UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-K





(MARK ONE)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

FOR THE TRANSITION PERIOD FROM              TO

COMMISSION FILE NUMBER 33-18053





Pruco Life Insurance Company of New Jersey

(Exact Name of Registrant as
Specified in its Charter)







|                                                               |  |                                        
|-------------------------------------------------------------- |  | ---------------------------------------
|New Jersey                                                     |  | 22-2426091                             
|(State or Other Jurisdiction 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 if the registrant is a
well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   ̈    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    Yes   ̈    No  x

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

Indicate by check mark 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 or any amendment to this Form 10-K.  x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer
or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):



| |  |                         |  |   |  |  |  |                           |  |   |  | 
| |  | ----------------------- |  | - |  |  |  | ------------------------- |  | - |  | 
| |  | Large accelerated filer |  |  ̈ |  |  |  | Accelerated filer         |  |  ̈ |  | 
| |  |                         |  |   |  | 
| |  | Non-accelerated filer   |  | x |  |  |  | Smaller reporting Company |  |  ̈ |  | 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).    YES   ̈    NO  x

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

As of February 28, 2007, 400,000 shares
of the registrants common stock (par value $5), were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

THE INFORMATION REQUIRED TO BE FURNISHED PURSUANT TO PART III OF THIS FORM 10-K IS SET FORTH IN, AND IS HEREBY INCORPORATED BY REFERENCE HEREIN FROM, PRUDENTIAL
FINANCIAL, INC.S DEFINITIVE PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON MAY 13, 2008, TO BE FILED BY PRUDENTIAL FINANCIAL, INC. WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO REGULATION 14A NOT LATER THAN
120 DAYS AFTER DECEMBER 31, 2007.

Pruco Life Insurance Company of New Jersey meets the conditions set

forth in General Instruction (I) (1) (a) and (b) on Form 10-K

and is therefore filing this Form with reduced disclosure.









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TABLE OF CONTENTS



|           |  |          |  |                                                                                                              |  |           
|---------- |  | -------- |  | ------------------------------------------------------------------------------------------------------------ |  | ----------
|           |  |          |  |                                                                                                              |  | PageNumber
|PART I     |  | Item 1.  |  | Business                                                                                                     |  | 1         
|           |  | Item 1A. |  | Risk Factors                                                                                                 |  | 5         
|           |  | Item 1B. |  | Unresolved Staff Comments                                                                                    |  | 10        
|           |  | Item 2.  |  | Properties                                                                                                   |  | 10        
|           |  | Item 3.  |  | Legal Proceedings                                                                                            |  | 10        
|PART II    |  | Item 5.  |  | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  | 11        
|           |  | Item 7.  |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  | 11        
|           |  | Item 7A  |  | Quantitative and Qualitative Disclosures About Market Risk                                                   |  | 17        
|           |  | Item 8.  |  | Financial Statements and Supplementary Data                                                                  |  | 20        
|           |  | Item 9.  |  | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure                         |  | 20        
|           |  | Item9A.  |  | Controls and Procedures                                                                                      |  | 20        
|           |  | Item 9B. |  | Other Information                                                                                            |  | 20        
|           |  | Item 10. |  | Directors, Executive Officers and Corporate Governance                                                       |  | 20        
|PART III   |  | Item 14. |  | Principal Accountant Fees and Services                                                                       |  | 21        
|PART IV    |  | Item 15. |  | Exhibits and Financial Statement Schedules                                                                   |  | 21        
|SIGNATURES |  | 23      

Forward-Looking Statements

Some of the statements included in this Annual Report on Form 10-K, including but not limited to those in Managements Discussion and Analysis of Financial Condition and Results of Operations, may constitute forward-looking statements
within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as expects, believes, anticipates, includes, plans, assumes, estimates,
projects, intends, should, will, shall or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on managements current
expectations and beliefs concerning future developments and their potential effects upon Pruco Life Insurance Company of New Jersey. There can be no assurance that future developments affecting Pruco Life Insurance Company of New Jersey will be
those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially,
from expectations or estimates reflected in such forward-looking statements, including, among others: (1) general economic, market and political conditions, including the performance and fluctuations of fixed income, equity, real estate and
other financial markets; (2) interest rate fluctuations; (3) re-estimates of our reserves for future policy benefits and claims; (4) differences between actual experience regarding mortality, morbidity, persistency, surrender
experience, interest rates, or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes; (5) changes in our assumptions related to deferred policy acquisition costs and
valuation of business acquired; (6) changes in our claims-paying or credit ratings; (7) investment losses and defaults; (8) competition in our product lines and for personnel; (9) changes in tax law; (10) regulatory or
legislative changes; (11) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities; (12) domestic or international military actions, natural or man-made disasters including terrorist activities
or pandemic disease, or other events resulting in catastrophic loss of life; (13) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (14) effects of acquisitions, divestitures and
restructurings, including possible difficulties in integrating and realizing the projected results of acquisitions; (15) changes in statutory or U.S. GAAP accounting principles, practices or policies; and (16) changes in assumptions for
retirement expense. Pruco Life Insurance Company of New Jersey does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. See Risk Factors for discussion of certain risks
relating to our businesses.



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PART 1



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

Overview

Pruco Life Insurance Company of New Jersey, or the Company is a life insurance company organized in 1982 under the laws of the state of New Jersey. The
Company is licensed to sell interest-sensitive individual life insurance and variable life insurance, term life insurance, and individual variable and fixed annuities, or the Contracts, only in New Jersey and New York.

The Company is a wholly owned subsidiary of Pruco Life Insurance Company or, Pruco Life, a 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 organized in 1875 under the laws of the state of New Jersey. On
December 18, 2001, the date of demutualization, Prudential Insurance converted from a mutual life insurance company to a stock life insurance company and became an indirect wholly owned subsidiary of Prudential Financial, Inc.,
Prudential Financial, The demutualization was completed in accordance with Prudential Insurances Plan of Reorganization, which was approved by the Commissioner of the New Jersey Department of Banking and Insurance in October 2001.

On June 1, 2006, Prudential Financial acquired the variable annuity business of The Allstate Corporation, or Allstate, through a
reinsurance transaction, increasing Prudential Financials scale and third party distribution capabilities in the U.S. Beginning in the third quarter of 2006, the products offered by the Company replaced the Allstate products previously sold
through certain third party distribution channels.

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 and group annuities. The following paragraphs describe the Companys products, marketing and distribution, and underwriting and
pricing.

Products

Variable Life
Insurance

The Company offers a number of individual variable life insurance products which represents 28% of our net individual life insurance in force
at the end of 2007. Variable products provide a return linked to an underlying investment portfolio designated by the policyholder while providing the policyholder with the flexibility to change both the death benefit and premium payments. Each
product provides for the deduction of charges and expenses from the customers investment account. While we continue to sell a significant amount of variable life insurance, marketplace demand continues to favor term life insurance and
universal life insurance.

Term Life Insurance

The
Company offers a variety of term life insurance products which represents 66% of our net individual life insurance in force at the end of 2007. Most term products include a conversion feature that allows the policyholder to convert the policy into
permanent life insurance coverage. The Company also offers term life insurance that provides for a return of premium if the insured is alive at the end of the level premium period. In recent years, as our individual life insurance in force continues
to grow, we have seen our term life insurance become a larger percentage of our net in force and there continues to be significant marketplace demand for term life insurance protection.

Universal Life Insurance

The Company offers universal life insurance products which represents 10% of our net
individual life insurance in force at the end of 2007. Universal products feature a market rate fixed interest investment account, flexible premiums and a choice of guarantees against lapse.

Variable and Fixed Annuities

The Company offers variable annuities
that provide our customers with a full suite of optional guaranteed death and living benefits. Our investment options provide our customers with the opportunity to invest in proprietary and non-proprietary mutual funds, frequently under asset
allocation programs, and fixed-rate options. The investments made by customers in the proprietary and non-proprietary mutual funds represent an interest in separate investment companies that provide a return linked to an underlying investment
portfolio. The investments made in the fixed rate options are credited with interest at rates we determine, subject to certain minimums. The Company also offers fixed annuities that provide a guarantee of principal and interest credited at rates we
determine, subject to certain contractual minimums.



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Marketing and Distribution

Prudential Insurance Agents

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

Prudential Insurance Agents sell life insurance products primarily to customers in the U.S. mass and mass affluent markets, as well as small business owners. The
majority of Prudential Insurance Agents are multi-line agents. In addition to commissions, Prudential Insurance Agents receive the employee benefits that are provided to other Prudential Insurance employees generally, including medical and
disability insurance, an employee savings program and qualified retirement plans.

Third Party Distribution

Our individual life and annuity products are offered through a variety of third party channels, including independent brokers, general agencies, producer groups,
wirehouses, banks and broker-dealers. We focus on sales through intermediaries who provide life insurance solutions to protect individuals, families and businesses and support of estate and wealth transfer planning. The life insurance and annuity
products offered are generally the same as those available through Prudential Agents. Our third party efforts are supported by a network of internal and external wholesalers.

Underwriting and Pricing

Life Insurance

Our life insurance underwriters follow detailed and uniform policies and procedures to assess and quantify the risk of our individual life insurance products. We require the applicant to take a variety of underwriting
tests, such as medical examinations, electrocardiograms, blood tests, urine tests, chest x-rays and consumer investigative reports, depending on the age of the applicant and the amount of insurance requested. We base premiums and policy charges for
individual life insurance on expected death benefits, surrender benefits, expenses and required reserves. We use assumptions for mortality, interest expenses, policy persistency, and premium payment pattern in pricing policies. Some of our policies
are fully guaranteed. Others have current premiums/charges and interest credits that we can change subject to contractual guarantees. We routinely update the interest crediting rates on our universal life policies and on the fixed account of our
variable life policies. In resetting these rates, we consider the returns on our portfolios supporting these policies, current interest rates, the competitive environment and our profit objectives.

Our operating results are affected by differences between actual mortality experience and the assumptions used in pricing these policies and, as a result, can fluctuate
from period to period.

Annuities

We earn asset
management fees based upon the average assets of the proprietary mutual funds in our variable annuity products and mortality and expense fees and other fees for various insurance-related options and features including optional guaranteed death and
living benefit features, based on average daily net asset values of the annuity separate accounts or the amount of guaranteed value. We receive administration service fees from many of our proprietary and non-proprietary mutual funds. We price our
variable annuities, including optional death and living benefits based on an evaluation of risks assumed. We price our fixed annuities as well as the fixed-rate options of our variable annuities based on assumptions as to investment returns,
expenses and persistency. Competition also influences our pricing. We seek to maintain a spread between the return on our general account invested assets and the interest we credit on our fixed annuities. To encourage persistency, most of our
variable and fixed annuities have declining surrender or withdrawal charges for a specified number of years. In addition, the living benefits feature of our variable annuity products encourage persistency because the potential value of the living
benefit is fully realized only if the contract persists.



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Reserves

We
establish and carry as liabilities actuarially determined reserves for future policy benefits that we believe will meet our future benefit obligations for our in force life and annuity policies, including the minimum death benefit and living benefit
guarantee features of some of these policies. We base these reserves on assumptions we believe to be appropriate for investment yield, persistency, mortality and morbidity rates, expenses and margins for adverse deviation. For variable and
interest-sensitive life insurance and fixed and variable annuity contracts, we establish liabilities for policyholders account balances that represent cumulative gross premium payments plus credited interest and/or fund performance, less
withdrawals, expenses and mortality charges.

Reinsurance

The Company participates in reinsurance in order to provide risk diversification, provide additional capacity for future growth and limit the maximum net loss potential arising from large risks.

Since 2000, we have reinsured the majority of the mortality risk we assume under our newly sold individual life insurance products with both affiliated and unaffiliated
companies. During 2005 and 2006, all reinsurance arrangements were with affiliated companies and the maximum amount of individual life insurance we may retain on any life is $100,000. During 2007 the reinsurance arrangements were with affiliated and
unaffiliated companies and the maximum amount of individual life insurance we may retain on any life is generally $100,000. See Note 13 to the Financial Statements for more information related to these affiliated reinsurance arrangements.

During 2005, the Company entered into new reinsurance agreements with an affiliate as part of its risk management and capital management strategies.
Effective October 3, 2005, the Company entered into a new coinsurance agreement with Pruco Re, Ltd. providing for the 100% reinsurance of its Lifetime Five benefit feature sold on new business after October 3, 2005.

Regulatory Environment

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

Our variable life insurance products, as well as our variable annuity products, generally are securities
within the meaning of federal securities laws, registered under the federal securities laws and subject to regulation by Securities and Exchange Commission SEC and the Financial Industry Regulatory Authority FINRA. Federal
and some state securities regulation affect investment advice, sales and related activities with respect to these products. In addition, although the federal government does not comprehensively regulate the business of insurance, federal legislation
and administrative policies in several areas, including taxation, financial services regulation and pension and welfare benefits regulation, can significantly affect the insurance industry. Congress also periodically considers and is considering
laws affecting privacy of information and genetic testing that could significantly and adversely affect the insurance industry.

State Insurance
Regulation

State insurance authorities have broad administrative powers with respect to all aspects of the insurance business
including:



| |  |  | licensing to transact business,
| | - |  | -------------------------------



| |  |  | licensing agents,
| | - |  | -----------------



| |  |  | admittance of assets to statutory surplus,
| | - |  | ------------------------------------------



| |  |  | regulating premium rates for certain insurance products,
| | - |  | --------------------------------------------------------



| |  |  | approving policy forms,
| | - |  | -----------------------



| |  |  | regulating unfair trade and claims practices,
| | - |  | ---------------------------------------------



| |  |  | establishing reserve requirements and solvency standards,
| | - |  | ---------------------------------------------------------



3



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| |  |  | fixing maximum interest rates on life insurance policy loans and minimum accumulation or surrender values, and
| | - |  | --------------------------------------------------------------------------------------------------------------



| |  |  | regulating the type, amounts and valuations of investments permitted and other matters.
| | - |  | ---------------------------------------------------------------------------------------

State insurance laws and regulations require our U.S. insurance companies to file financial statements with state insurance departments everywhere they do business, and
the operations of our U.S. insurance companies and accounts are subject to examination by those departments at any time. Our U.S. insurance companies prepare statutory financial statements in accordance with accounting practices and procedures
prescribed or permitted by these departments. The National Association of Insurance Commissioners, or the NAIC, has approved a series of statutory accounting principles that have been adopted, in some cases with minor modifications, by all state
insurance departments.

State insurance departments conduct periodic examinations of the books and records, financial reporting, policy filings and market
conduct of insurance companies domiciled in their states, generally once every three to five years. Examinations are generally carried out in cooperation with the insurance departments of other states under guidelines promulgated by the NAIC. In
February 2008, the New Jersey insurance regulator along with the insurance regulators of Arizona and Connecticut, completed a coordinated financial examination for the five year period ended December 31, 2006 for all of our U.S. life insurance
companies as part of the normal five year examination cycle and found no material deficiencies.

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

Changes in statutory capital requirements for our variable annuity products under an NAIC initiative known as C-3 Phase
II became effective as of December 31, 2005. These changes improved the RBC ratios reducing the capital requirements associated with our variable annuity products.

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

Federal Tax Regulation

Current U.S. federal income tax laws generally permit certain holders to defer taxation on the build-up of value of
annuities and life insurance products until payments are actually made to the policyholder or other beneficiary and to exclude from taxation the death benefit paid under a life insurance contract. Congress from time to time considers legislation
that could make our products less attractive to consumers, including legislation that would reduce or eliminate the benefit of this deferral on some annuities and insurance products, as well as other types of changes that could reduce or eliminate
the attractiveness of annuities and life insurance products to consumers, such as repeal of the estate tax. In addition, legislative changes could impact the amount of taxes that we pay, thereby affecting our consolidated net income.

In June 2001, the Economic Growth and Tax Relief Reconciliation Act of 2001 was enacted. The 2001 Act contains provisions that have over time significantly reduced
individual tax rates. This has the effect of reducing the benefits of tax deferral on the build-up of value of annuities and life insurance products. The 2001 Act also includes provisions that eliminate, over time, the estate, gift and
generation-skipping taxes and partially eliminates the step-up in basis rule applicable to property held in a decedents estate. Some of these changes might hinder our sales and result in the increased surrender of insurance and annuity
products.

In May 2003, the Jobs and Growth Tax Relief Reconciliation Act of 2003 was enacted. Individual taxpayers are the principal beneficiaries of the
2003 Act, which includes an acceleration of certain of the income tax rate reductions enacted originally under the 2001 Act, as well as capital gains and dividend tax rate reductions. In May 2006, the Tax Increase Prevention Act of 2005 (the
2005 Act) was enacted. The 2005 Act extends the lower tax rates on capital gains and dividends through 2010. These rate reductions had been due to expire in 2008. Although most of the other rate reductions expire after 2008 or later,
these reductions have the effect of reducing the benefits of tax deferral on the build-up of value of annuities and life insurance products. These changes may hinder our sales and result in increased surrender of insurance and annuity products.



4



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The U.S. Treasury Department and the Internal Revenue Service are addressing through new regulations the methodology to
be followed in determining the dividends received deduction related to variable life insurance and annuity contracts. The dividends received deduction reduces the amount of dividend income subject to tax and is a significant component of the
difference between our effective tax rate and the federal statutory tax rate of 35%. A change in the dividends received deduction, including the possible elimination of this deduction, could reduce our consolidated net income.

The products we sell have different tax characteristics, including taxable income and tax deductions. Certain of our products are significantly dependent on these
characteristics, which are taken into consideration when pricing products and are a component of our capital management strategies. Accordingly, a change in tax law, or other factors impacting the availability of the tax characteristics generated by
our products, could impact product pricing and returns.

Market Conduct Regulation

State insurance laws and regulations include numerous provisions governing the marketplace activities of insurers, including provisions governing the form and content of disclosure to consumers, illustrations,
advertising, sales practices and complaint handling. State regulatory authorities generally enforce these provisions through periodic market conduct examinations.

State Securities Regulation

In certain states, our variable annuity products are considered securities within the meaning of
state securities laws. Sales activities with respect to these products generally are subject to state securities regulation. Such regulation may affect investment advice, sales and related activities for these products.

USA Patriot Act

The USA Patriot Act of 2001, enacted in response to
the terrorist attacks on September 11, 2001, contains anti-money laundering and financial transparency laws and mandates the implementation of various new regulations applicable to broker-dealers and other financial services companies,
including insurance companies. The Patriot Act seeks to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. The increased obligations
of financial institutions to identify their customers, watch for and report suspicious transactions, respond to requests for information by regulatory authorities and law enforcement agencies, and share information with other financial institutions
require the implementation and maintenance of internal practices, procedures and controls.

Legislative and Regulatory Reforms

Federal and state regulators are devoting substantial attention to the variable annuity business. As a result of publicity relating to widespread perceptions of industry
abuses, numerous legislative and regulatory reforms have been proposed or adopted with respect to revenue sharing, market timing, late trading, suitability and other issues. It is difficult to predict at this time whether changes resulting from new
laws and regulations will affect our product offerings and, if so, to what degree.

Privacy Regulation

Federal and state law and regulation require financial institutions to protect the security and confidentiality of personal information, including health-related and
customer information and to notify customers and other individuals about their policies and practices relating to their collection and disclosure of health-related and customer information and their practices relating to protecting the security and
confidentiality of that information. State laws regulate use and disclosure of social security numbers and require notice to affected individuals, law enforcement, regulators and others if there is a breach of the security of certain personal
information, including social security numbers. Federal and state laws and regulations regulate the ability of financial institutions to make telemarketing calls and to send unsolicited e-mail messages to consumers and customers. Federal and state
governments and regulatory bodies may be expected to consider additional or more detailed regulation regarding these subjects and the privacy and security of personal information.



|Item 1A. | Risk Factors
|-------- | ------------

You should carefully consider the following
risks. These risks could materially affect our business, results of operations or financial condition or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of
the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under Forward-Looking Statements above and the risks of our businesses described elsewhere in
this Annual Report on Form 10-K.



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Market fluctuations and general economic, market and political conditions may adversely affect our business and
profitability.

Our insurance products and certain of our investment products, as well as our investment returns and our access to and cost of
financing, are sensitive to fixed income, equity, real estate and other market fluctuations and general economic, market and political conditions and these fluctuations and changes could adversely affect results of operations, financial position and
liquidity, including in the following respects:



| |  |  | The profitability of many of our insurance products depends in part on the value of the separate accounts supporting these products, which may fluctuate
substantially depending on the foregoing conditions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Market conditions resulting in reductions in the value of assets we manage would have an adverse effect on the revenues and profitability of our asset management
services, which depend on fees related primarily to the value of assets under management, and would decrease the value of our proprietary investments.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A change in market conditions, including prolonged periods of high inflation, could cause a change in consumer sentiment adversely affecting sales and persistency
of our long term savings and protection products. Similarly, changing economic conditions can influence customer behavior including but not limited to increasing claims in certain product lines.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Sales of our investment-based and asset management products and services may decline and lapses of variable life and annuity products and withdrawals of assets from
other investment products may increase if a market downturn, increased market volatility or other market conditions result in customers becoming dissatisfied with their investments or products.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A market decline could result in guaranteed minimum benefits contained in many of our variable annuity products being higher than current account values or our
pricing assumptions would support, requiring us to materially increase reserves for such products.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Hedging instruments we hold to manage foreign exchange, product, and other risks might not perform as intended or expected resulting in higher realized losses and
unforeseen cash needs. Market conditions can also increase the cost of executing product related hedges and such costs may not be recovered in the pricing of the underlying products being hedged.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Adverse capital market conditions could impact the liquidity of our investments, affecting their value and potentially resulting in higher realized and/or
unrealized losses.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Market conditions could also impact our ability to fund foreseen and unforeseen cash and collateral requirements, potentially inhibiting our ability to perform
under our obligations, support business initiatives and increasing realized losses.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The latter half of 2007 was characterized by adverse
market conditions generally affecting the value and liquidity of asset-backed securities supported by sub-prime mortgages and commercial mortgage backed securities, as well as other investments we hold. These market conditions also impacted the cost
of refinancing debt. These conditions have persisted into 2008 and could further deteriorate. It is uncertain how such conditions will change or when such conditions will change.

