | 903,685 | 
|                                       |  |                       |         |                |   |         | 




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  2004, 2003, and 2002 were $394 million, $275 million, and $262 million,  respectively.  Gross gains of $6  million, $2 million, and $5 million, and gross losses of $4 million, $2  million, and $9 million were realized on those sales during 2004, 2003, and  2002, respectively.  Proceeds from  maturities of fixed maturities available for sale during 2004, 2003, and 2002  were $56 million, and $39 million, and $9 million, respectively.





Writedowns for impairments that were deemed to be other than temporary  for fixed maturities were $0 million, $2.0 million, and $9 million for the  years 2004, 2003 and 2002, respectively.





Investment  Income and Investment Gains and Losses





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


|                                            |  |                   |        |      |   |        |   |   |        |  
|------------------------------------------- |  | ----------------- | ------ | ---- | - | ------ | - | - | ------ | -
|                                            |  | 2004              |        | 2003 |   | 2002   |  
|                                            |  |                   |        |      |   |        |   |   |        |  
|                                            |  | (in    thousands) |       
|Fixed maturities, available for sale        |  | $                 | 44,375 |      | $ | 36,587 |   | $ | 35,078 |  
|Policy loans                                |  |                   | 8,443  |      |   | 8,463  |   |   | 8,715  |  
|Short-term investments and cash equivalents |  |                   | 1,733  |      |   | 1,430  |   |   | 1,852  |  
|Other                                       |  |                   | 272    |      |   | 535    |   |   | 932    |  
|                                            |  |                   |        |      |   |        |   |   |        |  
|Gross investment income                     |  |                   | 54,823 |      |   | 47,015 |   |   | 46,577 |  
|Less investment expenses                    |  |                   | (2,324 | )    |   | (1,867 | ) |   | (1,765 | )
|                                            |  |                   |        |      |   |        |   |   |        |  
|Net investment income                       |  | $                 | 52,499 |      | $ | 45,148 |   | $ | 44,812 |  
|                                            |  |                   |        |      |   |        |   |   |        |  




F - 16


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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:


|                                     |  |                   |       |      |   |        |   |   |         |  
|------------------------------------ |  | ----------------- | ----- | ---- | - | ------ | - | - | ------- | -
|                                     |  | 2004              |       | 2003 |   | 2002   |  
|                                     |  |                   |       |      |   |        |   |   |         |  
|                                     |  | (in    thousands) |      
|Fixed maturities, available for sale |  | $                 | 2,024 |      | $ | (1,123 | ) | $ | (12,690 | )
|Derivatives and other                |  |                   | (139  | )    |   | 285    |   |   | (1,514  | )
|                                     |  |                   |       |      |   |        |   |   |         |  
|Realized investment losses, net      |  | $                 | 1,885 |      | $ | (838   | ) | $ | (14,204 | )
|                                     |  |                   |       |      |   |        |   |   |         |  




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 months |         | Twelve months or more |   | Total          | 
|                                                                                         |  |                             |         |                       |   |                | 
|                                                                                         |  | Fair     Value              |         | Unrealized     Losses |   | Fair     Value |  | Unrealized    Losses |       | Fair     Value |   | Unrealized    Losses | 
|                                                                                         |  |                             |         |                       |   |                |  |                      |       |                |   |                      |  |   |         |  |   |       | 
|                                                                                         |  | (in    thousands)           |        
|Fixed maturities, available for sale:                                                    |  |                             |         |                       |   |                |  |                      |       |                |   |                      |  |   |         |  |   |       | 
|U.S. Treasury securities and obligations of U.S.    government corporations and agencies |  | $                           | 23,744  |                       | $ | 94             |  | $                    |      |                | $ |                     |  | $ | 23,744  |  | $ | 94    | 
|Corporate securities                                                                     |  |                             | 208,780 |                       |   | 1,721          |  |                      | 3,606 |                |   | 67                   |  |   | 212,386 |  |   | 1,788 | 
|Mortgage-backed securities                                                               |  |                             | 25,005  |                       |   | 168            |  |                      |      |                |   |                     |  |   | 25,005  |  |   | 168   | 
|                                                                                         |  |                             |         |                       |   |                |  |                      |       |                |   |                      |  |   |         |  |   |       | 
|Total                                                                                    |  | $                           | 257,529 |                       | $ | 1,983          |  | $                    | 3,606 |                | $ | 67                   |  | $ | 261,135 |  | $ | 2,050 | 
|                                                                                         |  |                             |         |                       |   |                |  |                      |       |                |   |                      |  |   |         |  |   |       | 




As of December 31, 2004, gross unrealized  losses on fixed maturities totaled approximately $2 million comprising 99  issuers.  Of this amount, there was $2  million in the less than twelve months category comprising 95 issuers and $0.1  million in the greater than twelve months category comprising 4 issuers.  There were no individual issuers with gross  unrealized losses greater than $0.1 million. The $2 million loss of gross  unrealized losses is comprised of investment grade securities. The $0.1 million  of gross unrealized losses of twelve months or more were concentrated in the  finance sector. 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, 2004.





