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                                  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, 2004

                                       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                             (I.R.S. Employer
of Incorporation or Organization)                       Identification Number)

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

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

      Indicate by check mark  whether the  registrant  (1) has filed all reports
      required to be filed by Section 13 or 15(d) of the Securities Exchange Act
      of 1934 during the  preceding 12 months (or for such  shorter  period that
      the  registrant  was  required  to file  such  reports),  and (2) has been
      subject to such filing requirements for the past 90 days. Yes |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. |_|

      Indicate by check mark whether the registrant is an accelerated  filer (as
      defined in Rule 12b-2 of the 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, 2005,  400,000 shares of the registrant's  common stock
      were outstanding.

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

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                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                                             Page
                                                                                                             Number
                                                                                                             ------
<S>                                                                                                            <C>
PART I    Item 1.  Business................................................................................    2
          Item 2.  Properties..............................................................................    5
          Item 3.  Legal Proceedings.......................................................................    5
PART II   Item 5.  Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases
                   of Equity Securities....................................................................    5
          Item 7.  Management's Discussion and Analysis of Financial Condition and Results of Operations...    5
          Item 7A. Quantitative and Qualitative Disclosures About Market Risk..............................    11
          Item 8.  Financial Statements and Supplementary Data.............................................    14
          Item 9.  Changes In and Disagreements with Accountants on Accounting and Financial Disclosure....    14
          Item 9A. Controls and Procedures.................................................................    14
          Item 9B. Other Information.......................................................................    15
          Item 10. Directors and Executive Officers of the Registrant......................................    15
PART III  Item 14. Principal Accounting Fees and Services .................................................    16
PART IV   Item 15. Exhibits and Financial Statement Schedules..............................................    16
SIGNATURES.................................................................................................    18
</TABLE>

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 of financial markets
and  interest  rate  fluctuations;  (2)  domestic or  international  military or
terrorist activities or conflicts; (3) volatility in the securities markets; (4)
regulatory or legislative changes,  including changes in tax law; (5) changes in
statutory  or U.S.  GAAP  accounting  principles,  practices  or  policies;  (6)
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;  (7)  re-estimates  of our  reserves for future
policy benefits and claims;  (8) changes in our assumptions  related to deferred
policy  acquisition  costs; (9) events  resulting in catastrophic  loss of life;
(10) investment losses and defaults;  (11) changes in our claims-paying ratings;
(12)  competition  in  our  product  lines  and  for  personnel;   (13)  adverse
determinations  in  litigation  or  regulatory   matters  and  our  exposure  to
contingent liabilities;  and (14) the effects of acquisitions,  divestitures and
restructurings, including possible difficulties in integrating and realizing the
projected  results of acquisitions.  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.

<PAGE>

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

The Company is engaged in a business that is highly  competitive  because of the
large number of stock and mutual life  insurance  companies  and other  entities
engaged in marketing insurance products, and individual annuities. 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 that
provide a return linked to an underlying  investment portfolio designated by the
policyholder  while  providing the  policyholder  with the flexibility to change
both the death  benefit and premium  payments.  Each  product  provides  for the
deduction of charges and expenses from the  customer's  investment  account.  We
also  offer  variable  life  products   targeted  to  the  estate  planning  and
corporate-owned life insurance markets.

Term Life Insurance

The Company offers a variety of term life insurance products. Most term products
include a conversion  feature that allows the policyholder to convert the policy
into permanent life insurance coverage.

Universal Life Insurance

The Company offers universal life insurance  products that feature a market rate
fixed  interest  investment  account and  flexible  premiums.  In June 2003,  we
updated our universal  life insurance  products and began to offer  survivorship
universal life, which covers two individuals on a single policy and provides for
payment of a death benefit upon the death of the other insured individual.

Variable and Fixed Annuities

The Company  offers  variable  annuities  that  provide our  customers  with the
opportunity  to invest  in  proprietary  and  non-proprietary  mutual  funds and
fixed-rate  options.  The  investments  made by customers in the proprietary and
non-proprietary   mutual  funds  represent   separate  accounts  for  which  the
contractholder bears the investment risk. The investments made in the fixed rate
options are credited  with  interest at rates we  determine,  subject to certain
minimums.  Additionally,  our variable  annuities products offer certain minimum
death benefit and living benefit guarantee options.  We also offer fixed annuity
products  that provide a guarantee of principal  and a guaranteed  interest rate
for a specified period of time.