Interest rate fluctuations could adversely affect our businesses and profitability.

Our insurance products and
certain of our investment products, and our investment returns, are sensitive to interest rate fluctuations, and changes in interest rates could adversely affect our investment returns and results of operations, including in the following respects:



| |  |  | Some of our products expose us to the risk that changes in interest rates will reduce the spread between the amounts that we are required to pay under the contracts
and the rate of return we are able to earn on our general account investments supporting the contracts. When interest rates decline, we have to reinvest the cash income from our investments in lower yielding instruments. Since many of our policies
and contracts have guaranteed minimum interest or crediting rates or limit the resetting of interest rates, the spreads could decrease and potentially become negative. When interest rates rise, we may not be able to replace the assets in our general
account with the higher yielding assets needed to fund the higher crediting rates necessary to keep these products and contracts competitive.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6



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| |  |  | When interest rates rise, policy loans and surrenders and withdrawals of life insurance policies and annuity contracts may increase as policyholders seek to buy
products with perceived higher returns, requiring us to sell investment assets potentially resulting in realized investment losses, or requiring us to accelerate the amortization of DAC (defined below).
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A decline in interest rates accompanied by unexpected prepayments of certain investments could result in reduced investments and a decline in our profitability. An
increase in interest rates accompanied by unexpected extensions of certain lower yielding investments could result in a decline in our profitability.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in the relationship between long term and short term interest rates could adversely affect the profitability of some of our products.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Changes in interest rates could increase our costs of financing.
| | - |  | ----------------------------------------------------------------

If our reserves for future policyholder benefits and claims are inadequate, we may be required to increase our reserves, which would adversely affect our results of operations and financial condition.

We establish and carry reserves to pay future policyholder benefits and claims. Our reserves do not represent an exact calculation of liability, but
rather are actuarial or statistical estimates based on models that include many assumptions and projections which are inherently uncertain and involve the exercise of significant judgment, including as to the levels of and/or timing of receipt or
payment of premiums, benefits, claims, expenses, interest credits, investment results, retirement, mortality, morbidity and persistency. We cannot determine with precision the ultimate amounts that we will pay for, or the timing of payment of,
actual benefits, claims and expenses or whether the assets supporting our policy liabilities, together with future premiums, will be sufficient for payment of benefits and claims. If we conclude that our reserves, together with future premiums, are
insufficient to cover future policy benefits and claims, we would be required to increase our reserves and incur income statement charges for the period in which we make the determination, which would adversely affect our results of operations and
financial condition.

Our profitability may decline if mortality rates, morbidity rates or persistency rates differ significantly from our pricing
expectations.

We set prices for many of our insurance and annuity products based upon expected claims and payment patterns, using assumptions for
mortality rates, or likelihood of death, and morbidity rates, or likelihood of sickness, of our policyholders. In addition to the potential effect of natural or man-made disasters, significant changes in mortality or morbidity could emerge gradually
over time, due to changes in the natural environment, the health habits of the insured population, treatment patterns for disease or disability, or other factors. Pricing of our insurance and deferred annuity products are also based in part upon
expected persistency of these products, which is the probability that a policy or contract will remain in force from one period to the next. Results may also vary based on differences between actual and expected premium deposits and withdrawals for
these products. The development of a secondary market for life insurance, including life settlements or viaticals and investor owned life insurance, could adversely affect the profitability of existing business and our pricing
assumptions for new business. Significant deviations in actual experience from our pricing assumptions could have an adverse effect on the profitability of our products. Although some of our products permit us to increase premiums or adjust other
charges and credits during the life of the policy or contract, the adjustments permitted under the terms of the policies or contracts may not be sufficient to maintain profitability. Many of our products do not permit us to increase premiums or
adjust other charges and credits or limit those adjustments during the life of the policy or contract.

We may be required to accelerate the
amortization of deferred policy acquisition costs, or DAC, which could adversely affect our results of operations or financial condition.

Deferred
policy acquisition costs, or DAC, represent the costs that vary with and are related primarily to the acquisition of new and renewal insurance and annuity contracts, and we amortize these costs over the expected life of the contracts.
Management, on an ongoing basis, tests the DAC recorded on our balance sheet to determine if this amount is recoverable under current assumptions. In addition, we regularly review the estimates and assumptions underlying DAC for those products for
which we amortize DAC in proportion to gross profits.

Given changes in facts and circumstances, these tests and reviews could lead to reductions in DAC
that could have an adverse effect on the results of our operations and our financial condition.

A downgrade or potential downgrade in our claims-paying
or credit ratings could limit our ability to market products, increase the number or value of policies being surrendered, increase our borrowing costs and/or hurt our relationships with creditors or trading counterparties.

Claims-paying ratings, which are sometimes referred to as financial strength ratings, represent the opinions of rating agencies regarding the financial
ability of an insurance company to meet its obligations under an insurance policy, and are



7



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important factors affecting public confidence in an insurer and its competitive position in marketing products, including Prudential Insurance and our other
insurance company subsidiaries. Credit ratings represent the opinions of rating agencies regarding an entitys ability to repay its indebtedness, and Prudential Financials credit ratings are important to our ability to raise capital
through the issuance of debt and to the cost of such financing. A downgrade in our claims-paying or credit ratings could limit our ability to market products, reduce our competitiveness, increase the number or value of policies being surrendered,
increase our borrowing costs, cause additional collateral requirements under certain agreements, and/or hurt our relationships with creditors or trading counterparties.

Losses due to defaults by others, including issuers of investment securities or reinsurance, bond insurers, and derivative instrument counterparties, could adversely affect the value of our investments or reduce
our profitability.

Issuers and borrowers whose securities or loans we hold, customers, trading counterparties, counterparties under swaps and other
derivative contracts, reinsurers, clearing agents, exchanges, clearing houses and other financial intermediaries and guarantors may default on their obligations to us due to bankruptcy, insolvency, lack of liquidity, adverse economic conditions,
operational failure, fraud or other reasons. Such defaults could have an adverse effect on our results of operations and financial condition.

Intense
competition could adversely affect our ability to maintain or increase our market share or profitability.

In each of our businesses we face intense
competition from domestic and foreign insurance companies, asset managers and diversified financial institutions, both for the ultimate customers for our products and, in many businesses, for distribution through non-affiliated distribution
channels. We compete based on a number of factors including brand recognition, reputation, quality of service, quality of investment advice, investment performance of our products, product features, scope of distribution and distribution
arrangements, price, perceived financial strength and claims-paying and credit ratings. A decline in our competitive position as to one or more of these factors could adversely affect our profitability and assets under management. Many of our
competitors are large and well capitalized and some have greater market share or breadth of distribution, offer a broader range of products, services or features, assume a greater level of risk, have lower profitability expectations or have higher
claims-paying or credit ratings than we do. The proliferation and growth of non-affiliated distribution channels puts pressure on our captive sales channels to either increase their productivity or reduce their costs in order to remain competitive,
and we run the risk that the marketplace will make a more significant or rapid shift to non-affiliated or direct distribution alternatives than we anticipate or are able to achieve ourselves, potentially adversely affecting our market share and
results of operations. Competition for personnel is intense. The loss of personnel could have an adverse effect on our business and profitability.

Changes in U.S. federal income tax law or in the income tax laws of other jurisdictions in which we operate could make some of our products less attractive to consumers and increase our tax costs.

Current U.S. federal income tax laws generally permit certain holders to defer taxation on the build-up of value of annuities and life insurance products until payments
are actually made to the policyholder or other beneficiary and to exclude from taxation the death benefit paid under a life insurance contract. Congress from time to time considers legislation that could make our products less attractive to
consumers, including legislation that would reduce or eliminate the benefit of this deferral on some annuities and insurance products, as well as other types of changes that could reduce or eliminate the attractiveness of annuities and life
insurance products to consumers, such as repeal of the estate tax.

For example, the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs
and Growth Tax Relief Reconciliation Act of 2003 generally provide for lower income tax, capital gains and dividend tax rates that might have the effect of reducing the benefits of tax deferral on the build-up of value of annuities and life
insurance products. The Bush Administration continues to propose that many of the rate reductions pursuant to these Acts be made permanent as well as to propose several tax-favored savings initiatives. These proposals or other tax law changes might
hinder our sales and result in the increased surrender of insurance and annuity products.

Congress, as well as, state and local governments, also
considers from time to time legislation that could increase the amount of taxes we pay. If such legislation is adopted, our consolidated net income could decline.

For example, the U.S. Treasury Department and the Internal Revenue Service are addressing through new regulations the methodology to be followed in determining the dividends received deduction related to variable life insurance and annuity
contracts. The dividends received deduction reduces the amount of dividend income subject to tax and is a significant component of the difference between our effective tax rate and the federal statutory tax rate of 35%. A change in the dividends
received deduction, including the possible elimination of this deduction, could reduce our consolidated net income.

The products we sell have different
tax characteristics, including taxable income and tax deductions. Certain of our products are significantly dependent on these characteristics, which are taken into consideration when pricing products and are a component of our capital management
strategies. Accordingly, a change in tax law, or other factors impacting the availability of the tax characteristics generated by our products, could impact product pricing and returns.



8



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Our businesses are heavily regulated and changes in regulation may reduce our profitability.

Our businesses are subject to comprehensive regulation and supervision. The purpose of this regulation is primarily to protect our customers and not necessarily our
shareholders. Many of the laws and regulations to which we are subject are regularly re-examined, and existing or future laws and regulations may become more restrictive or otherwise adversely affect our operations.

The Company is subject to the rules and regulations of the SEC and the NYSE relating to public reporting and disclosure, securities trading, accounting and financial
reporting, and corporate governance matters. The Sarbanes-Oxley Act of 2002 and rules and regulations adopted in furtherance of that Act have substantially increased the requirements in these and other areas for SEC reporting companies.

Many insurance regulatory and other governmental or self-regulatory bodies have the authority to review our products and business practices and those of our agents
and employees and to bring regulatory or other legal actions against us if, in their view, our practices, or those of our agents or employees, are improper. These actions can result in substantial fines, penalties or prohibitions or restrictions on
our business activities and could adversely affect our business, reputation, results of operations or financial condition. For a discussion of material pending litigation and regulatory matters, see Legal Proceedings.

The NAIC has adopted a Model Regulation entitled Valuation of Life Insurance Policies, commonly known as Regulation XXX, and a supporting
Guideline entitled The Application of the Valuation of Life Insurance Policies, commonly known as Guideline AXXX. The Regulation and supporting Guideline require insurers to establish statutory reserves for term and universal
life insurance policies with long term premium guarantees that are consistent with the statutory reserves required for other individual life insurance policies with similar guarantees. Many market participants believe that this level of reserves is
excessive, and we have implemented reinsurance and capital management actions to mitigate the impact of Regulation XXX and Guideline AXXX on our term and universal life insurance business. However, we may not be able to implement actions to mitigate
the impact of Regulation XXX or Guideline AXXX on future sales of term or universal life insurance products, thereby potentially resulting in an adverse impact on returns on capital associated with these products, and possibly requiring us to reduce
our sales of these products or implement measures that may be disruptive to our business.

For certain of our products, market performance impacts the
level of statutory reserves we are required to hold, which impacts capital requirements and may have an adverse effect on returns on capital associated with these products.

Insurance regulators, as well as industry participants, have also begun to consider potentially significant changes in the way in which statutory reserves and statutory capital are determined, particularly for
products with embedded options and guarantees. New regulatory capital requirements have already gone into effect for variable annuity products. The timing of, and extent of, such changes to the statutory reporting framework are uncertain; however,
the result could be increases to statutory reserves and capital, and an adverse effect on our products, sales and operating costs.

Legal and regulatory
actions are inherent in our businesses and could adversely affect our results of operations or financial position or harm our businesses or reputation.

We are, and in the future may be, subject to legal and regulatory actions in the ordinary course of our businesses. Some of these proceedings have been brought on behalf of various alleged classes of complainants. In certain of these
matters, the plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages. Substantial legal liability in these or future legal or regulatory actions could have an adverse affect on us or cause us reputational
harm, which in turn could harm our business prospects.

Material pending litigation and regulatory matters affecting us, and certain risks to our
businesses presented by such matters, are discussed under Legal Proceedings.

Our litigation and regulatory matters are subject to many
uncertainties, and given their complexity and scope, their outcome cannot be predicted. Our reserves for litigation and regulatory matters may prove to be inadequate. It is possible that our results of operations or cash flow in a particular
quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the results of operations or cash flow for such period.

The occurrence of natural or man-made disasters could adversely affect our results of operations and financial condition.

The occurrence of natural disasters, including hurricanes, floods, earthquakes, tornadoes, fires, explosions, pandemic disease and man-made disasters, including acts of
terrorism and military actions, could adversely affect our results of operations or financial condition, including in the following respects:



| |  |  | Catastrophic loss of life due to natural or man-made disasters could cause us to pay benefits at higher levels and/or materially earlier than anticipated and could
lead to unexpected changes in persistency rates.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



9



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| |  |  | A natural or man-made disaster could result in losses in our investment portfolio or the failure of our counterparties to perform, or cause significant volatility
in global financial markets.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A terrorist attack affecting financial institutions in the United States or elsewhere could negatively impact the financial services industry in general and our
business operations, investment portfolio and profitability in particular. As previously reported, in August 2004, the U.S. Department of Homeland Security identified our Newark, New Jersey facilities, along with those of several other financial
institutions in New York and Washington, D.C., as possible targets of a terrorist attack.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Pandemic disease, caused by a virus such as H5N1 (the Avian flu virus), could have a severe adverse effect on Prudential Financials business. The
potential impact of such a pandemic on Prudential Financials results of operations and financial position is highly speculative, and would depend on numerous factors, including: the probability of the virus mutating to a form that can be
passed from human to human; the rate of contagion if and when that occurs; the regions of the world most affected; the effectiveness of treatment for the infected population; the rates of mortality and morbidity among various segments of the insured
versus the uninsured population; the collectibility of reinsurance; the possible macroeconomic effects of a pandemic on the Companys asset portfolio; the effect on lapses and surrenders of existing policies, as well as sales of new policies;
and many other variables.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

There can be no assurance that our business continuation plans and insurance coverages would be effective in
mitigating any negative effects on our operations or profitability in the event of a terrorist attack or other disaster.

Our risk management policies
and procedures and minority investments in joint ventures may leave us exposed to unidentified or unanticipated risk, which could adversely affect our businesses or result in losses.

Our policies and procedures to monitor and manage risks, including hedging programs that utilize derivative financial instruments, may not be fully effective and may leave us exposed to unidentified and unanticipated
risks. The Company uses models in its hedging programs and many other aspects of its operations, including but not limited to the estimation of actuarial reserves, the amortization of deferred acquisition costs and the value of business acquired,
and the valuation of certain other assets and liabilities. These models rely on assumptions and projections that are inherently uncertain. Management of operational, legal and regulatory risks requires, among other things, policies and procedures to
record properly and verify a large number of transactions and events, and these policies and procedures may not be fully effective. Past or future misconduct by employees or employees of vendors could result in violations of law by us, regulatory
sanctions and/or serious reputational or financial harm, and the precautions we take to prevent and detect this activity may not be effective in all cases. A failure of our computer systems or a compromise of their security could also subject us to
regulatory sanctions or other claims, harm our reputation, interrupt our operations and adversely affect our business, results of operations or financial condition.



|Item 1B. | Unresolved Staff Comments
|-------- | -------------------------

None.



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

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



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

We are subject to legal and regulatory
actions in the ordinary course of our businesses, including class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and proceedings generally applicable to business practices in the industries in which we
operate. We are subject to class action lawsuits and individual lawsuits involving a variety of issues, including sales practices, underwriting practices, claims payment and procedures, additional premium charges for premiums paid on a periodic
basis, denial or delay of benefits, return of premiums or excessive premium charges and breaching fiduciary duties to customers. In our annuity operations, we are subject to litigation involving class action lawsuits and other litigation alleging,
among other things, that we made improper or inadequate disclosures in connection with the sale of annuity products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer
accounts or breached fiduciary duties to customers. We are also subject to litigation arising out of our general business activities, such as our investments and third-party contracts. Regulatory authorities from time to time make inquiries and
conduct investigations and examinations relating particularly to us and our businesses and products. In addition, we, along with other participants in the businesses in which we engage, may be subject from time to time to investigations,
examinations and inquiries, in some cases industry-wide, concerning issues or matters



10



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upon which such regulators have determined to focus. In some of our pending legal and regulatory actions, parties are seeking large and/or indeterminate
amounts, including punitive or exemplary damages. The outcome of a litigation or regulatory matter, and the amount or range of potential loss at any particular time, is often inherently uncertain.

Our litigation and regulatory matters are subject to many uncertainties, and given its complexity and scope, their outcome cannot be predicted. It is possible that our
results of operations or cash flow in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the results of operations or cash
flow for such period. In light of the unpredictability of the Companys litigation and regulatory matters, it is also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation or regulatory matters
could have a material adverse effect on our financial position. Management believes, however, that based on information currently known to it, the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable
reserves and rights to indemnification, is not likely to have a material adverse effect on our financial position.

PART II



|Item 5. | Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|------- | ----------------------------------------------------------------------------------------------------------------

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



|Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

You should read the following analysis of the Companys financial condition and results of operations in conjunction with the Forward-Looking Statements disclosure included below the Table of Contents,
Risk Factors, and Financial statements included in this Annual Report on Form 10-K.

Managements Discussion and Analysis of Financial
Condition and Results of Operations or MD&A, addresses the financial condition of Pruco Life Insurance Company of New Jersey as of December 31, 2007, compared with December 31, 2006, and its results of operations for the
years ended December 31, 2007 and 2006.

Overview

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

Revenues and Expenses

The Company earns revenues principally from insurance premiums; mortality, expense, and asset management fees from insurance and investment products; and investment of general account and other funds. The Company earns premiums primarily
from the sale of term individual life insurance. The Company earns mortality, expense, and asset management fees and servicing of separate account products including universal and variable life insurance and variable annuities. The Companys
operating expenses principally consist of insurance benefits provided, general business expenses, commissions and other costs of selling and servicing the various products we sell and interest credited on general account liabilities.

Profitability

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



| |  |  | our ability to manufacture and distribute products and services and to introduce new products that gain market acceptance on a timely basis;
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------



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



| |  |  | our mortality and morbidity experience on individual life insurance and annuity products;
| | - |  | -----------------------------------------------------------------------------------------



11



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



| |  |  | our cost of administering insurance contracts and providing asset management products and services;
| | - |  | ---------------------------------------------------------------------------------------------------



| |  |  | our returns on invested assets, net of the amounts we credit to policyholders accounts;
| | - |  | ----------------------------------------------------------------------------------------



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



| |  |  | our ability to generate favorable investment results through asset/liability management and strategic and tactical asset allocation; and
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | our ability to manage risk and exposures.
| | - |  | -----------------------------------------

In
addition, factors such as regulation, competition, interest rates, taxes and general economic conditions affect the Companys profitability. In some of our product lines, we share experience on mortality, morbidity, persistency and investment
results with our customers, which can offset the impact of these factors on our profitability from those products.

See Risk Factors for a
discussion of risks that could materially affect the Companys business, results of operations or financial condition, or cause the Companys actual results to differ materially from those expected or those expressed in any forward looking
statements made by or on behalf of the Company.

Application of Critical Accounting Policies

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

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

Valuation of Investments

As prescribed by GAAP, we present our fixed maturity investments classified as available for sale at fair value in the statements of financial position. The fair values for our public fixed maturity securities are based on quoted market
prices or estimates from independent pricing services. However, for our investments in private securities such as private placement fixed maturity securities, which comprised 14% of our investments as of December 31, 2007, this information is
not available. For these private fixed maturities, fair value is determined typically by using a discounted cash flow model, which relies upon the average of spread surveys collected from private market intermediaries who are active in both primary
and secondary transactions and takes into account, among other things, the credit quality of the issuer and the reduced liquidity associated with private placements. In determining the fair value of certain securities, the discounted cash flow model
may also use unobservable inputs, which reflect our own assumptions about the inputs market participants would use in pricing the asset.

For our fixed
maturity investments classified as available for sale, the impact of changes in fair value is recorded as an unrealized gain or loss in Accumulated other comprehensive income (loss), net of taxes, a separate component of equity. In
addition, investments classified as available for sale are subject to our impairment review to identify when a decline in value is other than temporary. Factors we consider in determining whether a decline in value is other than temporary include:
the extent (generally if greater than 20%) and the duration (generally greater than six months) of the decline; the reasons for the decline in value (credit event or interest rate related); our ability and intent to hold the investment for a period
of time that will allow for a recovery of value; and the financial condition and near-term prospects of the issuer. When it is determined that a decline in value is other than temporary, the carrying value of the security is reduced to its fair
value, with a corresponding charge to earnings. When it is determined that a decline in value is other than temporary, the carrying value of the security is reduced to its fair value, with a corresponding charge to earnings. When it is determined
that a decline in value is other than temporary, the carrying value of the security is reduced to its fair value, with a corresponding charge to earnings. In addition, for our impairment review of asset-backed fixed maturity securities with a credit
rating below AA, we forecast the prospective future cash flows of the security and determine if the present value of those cash flows, discounted using the effective yield of the most recent interest accrual rate, has decreased from the previous
reporting period. When a decrease from the prior reporting period has occurred and the securitys market value is less than its carrying value, the carrying value of the security is reduced to its fair value, with a corresponding charge to
earnings. In both cases, this corresponding charge to earnings is referred to as an impairment. Impairments are reflected in Realized investment gains (losses), net in the statements of operations and are excluded from adjusted operating
income. The new cost basis of an impaired security is not adjusted for subsequent increases in estimated fair value. In periods



12



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subsequent to the recognition of an other-than-temporary impairment, the impaired security is accounted for as if it had been purchased on the measurement
date of the impairment. Accordingly, the discount (or reduced premium) based on the new cost basis is accreted into net investment income, and included in adjusted operating income in future periods based upon the amount and timing of the expected
future cash flows of the security, if the recoverable value of the investment based upon those cash flows is greater than the carrying value of the investment after the impairment. The level of impairment losses can be expected to increase when
economic conditions worsen and decrease when economic conditions improve.