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, 2004 and 2003, the carrying  values of fixed maturities available for sale pledged to third parties as  reported in the Statements of Financial Position were $96 million and $91  million, respectively.





Fixed maturities of $0.5 million at December 31, 2004 and 2003 were on  deposit with governmental authorities or trustees as required by certain  insurance laws.





F -17


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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:





|                                                                                  |  | Net    Unrealized     Gains (Losses)     on Investments |        | Deferred  policy     Acquisition     Costs |   | Policyholders        Account     Balances |   | Deferred     Income Tax     (Liability)     Benefit |        | Accumulated    other     Comprehensive     Income (Loss)     Related to Net     Unrealized     Investment     Gains (Losses) |  
|--------------------------------------------------------------------------------- |  | ------------------------------------------------------- | ------ | ------------------------------------------ | - | ------------------------------------------ | - | --------------------------------------------------- | ------ | ---------------------------------------------------------------------------------------------------------------------------- | -
|                                                                                  |  |                                                         |        |                                            |   |                                            |   |                                                     |        |                                                                                                                              |  
|                                                                                  |  | (in    thousands)                                       |       
|Balance,    January 1, 2002                                                       |  | $                                                       | 11,738 |                                            | $ | (7,134                                     | ) | $                                                   | 1,214  |                                                                                                                              | $
|Net investment gains on    investments arising during the period                  |  |                                                         | 3,607  |                                            |   |                                           |   |                                                     |       |                                                                                                                              |  
|Reclassification    adjustment for losses included in net income                  |  |                                                         | 12,690 |                                            |   |                                           |   |                                                     |       |                                                                                                                              |  
|Impact of net    unrealized investment gains on deferred policy acquisition costs |  |                                                         |       |                                            |   | (9,128                                     | ) |                                                     |        |                                                                                                                              |  
|Impact of net    unrealized investment gains on policyholders account balances   |  |                                                         |        |                                            |   |                                            |   |                                                     | 2,161  |                                                                                                                              |  
|                                                                                  |  |                                                         |        |                                            |   |                                            |   |                                                     |        |                                                                                                                              |  
|Balance,    December 31, 2002                                                     |  |                                                         | 28,035 |                                            |   | (16,262                                    | ) |                                                     | 3,375  |                                                                                                                              |  
|Net investment gains on    investments arising during the period                  |  |                                                         | 7,160  |                                            |   |                                           |   |                                                     |       |                                                                                                                              |  
|Reclassification adjustment for losses    included in net income                  |  |                                                         | 1,123  |                                            |   |                                           |   |                                                     |       |                                                                                                                              |  
|Impact of net unrealized investment gains    on deferred policy acquisition costs |  |                                                         |       |                                            |   | (3,662                                     | ) |                                                     |        |                                                                                                                              |  
|Impact of net unrealized investment gains    on policyholders account balances   |  |                                                         |       |                                            |   |                                           |   |                                                     | 821    |                                                                                                                              |  
|                                                                                  |  |                                                         |        |                                            |   |                                            |   |                                                     |        |                                                                                                                              |  
|                                                                                  |  |                                                         |        |                                            |   |                                            |   |                                                     |        |                                                                                                                              |  
|Balance,    December 31, 2003                                                     |  |                                                         | 36,318 |                                            |   | (19,924                                    | ) |                                                     | 4,196  |                                                                                                                              |  
|Net investment gains on    investments arising during the period                  |  |                                                         | (4,798 | )                                          |   |                                            |   |                                                     |        |                                                                                                                              |  
|Reclassification adjustment for losses    included in net income                  |  |                                                         | (2,024 | )                                          |   |                                            |   |                                                     |        |                                                                                                                              |  
|Impact of net unrealized investment gains    on deferred policy acquisition costs |  |                                                         |        |                                            |   | 8,075                                      |   |                                                     |        |                                                                                                                              |  
|Impact of net unrealized investment gains    on policyholders account balances   |  |                                                         |        |                                            |   |                                            |   |                                                     | (1,465 | )                                                                                                                            |  
|                                                                                  |  |                                                         |        |                                            |   |                                            |   |                                                     |        |                                                                                                                              |  
|Balance,    December 31, 2004                                                     |  | $                                                       | 29,496 |                                            | $ | (11,849                                    | ) | $                                                   | 2,731  |                                                                                                                              | $
|                                                                                  |  |                                                         |        |                                            |   |                                            |   |                                                     |        |                                                                                                                              |  