Marketing and Distribution

Prudential Insurance Agents

Agents of Prudential  Insurance  distribute  variable,  term, and universal life
insurance,  variable and fixed annuities, as well as selected insurance products
manufactured by others.


                                       2
<PAGE>

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.  Other than
certain training allowances or salary paid at the beginning of their employment,
we pay Prudential  Insurance  Agents on a commission basis for the products they
sell.  In addition  to  commissions,  Prudential  Insurance  Agents  receive the
employee  benefits  that we  provide  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,  banks and  broker-dealers.  We focus on serving the  intermediaries who
provide  insurance  solutions in support of estate and wealth transfer  planning
for affluent and mass affluent individuals.  The life insurance 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.  Our universal life insurance  contracts
and the  fixed  component  of our  variable  life  insurance  contracts  feature
crediting  rates,  which are  periodically  reset.  In resetting these rates, we
consider the returns on our portfolios  supporting the  interest-sensitive  life
insurance business,  current interest rates, the competitive environment and our
profit objectives.

Annuities

We earn asset  management fees based upon the average assets of the mutual funds
in our variable  annuity  products and mortality and expense fees and other fees
for various  insurance-related  options and features  based on average daily net
assets value of the annuity separate accounts or the amount of guaranteed value.
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  withdrawal   restrictions  and  declining
surrender or withdrawal charges for a specified number of years.

Reserves

We establish  reserve and policyholder  fund liabilities to recognize our future
benefit  obligations for our in force life and annuity  policies,  including the
minimum death  benefit and living  benefit  guarantee  features of some of these
policies.  For  variable  and  interest-sensitive  life  insurance  and  annuity
contracts,  we establish policyholder account balances that represent cumulative
gross premium  payments plus credited  interest  and/or fund  performance,  less
withdrawals, expenses and mortality charges.

Effective  January 1, 2004,  we adopted SOP 03-1,  "Accounting  and Reporting by
Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for
Separate  Accounts,"  which  requires  us to  record  a  liability  for  minimum
guaranteed death benefits as well as other changes. This is discussed in Item 7,
Management's   Discussion   and  Analysis  and  in  Note  2  on  new  accounting
pronouncements.

Reinsurance

Since 2000, we have reinsured the majority of the mortality risk we assume under
our new individual life insurance products with both affiliated and unaffiliated
companies.  As of the end of 2004,  , all  reinsurance  arrangements  were  with
affiliated  companies and the maximum amount of individual life insurance we may
retain on any life is $100,000. See Note 13 to the financial statements for more
information related to these reinsurance arrangements.


                                       3
<PAGE>

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.

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, "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.  The Company believes that its statutory capital is adequate for its
currently anticipated levels of risk as measured by regulatory guidelines.

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.

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

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

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 the
SEC and the NASD. 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.


                                       4
<PAGE>

Item 2. Properties

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

Item 3. Legal Proceedings

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

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

The  Company's  litigation  is  subject  to many  uncertainties,  and  given the
complexity and scope, the outcomes cannot be predicted.  It is possible that the
results of operations or the cash flow of the Company in a particular  quarterly
or  annual  period  could be  materially  affected  by an  ultimate  unfavorable
resolution of pending litigation and regulatory  matters.  Management  believes,
however,  that the ultimate  outcome of all pending  litigation  and  regulatory
matters  should not have a material  adverse  effect on the Company's  financial
position.

PART II

Item 5. Market for the Registrant's  Common Equity,  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

Management's  Discussion  and  Analysis of  Financial  Condition  and Results of
Operations ("MD&A") addresses the consolidated financial condition of Pruco Life
Insurance Company of New Jersey as of December 31, 2004,  compared with December
31,  2003,  and its  consolidated  results  of  operations  for the years  ended
December 31, 2004 and 2003.