Commercial loans, which comprised nearly 8% of our investments as of
December 31, 2007, are carried primarily at unpaid principal balances, net of unamortized premiums or discounts and an allowance for losses. This allowance includes a loan specific portion as well as a portfolio reserve for probable incurred
but not specifically identified losses. The loan specific portion is based on managements judgment as to ultimate collectibility of loan principal. The portfolio reserve is based on a number of factors, such as historical experience and
portfolio diversification. Adjustments to the allowance are reflected in Realized investment gains (losses), net, in our statements of operations. Similar to impairment losses discussed above, the allowance for losses can be expected to
increase when economic conditions worsen and decrease when economic conditions improve.

Future Policy Benefit Reserves

We establish reserves for future policy benefit payments to or on behalf of policyholders in the same period in which the policy is issued. These reserves relate
primarily to term life, variable and universal life, and certain annuity products.

The future policy benefit reserves at December 31, 2007
represented 7% of our total liabilities and relate primarily to term life, variable, and universal products and are determined in accordance with GAAP as the present value of expected future benefits to or on behalf of policyholders plus the present
value of future expenses less the present value of future net premiums. The expected future benefits are based on mortality, lapse, maintenance expense and interest rate assumptions. Reserves for new business are based on best estimate assumptions
as of the date the policy is issued with provisions for the risk of adverse deviation. After our reserves are initially established, we perform premium deficiency tests using best estimate assumptions as of the testing date without provisions for
adverse deviation. If reserves determined based on these best estimate assumptions are greater than the GAAP liabilities (i.e., reserves net of any DAC asset), the existing GAAP liabilities are adjusted to the greater amount. Our best
estimate mortality assumptions are generally based on the Companys historical experience or standard industry tables, as applicable; our expense assumptions are based on current levels of maintenance costs, adjusted for the effects of
inflation; and our interest rate assumptions are based on current and expected net investment returns. We review our mortality assumptions annually. Generally, we do not expect our mortality trends to change significantly in the short term and to
the extent these trends may change we expect such changes to be gradual over the long term.

Deferred Policy Acquisition Costs

We capitalize costs that vary with and are related primarily to the acquisition of new and renewal insurance and annuity contracts. These costs include primarily
commissions, costs of policy issuance and underwriting, and variable field office expenses. We amortize these deferred policy acquisition costs, over the expected life of the contracts, based on the level and timing of either gross profits, or gross
premiums, depending on the type of contract. As of December 31, 2007, DAC in our life business was $221 million and DAC in our annuity business was $52 million.

DAC associated with the term life policies of our domestic individual life insurance business is amortized in proportion to gross premiums. We evaluate the recoverability of our DAC related to these policies as part
of our premium deficiency testing. If a premium deficiency exists, we reduce DAC by the amount of the deficiency or to zero through a charge to current period earnings. If the deficiency is more than the DAC balance, we then increase the reserve for
future policy benefits by the excess by means of a charge to current period earnings. Generally, we do not expect significant short term deterioration in experience, and therefore do not expect significant adjustments to the related DAC.

DAC associated with the variable and universal life policies of our domestic individual life insurance and the variable and fixed annuity contracts of our individual
annuities business is amortized over the expected life of these policies in proportion to gross profits. In calculating gross profits, we consider mortality, persistency, and other elements as well as rates of return on investments associated with
these contracts. We regularly evaluate and adjust the related DAC balance with a corresponding charge or credit to current period earnings for the effects of our actual gross profits and changes in our assumptions regarding estimated future gross
profits. For the variable and universal life policies a significant portion of our gross profits is derived from mortality margins. As a result, our estimates of future gross profits are significantly influenced by our mortality assumptions. Our
mortality assumptions represent our expected claims experience over the life of these policies and are developed based on experience. Updates to our mortality assumptions in future periods could have a significant adverse or favorable effect on our
results of operations.

The DAC balance associated with the variable and universal life policies of our Individual Life segment as of December 31,
2007 was $140 billion. The following table provides a demonstration of the sensitivity of that DAC balance relative to our future mortality assumptions by quantifying the adjustments that would be required, assuming both an increase and decrease



13



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in our future mortality rate by 1%. This information considers only the effect of changes in our mortality assumptions and not changes in any other
assumptions such as persistency, future rate of return, or expenses included in our evaluation of DAC, and does not reflect changes in reserves, such as the unearned revenue reserve, which would partially offset the adjustments to the DAC balance
reflected below.



|                                   |  |                            |      |  
|---------------------------------- |  | -------------------------- | ---- | -
|                                   |  | Increase/(Reduction) inDAC |     
|                                   |  | (in millions)              |     
|Decrease in future mortality by 1% |  | $                          | 2.0  |  
|Increase in future mortality by 1% |  | $                          | (2.0 | )

For variable annuity contracts, DAC is more sensitive to the effects of changes in our estimates of gross profits
due primarily to the significant portion of gross profits that is dependent upon the total rate of return on assets held in separate account investment options, and the shorter average life of the contracts. This rate of return influences the fees
we earn, costs we incur associated with minimum death benefit and other contractual guarantees specific to our variable annuity contracts, as well as other sources of profit. This is also true, to a lesser degree, for our variable life policies.

The future rate of return assumptions used in evaluating DAC for our domestic annuity and variable life insurance products are derived using a reversion
to the mean approach, a common industry practice. Under this approach, we consider actual returns over a period of time and adjust future projected returns so that the assets grow at the expected rate of return for the entire period. If the
projected future rate of return is greater than our maximum future rate of return, we use our maximum future rate of return. As part of our approach for variable annuity contracts, we develop a range of total estimated gross profits each period
using statistically generated rates of return that take into consideration the latest actual rates of return experienced to date. If the previously determined total estimated gross profits are greater than or less than the current periods
range, we adjust our future rate of return assumptions accordingly, to reflect the result of the reversion to the mean approach. For variable annuities products, our expected rate of return across all asset types is 7.9% per annum, which
reflects, among other assumptions, an expected rate of return of 9.5% per annum for equity type assets. The future equity rate of return used varies by product, but was under 9.5% per annum for all of our variable annuity products for our
evaluation of deferred policy acquisition costs as of December 31, 2007.

To demonstrate the sensitivity of our variable annuity DAC balance relative
to our future rate of return, increasing or decreasing our future rate of return by 100 basis points would have required us to consider adjustments, subject to the statistical approach described above, to that DAC balance as follows. The information
provided in the table below considers only the effect of changes in our future rate of return and not changes in any other assumptions such as persistency, mortality, or expenses included in our evaluation of DAC.



|                                                         |  |                            |    |  
|-------------------------------------------------------- |  | -------------------------- | -- | -
|                                                         |  | Increase/(Reduction)in DAC |   
|                                                         |  | (in millions)              |   
|Increase in projected rate of return by 100 basis points |  | $                          | 1  |  
|Decrease in projected rate of return by 100 basis points |  | $                          | (1 | )

See Results of Operations for a discussion of the impact of DAC amortization on our results of the
life and annuities products.

Taxes on Income

Our effective tax rate is based on income, non-taxable and non-deductible items, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. Inherent in determining our annual tax rate are
judgments regarding business plans, planning opportunities and expectations about future outcomes.

Tax regulations require items to be included in the tax
return at different times from the items reflected in the financial statements. As a result, the effective tax rate reflected in the financial statements is different than the actual rate applied on the tax return. Some of these differences are
permanent such as expenses that are not deductible in our tax return, and some differences are temporary, reversing over time, such as valuation of insurance reserves. Temporary differences create deferred tax assets and liabilities. Deferred tax
assets generally represent items that can be used as a tax deduction or credit in future years for which we have already recorded the tax benefit in our income statement. Deferred tax liabilities generally represent tax expense recognized in our
financial statements for which payment has been deferred, or expenditures for which we have already taken a deduction in our tax return but have not yet recognized in our financial statements. The application



14



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of U.S. GAAP requires us to evaluate the recoverability of our deferred tax assets and establish a valuation allowance if necessary to reduce our deferred
tax asset to an amount that is more likely than not to be realized. Realization of certain deferred tax assets is dependent upon generating sufficient taxable income in the appropriate jurisdiction prior to the expiration of the carry-forward
periods. Although realization is not assured, management believes it is more likely than not the deferred tax assets, net of valuation allowances, will be realized.

Our accounting represents managements best estimate of future events that can be appropriately reflected in the accounting estimates. Certain changes or future events, such as changes in tax legislation,
geographic mix of earnings and completion of tax audits could have an impact on our estimates and effective tax rate. For example, the dividends received deduction reduces the amount of dividend income subject to tax and is a significant component
of the difference between our effective tax rate and the federal statutory tax rate of 35%. The U.S. Treasury Department and the Internal Revenue Service, or the Service, are addressing through new regulations the methodology to be followed in
determining the dividends received deduction related to variable life insurance and annuity contracts. A change in the dividends received deduction, including the possible elimination of this deduction, could increase our effective tax rate and
reduce our consolidated income.

An increase or decrease in our effective tax rate by one percent, would have resulted in a decline or increase in
consolidated income from continuing operations in 2007 of $0.6 million.

Our liability for income taxes includes the liability for unrecognized tax
benefits, interest and penalties which relate to tax years still subject to review by the Service or other taxing jurisdictions. Audit periods remain open for review until the statute of limitations has passed. Generally, for tax years which produce
net operating losses, capital losses or tax credit carryforwards, or tax attributes, the statute of limitations does not close, to the extent of these tax attributes, until the tax year in which they are fully utilized. The completion of review or
the expiration of the statute of limitations for a given audit period could result in an adjustment to our liability for income taxes. Any such adjustment could be material to our results of operations for any given quarterly or annual period based,
in part, upon the results of operations for the given period.

On January 26, 2006, the Service officially closed the audit of our federal income tax
returns for the 1997 to 2001 periods. As a result of certain favorable resolutions, our consolidated statement of operations for the year ended December 31, 2005 included an income tax benefit of $3 million, reflecting a reduction in our
liability for income taxes. The statute of limitations has closed for these tax years; however, there were tax attributes in the closed years which were utilized in subsequent tax years for which the statute of limitations remains open.

In December 2006, the Service completed all fieldwork with regards to its examination of our federal income tax returns for tax years 2002-2003. The final report was
submitted to the Joint Committee on Taxation for their review in April 2007. In July 2007, the Joint Committee returned the report to the Service for additional review of an industry issue regarding the methodology for calculating the dividends
received deduction related to variable life insurance and annuity contracts. The Company is responding to the Services request for additional information. As discussed above, the U.S. Treasury Department and the Service are addressing through
new regulations the methodology to be followed in determining the dividends received deduction related to variable life insurance and annuity contracts. The statute of limitations for the 2002-2003 tax years expires in 2009.

In January 2007, the Service began an examination of tax years 2004 through 2006. For the tax year 2007, we participated in the Services new Compliance Assurance
Program, or CAP. Under CAP, the Service assigns an examination team to review completed transactions contemporaneously during the 2007 tax year in order to reach agreement with us on how they should be reported in the tax return. If disagreements
arise, accelerated resolutions programs are available to resolve the disagreements in a timely manner before the tax return is filed. It is managements expectation this new program will significantly shorten the time period between our filing
of our federal income tax return and the Services completion of its examination of the return.

On January 1, 2007, we adopted FIN No. 48,
Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109. This interpretation prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial
statements uncertain tax positions that a company has taken or expects to take on a tax return. FIN No. 48 is a two-step process, the first step being recognition. We determine whether it is more likely than not, based on the technical merits,
that the tax position will be sustained upon examination. If a tax position does not meet the more likely than not recognition threshold, the benefit of that position is not recognized in the financial statements.

The second step is measurement. We measure the tax position as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate
resolution with a taxing authority that has full knowledge of all relevant information. This measurement considers the amounts and probabilities of the outcomes that could be realized upon ultimate settlement using the facts, circumstances, and
information available at the reporting date.

Reserves for contingencies

A contingency is an existing condition that involves a degree of uncertainty that will ultimately be resolved upon the occurrence of future events. Under GAAP, reserves for contingencies are required to be established
when the future event is



15



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probable and its impact can be reasonably estimated. An example is the establishment of a reserve for losses in connection with an unresolved legal matter.
The initial reserve reflects managements best estimate of the probable cost of ultimate resolution of the matter and is revised accordingly as facts and circumstances change and, ultimately, when the matter is brought to closure.

Recently Issued Accounting Pronouncements

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

Effective New Accounting Policies Adopted

See Note 2 to the Financial Statements for a discussion of new accounting policies adopted.

The Companys Changes in Financial Condition and Results of Operations are described below.

Changes in Financial
Position

2007 versus 2006

Total assets increased
by $415 million from $4.282 billion December 31, 2006 to $4.697 billion at December 31, 2007. Separate account assets increased by $306 million from $2.620 billion at December 31, 2006 to $2.926 billion at December 31, 2007
primarily due to market performance and positive net sales, in 2007. Commercial loans increased $53 million, from $49 million at December 31, 2006 to $102 million at December 31, 2007, as additional funds were invested in commercial loans.
Cash and cash equivalents are lower by $26 million as cash used in financing activities exceeded cash provided from operating and investing activities in 2007. Deferred policy acquisition costs increased by $17 million from $256 million at
December 31, 2006, to $273 million at December 31, 2007, primarily driven by capitalization of acquisition costs from the continued growth of term life insurance sales. Reinsurance recoverables increased by $52 million, as a result of
continued growth in term in force covered in the Prudential Arizona Reinsurance Captive Company PARCC coinsurance agreement

Fixed maturities
decreased by $17 million, from $921 million at December 31, 2006 to $904 million at December 31, 2007. The decrease is primarily driven by the movement of contractholder assets from the fixed rate general account options to the variable
separate account investment options, and re-investment in commercial loans, mentioned above.

Total liabilities increased by $375 million from $3.895
billion at December 31, 2006, to $4.270 billion at December 31, 2007, primarily due to separate account liabilities growth of $306 million as described above. Future policy benefits and other policyholder liabilities increased by $63
million, from $250 million at December 31, 2006 to $313 million at December 31, 2007, as a result of growth in the term life insurance business. Policyholder account balances decreased by $31 million, primarily due to the movement of
contractholder assets from the fixed rate general account options to the variable separate account investment options in annuity products. The Companys short term borrowings from an affiliate used to provide short term working capital
increased by $31 million from $25 million at December 31, 2006 to $56 million at December 31, 2007. Total securities lending position at December 31, 2007 increased by $9 million from December 31, 2006. The relative amounts of
cash collateral for loaned securities and securities sold under agreements to repurchase decreased $2 million and increased $11 million, respectively.

Results of Operations

2007 to 2006 Annual Comparison

Net Income

Net income of $40 million for 2007 increased $1 million from $39 million in 2006. Results for both
periods include the impact of an annual review of our estimate of total gross profits used as a basis for amortizing deferred policy acquisition and other costs and unearned revenue reserves for our variable and universal life products. The current
year included a $1 million benefit before taxes resulting from this annual review. While 2006 reflected an $11 million benefit before taxes related to the annual review, primarily resulting from improvement in expected investment spreads. Absent the
impacts of the annual reviews conducted in the third quarter of both periods net income was $11 million higher than the prior year mainly driven by the sale of a large COLI case to an affiliate and higher fees from growth in separate account assets
resulting from market appreciation.

Revenues

Revenues
increased by $36 million, from $129 million in 2006 to $165 million in 2007. Policy charges and fee income increased $17 million from the prior year, including $7 million due to updates in both periods of our assumptions related to the amortization
of unearned revenue reserves based on the annual reviews, as discussed above. Absent this item policy charges and fee income increased $10 million in 2007, reflecting growth in our universal life insurance in force, the placing of a large COLI case
to an affiliate and higher fees from growth in separate account assets resulting from market



16



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appreciation. Premiums increased $3 million from the prior year due to growth in term life insurance business. Also contributing to this increase in revenues
is lower realized losses of $12 million due to additional realized losses from the sales of fixed maturities in a rising interest rate environment in 2006. Partially offsetting this realized loss was an increase in investment income of $1 million
primarily due to higher yields resulting from investment activities in a rising interest rate environment compared to 2006.

Benefits and Expenses

Total benefits and expenses increased by $30 million, from $79 million in 2006 to $109 million in 2007.

General, administrative and other expenses increased by $29 million from $32 million in 2006 to $61 million in 2007. The primary driver of the increase was the 2006
annual review, discussed above, which resulted in a reduction in amortization of deferred acquisition costs of $15 million. In 2007, the annual review resulted in an increase in amortization of deferred acquisition costs of $3 million. Absent the
impacts of the annual reviews conducted in both periods, general, administrative, and other expenses increased $11 million in 2007 primarily due to higher new business related expenses and the placing of a large COLI case to an affiliate.

Income Tax Expense

Shown below is our income tax
provision for the years ended December 31, 2007, 2006 and 2005, separately reflecting the impact of certain significant items. Also presented below is the income tax provision that would have resulted from application of the statutory 35%
federal income tax rate in each of these periods.



|                                                                           |  |                         |        |   |      |   |        |  |   |        |  
|-------------------------------------------------------------------------- |  | ----------------------- | ------ | - | ---- | - | ------ |  | - | ------ | -
|                                                                           |  | Year ended December 31, |       
|                                                                           |  | 2007                    |        |   | 2006 |   | 2005   | 
|                                                                           |  | (in millions)           |       
|Tax provision                                                              |  | $                       | 15,546 |   |      | $ | 11,477 |  | $ | 13,592 |  
|Impact of:                                                                 |  |                         |        |   |      |   |        |  |   |        |  
|Non-taxable investment income                                              |  |                         | 4,298  |   |      |   | 5,495  |  |   | 2,815  |  
|Completion of Internal Revenue Service examination for the years 1997-2001 |  |                         |       |   |      |   |       |  |   | 2,769  |  
|Other                                                                      |  |                         | (332   | ) |      |   | 672    |  |   | (690   | )
|                                                                           |  |                         |        |   |      |   |        |  |   |        |  
|Tax provision excluding these items                                        |  | $                       | 19,512 |   |      | $ | 17,644 |  | $ | 18,486 |  
|                                                                           |  |                         |        |   |      |   |        |  |   |        |  
|Tax provision at statutory rate                                            |  | $                       | 19,512 |   |      | $ | 17,644 |  | $ | 18,486 |  
|                                                                           |  |                         |        |   |      |   |        |  |   |        |  

We adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an
Interpretation of FASB Statement No. 109 on January 1, 2007. For additional information regarding the adoption of this guidance, see Note 7 of the Consolidated Financial Statements.

The dividends received deduction reduces the amount of dividend income subject to tax and is a significant component of the difference between our effective tax rate and
the federal statutory tax rate of 35%. In August 2007, the Internal Revenue Service, or Service, issued Revenue Ruling 2007-54, which included, among other items, guidance on the methodology to be followed in calculating the dividends received
deduction related to variable life insurance and annuity contracts. In September 2007, the Service released Revenue Ruling 2007-61. Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54 and informed taxpayers that the U.S. Treasury Department and
the Service intend to address through new regulations the issues considered in Revenue Ruling 2007-54, including the methodology to be followed in determining the dividends received deduction related to variable life insurance and annuity contracts.
These activities had no impact on our 2007 results.



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

Risk Management, Market Risk and Derivative Instruments

Risk management includes the identification and measurement of various forms of
risk, the establishment of risk thresholds and the creation of processes intended to maintain risks within these thresholds while optimizing returns on the underlying assets or liabilities. We consider risk management an integral part of managing
our core businesses.

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

With respect to non-variable life insurance products, fixed rate annuities, the fixed rate options in our variable
life insurance and annuity products, we incur market risk primarily in the form of interest rate risk. We manage this risk through asset/liability management strategies that seek to closely approximate the interest rate sensitivity, but not
necessarily the exact cash flow characteristics, of the assets with the estimated interest rate sensitivity of the product liabilities. Our overall objective in these strategies is to limit the net change in value of assets and liabilities arising
from interest rate movements. While it is more difficult to measure the interest sensitivity of our insurance liabilities than that of the related assets, to the extent that we can measure such sensitivities we believe that interest rate movements
will generate asset value changes that substantially offset changes in the value of the liabilities relating to the underlying products.



17



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For variable annuities and variable life insurance products, excluding the fixed rate options in these products, and most
separate accounts, our main exposure to the market is the risk that asset based fees decrease as a result of declines in assets under management due to changes in investment prices. We also run the risk that asset management fees calculated by
reference to performance could be lower. The risk of decreased asset based and asset management fees could also impact our estimates of total gross profits used as a basis for amortizing deferred policy acquisition and other costs. While a decrease
in our estimates of total gross profits would accelerate amortization and decrease net income in a given period, it would not affect our cash flow or liquidity position in the current period. See Managements Discussion and Analysis of
Financial Condition and Results of OperationsResult of Operations for a discussion of the effects of death and other benefit provisions on the results of the Company.

We manage our exposure to equity price risk relating to our general account primarily by seeking to match the risk profile of equity investments against risk-adjusted equity market benchmarks. We measure benchmark
risk levels in terms of price volatility in relation to the market in general.

The sources of our exposure to market risk can be divided into two
categories, other than trading activities conducted primarily in our insurance and annuity operations, and trading activities conducted primarily in our derivatives trading operations. As part of our management of both
other than trading and trading market risks, we use a variety of risk management tools and techniques. These include sensitivity and Value-at-Risk, or VaR, measures, position and other limits based on type of risk, and
various hedging methods.

Other Than Trading Activities

We hold the majority of our assets for other than trading activities in our insurance and annuities products operations. We incorporate asset/liability management techniques and other risk management policies and limits into the
process of investing our assets. We use derivatives for hedging purposes in the asset/liability management process.