F - 18


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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4.     DEFERRED  POLICY ACQUISITION COSTS





The balance of and changes in deferred policy acquisition costs for the  year ended December 31, are as follows:


|                                                           |  |                   |         |      |   |         |   |   |         |  
|---------------------------------------------------------- |  | ----------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                           |  | 2004              |         | 2003 |   | 2002    |  
|                                                           |  |                   |         |      |   |         |   |   |         |  
|                                                           |  | (in    thousands) |        
|Balance, beginning of year                                 |  | $                 | 176,529 |      | $ | 137,053 |   | $ | 118,975 |  
|Capitalization of commissions, sales and issue    expenses |  |                   | 21,374  |      |   | 60,669  |   |   | 51,974  |  
|Amortization                                               |  |                   | (23,147 | )    |   | (17,531 | ) |   | (24,768 | )
|Change in unrealized investment gains                      |  |                   | 8,463   |      |   | (3,662  | ) |   | (9,128  | )
|                                                           |  |                   |         |      |   |         |   |   |         |  
|Balance, end of year                                       |  | $                 | 183,219 |      | $ | 176,529 |   | $ | 137,053 |  
|                                                           |  |                   |         |      |   |         |   |   |         |  




Deferred acquisition costs in 2004 include  reductions in capitalization and amortization related to the reinsurance  expense allowances resulting from the coinsurance treaty with Prudential  Arizona Reinsurance Captive Company or, PARCC, discussed in Note 13  below.  Ceded capitalization and  amortization relating to this treaty included in the above table amounted to  $37 million and $3 million, respectively, in 2004.





5.     POLICYHOLDERS  LIABILITIES





Future policy  benefits at December 31 are as follows:


|                             |  |                   |         |      |   |         | 
|---------------------------- |  | ----------------- | ------- | ---- | - | ------- | 
|                             |  | 2004              |         | 2003 |  
|                             |  |                   |         |      |  
|                             |  | (in    thousands) |        
|Life insurance               |  | $                 | 183,736 |      | $ | 154,410 | 
|Individual Annuities         |  |                   | 5,937   |      |   | 4,342   | 
|                             |  |                   |         |      |   |         | 
|Total future policy benefits |  | $                 | 189,673 |      | $ | 158,752 | 
|                             |  |                   |         |      |   |         | 




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 7.50%.





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 4.75% to 8.75%,  with less than 10% of the reserves based on an interest rate in excess of 8%.





Policyholders  account balances at December 31 are as follows:


|                                      |  |                   |         |      |   |         | 
|------------------------------------- |  | ----------------- | ------- | ---- | - | ------- | 
|                                      |  | 2004              |         | 2003 |  
|                                      |  |                   |         |      |   |         | 
|                                      |  | (in    thousands) |        
|Interest-sensitive life contracts     |  | $                 | 432,460 |      | $ | 390,044 | 
|Individual annuities                  |  |                   | 363,961 |      |   | 285,779 | 
|                                      |  |                   |         |      |   |         | 
|Total policyholders account balances |  | $                 | 796,421 |      | $ | 675,823 | 
|                                      |  |                   |         |      |   |         | 




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, if  applicable.  Interest crediting rates  range from 2.97% to 5.90% for interest-sensitive life contracts. Interest  crediting rates for individual annuities range from 1.50% to 11.00%.





F - 19


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Pruco  Life Insurance Company of New Jersey





Notes to Financial Statements


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6.     REINSURANCE





The Company participates in reinsurance with Prudential Insurance, PARCC 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, for both long and short duration reinsurance arrangements, 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.


|                                                     |  |                   |         |      |   |         |   |   |         |  
|---------------------------------------------------- |  | ----------------- | ------- | ---- | - | ------- | - | - | ------- | -
|                                                     |  | 2004              |         | 2003 |   | 2002    |  
|                                                     |  |                   |         |      |   |         |   |   |         |  
|                                                     |  | (in    thousands) |        
|Direct premiums and policy    charges and fee income |  | $                 | 147,511 |      | $ | 119,381 |   | $ | 104,180 |  
|Reinsurance ceded                                    |  |                   | (37,817 | )    |   | (11,180 | ) |   | (5,415  | )
|                                                     |  |                   |         |      |   |         |   |   |         |  
|Premiums and policy charges    and fee income        |  | $                 | 109,694 |      | $ | 108,201 |   | $ | 98,765  |  
|Policyholders benefits    ceded                     |  | $                 | 20,028  |      | $ | 11,223  |   | $ | 12,929  |  
|                                                     |  |                   |         |      |   |         |   |   |         |  




Reinsurance premiums 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 the Companys Statements of  Financial Position, at December 31, 2004 and 2003 were $67 million and $18  million, respectively.