Insurance and Annuities Products
Asset/Liability Management

We seek to maintain interest rate and equity exposures within established ranges, which we periodically adjust based on
market conditions and the design of related products sold to customers. Our risk managers establish investment risk limits for exposures to any issuer, geographic region, type of security or industry sector and oversee efforts to manage risk within
policy constraints set by management and approved by the Investment Committee of Prudential Financial and the Board of Directors.

We use duration and
convexity analyses to measure price sensitivity to interest rate changes. Duration measures the relative sensitivity of the fair value of a financial instrument to changes in interest rates. Convexity measures the rate of change of duration with
respect to changes in interest rates. We seek to manage our interest rate exposure by legal entity by matching the relative sensitivity of asset and liability values to interest rate changes, or controlling duration mismatch of assets
and liabilities. We have target duration mismatch constraints for each entity. As of December 31, 2007 and 2006, the difference between the duration of assets and the target duration of liabilities in our duration-managed portfolios was within
our constraint limits. We consider risk-based capital implications in our asset/liability management strategies.

We also perform portfolio stress testing
as part of our regulatory cash flow testing. In this testing, we evaluate the impact of altering our interest-sensitive assumptions under various moderately adverse interest rate environments. These interest-sensitive assumptions relate to the
timing and amount of redemptions and prepayments of fixed-income securities and lapses and surrenders of insurance products and the potential impact of any guaranteed minimum interest rates. We evaluate any shortfalls that this cash flow testing
reveals to determine if we need to increase statutory reserves or adjust portfolio management strategies.

Market Risk Related to Interest
Rates

Our other than trading assets that subject us to interest rate risk include primarily fixed maturity securities,
commercial loans and policy loans. In the aggregate, the carrying value of these assets represented 66% of our assets, other than assets that we held in separate accounts, as of December 31, 2007 and 68% as of December 31, 2006
respectively.

With respect to other than trading liabilities, we are exposed to interest rate risk through policyholders account
balances relating to interest-sensitive life insurance, annuity and other investment-type contracts, collectively referred to as investment contracts, and through outstanding short term debt with affiliates.

We assess interest rate sensitivity for other than trading financial assets, financial liabilities and derivatives using hypothetical test scenarios that
assume either upward or downward 100 basis point parallel shifts in the yield curve from prevailing interest rates. The following tables set forth the net estimated potential loss in fair value from a hypothetical 100



18



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basis point upward shift as of December 31, 2007 and 2006, because this scenario results in the greatest net exposure to interest rate risk of the
hypothetical scenarios tested at those dates. While the test scenario is for illustrative purposes only and does not reflect our expectations regarding future interest rates or the performance of fixed-income markets, it is a near-term, reasonably
possible hypothetical change that illustrates the potential impact of such events. These test scenarios do not measure the changes in value that could result from non-parallel shifts in the yield curve, which we would expect to produce different
changes in discount rates for different maturities. As a result, the actual loss in fair value from a 100 basis point change in interest rates could be different from that indicated by these calculations.



|                                               |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|---------------------------------------------- |  | --------------------------- | - |  | --------- | --- | - | -------------------------------------------------------------------- | - | --- | ------------------------------- |  | - | --- | -
|                                               |  | December 31, 2007           |  
|                                               |  | NotionalValue ofDerivatives |   |  | FairValue |     |   | HypotheticalFair ValueAfter + 100Basis PointParallelYield CurveShift |   |     | HypotheticalChange inFair Value | 
|                                               |  | (In millions)               |  
|Financial Assets with Interest Rate Risk:      |  |                             |  
|Financial Assets:                              |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Fixed maturities, available for sale           |  |                             |   |  | $         | 904 |   |                                                                      | $ | 869 |                                 |  | $ | (35 | )
|Policy loans                                   |  |                             |   |  |           | 187 |   |                                                                      |   | 173 |                                 |  |   | (14 | )
|Commercial loans                               |  |                             |   |  |           | 104 |   |                                                                      |   | 98  |                                 |  |   | (6  | )
|                                               |  |                             |   | 
|Financial Assets with Equity Risk:             |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Equity Securities                              |  |                             |   |  |           | 4   |   |                                                                      |   | 4   |                                 |  |   | 0   |  
|                                               |  |                             |   | 
|Derivatives:                                   |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Futures                                        |  | (45                         | ) |  |           | 0   |   |                                                                      |   | 2   |                                 |  |   | 2   |  
|Swaps                                          |  | 23                          |   |  |           | (1  | ) |                                                                      |   | 0   |                                 |  |   | 1   |  
|Financial Liabilities with Interest Rate Risk: |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Investment Contracts                           |  |                             |   |  |           | (64 | ) |                                                                      |   | (64 | )                               |  |   | 0   |  
|                                               |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Total Estimated Potential Loss                 |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   | (52 | )
|                                               |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|                                               | 
|                                               |  | December 31, 2006           |  
|                                               |  | NotionalValue ofDerivatives |   |  | FairValue |     |   | HypotheticalFair ValueAfter + 100Basis PointParallelYield CurveShift |   |     | HypotheticalChange inFair Value | 
|                                               |  | (In millions)               |  
|Financial Assets with Interest Rate Risk:      |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Financial Assets:                              |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Fixed maturities, available for sale           |  |                             |   |  | $         | 921 |   |                                                                      | $ | 886 |                                 |  | $ | (35 | )
|Policy loans                                   |  |                             |   |  |           | 172 |   |                                                                      |   | 159 |                                 |  |   | (13 | )
|Commercial loans                               |  |                             |   |  |           | 49  |   |                                                                      |   | 46  |                                 |  |   | (3  | )
|                                               |  |                             |   | 
|Financial Assets with Equity Risk:             |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Equity Securities                              |  |                             |   |  |           | 4   |   |                                                                      |   | 4   |                                 |  |   | 0   |  
|                                               |  |                             |   | 
|Derivatives:                                   |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Futures                                        |  | (12                         | ) |  |           | 0   |   |                                                                      |   | 1   |                                 |  |   | 1   |  
|Swaps                                          |  | 23                          |   |  |           |    |   |                                                                      |   |    |                                 |  |   |    |  
|Financial Liabilities with Interest Rate Risk: |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Investment Contracts                           |  |                             |   |  |           | (71 | ) |                                                                      |   | (71 | )                               |  |   | 0   |  
|                                               |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  
|Total Estimated Potential Loss                 |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  | $ | (50 | )
|                                               |  |                             |   |  |           |     |   |                                                                      |   |     |                                 |  |   |     |  

The tables above do not include approximately $1.053 billion and $1,016 billion of insurance reserves and deposit
liabilities at December 31, 2007 and 2006, respectively. The Company believes that the interest rate sensitivities of these insurance liabilities offset, in large measure, the interest rate risk of the financial assets set forth in the above
tables.



19



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

Market Risk Related to Foreign Currency Exchange Rates

The Company does not have significant market risk
exposure to foreign exchange rates.

Derivatives

Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices, or the prices of securities or commodities. Derivative financial instruments may be exchange-traded or contracted
in the over-the-counter market and include swaps, futures, options and forward contracts. See Note 11 to the Financial Statements for a description of derivative activities as of December 31, 2007 and 2006. Under insurance statutes, insurance
companies may use derivative financial instruments to hedge actual or anticipated changes in their assets or liabilities, to replicate cash market instruments or for certain income-generating activities. These statutes generally prohibit the use of
derivatives for speculative purposes. The Company uses derivative financial instruments primarily to seek to reduce market risk from changes in interest rates, foreign currency exchange rates and to alter interest rate or foreign currency exposures
arising from mismatches between assets and liabilities.

Limitations of VaR Models

Although VaR models are a recognized tool for risk management, they have inherent limitations, including reliance on historical data that may not be indicative of future
market conditions or trading patterns. Accordingly, VaR models should not be viewed as a predictor of future results. We may incur losses that could be materially in excess of the amounts indicated by the models on a particular trading day or over a
period of time, and there have been instances when results have fallen outside the values generated by our VaR models. A VaR model does not estimate the greatest possible loss. The results of these models and analysis thereof are subject to the
judgment of our risk management personnel.



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

Information
required with respect to this Item 8 regarding Financial Statements and Supplementary Data is set forth commencing on page F-3 hereof. See Index to Financial Statements elsewhere in this Annual Report on Form 10-K.



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

None.



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

Managements Annual Report on
Internal Control Over Financial Reporting as of December 31, 2007 is included in the notes to the Consolidated Financial Statements of this Annual Report on Form 10-K.

In order to ensure that the information we must disclose in our filings with the Securities Exchange Commission, or the SEC, is recorded, processed, summarized, and reported on a timely basis, the
Companys management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e) and 15d-15(e), as of
December 31, 2007. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2007, our disclosure controls and procedures were effective. No change in the Companys
internal control over financial reporting, as defined in Exchange Act Rule 13a - 15(f) and 15d - 15(f), occurred during the quarter ended December 31, 2007 that has materially affected or is reasonably likely to materially affect our internal
control over financial reporting.



|Item 9B. | Other Information
|-------- | -----------------

None.



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

We have
adopted a code of business conduct and ethics, known as Making the Right Choices, which applies to our Chief Executive Officer, Chief Financial Officer and Accounting Officer, as well as to our directors and all other employees. Making
the Right Choices is posted on our website at www.investor.prudential.com. Our code of business conduct and ethics, any amendments and any waiver granted to any of our directors or executive officers are available free of charge on our
website at www.investor.prudential.com.



20



---

PART III



|Item 14. | Principal Accountant Fees and Services
|-------- | --------------------------------------

The Audit Committee
of the Board of Directors of Prudential Financial has appointed PricewaterhouseCoopers LLP as the independent auditor of Prudential Financial and certain of its domestic and international subsidiaries, including the Registrant. The Audit Committee
has established a policy requiring its pre-approval of all audit and permissible non-audit services provided by the independent auditor. The specific information called for by this item is hereby incorporated by reference to the section entitled
Item 2 - Ratification of the Appointment of Independent Registered Public Accounting Firm in Prudential Financials definitive proxy statement for the Annual Meeting of Shareholders to be held on May 13, 2008 to be filed with
the Securities and Exchange Commission pursuant to Regulation 14A within 120 days after the year ended December 31, 2007.

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



|        |  |                                                                                                                                                                                                                                                                                                                                                                      
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        | 
|2.      |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                      
|        | 
|3(i)(a) |  | The Articles of Incorporation of Pruco Life Insurance Company of New Jersey (as amended through March 11, 1983) are incorporated by reference to Post-effective Amendment No. 26 to the
Registration Statement on Form S-6 of Pruco Life of New Jersey Variable Appreciable Account as filed April 28, 1997, Registration No. 2-89780.                               
|        | 
|3(i)(b) |  | Certificate of Amendment to the Articles of Incorporation of Pruco Life Insurance Company of New Jersey dated February 12, 1998 is incorporated by reference to Post-Effective Amendment No. 12 to the Registration Statement on Form S-1, of Pruco Life of New Jersey
Variable Contract Real Property Account as filed on April 16, 1999, Registration No. 33-20018.
|        | 
|3(ii)   |  | By-Laws if Pruco Life Insurance Company of New Jersey (as amended through August 4, 1999) are incorporated by reference to Form S-6 of Pruco Life of New Jersey Variable Appreciable Account filed August 13, 1999, Registration No. 333-85117.                                                                                                                      
|        | 
|4.      |  | Exhibits                                                                                                                                                                                                                                                                                                                                                             
|        | 
|4(a)    |  | Market-Value Adjustment Annuity Contract (Discovery Select variable annuity) is incorporated by reference to Form S-1, Registration No. 333-18053, filed December 17, 1996, on behalf of
the Pruco Life of New Jersey Flexible Premium Variable Annuity Account.                                                                                                     
|        | 
|4(b)    |  | Market-Value Adjustment Annuity Contract (Strategic Partners Select variable annuity) is incorporated by reference to the Registrants Pre-Effective Amendment No. 1 to Form S-3,
Registration No. 333-62246, filed November 27, 2001.                                                                                                                               
|        | 
|4(c)    |  | Market-Value Adjustment Annuity Contract (Strategic Partners Horizon annuity) is incorporated by reference to the Registrants Form S-3, Registration No. 333-100713, filed
October 24, 2002.                                                                                                                                                                        
|        | 
|4(d)    |  | Market-Value Adjustment Annuity Contract Endorsement (Strategic Partners Annuity One variable annuity) is incorporated by reference to the Registrants registration statement on Form S-3,
Registration No. 333-103473, filed February 27, 2003.                                                                                                                    
|        | 
|9.      |  | None.                                                                                                                                                                                                                                                                                                                                                                
|        | 
|10.     |  | None.                                                                                                                                                                                                                                                                                                                                                                
|        | 
|11.     |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                      
|        | 
|12.     |  | Not applicable.                                                                                                                                                                                                                                                                                                                                                      



21



---

|     |  |                                                           
|---- |  | ----------------------------------------------------------
|     | 
|13.  |  | Not applicable.                                           
|     | 
|16.  |  | Not applicable.                                           
|     | 
|18.  |  | None.                                                     
|     | 
|22.  |  | None.                                                     
|     | 
|23.  |  | Not applicable.                                           
|     | 
|24.  |  | Powers of Attorney.                                       
|     | 
|31.1 |  | Section 302 Certification of the Chief Executive Officer. 
|     | 
|31.2 |  | Section 302 Certification of the Chief Accounting Officer.
|     | 
|32.1 |  | Section 906 Certification of the Chief Executive Officer. 
|     | 
|32.2 |  | Section 906 Certification of the Chief Accounting Officer.



22



---

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 14th day of March 2008.



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

/s/ Scott D. KaplanScott D. KaplanChief Executive Officer (Principal Executive Officer)


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities indicated on March 14, 2008.



|                        |  |                                             
|----------------------- |  | --------------------------------------------
|Signature               |  | Title                                       
|                        | 
|/s/ Scott D. Kaplan     |  | Chief Executive Officer,                    
|Scott D. Kaplan         |  | President and Director                      
|                        | 
|/s/ Tucker I. Marr      |  | Chief Financial and Accounting Officer      
|Tucker I. Marr          |  | (Principal Accounting and Financial Officer)
|                        | 
|/s/ James J. Avery*     |  | Director                                    
|James J. Avery          |  |                                             
|                        | 
|/s/ Helen M. Galt *     |  | Director                                    
|Helen M. Galt           |  |                                             
|                        | 
|/s/ Bernard J. Jacob *  |  | Director                                    
|Bernard J. Jacob        |  |                                             
|                        | 
|/s/ David R. Odenath *  |  | Director                                    
|David R. Odenath        |  |                                             
|                        | 
|/s/ Scott G. Sleyster * |  | Director                                    
|Scott G. Sleyster       |  |                                             



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



23



---

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

Financial Statements and

Report of Independent Registered Public Accounting
Firm

December 31, 2007 and 2006



---

PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

INDEX TO FINANCIAL STATEMENTS



|                                                                                                            |  |         
|----------------------------------------------------------------------------------------------------------- |  | --------
|Financial Statements                                                                                        |  | Page No.
|Managements Annual Report on Internal Control Over Financial Reporting                                     |  | F - 2   
|                                                                                                            | 
|Report of Independent Registered Public Accounting Firm                                                     |  | F - 3   
|                                                                                                            | 
|Consolidated Financial Statements:                                                                          |  |         
|                                                                                                            | 
|Consolidated Statements of Financial Position - December 31, 2007 and 2006                                  |  | F - 4   
|                                                                                                            | 
|Consolidated Statements of Operations and Comprehensive Income Years ended December 31, 2007, 2006 and 2005 |  | F - 5   
|                                                                                                            | 
|Consolidated Statements of Stockholders Equity Years ended December 31, 2007, 2006 and 2005                |  | F - 6   
|                                                                                                            | 
|Consolidated Statements of Cash Flows Years ended December 31, 2007, 2006 and 2005                          |  | F - 7   
|                                                                                                            | 
|Notes to the Consolidated Financial Statements                                                              |  | F - 8   



F - 1



---

Managements Annual Report on Internal Control Over Financial Reporting

Management of Pruco Life Insurance Company of
New Jersey (the Company) is responsible for establishing and maintaining adequate internal control over financial reporting. Management conducted an assessment of the effectiveness, as of December 31, 2007, of the Companys
internal control over financial reporting, based on the framework established in Internal Control  Integrated Framework Issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment under that
framework, management concluded that the Companys internal control over financial reporting was effective as of December 31, 2007.

Our internal
control over financial reporting is a process designed by or under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Companys assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

This annual report does
not include an attestation report of the companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the companys registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only managements report in this annual report.

March 14, 2008



F - 2



---

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, 2007 and December 31, 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007 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 of the financial
statements, the Company changed its method of accounting for uncertainty in income taxes and for deferred acquisition costs in connection with modifications or exchanges of insurance contracts on January 1, 2007.



|                                   
|-----------------------------------
|PricewaterhouseCoopers LLP (signed)
|New York, New York                 
|March 14, 2008                     



F - 3



---

Pruco Life Insurance Company of New Jersey

Statements of Financial Position

As of December 31, 2007 and 2006 (in thousands, except share amounts)





|                                                                                                       |  |      |           |      |   |          
|------------------------------------------------------------------------------------------------------ |  | ---- | --------- | ---- | - | ---------
|                                                                                                       |  | 2007 |           | 2006
|ASSETS                                                                                                 |  |      |           |      |   |          
|Fixed maturities available for sale, at fair value (amortized cost, 2007 - $898,932 ; 2006 - $912,692) |  | $    | 903,520   |      | $ | 920,925  
|Policy loans                                                                                           |  |      | 166,373   |      |   | 160,614  
|Short term investments                                                                                 |  |      | 12,376    |      |   | 11,259   
|Commercial loans                                                                                       |  |      | 101,583   |      |   | 48,979   
|Other long term investments                                                                            |  |      | 10,039    |      |   | 9,446    
|                                                                                                       |  |      |           |      |   |          
|Total investments                                                                                      |  |      | 1,193,891 |      |   | 1,151,223
|Cash and cash equivalents                                                                              |  |      | 33,185    |      |   | 59,543   
|Deferred policy acquisition costs                                                                      |  |      | 273,144   |      |   | 255,849  
|Accrued investment income                                                                              |  |      | 14,182    |      |   | 13,599   
|Reinsurance recoverables                                                                               |  |      | 186,587   |      |   | 135,010  
|Receivables from parent and affiliates                                                                 |  |      | 43,920    |      |   | 19,437   
|Deferred sales inducements                                                                             |  |      | 21,957    |      |   | 19,013   
|Other assets                                                                                           |  |      | 3,217     |      |   | 8,618    
|Separate account assets                                                                                |  |      | 2,926,421 |      |   | 2,619,586
|                                                                                                       |  |      |           |      |   |          
|TOTAL ASSETS                                                                                           |  | $    | 4,696,504 |      | $ | 4,281,878
|                                                                                                       |  |      |           |      |   |          
|LIABILITIES AND STOCKHOLDERS EQUITY LIABILITIES                                                       |  |      |           |      |   |          
|Policyholders account balances                                                                        |  |      | 805,605   |      |   | 836,980  
|Future policy benefits and other policyholder liabilities                                              |  |      | 312,637   |      |   | 250,053  
|Cash collateral for loaned securities                                                                  |  |      | 26,060    |      |   | 28,212   
|Securities sold under agreement to repurchase                                                          |  |      | 14,621    |      |   | 4,005    
|Income taxes payable                                                                                   |  |      | 86,328    |      |   | 87,478   
|Short term debt from affiliates                                                                        |  |      | 55,863    |      |   | 25,348   
|Payables to parent and affiliates                                                                      |  |      | 8,304     |      |   | 2,377    
|Other liabilities                                                                                      |  |      | 34,226    |      |   | 40,601   
|Separate account liabilities                                                                           |  |      | 2,926,421 |      |   | 2,619,586
|                                                                                                       |  |      |           |      |   |          
|Total liabilities                                                                                      |  | $    | 4,270,065 |      | $ | 3,894,640
|                                                                                                       |  |      |           |      |   |          
|COMMITMENTS AND CONTINGENT LIABILITIES (See Note 12)                                                   |  |      |           |      |   |          
|                                                                                                       |  |     
|STOCKHOLDERS EQUITY                                                                                   |  |      |           |      |   |          
|Common stock, ($5 par value; 400,000 shares, authorized; issued and outstanding;                       |  |      | 2,000     |      |   | 2,000    
|Additional Paid-in capital                                                                             |  |      | 168,998   |      |   | 168,689  
|Retained earnings                                                                                      |  |      | 252,259   |      |   | 212,518  
|Accumulated other comprehensive income                                                                 |  |      | 3,182     |      |   | 4,031    
|                                                                                                       |  |      |           |      |   |          
|Total stockholders equity                                                                             |  |      | 426,439   |      |   | 387,238  
|                                                                                                       |  |      |           |      |   |          
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                             |  | $    | 4,696,504 |      | $ | 4,281,878
|                                                                                                       |  |      |           |      |   |          