During 2004, the Company entered into reinsurance contracts with  affiliates covering the entire life in force.   As a result, all reinsurance contracts are with affiliates as of  December 31, 2004.  These contracts are  described further in Note 13, below.





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


|                                      |  |                   |             |      |   |             |   |   |            |  
|------------------------------------- |  | ----------------- | ----------- | ---- | - | ----------- | - | - | ---------- | -
|                                      |  | 2004              |             | 2003 |   | 2002        |  
|                                      |  |                   |             |      |   |             |   |   |            |  
|                                      |  | (in    thousands) |            
|Life insurance face amount in force   |  | $                 | 42,903,082  |      | $ | 31,868,113  |   | $ | 21,119,708 |  
|Ceded to other companies              |  |                   | (37,708,317 | )    |   | (17,782,119 | ) |   | (9,866,510 | )
|                                      |  |                   |             |      |   |             |   |   |            |  
|Net amount of life insurance in force |  | $                 | 5,194,765   |      | $ | 14,085,994  |   | $ | 11,253,198 |  
|                                      |  |                   |             |      |   |             |   |   |            |  




F - 20


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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7.     INCOME  TAXES





The components of income taxes for the years ended December 31, are as  follows:





|                                   |  | 2004              |        | 2003 |   | 2002    |  
|---------------------------------- |  | ----------------- | ------ | ---- | - | ------- | -
|                                   |  |                   |        |      |   |         |  
|                                   |  | (in    thousands) |       
|Current tax (benefit) expense:     |  |                   |        |      |   |         |  
|U.S.                               |  | $                 | 14,639 |      | $ | (15,103 | )
|State and local                    |  |                   | (55    | )    |   |        |  
|                                   |  |                   |        |      |   |         |  
|Total                              |  |                   | 14,584 |      |   | (15,103 | )
|                                   |  |                   |        |      |   |         |  
|Deferred tax expense (benefit):    |  |                   |        |      |   |         |  
|U.S.                               |  |                   | (2,640 | )    |   | 23,735  |  
|State and local                    |  |                   | (1,576 | )    |   | 302     |  
|                                   |  |                   |        |      |   |         |  
|Total                              |  |                   | (4,216 | )    |   | 24,037  |  
|                                   |  |                   |        |      |   |         |  
|Total income tax expense (benefit) |  | $                 | 10,368 |      | $ | 8,934   |  
|                                   |  |                   |        |      |   |         |  




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 and cumulative effect of accounting  change for the following reasons:


|                                    |  |                   |        |      |   |        |   |   |        |  
|----------------------------------- |  | ----------------- | ------ | ---- | - | ------ | - | - | ------ | -
|                                    |  | 2004              |        | 2003 |   | 2002   |  
|                                    |  |                   |        |      |   |        |   |   |        |  
|                                    |  | (in    thousands) |       
|Expected federal income tax expense |  | $                 | 12,589 |      | $ | 10,343 |   | $ | 3,573  |  
|State and local income taxes        |  |                   | (1,060 | )    |   | 197    |   |   | (66    | )
|Non taxable investment income       |  |                   | (1,240 | )    |   | (2,583 | ) |   | (8,505 | )
|Other                               |  |                   | 79     |      |   | 977    |   |   | (161   | )
|                                    |  |                   |        |      |   |        |   |   |        |  
|Total income tax expense (benefit)  |  | $                 | 10,368 |      | $ | 8,934  |   | $ | (5,159 | )
|                                    |  |                   |        |      |   |        |   |   |        |  




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





|                                      |  | 2004              |        | 2003 |  
|------------------------------------- |  | ----------------- | ------ | ---- | -
|                                      |  |                   |        |      |  
|                                      |  | (in    thousands) |       
|Deferred tax assets                   |  |                   |        |      |  
|Net operating loss                    |  | $                 |       |      | $
|Investments                           |  |                   | 1,661  |      |  
|Other                                 |  |                   | 841    |      |  
|                                      |  |                   |        |      |  
|Deferred tax assets                   |  |                   | 2,502  |      |  
|                                      |  |                   |        |      |  
|Deferred tax liabilities              |  |                   |        |      |  
|Insurance reserves                    |  | $                 | 3,249  |      | $
|Deferred acquisition    costs         |  |                   | 46,936 |      |  
|Net unrealized gains on    securities |  |                   | 10,324 |      |  
|Other                                 |  |                   | 3,209  |      |  
|                                      |  |                   |        |      |  
|Deferred tax liabilities              |  |                   | 63,718 |      |  
|                                      |  |                   |        |      |  
|Net deferred tax liability            |  | $                 | 61,216 |      | $
|                                      |  |                   |        |      |  




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 the Company had state operating loss  carryforwards of $70 million.





F  - 21


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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7.     INCOME  TAXES (continued)





The Internal Revenue Service (the Service)  has completed all examinations of the consolidated federal income tax returns  through 1996. Tax years 1997 through 2001 are currently under examination.  Management believes sufficient provisions  have been made for potential adjustments.





8.    CERTAIN  NONTRADITIONAL LONG-DURATION CONTRACTS





The Company issues traditional variable  annuity contracts through its separate accounts for which investment income and  investment gains and losses accrue directly to, and investment risk is borne  by, the contractholder. The Company also issues variable annuity contracts with  general and separate account options where the Company contractually guarantees  to the contractholder a return of no less than (a) total deposits made to the  contract less any partial withdrawals (return of net deposits), (b) total  deposits made to the contract less any partial withdrawals plus a minimum  return (minimum return), or (c) the highest contract value on a specified  anniversary date minus any withdrawals following the contract anniversary (anniversary  contract value). These guarantees include benefits that are payable in the  event of death or annuitization.





The Company also issues annuity contracts  with market value adjusted investment options (MVAs), which provide for a  return of principal plus a fixed rate of return if held to maturity, or,  alternatively, a market adjusted value if surrendered prior to maturity. The  market value adjustment may result in a gain or loss to the Company, depending  on crediting rates or an indexed rate at surrender, as applicable.





In addition, the Company issues variable  life, variable universal life and universal life contracts where the Company  contractually guarantees to the contractholder a death benefit even when there  is insufficient value to cover monthly mortality and expense charges, whereas  otherwise the contract would typically lapse (no lapse guarantee). Variable  life and variable universal life contracts are offered with general and  separate account options.





The assets supporting the variable portion of both traditional variable  annuities and certain variable contracts with guarantees are carried at fair  value and reported as Separate account assets with an equivalent amount  reported as Separate account liabilities. Amounts assessed against the  contractholders for mortality, administration, and other services are included  within revenue in Policy charges and fee income and changes in liabilities  for minimum guarantees are generally included in Policyholders benefits. In  2004 there were no gains or losses on transfers of assets from the general  account to a separate account.





For those guarantees of benefits that are  payable in the event of death, the net amount at risk is generally defined as  the current guaranteed minimum death benefit in excess of the current account  balance at the balance sheet date. For guarantees of benefits that are payable  at annuitization, the net amount at risk is generally defined as the present  value of the minimum guaranteed annuity payments available to the  contractholder determined in accordance with the terms of the contract in  excess of the current account balance. The Companys contracts with guarantees  may offer more than one type of guarantee in each contract; therefore, the  amounts listed may not be mutually exclusive.





F  - 22


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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8.     CERTAIN NONTRADITIONAL LONG-DURATION  CONTRACTS (continued)





As of December 31, 2004, the Company had the  following guarantees associated with these contracts, by product and guarantee  type:





|                                                                  |  | December    31, 2004      |            
|----------------------------------------------------------------- |  | ------------------------- | -----------
|                                                                  |  |                           |            
|Variable Annuity Contracts                                        |  | In the Event of    Death  |            
|                                                                  |  |                           |            
|                                                                  |  | (dollars    in thousands) |            
|Return of Net Deposits                                            |  |                           |            
|Account value                                                     |  | $                         | 253,843    
|Net amount at risk                                                |  | $                         | 395        
|Average attained age of    contractholders                        |  |                           | 61    years
|Minimum return or anniversary contract value                      |  |                           |            
|Account value                                                     |  | $                         | 743,506    
|Net amount at risk                                                |  | $                         | 67,040     
|Average attained age of    contractholders                        |  |                           | 63    years
|Average period remaining    until earliest expected annuitization |  |                           | N/A        
|                                                                  |  |                           |            
|Market    value adjusted annuities                                |  | Unadjusted    Value       |            
|                                                                  |  |                           |            
|Account value                                                     |  | $                         | 34,053     