See Notes to Financial Statements



F - 4



---

Pruco Life Insurance Company of New Jersey

Statements of Operations and Comprehensive Income

Years Ended December 31, 2007, 2006 and 2005 (in thousands)





|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                              |  | 2007 |         |   | 2006 |   |         | 2005 | 
|REVENUES                                                                                                      |  |      |         |   |      |   |         |      |  |   |         |  
|Premiums                                                                                                      |  | $    | 12,442  |   |      | $ | 8,947   |      |  | $ | 8,356   |  
|Policy charges and fee income                                                                                 |  |      | 76,851  |   |      |   | 59,650  |      |  |   | 60,400  |  
|Net investment income                                                                                         |  |      | 66,705  |   |      |   | 65,628  |      |  |   | 60,197  |  
|Realized investment (losses), net                                                                             |  |      | (2,201  | ) |      |   | (13,900 | )    |  |   | (329    | )
|Asset management fees                                                                                         |  |      | 6,968   |   |      |   | 6,086   |      |  |   | 7,018   |  
|Other income                                                                                                  |  |      | 4,203   |   |      |   | 3,079   |      |  |   | 2,148   |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Total revenues                                                                                                |  |      | 164,968 |   |      |   | 129,490 |      |  |   | 137,790 |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|BENEFITS AND EXPENSES                                                                                         |  |      |         |   |      |   |         |      |  |   |         |  
|Policyholders benefits                                                                                       |  |      | 16,747  |   |      |   | 16,900  |      |  |   | 15,009  |  
|Interest credited to policyholders account balances                                                          |  |      | 31,525  |   |      |   | 30,394  |      |  |   | 29,819  |  
|General, administrative and other expenses                                                                    |  |      | 60,947  |   |      |   | 31,785  |      |  |   | 40,145  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Total benefits and expenses                                                                                   |  |      | 109,219 |   |      |   | 79,079  |      |  |   | 84,973  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Income from operations before income taxes                                                                    |  |      | 55,749  |   |      |   | 50,411  |      |  |   | 52,817  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Income taxes:                                                                                                 |  |      |         |   |      |   |         |      |  |   |         |  
|Current                                                                                                       |  |      | 12,044  |   |      |   | (596    | )    |  |   | 6,441   |  
|Deferred                                                                                                      |  |      | 3,502   |   |      |   | 12,073  |      |  |   | 7,151   |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Total income tax expense                                                                                      |  |      | 15,546  |   |      |   | 11,477  |      |  |   | 13,592  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|NET INCOME                                                                                                    |  |      | 40,203  |   |      |   | 38,934  |      |  |   | 39,225  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|Change in net unrealized investment (losses)/ gains and changes in foreign currency translation, net of taxes |  |      | (849    | ) |      |   | 3,196   |      |  |   | (12,411 | )
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  
|COMPREHENSIVE INCOME                                                                                          |  | $    | 39,354  |   |      | $ | 42,130  |      |  | $ | 26,814  |  
|                                                                                                              |  |      |         |   |      |   |         |      |  |   |         |  

See Notes to Financial Statements



F - 5



---

Pruco Life Insurance Company of New Jersey

Statements of Stockholders Equity

Periods Ended December 31, 2007, 2006 and 2005 (in thousands)



|                                                                   |  |             |       |                          |   |         |                      |  |   |                  |   |  |                                                    |         |                                     |  |   |                                                 |  |   |                          |   |  |   |         |   |  |   |         |  
|------------------------------------------------------------------ |  | ----------- | ----- | ------------------------ | - | ------- | -------------------- |  | - | ---------------- | - |  | -------------------------------------------------- | ------- | ----------------------------------- |  | - | ----------------------------------------------- |  | - | ------------------------ | - |  | - | ------- | - |  | - | ------- | -
|                                                                   |  |             |       |                          |   |         |                      |  |   |                  |   |  | Accumulated Other Comprehensive Income Gain (Loss) |         |                                     |  |  
|                                                                   |  | CommonStock |       | AdditionalPaidinCapital |   |         | DeferredCompensation |  |   | RetainedEarnings |   |  | ForeignCurrencyTranslationAdjustments              |         | NetUnrealizedInvestmentGains (Loss) |  |   | TotalAccumulatedOtherComprehensiveIncome (Loss) |  |   | TotalStockholdersEquity |  
|Balance, January 1, 2005                                           |  | $           | 2,000 |                          | $ | 168,810 |                      |  | $ | (152             | ) |  | $                                                  | 134,358 |                                     |  | $ |                                                |  | $ | 13,246                   |   |  | $ | 13,246  |   |  | $ | 318,262 |  
|Net income                                                         |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    | 39,226  |                                     |  |   |                                                |  |   |                         |   |  |   |        |   |  |   | 39,226  |  
|Stock-based compensation programs                                  |  |             |      |                          |   | (121    | )                    |  |   | 152              |   |  |                                                    |        |                                     |  |   |                                                |  |   |                         |   |  |   |        |   |  |   | 31      |  
|Cumulative effect of change in accounting principles, net of taxes |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    |        |                                     |  |   |                                                |  |   |                         |   |  |   |        |   |  |   |        |  
|Change in net unrealized investment (losses), net of taxes         |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    |        |                                     |  |   |                                                |  |   | (12,411                  | ) |  |   | (12,411 | ) |  |   | (12,411 | )
|                                                                   |  |             |       |                          |   |         |                      |  |   |                  |   |  |                                                    |         |                                     |  |   |                                                 |  |   |                          |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2005                                         |  | $           | 2,000 |                          | $ | 168,689 |                      |  | $ |                 |   |  | $                                                  | 173,584 |                                     |  | $ |                                                |  | $ | 835                      |   |  | $ | 835     |   |  | $ | 345,108 |  
|Net income                                                         |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    | 38,934  |                                     |  |   |                                                |  |   |                         |   |  |   |        |   |  |   | 38,934  |  
|Stock-based compensation programs                                  |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    |        |                                     |  |   |                                                |  |   |                         |   |  |   |        |   |  |   |        |  
|Cumulative effect of change in accounting principles, net of taxes |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    |        |                                     |  |   |                                                |  |   |                         |   |  |   |        |   |  |   |        |  
|Change in foreign currency translation adjustments, net of taxes   |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    |        |                                     |  |   | 29                                              |  |   |                         |   |  |   | 29      |   |  |   | 29      |  
|Change in net unrealized investment gains, net of taxes            |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    |        |                                     |  |   |                                                |  |   | 3,167                    |   |  |   | 3,167   |   |  |   | 3,167   |  
|                                                                   |  |             |       |                          |   |         |                      |  |   |                  |   |  |                                                    |         |                                     |  |   |                                                 |  |   |                          |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2006                                         |  | $           | 2,000 |                          | $ | 168,689 |                      |  | $ |                 |   |  | $                                                  | 212,518 |                                     |  | $ | 29                                              |  | $ | 4,002                    |   |  | $ | 4,031   |   |  | $ | 387,238 |  
|Net income                                                         |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    | 40,203  |                                     |  |   |                                                |  |   |                         |   |  |   |        |   |  |   | 40,203  |  
|Contributed Capital                                                |  |             |      |                          |   | 309     |                      |  |   |                 |   |  |                                                    |        |                                     |  |   |                                                |  |   |                         |   |  |   |        |   |  |   | 309     |  
|Stock-based compensation programs                                  |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    |        |                                     |  |   |                                                |  |   |                         |   |  |   |        |   |  |   |        |  
|Cumulative effect of change in accounting principles, net of taxes |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    | (462    | )                                   |  |   |                                                |  |   |                         |   |  |   |        |   |  |   | (462    | )
|Change in foreign currency translation adjustments, net of taxes   |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    |        |                                     |  |   | 79                                              |  |   |                         |   |  |   | 79      |   |  |   | 79      |  
|Change in net unrealized investment (losses), net of taxes         |  |             |      |                          |   |        |                      |  |   |                 |   |  |                                                    |        |                                     |  |   |                                                |  |   | (928                     | ) |  |   | (928    | ) |  |   | (928    | )
|                                                                   |  |             |       |                          |   |         |                      |  |   |                  |   |  |                                                    |         |                                     |  |   |                                                 |  |   |                          |   |  |   |         |   |  |   |         |  
|Balance, December 31, 2007                                         |  | $           | 2,000 |                          | $ | 168,998 |                      |  | $ |                 |   |  | $                                                  | 252,259 |                                     |  | $ | 108                                             |  | $ | 3,074                    |   |  | $ | 3,182   |   |  | $ | 426,439 |  
|                                                                   |  |             |       |                          |   |         |                      |  |   |                  |   |  |                                                    |         |                                     |  |   |                                                 |  |   |                          |   |  |   |         |   |  |   |         |  

See Notes to Financial Statements



F - 6



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Pruco Life Insurance Company of New Jersey

Statements of Cash Flows

Years Ended December 31, 2007, 2006 and 2005 (in thousands)





|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  
|---------------------------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | --------- | ---- |  | - | -------- | -
|                                                                                                           |  | 2007 |          |   | 2006 |   |           | 2005 | 
|CASH FLOWS FROM OPERATING ACTIVITIES:                                                                      |  |      |          |   |      |   |           |      |  |   |          |  
|Net income                                                                                                 |  | $    | 40,203   |   |      | $ | 38,934    |      |  | $ | 39,225   |  
|Adjustments to reconcile net income to net cash (used in) provided by operating activities:                |  |      |          |   |      |   |           |      |  |   |          |  
|Policy charges and fee income                                                                              |  |      | (18,336  | ) |      |   | (12,012   | )    |  |   | (11,739  | )
|Interest credited to policyholders account balances                                                       |  |      | 31,525   |   |      |   | 30,394    |      |  |   | 29,819   |  
|Realized investment losses (gains), net                                                                    |  |      | 2,201    |   |      |   | 13,900    |      |  |   | 329      |  
|Amortization and other non-cash items                                                                      |  |      | (785     | ) |      |   | 874       |      |  |   | 3,937    |  
|Change in:                                                                                                 |  |      |          |   |      |   |           |      |  |   |          |  
|Future policy benefits and other insurance liabilities                                                     |  |      | 62,608   |   |      |   | 46,631    |      |  |   | 33,677   |  
|Reinsurance recoverable                                                                                    |  |      | (51,577  | ) |      |   | (42,733   | )    |  |   | (24,866  | )
|Accrued investment income                                                                                  |  |      | (583     | ) |      |   | 2,635     |      |  |   | (1,290   | )
|Receivables from parent and affiliates                                                                     |  |      | (14,183  | ) |      |   | 2,459     |      |  |   | 7,401    |  
|Payable to parent and affiliates                                                                           |  |      | 5,927    |   |      |   | (487      | )    |  |   | 2,331    |  
|Deferred policy acquisition costs                                                                          |  |      | (15,117  | ) |      |   | (33,979   | )    |  |   | (30,393  | )
|Income taxes payable                                                                                       |  |      | (828     | ) |      |   | 12,707    |      |  |   | 2,855    |  
|Deferred sales inducements                                                                                 |  |      | (3,065   | ) |      |   | (5,395    | )    |  |   | (2,501   | )
|Other, net                                                                                                 |  |      | (11,540  | ) |      |   | 6,950     |      |  |   | (9,237   | )
|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  
|Cash Flows From Operating Activities                                                                       |  |      | 26,450   |   |      |   | 60,878    |      |  |   | 39,548   |  
|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  
|CASH FLOWS (Used In) FROM INVESTING ACTIVITIES:                                                            |  |      |          |   |      |   |           |      |  |   |          |  
|Proceeds from the sale/maturity/prepayment of:                                                             |  |      |          |   |      |   |           |      |  |   |          |  
|Fixed maturities available for sale                                                                        |  |      | 276,137  |   |      |   | 1,038,341 |      |  |   | 777,293  |  
|Policy loans                                                                                               |  |      | 18,356   |   |      |   | 17,070    |      |  |   | 17,487   |  
|Commercial loans                                                                                           |  |      | 1,003    |   |      |   | 633       |      |  |   | 89       |  
|Payments for the purchase of:                                                                              |  |      |          |   |      |   |           |      |  |   |          |  
|Fixed maturities available for sale                                                                        |  |      | (254,782 | ) |      |   | (981,995  | )    |  |   | (901,755 | )
|Policy loans                                                                                               |  |      | (16,983  | ) |      |   | (15,012   | )    |  |   | (13,004  | )
|Commercial loans                                                                                           |  |      | (54,057  | ) |      |   | (29,360   | )    |  |   | (20,442  | )
|Notes from parent and affiliates, net                                                                      |  |      | (10,060  | ) |      |   | (9,576    | )    |  |   | (2,391   | )
|Other long term investments, net                                                                           |  |      | (3,043   | ) |      |   | (1,786    | )    |  |   | (858     | )
|Short term investments, net                                                                                |  |      | (1,123   | ) |      |   | 12,258    |      |  |   | 18,005   |  
|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  
|Cash Flows (Used In) From Investing Activities                                                             |  |      | (44,552  | ) |      |   | 30,573    |      |  |   | (125,576 | )
|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  
|CASH FLOWS (Used In) FROM FINANCING ACTIVITIES:                                                            |  |      |          |   |      |   |           |      |  |   |          |  
|Policyholders account deposits                                                                            |  |      | 236,972  |   |      |   | 237,496   |      |  |   | 179,705  |  
|Policyholders account withdrawals                                                                         |  |      | (282,630 | ) |      |   | (259,645  | )    |  |   | (175,324 | )
|Net change in securities sold under agreement to repurchase and cash collateral for loaned securities, net |  |      | 8,464    |   |      |   | (56,022   | )    |  |   | (11,043  | )
|Net change in financing arrangements (maturities 90 days or less)                                          |  |      | 28,938   |   |      |   | (69,777   | )    |  |   | 100,613  |  
|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  
|Cash Flows (Used In) From Financing Activities                                                             |  |      | (8,256   | ) |      |   | (147,948  | )    |  |   | 93,951   |  
|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  
|Net (decrease) increase in cash and cash equivalents                                                       |  |      | (26,358  | ) |      |   | (56,497   | )    |  |   | 7,923    |  
|Cash and cash equivalents, beginning of year                                                               |  |      | 59,543   |   |      |   | 116,040   |      |  |   | 108,117  |  
|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  
|CASH AND CASH EQUIVALENTS, END OF YEAR                                                                     |  | $    | 33,185   |   |      | $ | 59,543    |      |  | $ | 116,040  |  
|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                                                         |  |      |          |   |      |   |           |      |  |   |          |  
|Income taxes paid(refunded)                                                                                |  | $    | 16,373   |   |      | $ | (1,230    | )    |  | $ | 10,737   |  
|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  
|Interest paid                                                                                              |  | $    | 536      |   |      | $ | 1,077     |      |  | $ | 1,017    |  
|                                                                                                           |  |      |          |   |      |   |           |      |  |   |          |  

See Notes to Financial Statements



F - 7



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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

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 to the Financial Statements). 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 U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant
estimates include those used in determining deferred policy acquisition costs or DAC, investments, future policy benefits, provision for income taxes, reserves of contingent liabilities and reserves for losses in connection with
unresolved legal matters.

Investments

Fixed
maturities are comprised of bonds, notes and redeemable preferred stock. 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.

Equity securities are comprised of common stock and non-redeemable preferred stock and are carried at fair value. The associated unrealized gains and losses, net of tax and the effect on deferred policy acquisition costs, valuation of
business acquired, future policy benefits and policyholders dividends that would result from the realization of unrealized gains and losses, are included in Accumulated other comprehensive income (loss). The cost of equity
securities is written down to fair value when a decline in value is considered to be other-than-temporary. See the discussion below on realized investment gains and losses for a description of the accounting for impairments. Dividend income from
these investments is reported in Net investment income.



F - 8



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Commercial loans are carried at unpaid principal balances, net of unamortized premiums or discounts and an allowance
for losses. Interest income, as well as prepayment fees and the amortization of related premiums or discounts, is included in Net investment income. The allowance for losses includes a loan specific reserve for non-performing loans and a
portfolio reserve for probable incurred but not specifically identified losses. Non-performing loans include those loans for which it is probable that amounts due according to the contractual terms of the loan agreement will not all be collected.
These loans are measured at the present value of expected future cash flows discounted at the loans effective interest rate, or at the fair value of the collateral if the loan is collateral dependent. Interest received on non-performing loans,
including loans that were previously modified in a troubled debt restructuring, is either applied against the principal or reported as net investment income, according to managements judgment as to the collectibility of principal. Management
discontinues accruing interest on non-performing loans after the loans are 90 days delinquent as to principal or interest, or earlier when management has doubts about collectibility. When a loan is recognized as non-performing, any accrued but
uncollectible interest is charged to interest income in the period the loan is deemed non-performing. Generally, a loan is restored to accrual status only after all delinquent interest and principal are brought current and, in the case of loans
where the payment of interest has been interrupted for a substantial period, a regular payment performance has been established. The portfolio reserve for incurred but not specifically identified losses considers the Companys past loan loss
experience, the current credit composition of the portfolio, historical credit migration, property type diversification, default and loss severity statistics and other relevant factors. The changes in the allowance for loan losses, are reported in
Realized investment (losses), net.

Securities repurchase and resale agreements and securities loaned transactions are used to earn spread
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 by cash, U.S. government and government agency securities. Securities loaned are collateralized principally by cash and U.S. government securities. For securities repurchase agreements and securities loaned
transactions used to earn spread 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 substantially the same as those sold. Income and expenses related to these transactions executed within the insurance subsidiary used to earn spread income 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 loaned transactions are treated as financing arrangements and are recorded at the amount of cash received. 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 loaned on a daily basis with additional collateral obtained as necessary. Substantially all of the
Companys securities loaned transactions are with large brokerage firms. Income and expenses associated with securities loaned transactions used to earn spread 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 generally carried at 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 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 share of
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. Adjustments to the cost of fixed maturities and equity securities for temporary impairments 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



F - 9



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



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. Realized investment gains (losses) are generated from numerous sources, including the sale of fixed maturity securities, equity securities, real estate investments, investments in joint ventures and limited partnerships and
other types of investments, as well as adjustments to the cost of investments for other than temporary impairments. Realized investment gains (losses), net. also include prepayment premiums received on private fixed maturity securities,
recoveries of principal on previously impaired securities, provisions for losses on commercial loans, fair value changes on embedded derivatives and derivatives that do not qualify for hedge accounting treatment.

There are a number of significant risks and uncertainties inherent in the process of monitoring impairments and determining if 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. The Company also engages in overnight borrowing and lending of funds with Prudential Financial and affiliates which are considered cash and cash equivalents.

Deferred Policy Acquisition Costs

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. 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 as deferred acquisition costs (DAC).

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 sales-based transfer pricing fee is deemed to be related to the production of new annuity business and is
deferred. For life products, there is a look-through into the expenses incurred by Prudential Insurances agency network and expenses that are considered to be related to the production of new insurance business are deferred. The cost of policy
issuance and underwriting are also considered to be related primarily to the production of new insurance and annuity business and are fully deferred.

DAC
is subject to recoverability testing at the end of each accounting period. DAC, for applicable products, is 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 (the periods range from 25 to 99 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 policyholders surrender traditional life insurance policies in exchange for life insurance
policies that do not have fixed and guaranteed terms, the Company immediately charges to expense an estimate of the remaining unamortized DAC on the surrendered policies. For other internal replacement transactions, the



F - 10



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



unamortized DAC on the surrendered policies is immediately charged to expense if the terms of the new policies are not substantially similar to those of the
former policies. 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 expected life of the new policies. The Company adopted
Statement of Position (SOP) 05-1 Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts on January 1, 2007. See New Accounting
Pronouncements.

Reinsurance recoverables

Reinsurance recoverables include corresponding payables and receivables associated with reinsurance arrangements with affiliates. For additional information about these arrangements see Note 13 to the Financial Statements.

Separate account assets and liabilities

Separate account
assets are reported at fair value and represent segregated funds, which are invested for certain policyholders, pension funds and other customers. The assets consist of equity securities, 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. Separate account liabilities represent the contractholders account balance in separate account assets . See Note 8 to
the Consolidated Financial Statements 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 Consolidated 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.

Deferred Sales inducements

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, 2007 and 2006, deferred sales inducement costs were $22 million and $19 million, respectively.

Other assets and other liabilities

Other assets consist primarily of premiums due, 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 and certain unearned revenues.

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 or morbidity, less the present value of future net premiums. For life insurance, and annuity and disability products, expected mortality and morbidity is generally based on the
Companys historical experience or standard industry tables including a provision for the risk of adverse deviation. Interest rate assumptions are based on factors such as market conditions and expected investment returns. Although mortality
and morbidity 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 the Company to provide for
expected future losses on a product by establishing premium deficiency reserves. Premium deficiency reserves, if required, are determined based on assumptions at the time the premium deficiency reserve is established and do not include a provision
for the risk of adverse deviation.

The Companys liability for future policy benefits also includes a liability for unpaid claims and claim
adjustment expenses. The Company does not establish claim liabilities until a loss has occurred. However, unpaid claims and claim adjustment expenses includes estimates of claims that the Company believes have been incurred but have not yet been
reported as of the balance sheet date. The Companys liability for future policy benefits also includes net liabilities for guarantee benefits related to certain nontraditional long-duration life and annuity contracts, which are discussed more
fully in Note 8.



F - 11



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



Contingent Liabilities

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 term life insurance policies are recognized when due and a liability for future policy benefits is recorded
when premiums are recognized using the net level premium method. Benefits are recorded as an expense when they are incurred. Amounts received as payment for variable and universal life and deferred annuities are reported as deposits to
Policyholders account balances, and variable life and annuity premiums are reported as deposits to separate account liabilities. Revenues from these contracts reflected as Policy charges and fee income consist primarily
of fees assessed during the period against the policyholders account balances and separate 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.

Certain individual annuity contracts provide the holder a guarantee that the benefit received upon death or annuitization will be no less than a minimum prescribed amount. These benefits are accounted for as insurance contracts and are
discussed in further detail in Note 8. The Company also provides contracts with certain living benefits which are considered embedded derivatives. These contracts are discussed in further detail in Note 8.

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

The Company receives asset management fee income from policyholders account balances invested in The Prudential Series Funds or,
PSF, which are a portfolio of mutual fund investments related to the Companys separate account products. Also the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series
Trust Funds (see Note 13 to the Consolidated Financial Statements). 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, 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 valuation models. Values can be affected by changes in
interest rates, foreign exchange rates, credit spreads, market volatility, expected returns and liquidity. Values can also be affected by changes in estimates and assumptions including those related to counterparty behavior used in valuation models.

Derivatives are used to manage the characteristics of the Companys asset/liability mix, as well as 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.

Derivatives are recorded as assets, within Other long term investments, or as liabilities, within Other liabilities, in the
Statement of Financial Position except for embedded derivatives, which are recorded in the Statement of Financial Position with the associated host contract. As discussed in detail below and in Note 11, all realized and unrealized changes in fair
value of derivatives, with the exception of the effective portion of cash flow hedges, are recorded in current earnings. Cash flows from these derivatives are reported in the operating or investing activities section in the Statements of Cash Flows.

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), or (4) a derivative entered into as an economic hedge that does not qualified for hedge accounting. During the years ended December 31, 2007, 2006 and 2005 none of the Companys
derivatives qualify for hedge accounting treatment.