|                                                                       |  | December 31, 2004      |            
|---------------------------------------------------------------------- |  | ---------------------- | -----------
|                                                                       |  |                        |            
|Variable    Life, Variable Universal Life and Universal Life Contracts |  | In the Event of Death  |            
|                                                                       |  |                        |            
|                                                                       |  | (dollars in thousands) |            
|No Lapse Guarantees                                                    |  |                        |            
|Separate account value                                                 |  | $                      | 417,967    
|General account value                                                  |  | $                      | 65,494     
|Net amount at risk                                                     |  | $                      | 5,329,909  
|Average attained age of    contractholders                             |  |                        | 42    years




Account balances of variable annuity contracts  with guarantees were invested in separate account investment options as  follows:





|                   |  | December    31, 2004 |                  
|------------------ |  | -------------------- | -----------------
|                   |  |                      |                  
|                   |  |                      | (in    thousands)
|Equity funds       |  | $                    | 552,820          
|Bond funds         |  |                      | 78,373           
|Balanced funds     |  |                      | 21,584           
|Money market funds |  |                      | 23,605           
|Specialty funds    |  |                      | 81               
|                   |  |                      |                  
|Total              |  | $                    | 676,463          
|                   |  |                      |                  




F - 23


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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8.     CERTAIN NONTRADITIONAL LONG-DURATION  CONTRACTS (continued)





The total amount of funds invested in  separate account investment options for variable life, variable universal life  and universal life contracts with guarantees was $418 million at December 31,  2004.





In addition to the above mentioned amounts  invested in separate account investment options, $321 million of account  balances of variable annuity contracts with guarantees (inclusive of contracts  with MVA features) were invested in general account investment options.





Liabilities  For Guarantee Benefits





The table below summarizes the changes in general account liabilities  for guarantees on variable contracts. The liabilities for guaranteed minimum  death benefits (GMDB) and guaranteed minimum income benefits (GMIB) are  included in Future policy benefits and the related changes in the liabilities  are included in Policyholders benefits.





|                                |  | Guaranteed Minimum    Death Benefit    (GMDB) |               
|------------------------------- |  | --------------------------------------------- | --------------
|                                |  |                                               |               
|                                |  |                                               | (in thousands)
|Balance as of January 1, 2004   |  | $                                             | 1,633         
|Incurred guarantee    benefits  |  |                                               | 762           
|Paid guarantee benefits         |  |                                               | (1,154        
|                                |  |                                               |               
|Balance as of December 31, 2004 |  | $                                             | 1,241         
|                                |  |                                               |               




The GMDB liability is determined each period end by estimating the  accumulated value of a percentage of the total assessments to date less the  accumulated value of the death benefits in excess of the account balance. The  percentage of assessments used is chosen such that, at issue, the present value  of expected death benefits in excess of the projected account balance and the  percentage of the present value of total expected assessments over the lifetime  of the contracts are equal. The Company regularly evaluates the estimates used  and adjusts the GMDB liability balance, with a related charge or credit to  earnings, if actual experience or other evidence suggests that earlier  assumptions should be revised





The present value of death benefits in excess  of the projected account balance and the present value of total expected  assessments for GMDBs were determined over a reasonable range of  stochastically generated scenarios. For variable annuities and variable  universal life, 5,000 scenarios were stochastically generated and, from these,  200 scenarios were selected using a sampling technique. For variable life,  various scenarios covering a reasonable range were weighted based on a  statistical lognormal model. For universal life, 10,000 scenarios were  stochastically generated and, from these, 100 were selected.





Sales Inducements





The Company defers sales inducements and amortizes them over the  anticipated life of the policy using the same methodology and assumptions used  to amortize deferred policy acquisition costs. These deferred sales inducements  are included in Other assets. The Company offers various types of sales  inducements. These inducements include: (i) a bonus whereby the policyholders  initial account balance is increased by an amount equal to a specified  percentage of the customers initial deposit and (ii) additional interest  credits after a certain number of years a contract is held. Changes in deferred  sales inducements are as follows:





|                                |  | Sales    Inducements |                  
|------------------------------- |  | -------------------- | -----------------
|                                |  |                      |                  
|                                |  |                      | (in    thousands)
|Balance as of January 1, 2004   |  | $                    | 7,879            
|Capitalization                  |  |                      | 4,461            
|Amortization                    |  |                      | (1,225           
|                                |  |                      |                  
|Balance as of December 31, 2004 |  | $                    | 11,115           
|                                |  |                      |                  




F - 24


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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9.     STATUTORY  NET INCOME AND SURPLUSAND 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 $57 million, $(60) million, and $(45) million for the years ended  December 31, 2004, 2003 and 2002, respectively.  Statutory surplus of the Company amounted to $148 million and $90  million at December 31, 2004 and 2003, respectively. The statutory losses in  2003, and 2002 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.  During 2004, the Company obtained reinsurance on the term life business from a  captive affiliate, mitigating the surplus strain on that business.  The agreement is discussed further in Note  13.