F - 12



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



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.

New Accounting Pronouncements

In February 2007, the Financial Accounting Standards Board (FASB) issued SFAS No. 159, The Fair Value Option for Financial
Assets and Financial Liabilities. This statement provides companies with an option to report selected financial assets and liabilities at fair value, with the associated changes in fair value reflected in the Statements of Operations. The
Company plans to adopt this guidance effective January 1, 2008. The Companys adoption of this guidance is not expected to have a material effect on the Companys consolidated financial position or results of operations.

In September 2006, the Staff of the SEC issued Staff Accounting Bulletin (SAB) No. 108, Considering the Effects of Prior Year Misstatements
when Quantifying Misstatements in Current Year Financial Statements. The interpretations in this SAB express the Staffs views regarding the process of quantifying financial statement misstatements. Specifically, the SEC staff believes
that registrants must quantify the impact on current period financial statements of correcting all misstatements, including both those occurring in the current period and the effect of reversing those that have accumulated from prior periods. This
SAB should be applied beginning with the first fiscal year ending after November 15, 2006, with early adoption encouraged. Since the Companys method for quantifying financial statement misstatements already considers those occurring in
the current period and the effect of reversing those that have accumulated from prior periods, the adoption of SAB No. 108 had no effect to the financial position and result of operations of the Company.

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles, and requires additional disclosures about fair

value measurements. This Statement does not require any
new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Company plans to adopt this guidance effective January 1, 2008. The Companys adoption of this guidance is not
expected to have a material effect on the Companys consolidated financial position or results of operations.

In June 2006, the FASB issued FIN
No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109. See Note 7 for details regarding the adoption of this pronouncement.

In February 2006, the FASB issued SFAS No. 155, Accounting for Certain Hybrid Instruments. This statement eliminates an exception from the requirement
to bifurcate an embedded derivative feature from beneficial interests in securitized financial assets. The Company has relied upon this exception for certain investments that the Company has made in securitized financial assets in the normal course
of operations, and thus has not previously had to consider whether such investments contain an



F - 13



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)



embedded derivative. The new requirement to identify embedded derivatives in beneficial interests will be applied on a prospective basis only to beneficial
interests acquired, issued, or subject to certain remeasurement conditions after the adoption of the guidance. This statement also provides an election, on an instrument by instrument basis, to measure at fair value an entire hybrid financial
instrument that contains an embedded derivative requiring bifurcation, rather than measuring only the embedded derivative on a fair value basis. If the fair value election is chosen, changes in unrealized gains and losses are reflected in the
Statements of Operations. The Company adopted this guidance effective January 1, 2007. The Companys adoption of this guidance did not have a material effect on the Companys financial position or results of operations.

In November 2005, the FASB issued FASB Staff Position (FSP) FAS 115-1 and FAS 124-1, The Meaning of Other-Than-Temporary Impairment and its Application
to Certain Investments. This FSP provides impairment models for determining whether to record impairment losses associated with investments in certain equity and debt securities, primarily by referencing existing accounting guidance. 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 adopted this guidance effective January 1, 2006,
and it did not have a material effect on the Companys consolidated results of operations.

In September 2005, the Accounting Standards Executive
Committee (AcSEC) of the American Institute of Certified Public Accountants issued SOP 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance
Contracts. SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs, including deferred policy acquisition costs, valuation of business acquired and deferred sales inducements, on internal replacements
of insurance and investment contracts other than those specifically described in SFAS No. 97. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a
contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract, and was effective for internal replacements occurring in fiscal years beginning after December 15,
2006. The Company adopted SOP 05-1 on January 1, 2007, which resulted in a net after-tax reduction to retained earnings of $0.2 million.

The
cumulative effect of change in accounting principles net of taxes was $0.4 million, representing $0.2 million related to the adoption of SOP 05-1 and $0.2 related to the adoption of Fin No. 48.

Reclassifications

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



F - 14



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS

Fixed Maturities

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



|                                                                                      |  |                |         |                      |   |                       |  |           |       |  |   |        
|------------------------------------------------------------------------------------- |  | -------------- | ------- | -------------------- | - | --------------------- |  | --------- | ----- |  | - | -------
|                                                                                      |  | 2007          
|                                                                                      |  | AmortizedCost  |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|                                                                                      |  | (in thousands)
|Fixed maturities, available for sale                                                  |  |                |         |                      |   |                       |  |           |       |  |   |        
|U.S. Treasury securities and obligations of U.S. Government corporations and agencies |  | $              | 6,289   |                      | $ | 169                   |  | $         |      |  | $ | 6,458  
|Foreign government bonds                                                              |  |                | 9,529   |                      |   | 848                   |  |           |      |  |   | 10,377 
|Residential mortgage-backed securities                                                |  |                | 113,398 |                      |   | 2,204                 |  |           | 36    |  |   | 115,566
|Commercial mortgage-backed securities                                                 |  |                | 177,902 |                      |   | 2,064                 |  |           | 167   |  |   | 179,799
|Asset-Backed Securities                                                               |  |                | 127,545 |                      |   | 672                   |  |           | 3,764 |  |   | 124,453
|Corporate securities                                                                  |  |                | 464,269 |                      |   | 8,421                 |  |           | 5,823 |  |   | 466,867
|                                                                                      |  |                |         |                      |   |                       |  |           |       |  |   |        
|Total fixed maturities, available for sale                                            |  | $              | 898,932 |                      | $ | 14,378                |  | $         | 9,790 |  | $ | 903,520
|                                                                                      |  |                |         |                      |   |                       |  |           |       |  |   |        



|                                                                                      |  |                |         |                      |   |                       |  |           |       |  |   |        
|------------------------------------------------------------------------------------- |  | -------------- | ------- | -------------------- | - | --------------------- |  | --------- | ----- |  | - | -------
|                                                                                      |  | 2006          
|                                                                                      |  | AmortizedCost  |         | GrossUnrealizedGains |   | GrossUnrealizedLosses |  | FairValue
|                                                                                      |  | (in thousands)
|Fixed maturities, available for sale                                                  |  |                |         |                      |   |                       |  |           |       |  |   |        
|U.S. Treasury securities and obligations of U.S. Government corporations and agencies |  | $              | 10,857  |                      | $ | 94                    |  | $         | 54    |  | $ | 10,897 
|Foreign government bonds                                                              |  |                | 9,657   |                      |   | 820                   |  |           |      |  |   | 10,477 
|Residential mortgage-backed securities                                                |  |                | 129,020 |                      |   | 1,296                 |  |           | 111   |  |   | 130,205
|Commercial mortgage-backed securities                                                 |  |                | 112,022 |                      |   | 1,439                 |  |           | 125   |  |   | 113,336
|Asset-Backed Securities                                                               |  |                | 169,509 |                      |   | 817                   |  |           | 733   |  |   | 169,593
|Corporate securities                                                                  |  |                | 481,627 |                      |   | 8,835                 |  |           | 4,045 |  |   | 486,417
|                                                                                      |  |                |         |                      |   |                       |  |           |       |  |   |        
|Total fixed maturities, available for sale                                            |  | $              | 912,692 |                      | $ | 13,301                |  | $         | 5,068 |  | $ | 920,925
|                                                                                      |  |                |         |                      |   |                       |  |           |       |  |   |        



F - 15



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



The amortized cost and estimated fair value of fixed maturities, by contractual maturities at December 31, 2007,
is shown below:



|                                       |  |                    |         |           |   |        
|-------------------------------------- |  | ------------------ | ------- | --------- | - | -------
|                                       |  | Available for Sale
|                                       |  | AmortizedCost      |         | FairValue
|                                       |  | (in thousands)    
|Due in one year or less                |  | $                  | 30,056  |           | $ | 30,215 
|Due after one year through five years  |  |                    | 193,226 |           |   | 197,730
|Due after five years through ten years |  |                    | 193,851 |           |   | 193,793
|Due after ten years                    |  |                    | 62,954  |           |   | 61,964 
|Residential mortgage-backed securities |  |                    | 113,398 |           |   | 115,566
|Commercial mortgage-backed securities  |  |                    | 177,902 |           |   | 179,799
|Asset-Backed Securities                |  |                    | 127,545 |           |   | 124,453
|                                       |  |                    |         |           |   |        
|Total                                  |  | $                  | 898,932 |           | $ | 903,520
|                                       |  |                    |         |           |   |        

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 2007, 2006, and 2005 were $202 million, $949 million, and $649 million,
respectively. Proceeds from maturities of fixed maturities available for sale during 2007, 2006, and 2005 were $66 million, and $96 million, and $128 million, respectively. Gross gains of $2 million, $1 million, and $4 million, and gross losses of
$1 million, $15 million, and $5 million were realized on those sales during 2007, 2006, and 2005, respectively.

The writedowns for impairments that were
deemed to be other than temporary for fixed maturities for the years 2007, 2006 and 2005 are less than $1 million respectively.

Other Long term
Investments

The following table provides information relating to other long term investments as of December 31:



|                                          |  |                |        |      |   |      
|----------------------------------------- |  | -------------- | ------ | ---- | - | -----
|                                          |  | 2007           |        | 2006
|                                          |  | (in thousands)
|Companys investment in Separate accounts |  | $              | 3,049  |      | $ | 2,464
|Equity securities                         |  |                | 4,408  |      |   | 4,417
|Derivatives                               |  |                | 2,582  |      |   | 2,565
|                                          |  |                |        |      |   |      
|Total other long- term investments        |  | $              | 10,039 |      | $ | 9,446
|                                          |  |                |        |      |   |      

Investment Income and Investment Gains and Losses

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



|                                            |  |                |        |   |      |   |        |      |  |   |        |  
|------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                            |  | 2007           |        |   | 2006 |   |        | 2005 | 
|                                            |  | (in thousands) |       
|Fixed maturities, available for sale        |  | $              | 52,845 |   |      | $ | 55,625 |      |  | $ | 52,085 |  
|Policy loans                                |  |                | 8,863  |   |      |   | 8,632  |      |  |   | 8,523  |  
|Commercial loans                            |  |                | 4,641  |   |      |   | 1,789  |      |  |   | 415    |  
|Short term investments and cash equivalents |  |                | 3,356  |   |      |   | 4,082  |      |  |   | 3,660  |  
|Other                                       |  |                | 751    |   |      |   | 599    |      |  |   | 625    |  
|                                            |  |                |        |   |      |   |        |      |  |   |        |  
|Gross investment income                     |  |                | 70,456 |   |      |   | 70,727 |      |  |   | 65,308 |  
|Less: investment expenses                   |  |                | (3,751 | ) |      |   | (5,099 | )    |  |   | (5,111 | )
|                                            |  |                |        |   |      |   |        |      |  |   |        |  
|Net investment income                       |  | $              | 66,705 |   |      | $ | 65,628 |      |  | $ | 60,197 |  
|                                            |  |                |        |   |      |   |        |      |  |   |        |  



F - 16



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



Realized investment (losses)/ gains, net, including charges for other than temporary reductions
in value, for the years ended December 31, were from the following sources:



|                                     |  |                |        |   |      |   |         |      |  |   |      |  
|------------------------------------ |  | -------------- | ------ | - | ---- | - | ------- | ---- |  | - | ---- | -
|                                     |  | 2007           |        |   | 2006 |   |         | 2005 | 
|                                     |  | (in thousands) |       
|Fixed maturities, available for sale |  | $              | 965    |   |      | $ | (14,374 | )    |  | $ | (316 | )
|Derivatives and other                |  |                | (3,166 | ) |      |   | 474     |      |  |   | (13  | )
|                                     |  |                |        |   |      |   |         |      |  |   |      |  
|Realized investment losses, net      |  | $              | (2,201 | ) |      | $ | (13,900 | )    |  | $ | (329 | )
|                                     |  |                |        |   |      |   |         |      |  |   |      |  

Commercial Loans

The Companys commercial loans are comprised as follows as at December 31:



|                                      |  |                      |         |   |           |       |   |                      |   |        |           |  |       |  
|------------------------------------- |  | -------------------- | ------- | - | --------- | ----- | - | -------------------- | - | ------ | --------- |  | ----- | -
|                                      |  | 2007                 |         |   | 2006      |      
|                                      |  | Amount(in thousands) |         |   | % ofTotal |       |   | Amount(in thousands) |   |        | % ofTotal | 
|Collateralized loans by property type |  |                      |         |   |           |       |   |                      |   |        |           |  |       |  
|Apartment complexes                   |  | $                    | 11,863  |   |           | 11.6  | % |                      | $ | 12,315 |           |  | 25.1  | %
|Agricultural properties               |  |                      | 16,469  |   |           | 16.1  | % |                      |   | 8,084  |           |  | 16.5  | %
|Industrial buildings                  |  |                      | 20,773  |   |           | 20.3  | % |                      |   | 7,348  |           |  | 15.0  | %
|Retail stores                         |  |                      | 8,826   |   |           | 8.7   | % |                      |   | 8,940  |           |  | 18.2  | %
|Office buildings                      |  |                      | 16,980  |   |           | 16.6  | % |                      |   | 5,363  |           |  | 10.9  | %
|Other                                 |  |                      | 27,232  |   |           | 26.7  | % |                      |   | 7,031  |           |  | 14.3  | %
|                                      |  |                      |         |   |           |       |   |                      |   |        |           |  |       |  
|Total collateralized loans            |  |                      | 102,143 |   |           | 100.0 | % |                      |   | 49,081 |           |  | 100.0 | %
|                                      |  |                      |         |   |           |       |   |                      |   |        |           |  |       |  
|Valuation allowance                   |  |                      | (560    | ) |           |       |   |                      |   | (102   | )         |  |       |  
|                                      |  |                      |         |   |           |       |   |                      |   |        |           |  |       |  
|Total net collateralized loans        |  |                      | 101,583 |   |           |       |   |                      |   | 48,979 |           |  |       |  
|                                      |  |                      |         |   |           |       |   |                      |   |        |           |  |       |  
|Total commercial loans                |  | $                    | 101,583 |   |           |       |   |                      | $ | 48,979 |           |  |       |  
|                                      |  |                      |         |   |           |       |   |                      |   |        |           |  |       |  

The commercial loans are geographically dispersed throughout the United States with the largest concentrations in
Virginia (12%) and Minnesota (12%) at December 31, 2007.

Activity in the allowance for losses for all commercial loans, for the years ended
December 31, is as follows:



|                                        |  |                |     |      |   |      |  |   |  
|--------------------------------------- |  | -------------- | --- | ---- | - | ---- |  | - | -
|                                        |  | 2007           |     | 2006 |   | 2005
|                                        |  | (in thousands)
|Allowance for losses, beginning of year |  | $              | 102 |      | $ |     |  | $ | 
|Addition to allowance for losses        |  |                | 458 |      |   | 102  |  |   | 
|                                        |  |                |     |      |   |      |  |   |  
|Allowance for losses, end of year       |  | $              | 560 |      | $ | 102  |  | $ | 
|                                        |  |                |     |      |   |      |  |   |  



F - 17



---

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 Accumulated other comprehensive income (loss) those items that are included as part of net income for a period that also had been part of Accumulated other comprehensive
income (loss) in earlier periods. The amounts for the years ended December 31, net of tax, are as follows:



|                                                                                  |  |                                            |         |   |                                |   |         |                               |  |   |                                      |   |  |                                                                                             |        |   |  |   |         |  
|--------------------------------------------------------------------------------- |  | ------------------------------------------ | ------- | - | ------------------------------ | - | ------- | ----------------------------- |  | - | ------------------------------------ | - |  | ------------------------------------------------------------------------------------------- | ------ | - |  | - | ------- | -
|                                                                                  |  | Net UnrealizedGains (Losses)on Investments |         |   | DeferredpolicyAcquisitionCosts |   |         | PolicyholdersAccountBalances |  |   | DeferredIncome Tax(Liability)Benefit |   |  | Accumulated otherComprehensiveIncome (Loss)Related to
NetUnrealizedInvestmentGains (Losses) |       
|                                                                                  |  | (in thousands)                             |        
|Balance, January 1, 2005                                                          |  | $                                          | 29,496  |   |                                | $ | (11,849 | )                             |  | $ | 2,731                                |   |  | $                                                                                           | (7,132 | ) |  | $ | 13,246  |  
|Net investment (losses) on investments arising during the period                  |  |                                            | (28,357 | ) |                                |   |        |                               |  |   |                                     |   |  |                                                                                             | 9,926  |   |  |   | (18,431 | )
|Reclassification adjustment for gains included in net income                      |  |                                            | 314     |   |                                |   |        |                               |  |   |                                     |   |  |                                                                                             | (111   | ) |  |   | 203     |  
|Impact of net unrealized investment losses on deferred policy acquisition costs   |  |                                            |        |   |                                |   | 11,961  |                               |  |   |                                     |   |  |                                                                                             | (4,186 | ) |  |   | 7,775   |  
|Impact of net unrealized investment gain on policyholders account balances       |  |                                            |        |   |                                |   |        |                               |  |   | (3,012                               | ) |  |                                                                                             | 1,054  |   |  |   | (1,958  | )
|                                                                                  |  |                                            |         |   |                                |   |         |                               |  |   |                                      |   |  |                                                                                             |        |   |  |   |         |  
|Balance, December 31, 2005                                                        |  | $                                          | 1,453   |   |                                | $ | 112     |                               |  | $ | (281                                 | ) |  | $                                                                                           | (449   | ) |  | $ | 835     |  
|Net investment gains on investments arising during the period                     |  |                                            | 21,752  |   |                                |   |        |                               |  |   |                                     |   |  |                                                                                             | (7,613 | ) |  |   | 14,139  |  
|Reclassification adjustment for gain included in net income                       |  |                                            | (14,373 | ) |                                |   |        |                               |  |   |                                     |   |  |                                                                                             | 5,031  |   |  |   | (9,342  | )
|Impact of net unrealized investment (losses) on deferred policy acquisition costs |  |                                            |        |   |                                |   | (3,701  | )                             |  |   |                                     |   |  |                                                                                             | 1,295  |   |  |   | (2,406  | )
|Impact of net unrealized investment (losses) on policyholders account balances   |  |                                            |        |   |                                |   |        |                               |  |   | 1,194                                |   |  |                                                                                             | (418   | ) |  |   | 776     |  
|                                                                                  |  |                                            |         |   |                                |   |         |                               |  |   |                                      |   |  |                                                                                             |        |   |  |   |         |  
|Balance, December 31, 2006                                                        |  | $                                          | 8,832   |   |                                | $ | (3,589  | )                             |  | $ | 913                                  |   |  | $                                                                                           | (2,154 | ) |  | $ | 4,002   |  
|Net investment (losses) on investments arising during the period                  |  |                                            | (3,970  | ) |                                |   |        |                               |  |   |                                     |   |  |                                                                                             | 1,389  |   |  |   | (2,581  | )
|Reclassification adjustment for (losses) included in net income                   |  |                                            | 965     |   |                                |   |        |                               |  |   |                                     |   |  |                                                                                             | (338   | ) |  |   | 627     |  
|Impact of net unrealized investment gains on deferred policy acquisition costs    |  |                                            |        |   |                                |   | 2,406   |                               |  |   |                                     |   |  |                                                                                             | (842   | ) |  |   | 1,564   |  
|Impact of net unrealized investment gains on policyholders account balances      |  |                                            |        |   |                                |   |        |                               |  |   | (828                                 | ) |  |                                                                                             | 290    |   |  |   | (538    | )
|                                                                                  |  |                                            |         |   |                                |   |         |                               |  |   |                                      |   |  |                                                                                             |        |   |  |   |         |  
|Balance, December 31, 2007                                                        |  | $                                          | 5,827   |   |                                | $ | (1,183  | )                             |  | $ | 85                                   |   |  | $                                                                                           | (1,655 | ) |  | $ | 3,074   |  
|                                                                                  |  |                                            |         |   |                                |   |         |                               |  |   |                                      |   |  |                                                                                             |        |   |  |   |         |  



F - 18



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



The table below presents net unrealized gains on investments by asset class at December 31,



|                                |  |                |       |      |   |       |  |   |      
|------------------------------- |  | -------------- | ----- | ---- | - | ----- |  | - | -----
|                                |  | 2007           |       | 2006 |   | 2005 
|                                |  | (in thousands)
|Fixed maturities                |  | $              | 4,588 |      | $ | 8,233 |  | $ | 857  
|Other long term investments     |  |                | 1,239 |      |   | 599   |  |   | 596  
|                                |  |                |       |      |   |       |  |   |      
|Unrealized gains on investments |  | $              | 5,827 |      | $ | 8,832 |  | $ | 1,453
|                                |  |                |       |      |   |       |  |   |      

Included in other long term investments are equity securities.

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, 2006 and 2005
respectively:



|                                                                                      |  |                        |         |                      |   |           |  |                  |         |           |   |                  |  |   |         |  |   |      
|------------------------------------------------------------------------------------- |  | ---------------------- | ------- | -------------------- | - | --------- |  | ---------------- | ------- | --------- | - | ---------------- |  | - | ------- |  | - | -----
|                                                                                      |  | Less than twelvemonths |         | Twelve months ormore |   | Total    
|                                                                                      |  | FairValue              |         | UnrealizedLosses     |   | FairValue |  | UnrealizedLosses |         | FairValue |   | UnrealizedLosses
|                                                                                      |  | (in thousands)        
|Fixed maturities, available for sale: 2007                                            |  |                        |         |                      |   |           |  |                  |         |           |   |                  |  |   |         |  |   |      
|U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $                      | 6,289   |                      | $ |          |  | $                |        |           | $ |                 |  | $ | 6,289   |  | $ |     
|Foreign government bonds                                                              |  |                        | 9,529   |                      |   |          |  |                  |        |           |   |                 |  |   | 9,529   |  |   |     
|Corporate securities                                                                  |  |                        | 386,167 |                      |   | 2,868     |  |                  | 72,279  |           |   | 2,955            |  |   | 458,446 |  |   | 5,823
|Residential mortgage-backed securities                                                |  |                        | 110,388 |                      |   |          |  |                  | 2,973   |           |   | 36               |  |   | 113,361 |  |   | 36   
|Commercial mortgage-backed securities                                                 |  |                        | 172,559 |                      |   | 164       |  |                  | 5,176   |           |   | 3                |  |   | 177,735 |  |   | 167  
|Asset-Backed Securities                                                               |  |                        | 99,202  |                      |   | 2,528     |  |                  | 24,579  |           |   | 1,236            |  |   | 123,781 |  |   | 3,764
|                                                                                      |  |                        |         |                      |   |           |  |                  |         |           |   |                  |  |   |         |  |   |      
|Total                                                                                 |  | $                      | 784,134 |                      | $ | 5,560     |  | $                | 105,007 |           | $ | 4,230            |  | $ | 889,141 |  | $ | 9,790
|                                                                                      |  |                        |         |                      |   |           |  |                  |         |           |   |                  |  |   |         |  |   |      
|                                                                                      |  |                        |         |                      |   |          
|Fixed maturities, available for sale: 2006                                            |  |                        |         |                      |   |           |  |                  |         |           |   |                  |  |   |         |  |   |      
|U.S. Treasury securities and obligations of U.S. government corporations and agencies |  | $                      | 455     |                      | $ | 10        |  | $                | 2,316   |           | $ | 44               |  | $ | 2,771   |  | $ | 54   
|Corporate securities                                                                  |  |                        | 51,288  |                      |   | 712       |  |                  | 91,666  |           |   | 3,333            |  |   | 142,954 |  |   | 4,045
|Residential mortgage-backed securities                                                |  |                        | 3,310   |                      |   | 23        |  |                  | 3,722   |           |   | 87               |  |   | 7,032   |  |   | 110  
|Commercial mortgage-backed securities                                                 |  |                        | 19,059  |                      |   | 56        |  |                  | 6,072   |           |   | 69               |  |   | 25,131  |  |   | 125  
|Asset-Backed Securities                                                               |  |                        | 21,381  |                      |   | 87        |  |                  | 24,844  |           |   | 646              |  |   | 46,225  |  |   | 733  
|                                                                                      |  |                        |         |                      |   |           |  |                  |         |           |   |                  |  |   |         |  |   |      
|Total                                                                                 |  | $                      | 95,493  |                      | $ | 888       |  | $                | 128,620 |           | $ | 4,179            |  | $ | 224,113 |  | $ | 5,067
|                                                                                      |  |                        |         |                      |   |           |  |                  |         |           |   |                  |  |   |         |  |   |      

As of December 31, 2007, gross unrealized losses on fixed maturities totaled approximately $9.7 million
comprising 384 issuers. Of this amount, there was $5.5 million in the less than twelve months category comprising 337 issuers and $4.2 million in the greater than twelve months category comprising 47 issuers. There were no individual issuers with
gross unrealized losses greater than $1.1 million. Investment grade securities was comprised of gross unrealized losses of $7.1 million. Based on a review of the above information in conjunction with other factors as outlined in our policy
surrounding other than temporary impairments (see Note 2 to the Financial Statements), we have concluded that an adjustment for other than temporary impairments for these securities is not warranted at December 31, 2007.

As of December 31, 2006, gross unrealized losses on fixed maturities totaled approximately $5 million comprising 135 issuers. Of this amount, there was $1 million in
the less than twelve months category comprising 56 issuers and $4 million in the greater than twelve months category comprising 79 issuers. There were no individual issuers with gross unrealized losses greater than $0.3 million. Investment grade
securities was comprised of gross unrealized losses of $3.4 million and $2 million of gross unrealized losses of twelve months or more were concentrated in the finance, manufacturing, and service sectors. Based on a review of the



F - 19



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





3. INVESTMENTS (continued)



above information in conjunction with other factors as outlined in our policy surrounding other than temporary impairments (see Note 2 to the Financial
Statements), we have concluded that an adjustment for other than temporary impairments for these securities is not warranted at December 31, 2006.

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, 2007 and 2006, the carrying values of fixed maturities available for sale pledged to third parties
as reported in the Statements of Financial Position were $40 million and $31 million, respectively.

Fixed maturities of $0.3 and $0.5 million at
December 31, 2007 and 2006, respectively, were on deposit with governmental authorities or trustees as required by certain insurance laws.

4.
DEFERRED POLICY ACQUISITION COSTS

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



|                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------- |  | -------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                        |  | 2007           |         |   | 2006 |   |         | 2005 | 
|                                                        |  | (in thousands) |        
|Balance, beginning of year                              |  | $              | 255,849 |   |      | $ | 225,572 |      |  | $ | 183,219 |  
|Capitalization of commissions, sales and issue expenses |  |                | 50,565  |   |      |   | 42,918  |      |  |   | 39,238  |  
|Amortization                                            |  |                | (35,447 | ) |      |   | (8,940  | )    |  |   | (8,846  | )
|Change in unrealized investment gains/(losses)          |  |                | 2,406   |   |      |   | (3,701  | )    |  |   | 11,961  |  
|Cumulative effect of SOP 05-1                           |  |                | (229    | ) |      |   |        |      |  |   |        |  
|                                                        |  |                |         |   |      |   |         |      |  |   |         |  
|Balance, end of year                                    |  | $              | 273,144 |   |      | $ | 255,849 |      |  | $ | 225,572 |  
|                                                        |  |                |         |   |      |   |         |      |  |   |         |  

Deferred acquisition costs 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 to the Financial Statements below.

Ceded capitalization was $20 million, $16 million and $14 million in 2007, 2006 and 2005 respectively. Amortization relating to this treaty included in the above table amounted to $4 million in 2007, 2006 and 2005.

5. POLICYHOLDERS LIABILITIES

Future policy
benefits at December 31 are as follows:



|                                             |  |                |         |      |   |        
|-------------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                             |  | 2007           |         | 2006
|                                             |  | (in thousands)
|Life insurance                               |  | $              | 302,205 |      | $ | 242,936
|Individual and group annuities               |  |                | 5,068   |      |   | 4,791  
|Policy claims and other contract liabilities |  |                | 5,364   |      |   | 2,326  
|                                             |  |                |         |      |   |        
|Total future policy benefits                 |  | $              | 312,637 |      | $ | 250,053
|                                             |  |                |         |      |   |        

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

Future policy benefits for life insurance are generally equal to the
aggregate of (1) the present value of future benefit payments and related expenses, less the present value of future net premiums, and (2) any premium deficiency reserves. Assumptions as to mortality and persistency are based on the
Companys experience, and in certain instances, industry experience, when the basis of the reserve is established. Interest rates range from 2.50% to 7.50%.



F - 20



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





5. POLICYHOLDERS LIABILITIES (continued)



Future policy benefits for individual and group annuities and supplementary contracts are generally equal to the
aggregate of (1) the present value of expected future payments, and (2) any premium deficiency reserves. Assumptions as to mortality are based on the Companys experience, and in certain instances, industry experience, when the basis
of the reserve is established. The interest rates used in the determination of the present value range from 5.25% to 8.75%, with 8% of the reserves based on an interest rate in excess of 8%.

Future policy benefits for other contract liabilities are generally equal to the present value of expected future payments based on the Companys experience. The
interest rates used in the determination of the present values range from 4.04% to 5.85%.

Policyholders account balances at December 31 are as
follows:



|                                      |  |                |         |      |   |        
|------------------------------------- |  | -------------- | ------- | ---- | - | -------
|                                      |  | 2007           |         | 2006
|                                      |  | (in thousands)
|Interest-sensitive life contracts     |  | $              | 532,484 |      | $ | 495,150
|Individual annuities                  |  |                | 203,363 |      |   | 264,892
|Guaranteed interest accounts          |  |                | 31,705  |      |   | 34,701 
|Dividend accumulations and other      |  |                | 38,053  |      |   | 42,237 
|                                      |  |                |         |      |   |        
|Total policyholders account balances |  | $              | 805,605 |      | $ | 836,980
|                                      |  |                |         |      |   |        

Policyholders account balances represent an accumulation of account deposits plus credited interest less
withdrawals, expenses and mortality charges, if applicable. Interest crediting rates for interest-sensitive life contracts range from 3.00% to 5.15%. Interest crediting rates for individual annuities range from 1.50% to 13.00%, with less than 1% of
the policyholders account balances with interest crediting rates in excess of 8.00%. Interest crediting rates for guaranteed interest accounts range from 3.00% to 6.00%. Interest crediting rates range from 1.50% to 6.23% for dividend
accumulations and other.

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. Effective October 3, 2005, the Company entered into a new coinsurance agreement with Pruco Reinsurance Ltd. (Pruco Re) (see Note 13 to the Financial Statements) providing for the 100% reinsurance of its Lifetime Five benefit feature
sold on new business after October 3, 2005.

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.



|                                                  |  |                |          |   |      |   |          |      |  |   |         |  
|------------------------------------------------- |  | -------------- | -------- | - | ---- | - | -------- | ---- |  | - | ------- | -
|                                                  |  | 2007           |          |   | 2006 |   |          | 2005 | 
|                                                  |  | (in thousands) |         
|Direct premiums and policy charges and fee income |  | $              | 232,073  |   |      | $ | 184,637  |      |  | $ | 162,830 |  
|Reinsurance ceded                                 |  |                | (142,780 | ) |      |   | (116,040 | )    |  |   | (94,074 | )
|                                                  |  |                |          |   |      |   |          |      |  |   |         |  
|Premiums and policy charges and fee income        |  | $              | 89,293   |   |      | $ | 68,597   |      |  | $ | 68,756  |  
|                                                  |  |                |          |   |      |   |          |      |  |   |         |  
|                                                  |  |                |         
|Policyholders benefits ceded                     |  | $              | 47,468   |   |      | $ | 51,306   |      |  | $ | 41,641  |  
|                                                  |  |                |          |   |      |   |          |      |  |   |         |  
|Realized capital gains (losses) ceded, net        |  | $              | 1,944    |   |      | $ | 632      |      |  | $ |        |  
|                                                  |  |                |          |   |      |   |          |      |  |   |         |  



F - 21



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





6. REINSURANCE (continued)



Realized capital gains ceded include the reinsurance of the Companys derivatives under SFAS No. 133.
Changes in the fair value of the derivatives are recognized through Realized investment gains.

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

Reinsurance recoverables, included in the Companys Statements of Financial Position, at December 31, 2007 and 2006 were $187 million and $135 million,
respectively.

During 2004, the Company entered into reinsurance contracts with affiliates covering the entire domestic 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 to the Financial Statements.

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



|                                      |  |                |             |   |      |   |             |      |  |   |             |  
|------------------------------------- |  | -------------- | ----------- | - | ---- | - | ----------- | ---- |  | - | ----------- | -
|                                      |  | 2007           |             |   | 2006 |   |             | 2005 | 
|                                      |  | (in thousands) |            
|Life insurance face amount in force   |  | $              | 78,616,940  |   |      | $ | 63,399,375  |      |  | $ | 52,930,588  |  
|Ceded                                 |  |                | (69,518,388 | ) |      |   | (56,034,023 | )    |  |   | (46,406,195 | )
|                                      |  |                |             |   |      |   |             |      |  |   |             |  
|Net amount of life insurance in force |  | $              | 9,098,552   |   |      | $ | 7,365,352   |      |  | $ | 6,524,393   |  
|                                      |  |                |             |   |      |   |             |      |  |   |             |  

7. INCOME TAXES

The components of income tax expense (benefits) for the years ended December 31, are as follows:



|                                                   |  |                |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                   |  | 2007           |        |   | 2006 |   |        | 2005 | 
|                                                   |  | (in thousands) |       
|Current tax (benefit) expense:                     |  |                |        |   |      |   |        |      |  |   |        |  
|U.S.                                               |  | $              | 12,044 |   |      | $ | (596   | )    |  | $ | 6,441  |  
|                                                   |  |                |        |   |      |   |        |      |  |   |        |  
|Total                                              |  |                | 12,044 |   |      |   | (596   | )    |  |   | 6,441  |  
|                                                   |  |                |        |   |      |   |        |      |  |   |        |  
|                                                   |  |                |       
|Deferred tax expense:                              |  |                |        |   |      |   |        |      |  |   |        |  
|U.S.                                               |  |                | 3,502  |   |      |   | 12,073 |      |  |   | 7,151  |  
|                                                   |  |                |        |   |      |   |        |      |  |   |        |  
|Total                                              |  |                | 3,502  |   |      |   | 12,073 |      |  |   | 7,151  |  
|                                                   |  |                |        |   |      |   |        |      |  |   |        |  
|                                                   |  |                |       
|Total income tax expense on income from operations |  | $              | 15,546 |   |      | $ | 11,477 |      |  | $ | 13,592 |  
|Other comprehensive (loss) income                  |  |                | (457   | ) |      |   | 1,721  |      |  |   | (6,683 | )
|Cumulative effect of changes in accounting policy  |  |                | 135    |   |      |   |       |      |  |   |       |  
|                                                   |  |                |        |   |      |   |        |      |  |   |        |  
|Total income tax expense                           |  | $              | 15,224 |   |      | $ | 13,198 |      |  | $ | 6,909  |  
|                                                   |  |                |        |   |      |   |        |      |  |   |        |  

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:



F - 22



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





7. INCOME TAXES (continued)



|                                                   |  |                |        |   |      |   |        |      |  |   |        |  
|-------------------------------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                   |  | 2007           |        |   | 2006 |   |        | 2005 | 
|                                                   |  | (in thousands) |       
|Expected federal income tax expense                |  | $              | 19,512 |   |      | $ | 17,644 |      |  | $ | 18,486 |  
|Non taxable investment income                      |  |                | (4,298 | ) |      |   | (5,495 | )    |  |   | (2,815 | )
|IRS settlement for examination period 1997 to 2001 |  |                |       |   |      |   |       |      |  |   | (2,769 | )
|Other                                              |  |                | 332    |   |      |   | (672   | )    |  |   | 690    |  
|                                                   |  |                |        |   |      |   |        |      |  |   |        |  
|Total income tax expense                           |  | $              | 15,546 |   |      | $ | 11,477 |      |  | $ | 13,592 |  
|                                                   |  |                |        |   |      |   |        |      |  |   |        |  

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



|                                   |  |                |        |      |   |       
|---------------------------------- |  | -------------- | ------ | ---- | - | ------
|                                   |  | 2007           |        | 2006
|                                   |  | (in thousands)
|Deferred tax assets                |  |                |        |      |   |       
|Other                              |  | $              | 868    |      | $ | 518   
|                                   |  |                |        |      |   |       
|Deferred tax assets                |  |                | 868    |      |   | 518   
|                                   |  |                |        |      |   |       
|                                   |  |               
|Deferred tax liabilities           |  |                |        |      |   |       
|Deferred acquisition costs         |  |                | 67,222 |      |   | 65,760
|Insurance reserves                 |  |                | 8,679  |      |   | 6,719 
|Net unrealized gains on securities |  |                | 2,039  |      |   | 3,091 
|Other                              |  |                | 1,336  |      |   | 426   
|                                   |  |                |        |      |   |       
|Deferred tax liabilities           |  |                | 79,276 |      |   | 75,996
|                                   |  |                |        |      |   |       
|                                   |  |               
|Net deferred tax liability         |  | $              | 78,408 |      | $ | 75,478
|                                   |  |                |        |      |   |       

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.

On January 1, 2007, the Company adopted FIN No. 48, Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement
No. 109. This interpretation prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on a tax return.
Adoption of FIN No. 48 resulted in an increase to the Companys income tax liability and a decrease to retained earnings of $0.2 million as of January 1, 2007.

The Companys unrecognized tax benefits as of the date of adoption of FIN No. 48 and as of December 31, 2007 are as follows:



|                                                                                                                 |  |                                       |       |                                         |   |       |                                        |  |   |       |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------------- | ----- | --------------------------------------- | - | ----- | -------------------------------------- |  | - | ----- | -
|                                                                                                                 |  | Unrecognizedtax benefitsprior to 2002 |       | Unrecognizedtax benefits2002 andforward |   |       | Totalunrecognizedtax benefits allyears | 
|                                                                                                                 |  | (in thousands)                        |      
|Amounts as of January 1, 2007                                                                                    |  | $                                     | 3,597 |                                         | $ | 1,680 |                                        |  | $ | 5,277 |  
|                                                                                                                 |  |                                       |      
|(Decreases) in unrecognized tax benefits taken in prior period                                                   |  |                                       | 0     |                                         |   | (210  | )                                      |  |   | (210  | )
|Increases in unrecognized tax benefits taken in current period                                                   |  |                                       | 0     |                                         |   | 0     |                                        |  |   | 0     |  
|                                                                                                                 |  |                                       |       |                                         |   |       |                                        |  |   |       |  
|Amount as of December 31, 2007                                                                                   |  | $                                     | 3,597 |                                         | $ | 1,470 |                                        |  | $ | 5,067 |  
|                                                                                                                 |  |                                       |       |                                         |   |       |                                        |  |   |       |  
|Unrecognized tax benefits that, if recognized, would favorably impact the effective rate as of December 31, 2007 |  | $                                     | 3,597 |                                         | $ | 0     |                                        |  | $ | 3,597 |  
|                                                                                                                 |  |                                       |       |                                         |   |       |                                        |  |   |       |  



F - 23



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





7. INCOME TAXES (continued)



The Company classifies all interest and penalties related to tax uncertainties as income tax expense. In 2007, the
Company recognized $0.1 million in the statement of operations and recognized $0.6 million in liabilities in the statement of financial position for tax-related interest and penalties.

The Companys liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by the Internal Revenue Service (the
Service) or other taxing jurisdictions. Audit periods remain open for review until the statute of limitations has passed. Generally, for tax years which produce net operating losses, capital losses or tax credit carryforwards (tax attributes), the
statute of limitations does not close, to the extent of these tax attributes, until the tax year in which they are fully utilized. The completion of review or the expiration of the statute of limitations for a given audit period could result in an
adjustment to our liability for income taxes. Any such adjustment could be material to our results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. The Company does not
anticipate any significant changes to its total unrecognized tax benefits within the next 12 months.

On January 26, 2006, the Service officially
closed the audit of the Companys consolidated federal income tax returns for the 1997 to 2001 periods. As a result of certain favorable resolutions, the Companys consolidated statement of operations for the year ended December 31,
2005 included an income tax benefit of $3 million, reflecting a reduction in the Companys liability for income taxes. The statute of limitations has closed for these tax years; however, there were tax attributes which were utilized in
subsequent tax years for which the statute of limitations remains open.

In December 2006, the Service completed all fieldwork with regards to its
examination of the consolidated federal income tax returns for tax years 2002-2003. The final report was submitted to the Joint Committee on Taxation for their review in April 2007. In July 2007, the Joint Committee returned the report to the
Service for additional review of an industry issue regarding the methodology for calculating the dividends received deduction related to variable life insurance and annuity contracts. The Company is responding to the Services request for
additional information. In August 2007, the Service issued Revenue Ruling 2007-54. Revenue Ruling 2007-54 included among other items, guidance on the methodology to be followed in calculating the dividends received deduction related to variable life
insurance and annuity contracts. In September 2007, the Service released Revenue Ruling 2007-61. Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54 and informed taxpayers that the U.S. Treasury Department and the Service intend to address
through new regulations the issues considered in Revenue Ruling 2007-54, including the methodology to be followed in determining the dividends received deduction related to variable life insurance and annuity contracts. These activities had no
impact on the Companys 2007 results. The statute of limitations for the 2002-2003 tax years expires in 2009.

In January 2007, the Service began an
examination of tax years 2004 through 2006. For tax year 2007, the Company participated in the Services new Compliance Assurance Program (CAP). Under CAP, the Service assigns an examination team to review completed transactions
contemporaneously during the 2007 tax year in order to reach agreement with the Company on how they should be reported in the tax return. If disagreements arise, accelerated resolutions programs are available to resolve the disagreements in a timely
manner before the tax return is filed It is managements expectation this new program will significantly shorten the time period between the Companys filing of its federal income tax return and the Services completion of its
examination of the return.



F - 24



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





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
(1) total deposits made to the contract less any partial withdrawals (return of net deposits), (2) total deposits made to the contract less any partial withdrawals plus a minimum return (minimum return), or
(3) the highest contract value on a specified date minus any withdrawals (contract value). These guarantees include benefits that are payable in the event of death, annuitization or at specified dates during the accumulation period
including withdrawal and income benefits payable during specified periods.

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 or if funds are reallocated to other
investment options. 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
similar to variable annuities.

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 2007 and 2006 there were no gains or
losses on transfers of assets from the general account to a separate account.