In March 1998, the NAIC adopted the  Codification of Statutory Accounting Principles guidance or, 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). There have been no dividend payments to the Companys parent in 2004,  2003 or 2002. However, the Company received a $40 million capital  contribution from its Parent during 2003.





10.       FAIR VALUE OF FINANCIAL INSTRUMENTS





The fair values presented below have been  determined by using available market information and by applying valuation  methodologies. Considerable judgment is applied in interpreting data to develop  the estimates of fair value. These 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 fair values. The methods and  assumptions discussed below were used in calculating the fair values of the  instruments. See Note 11 for a discussion of derivative instruments.





Fixed maturities


The fair values of public fixed maturity securities are based on quoted  market prices or estimates from independent pricing services. However, for  investments in private placement fixed maturity securities, this information is  not available. For these private investments, the fair value is determined  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, and an additional spread component for the reduced  liquidity associated with private placements. This additional spread component  is determined based on surveys of various third party financial institutions.  Historically, changes in estimated future cash flows or the assessment of an  issuers credit quality have been the more significant factors in determining  fair values.





Policy loans


The 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 11 for disclosure of fair value on these instruments.





F - 25


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Pruco  Life Insurance Company of New Jersey





Notes to Financial Statements


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10.     FAIR  VALUE OF FINANCIAL INSTRUMENTS (continued)





The following table discloses the carrying amounts and fair values of  the Companys financial instruments at December 31:





|                                                  |  | 2004               |           | 2003           |  
|------------------------------------------------- |  | ------------------ | --------- | -------------- | -
|                                                  |  |                    |           |                |  
|                                                  |  | Carrying     Value |           | Fair     Value |  
|                                                  |  |                    |           |                |  
|                                                  |  | (in    thousands)  |          
|Financial assets:                                 |  |                    |           |                |  
|Fixed maturities,    available for sale           |  | $                  | 903,685   |                | $
|Policy loans                                      |  |                    | 153,359   |                |  
|Short-term investments                            |  |                    | 44,549    |                |  
|Cash and cash    equivalents                      |  |                    | 108,117   |                |  
|Separate account assets                           |  |                    | 2,112,866 |                |  
|Financial liabilities:                            |  |                    |           |                |  
|Investment contracts                              |  | $                  | 398,615   |                | $
|Cash collateral for    loaned securities          |  |                    | 74,527    |                |  
|Securities sold under    agreements to repurchase |  |                    | 24,754    |                |  
|Separate account    liabilities                   |  |                    | 2,112,866 |                |  




11.     DERIVATIVE  INSTRUMENTS





Types of Derivative Instruments


Interest rate swaps are used by the Company to manage interest rate  exposures arising from mismatches between assets and liabilities (including  duration mismatches) and to hedge against changes in the value of assets it  anticipates acquiring and other anticipated transactions and commitments. Swaps  may be specifically attributed to specific assets or liabilities or may be  based on a portfolio basis. Under interest rate swaps, the Company agrees with  other parties to exchange, at specified intervals, the difference between fixed  rate and floating rate interest amounts calculated by reference to an agreed  upon notional principal amount. Generally, no cash is exchanged at the outset  of the contract and no principal payments are made by either party. Cash is  paid or received based on the terms of the swap. These transactions are entered  into pursuant to master agreements that provide for a single net payment to be  made by one counterparty at each due
date.





Exchange-traded futures and options 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, and to hedge against changes in the value of securities it owns  or anticipates acquiring or selling. In exchange-traded futures transactions,  the Company agrees to purchase or sell a specified number of contracts, the  values of which are determined by the values 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 and options with regulated futures  commissions merchants who are members of a trading exchange.





Futures typically are used to hedge duration mismatches between assets  and liabilities. Futures move substantially in value as interest rates change  and can be used to either modify or hedge existing interest rate risk. This  strategy protects against the risk that cash flow requirements may necessitate  liquidation of investments at unfavorable prices resulting from increases in  interest rates. This strategy can be a more cost effective way of temporarily reducing  the Companys exposure to a market decline than selling fixed income securities  and purchasing a similar portfolio when such a decline is believed to be over.