F - 25



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





8. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)



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. As of December 31, 2007 and 2006, the Company had the following guarantees associated with these contracts, by product and guarantee type:



|                                                               |  |                      |          |                                    |   |                      |  |                                    |          |  |   |          
|-------------------------------------------------------------- |  | -------------------- | -------- | ---------------------------------- | - | -------------------- |  | ---------------------------------- | -------- |  | - | ---------
|                                                               |  | December 31, 2007    |          | December 31, 2006                 
|                                                               |  | In the Event ofDeath |          | At Annuitization /Accumulation (1) |   | In the Event ofDeath |  | At Annuitization /Accumulation (1)
|                                                               |  | (in thousands)       |          | (in thousands)                    
|Variable Annuity Contracts                                     |  |                      |          |                                    |   |                      |  |                                    |          |  |   |          
|Return of net deposits                                         |  |                      |          |                                    |   |                      |  |                                    |          |  |   |          
|Account value                                                  |  | $                    | 487,411  |                                    |   | N/A                  |  | $                                  | 410,196  |  |   | N/A      
|Net amount at risk                                             |  | $                    | 226      |                                    |   | N/A                  |  | $                                  | 120      |  |   | N/A      
|Average attained age of contractholders                        |  |                      | 61 years |                                    |   | N/A                  |  |                                    | 62 years |  |   | N/A      
|                                                               |  |                      |          |                                   
|Minimum return or contract value                               |  |                      |          |                                    |   |                      |  |                                    |          |  |   |          
|Account value                                                  |  | $                    | 759,163  |                                    | $ | 424,432              |  | $                                  | 768,746  |  | $ | 286,577  
|Net amount at risk                                             |  | $                    | 14,201   |                                    | $ | 1,848                |  | $                                  | 21,413   |  | $ | 72       
|Average attained age of contractholders                        |  |                      | 64 years |                                    |   | 60 years             |  |                                    | 64 years |  |   | 59 years 
|Average period remaining until earliest expected annuitization |  |                      | N/A      |                                    |   | 4.5 years            |  |                                    | N/A      |  |   | 5.5 years



|(1) | Includes income and withdrawal benefits as described herein
|--- | -----------------------------------------------------------



|                                |  |                  |        |                |   |                  |  |                |        |  |   |       
|------------------------------- |  | ---------------- | ------ | -------------- | - | ---------------- |  | -------------- | ------ |  | - | ------
|                                |  | Unadjusted Value |        | Adjusted Value |   | Unadjusted Value |  | Adjusted Value
|Market value adjusted annuities |  |                  |        |                |   |                  |  |                |        |  |   |       
|Account value                   |  | $                | 21,878 |                | $ | 21,751           |  | $              | 26,543 |  | $ | 26,856



|                                                                    |  |                       |           |                   |   |          
|------------------------------------------------------------------- |  | --------------------- | --------- | ----------------- | - | ---------
|                                                                    |  | December 31, 2007     |           | December 31, 2006
|                                                                    |  | In the Event of Death
|                                                                    |  | (in thousands)       
|Variable Life, Variable Universal Life and Universal Life Contracts |  |                       |           |                   |   |          
|                                                                    |  |                      
|No Lapse Guarantees                                                 |  |                       |           |                   |   |          
|Separate account value                                              |  | $                     | 500,409   |                   | $ | 466,859  
|General account value                                               |  | $                     | 128,861   |                   | $ | 103,006  
|Net amount at risk                                                  |  | $                     | 6,203,427 |                   | $ | 5,982,110
|Average attained age of contractholders                             |  |                       | 46        |                   |   | 44       

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



|                   |  |                   |           |                   |   |        
|------------------ |  | ----------------- | --------- | ----------------- | - | -------
|                   |  | December 31, 2007 |           | December 31, 2006
|                   |  | (in thousands)   
|Equity funds       |  | $                 | 628,868   |                   | $ | 672,087
|Bond funds         |  |                   | 63,058    |                   |   | 65,380 
|Balanced funds     |  |                   | 330,787   |                   |   | 159,423
|Money market funds |  |                   | 23,316    |                   |   | 22,086 
|Specialty funds    |  |                   | 6,228     |                   |   | 3,364  
|                   |  |                   |           |                   |   |        
|Total              |  | $                 | 1,052,257 |                   | $ | 922,340
|                   |  |                   |           |                   |   |        



F - 26



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





8. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)



In addition to the above mentioned amounts invested in separate account investment options, $194.3 million and $256.6
million of account balances of variable annuity contracts with guarantees (inclusive of contracts with MVA features) were invested in general account investment options in 2007 and 2006 respectively.

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 withdrawal benefits (GMWB), guaranteed minimum income and withdrawal benefits
(GMIWB), are considered to be bifurcated embedded derivatives under SFAS No. 133. Changes in the fair value of these derivatives, along with any fees received or payments made relating to the derivative, are recorded in
Realized investment gains (losses), net. The liabilities for GMWB, and GMIWB are included in Future policy benefits. The Company maintains a portfolio of derivative investments that serve as an economic hedge of the risks of
these products, for which the changes in fair value are also recorded in Realized investment gains (losses), net. This portfolio of derivatives investments does not qualify for hedge accounting treatment under U.S. GAAP.



|                                 |  |                |       |   |      |   |      |       |  |   |       |   |  |   |        |  
|-------------------------------- |  | -------------- | ----- | - | ---- | - | ---- | ----- |  | - | ----- | - |  | - | ------ | -
|                                 |  | GMDB           |       |   | GMIB |   |      | GMIWB |  |   | Total |  
|                                 |  | (in thousands) |      
|Balance as of January 1, 2005    |  | $              | 1,241 |   |      | $ | 126  |       |  | $ |      |   |  | $ | 1,367  |  
|Incurred guarantee benefits(1)   |  |                | 1,809 |   |      |   | 189  |       |  |   |      |   |  |   | 1,998  |  
|Paid guarantee benefits          |  |                | (701  | ) |      |   |     |       |  |   |      |   |  |   | (701   | )
|                                 |  |                |       |   |      |   |      |       |  |   |       |   |  |   |        |  
|Balance as of December 31, 2005+ |  | $              | 2,349 |   |      | $ | 315  |       |  | $ |      |   |  | $ | 2,664  |  
|Incurred guarantee benefits(1)   |  |                | 2,507 |   |      |   | 249  |       |  |   | (130  | ) |  |   | 2,626  |  
|Paid guarantee benefits          |  |                | (317  | ) |      |   |     |       |  |   |      |   |  |   | (317   | )
|                                 |  |                |       |   |      |   |      |       |  |   |       |   |  |   |        |  
|Balance as of December 31, 2006  |  | $              | 4,539 |   |      | $ | 564  |       |  | $ | (130  | ) |  | $ | 4,973  |  
|Incurred guarantee benefits(1)   |  |                | 3,157 |   |      |   | (148 | )     |  |   | 3,217 |   |  |   | 6,226  |  
|Paid guarantee benefits          |  |                | (251  | ) |      |   |     |       |  |   |      |   |  |   | (251   | )
|                                 |  |                |       |   |      |   |      |       |  |   |       |   |  |   |        |  
|Balance as of December 31, 2007  |  | $              | 7,445 |   |      | $ | 416  |       |  | $ | 3,087 |   |  | $ | 10,948 |  
|                                 |  |                |       |   |      |   |      |       |  |   |       |   |  |   |        |  



|(1) | Incurred guarantee benefits include the portion of assessments established as additions to reserves as well as changes in estimates effecting the reserves. Also includes changes in
the fair value of features considered to be derivatives.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The GMDB liability is determined each period end by estimating the accumulated
value of a portion of the total assessments to date less the accumulated value of the death benefits in excess of the account balance. The GMIB liability is determined each period by estimating the accumulated value of a portion of the total
assessments to date less the accumulated value of the projected income benefits in excess of the account balance. The portion of assessments used is chosen such that, at issue (or, in the case of acquired contracts, at the acquisition date), the
present value of expected death benefits or expected income benefits in excess of the projected account balance and the portion 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 and GMIB liability balances, with an associated charge or credit to earnings, if actual experience or other evidence suggests that earlier assumptions should be revised.

The GMIWB features predominantly present a benefit that provides a contractholder with two optional methods to receive guaranteed minimum payments over time - a
withdrawal option (available on only one of registrants GMIWB features) and an income option (available under each of registrants GMIWB features). The withdrawal option guarantees that, upon the election of such
benefit, a contractholder can withdraw an amount each year until the cumulative withdrawals reach a total guaranteed balance. The guaranteed remaining balance is generally equal to the protected value under the contract, which is initially
established as the greater of: (1) the account value on the date of first withdrawal; (2) cumulative premiums when withdrawals commence, less



F - 27



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





8. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)



cumulative withdrawals plus a minimum return; or (3) the highest contract value on a specified date minus any withdrawals. The income option guarantees
that a contractholder can withdraw a specified percentage of the protected value each year for the annuitants life (or joint lives, in the case of the spousal version of the benefit). The Company has several variations of this
GMIWB that vary, among other things, with regard to how the protected value is calculated and how the customer may make withdrawals.

Deferred 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. 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:



|                           |  |                |        |   |      |   |        |      |  |   |        |  
|-------------------------- |  | -------------- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                           |  | 2007           |        |   | 2006 |   |        | 2005 | 
|                           |  | (in thousands) |       
|Balance, beginning of year |  | $              | 19,013 |   |      | $ | 13,616 |      |  | $ | 11,115 |  
|Capitalization             |  |                | 5,869  |   |      |   | 6,382  |      |  |   | 3,863  |  
|Amortization               |  |                | (2,925 | ) |      |   | (985   | )    |  |   | (1,362 | )
|                           |  |                |        |   |      |   |        |      |  |   |        |  
|Balance, end of year       |  | $              | 21,957 |   |      | $ | 19,013 |      |  | $ | 13,616 |  
|                           |  |                |        |   |      |   |        |      |  |   |        |  

9. STATUTORY NET INCOME AND SURPLUS AND DIVIDEND RESTRICTIONS

The Company is required to prepare statutory financial statements in accordance with accounting practices prescribed or permitted by the New Jersey Department of Banking
and Insurance. Statutory accounting practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions and valuing investments,
deferred taxes, and certain assets on a different basis.

Statutory net (loss) to income of the Company amounted to $(8) million, $1 million, and $(1)
million for the years ended December 31, 2007, 2006 and 2005, respectively. Statutory surplus of the Company amounted to $130 million and $137 million at December 31, 2007 and 2006, respectively.

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 2007, 2006 or 2005.

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 to the Financial Statements 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. In determining the fair value of certain fixed maturity securities, the discounted cash flow
model may also use unobservable inputs, which reflect the Companys own assumptions about the inputs market participants would use in pricing the security.



F - 28



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





10. FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)



Commercial Loans

The fair value of commercial loans, other than those held by the Companys commercial mortgage operations, is primarily based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate,
and adjusted for the current market spread for similar quality loans.

The fair value of commercial loans held by the Companys commercial mortgage
operations is based upon various factors, including the terms of the loans, the intended exit strategy for the loans based upon either a securitization pricing model or commitments from investors, prevailing interest rates, and credit risk.

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.

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



|                                            |  |                |             |            |   |               |  |            |             |  |   |           
|------------------------------------------- |  | -------------- | ----------- | ---------- | - | ------------- |  | ---------- | ----------- |  | - | ----------
|                                            |  | 2007           |             | 2006      
|                                            |  | CarryingValue  |             | Fair Value |   | CarryingValue |  | Fair Value
|                                            |  | (in thousands)
|Financial assets:                           |  |                |             |            |   |               |  |            |             |  |   |           
|                                            |  |                |             |           
|Fixed maturities, available for sale        |  | $              | 903,520     |            | $ | 903,520       |  | $          | 920,925     |  | $ | 920,925   
|Policy loans                                |  |                | 166,373     |            |   | 187,181       |  |            | 160,614     |  |   | 171,887   
|Short term investments                      |  |                | 12,376      |            |   | 12,376        |  |            | 11,259      |  |   | 11,259    
|Commercial loans                            |  |                | 101,583     |            |   | 103,815       |  |            | 48,979      |  |   | 49,308    
|Cash and cash equivalents                   |  |                | 33,185      |            |   | 33,185        |  |            | 59,543      |  |   | 59,543    
|Separate account assets                     |  |                | 2,926,421   |            |   | 2,926,421     |  |            | 2,619,586   |  |   | 2,619,586 
|Derivatives Equity Securities               |  |                | 2,582 4,408 |            |   | 2,5824,408    |  |            | 2,565 4,417 |  |   | 2,5654,417
|                                            |  |                |             |           
|Financial liabilities:                      |  |                |             |            |   |               |  |            |             |  |   |           
|                                            |  |                |             |           
|Investment contracts                        |  | $              | 63,721      |            | $ | 63,721        |  | $          | 71,316      |  | $ | 71,316    
|Cash collateral for loaned securities       |  |                | 26,060      |            |   | 26,060        |  |            | 28,212      |  |   | 28,212    
|Securities sold under repurchase agreements |  |                | 14,621      |            |   | 14,621        |  |            | 4,005       |  |   | 4,005     
|Short Term Debt to affiliates               |  |                | 55,863      |            |   | 55,863        |  |            | 25,348      |  |   | 25,348    
|Separate account liabilities                |  |                | 2,926,421   |            |   | 2,926,421     |  |            | 2,619,586   |  |   | 2,619,586 



F - 29



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





11. DERIVATIVE INSTRUMENTS

Types of Derivative Instruments and Derivative Strategies

Exchange-traded futures are used by the
Company to reduce 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 underlying referenced 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 transactions with regulated futures commissions merchants that 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.

Currency derivatives, including currency swaps, are used by the
Company to reduce risks from changes in currency exchange rates with respect to investments denominated in foreign currencies that the Company either holds or intends to acquire or sell.

Under currency swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between one currency and another at an exchange rate and calculated by reference to an agreed principal
amount. Generally, the principal amount of each currency is exchanged at the beginning and termination of the currency swap by each party. These transactions are entered into pursuant to master agreements that provide for a single net payment to be
made by one counterparty for payments made in the same currency at each due date.

Credit derivatives are used by the Company to enhance the return on the
Companys investment portfolio by creating credit exposure similar to an investment in public fixed maturity cash instruments. With credit derivatives the Company can sell credit protection on an identified name, or a basket of names in a first
to default structure, and in return receive a quarterly premium. With single name credit default derivatives, this premium or credit spread generally corresponds to the difference between the yield on the referenced names public fixed maturity
cash instruments and swap rates, at the time the agreement is executed. With first to default baskets, the premium generally corresponds to a high proportion of the sum of the credit spreads of the names in the basket. If there is an event of
default by the referenced name or one of the referenced names in a basket, as defined by the agreement, then the Company is obligated to pay the counterparty the referenced amount of the contract and receive in return the referenced defaulted
security or similar security. In addition to selling credit protection, the Company may purchase credit protection using credit derivatives in order to hedge specific credit exposures in the Companys investment portfolio.

Embedded Derivatives

As described in Note 8, the Company
sells variable annuity products which contain embedded derivatives. These embedded derivatives are marked to market through Realized investment gains (losses), net based on the change in value of the underlying contractual guarantees
which are determined using valuation models. The Company has entered into reinsurance agreements to transfer the risk related to the embedded derivatives to affiliates. These reinsurance agreements are derivatives and have been accounted for in the
same manner as the embedded derivative.

The Company invests in fixed maturities that, in addition to a stated coupon, provide a return based upon the
results of an underlying portfolio of fixed income investments and related investment activity. The Company accounts for these investments as available for sale fixed maturities containing embedded derivatives. Such embedded derivatives are marked
to market through Realized investment gains (losses), net, based upon the change in value of the underlying portfolio.

Credit Risk

The Company is exposed to credit-related losses in the event of nonperformance by counterparties that is related to the financial derivative
transactions. The Company manages credit risk by entering into derivative transactions with major commercial and investment banks and other creditworthy counterparties, and by obtaining collateral where appropriate and by limiting its single party
credit exposures.

The credit exposure of the Companys over-the-counter (OTC) derivative transactions is represented by the contracts with a positive
fair value (market value) at the reporting date. Substantially all of the Companys over-the-counter derivative contracts are transacted with an affiliate. The Company effects exchange-traded futures and options transactions through regulated
exchanges and these transactions are settled on a daily basis, thereby reducing credit risk exposure in the event of nonperformance by counterparties to such financial instruments.



F - 30



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





12. COMMITMENTS, CONTINGENCIES AND LITIGATION AND REGULATORY MATTERS

Commitments

The Company has made commitments to fund $19
million of commercial loans in 2007. The Company also made commitments to purchase or fund investments, mostly private fixed maturities, of $14 million in 2007.

Contingencies

On an ongoing basis, our internal supervisory and control functions review the quality of our sales, marketing,
administration and servicing, and other customer interface procedures and practices and may recommend modifications or enhancements. From time to time, this review process results in the discovery of administration, servicing or other errors,
including errors relating to the timing or amount of payments or contract values due to customers. In these cases, we offer customers appropriate remediation and may incur charges and expenses, including the costs 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s litigation and regulatory matters are 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. The Company may also be subject to litigation arising out of its general business activities, such as 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s litigation and regulatory matters are 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 depending, in part, upon the results of operations or cash flow for such period. Management believes, however, that the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable
reserves and rights to indemnification, 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 production 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. The Company reviews its allocation methodology
periodically which it may adjust accordingly. General and administrative expenses in 2005 reflect a change in allocations implemented during the fourth quarter of 2005. 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 expense charged to the Company for the stock option program was less than $0.1 million for the twelve months ended December 31,
2007. The expense charged to the Company for the deferred compensation program was $0.5 million and $0.6 million for the twelve months ended December 31, 2007 and 2006, respectively.



F - 31



---

Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





13. RELATED PARTY TRANSACTIONS (Continued)



The Company receives a charge to cover its share of employee benefits expenses. These expenses include costs for
funded and non-funded contributory and non-contributory defined benefit pension plans. Some of these benefits are based on final group earning and length of service. While others are based on an account balance, which takes into consideration age,
service and earnings during career.

Prudential Insurance sponsors voluntary savings plan for the Companys employees (401(k) plans). The plans
provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The expense charged the Company for the matching contribution to the plans was $0.5 million in 2007, and $0.4 million in
both 2006 and 2005.

The Companys share of net expense for the pension plans was $1 million in 2007 and 2006, and $0.7 million in 2005.

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.

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). Also the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series Trust Funds. 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, and one during the third quarter of 2007 to Prudential
Financial, Inc. The cash surrender value included in separate accounts was $606 million and $508 million at December 31, 2007 and December 31, 2006, respectively. Fees related to the COLI policies were $17 million, $5 million and $5
million for the years ending December 31, 2007, 2006 and 2005, respectively.

Reinsurance with Affiliates

Prudential Arizona Reinsurance Capitive Company (PARCC)

The Company
reinsures with PARCC 90% of the risks under its term life insurance 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. Reinsurance recoverables related to this agreement were $177 million and $128 million as of December 31, 2007 and 2006, respectively. Premiums ceded to PARCC in 2007, 2006, and 2005 were $108 million, $86 million and $70 million,
respectively. Benefits ceded in 2007, 2006 and 2005 were $24 million, $23 million, and $19 million respectively.

Prudential Insurance

The Company has a yearly renewable term reinsurance agreement with Prudential Insurance and reinsures the majority of all mortality risks, not otherwise reinsured.
Reinsurance recoverable related to this agreement was $5 million and $7 million as of December 31, 2007 and December 2006 respectively. Premiums and fees ceded to Prudential Insurance in 2007, 2006 and 2005 were $33 million, $30 million and $24
million, respectively. Benefits ceded in 2007, 2006 and 2005 were $23 million, $28 million, and $22 million, respectively. The Company is not relieved of its primary obligation to the policyholder as a result of these reinsurance transactions.

Pruco Reinsurance Ltd. (Pruco Re)

During 2005 and
2006, the Company entered into reinsurance agreements with Pruco Re as part of its risk management and capital management strategies for annuities. Effective October 3, 2005, the Company entered into a coinsurance agreement with Pruco Re
providing for the 100% reinsurance of its Lifetime Five benefit feature sold on its annuities after October 3, 2005.

Effective May 26, 2006, the
Company entered into a new coinsurance agreement with Pruco Reinsurance, Ltd. providing for the 100% reinsurance of its Spousal Lifetime Five benefit feature sold on its annuities. Premiums and benefits ceded related to this treaty are de minimis.
Reinsurance recoverables related to this agreement were $3 million as of December 31, 2007.

Effective November 20, 2006, the Company entered
into a coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Highest Daily Lifetime Five benefit feature sold on its annuities.



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Pruco Life Insurance Company of New Jersey

Notes to Financial Statements





13. RELATED PARTY TRANSACTIONS (Continued)



Purchase of fixed maturities from an affiliate

During 2007, the Company purchased fixed maturities securities from an affiliated company, Commerce Street. The investments included collateralized mortgage backed
securities. These securities were recorded at an amortized cost of $42 million and a fair value of $42 million. The net difference between historic amortized cost and the fair value, net of taxes was less than $1 million.

Debt Agreements

The Company has an agreement with Prudential
Funding, LLC, a wholly owned subsidiary of Prudential Insurance which allows it to borrow funds for working capital and liquidity needs. The borrowings under this agreement are limited to $100 million. There was $56 million of debt outstanding to
Prudential Funding, LLC as of December 31, 2007 as compared to $25 million at December 31, 2006. Interest expense related to this agreement was $0.5 million in 2007 and $1 million in 2006, with related interest charged at a variable rate
of 4.26% to 5.86%. As of December 31, 2007 and 2006, there was $41 million and $32 million, respectively, of asset-based financing.

14. QUARTERLY
RESULTS OF OPERATIONS (UNAUDITED)

The unaudited quarterly results of operations for the years ended December 31, 2007 and 2006 are summarized in
the table below:



|                                           |  |                                   |        |         |   |              |  |             |        |  |   |       
|------------------------------------------ |  | --------------------------------- | ------ | ------- | - | ------------ |  | ----------- | ------ |  | - | ------
|                                           |  | Three months ended (in thousands)
|                                           |  | March 31                          |        | June 30 |   | September 30 |  | December 31
|2007                                       |  |                                   |        |         |   |              |  |             |        |  |   |       
|Total revenues                             |  | $                                 | 38,111 |         | $ | 40,702       |  | $           | 46,473 |  | $ | 39,682
|Total benefits and expenses                |  |                                   | 25,023 |         |   | 26,204       |  |             | 28,970 |  |   | 29,022
|Income from operations before income taxes |  |                                   | 13,088 |         |   | 14,498       |  |             | 17,503 |  |   | 10,660
|Net income                                 |  |                                   | 9,766  |         |   | 9,985        |  |             | 12,408 |  |   | 8,044 
|                                           |  |                                   |        |         |   |              |  |             |        |  |   |       
|                                           |  |                                   |       
|2006                                       |  |                                   |        |         |   |              |  |             |       
|Total revenues                             |  | $                                 | 31,603 |         | $ | 30,459       |  | $           | 29,015 |  | $ | 38,413
|Total benefits and expenses                |  |                                   | 24,282 |         |   | 26,918       |  |             | 3,999  |  |   | 23,880
|Income from operations before income taxes |  |                                   | 7,321  |         |   | 3,541        |  |             | 25,016 |  |   | 14,533
|Net income                                 |  |                                   | 5,748  |         |   | 2,862        |  |             | 19,210 |  |   | 11,114
|                                           |  |                                   |        |         |   |              |  |             |        |  |   |       



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