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 over-the-counter derivative 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 and options 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.





F - 26


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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11.     DERIVATIVE  INSTRUMENTS (continued)





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.





12.     CONTINGENCIES  AND LITIGATION AND REGULATORY MATTERS





Contingencies


On an ongoing basis, our internal supervisory and control functions  review the quality of our sales, marketing and other customer interface  procedures and practices and may recommend modifications or enhancements.  In certain cases, if appropriate, we may  offer customers remediation and may incur charges, including the cost of such  remediation, administrative costs and regulatory fines.





It is possible that the results of operations or the cash flow of the  Company in a particular quarterly or annual period could be materially affected  as a result of payments in connection with the matters discussed above depending,  in part, upon the results of operations or cash flow for such period.  Management believes, however, that the  ultimate payments in connection with these matters should not have a material  adverse effect on the Companys financial position.





Litigation  and Regulatory Proceedings


The Company is subject to legal and regulatory actions in the ordinary  course of its businesses, which may include class action lawsuits. 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  may 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 may also be 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 may seek large and/or  indeterminate amounts, including punitive or exemplary damages.





The Company has received formal requests for information relating to  its variable annuity business from regulators, including, among others, the  Securities and Exchange Commission and the State of New York Attorney Generals  office. As part of a broad initiative by the NAIC, the Company has received a  request for information from the New Jersey Department of Banking and Insurance  related to producer compensation and fee arrangements.  It is possible that other regulators will  issue similar requests.





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  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.





13.     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  Insurance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 - 27


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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13.     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 $462 million and $430  million at December 31, 2004 and December 31, 2003, respectively.  Fees related to the COLI policies were $4  million, $3 million and $7 million for the years ending December 31, 2004, 2003  and 2002, respectively.





Reinsurance with  Affiliates


PARCC


In September 2004, the Company entered into an agreement to reinsure  its term life insurance with an affiliated company, PARCC. The Company  reinsures with PARCC 90 percent of the risks under such policies through an  automatic and facultative coinsurance agreement.  The Company is not relieved of its primary obligation to the  policyholder as a result of these reinsurance transactions.





The coinsurance agreement with PARCC also replaces the yearly renewable  term agreements with external reinsurers that were previously in effect on this  block of business.  There was no net  cost associated with the initial transaction. Reinsurance recoverables related  to this agreement were $56 million as of December 31, 2004.





Prudential Insurance


In December 2004, the Company recaptured the excess of loss reinsurance  agreement with Prudential and replaced it with a revised yearly renewable term  agreement to reinsure all risks, not otherwise reinsured.  Reinsurance recoverables related to this  agreement were $8 million as of December 31, 2004.  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, 2004, 2003, and 2002 were $27 million, $1  million, and $1 million, respectively. Affiliated benefits ceded for the  periods ended December 31, 2004, 2003, and 2002 from these life reinsurance  agreements are $16 million in 2004, $0 in 2003, and $8 million in 2002.





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. As of December  31, 2004 and 2003, there was $99 million and $93 million, respectively, of  asset-based financing. There is no outstanding debt to Prudential  Funding, LLC as of December 31, 2004 or December 31, 2003.





F  - 28


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Pruco  Life Insurance Company of New Jersey





Notes to  Financial Statements


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14.     QUARTERLY  RESULTS OF OPERATIONS (UNAUDITED)





The unaudited quarterly results of operations for the years ended  December 31, 2004 and 2003 are summarized in the table below:





|                                                                                         |  | Three months ended |         
|---------------------------------------------------------------------------------------- |  | ------------------ | --------
|                                                                                         |  |                    |         
|                                                                                         |  |                    | March 31
|                                                                                         |  |                    |         
|                                                                                         |  | (in thousands)     |         
|2004                                                                                     |  |                    |         
|Total revenues                                                                           |  | $                  | 44,907  
|Total benefits and expenses                                                              |  |                    | 35,106  
|Income from operations    before income taxes and cumulative effect of accounting change |  |                    | 9,801   
|Net income                                                                               |  |                    | 6,912   
|                                                                                         |  |                    |         
|                                                                                         |  | (in thousands)     |         
|2003                                                                                     |  |                    |         
|Total revenues                                                                           |  | $                  | 35,410  
|Total benefits and expenses                                                              |  |                    | 32,104  
|Income from operations    before income taxes and cumulative effect of accounting change |  |                    | 3,306   
|Net income                                                                               |  |                    | 2,633   




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