Overview

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

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


                                       5
<PAGE>

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

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

      o     our ability to manufacture and distribute  products and services and
            to introduce  new products  gaining  market  acceptance  on a timely
            basis;

      o     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;

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

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

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

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

      o     our ability to earn  commissions and fees from the  distribution and
            servicing of annuities,  retirement  products,  and other investment
            products  at a level  that  enables  us to earn a  margin  over  the
            expense of providing such services;

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

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

      o     our ability to maintain our claims paying ratings.

Application of Critical Accounting Policies

The preparation of financial statements in conformity with accounting principles
generally  accepted  in the United  States of  America,  or 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 12% of our investments as of December 31, 2004, this
information is not available. For these private fixed maturities,  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.

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," 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 extend (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


                                       6
<PAGE>

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.  This corresponding charge is referred
to as an impairment  and is reflected in "Realized  investment  gains  (losses),
net" in the  statements of  operations.  The level of  impairment  losses can be
expected to increase when economic  conditions worsen and decrease when economic
conditions improve.

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 and certain annuity products.

The future policy  benefit  reserves at December 31, 2004  represented 6% of our
total  liabilities and relate primarily to term life 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 benefit  payments are
based on mortality,  lapse, maintenance expense, interest rate assumptions,  and
also  consider  the risk of adverse  deviation  in our actual  results  from the
results  assumed in  establishing  our reserves.  Our mortality  assumptions are
generally  based on the Company's  historical  experience  or standard  industry
tables,  as applicable.  Our interest rate assumptions are based on factors such
as market  conditions  and  expected  investment  returns.  Collectively,  these
assumptions are "locked-in" upon the issuance of new policies and continue to be
used in subsequent periods to establish the reserves.  We review our assumptions
to determine whether the reserves together with the expected future premiums are
sufficient to provide for the expected future benefit payments and expenses.  In
particular,  we review our  mortality  assumptions  annually  and  conduct  full
actuarial studies every three years.  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. If, based on
our review,  there have been  significant  adverse changes in actual  experience
compared to the  experience  we assumed at the time the policy was issued we may
be  required to provide  for  expected  future  losses by  establishing  premium
deficiency  reserves.  The  assumptions  used to  establish  premium  deficiency
reserves represent our current best estimate of experience with no provision for
adverse deviation. Once established,  premium deficiency reserves are no reduced
for  subsequent  improvement  in experience  but may be increased for subsequent
adverse  deviations  in  experience.  As of December  31,  2004,  we do not have
material premium deficiency reserves related to these products.

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, or
DAC, over the expected lives of the contracts,  based on the level and timing of
either gross margins, gross profits, or gross premiums, depending on the type of
contract. As of December 31, 2004, DAC in our life business was $147 million and
DAC in our annuity business was $36 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 writedowns of the related DAC.

DAC  associated  with the variable and  universal  life policies of our domestic
individual  life  insurance  and  international  insurance  businesses  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.  Our  evaluation  of DAC related to variable  annuity  contracts
considers   expected   gross   profits   that  would  be   generated   within  a
pre-established reasonably possible range, or corridor, of future rate of return
scenarios.  Adjustments  to DAC  are  made  only  when  our  long-term  view  of
investment  returns  considered in our estimates of future gross profits results
in a DAC balance outside of the corridor. However,  notwithstanding our corridor
approach,  we may determine  that a revision of our expected gross profits and a
related  adjustment  to our DAC is necessary if changes in  additional  factors,
such as policyholder  activity,  suggest that our current view of expected gross
profits  may no  longer  represent  our  best  estimate.  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;  however,  the variable life policies
derive a significant  portion of their gross profits from margins in the cost of
insurance charge.


                                       7
<PAGE>

In  evaluating  the DAC for our domestic  variable  life  insurance  and annuity
products,  future rate of return  assumptions are evaluated using a reversion to
mean approach,  a common  industry  practice.  Under this approach,  we consider
actual  returns over a period of time and project  returns for the future period
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  reasonable  future  rate of return.  For  variable
annuities products,  our expected rate of return is 8% per annum, which reflects
an expected rate of return of 8.9% per annum for equity type assets.  The future
equity rate of return  used varies by product,  but was under 8.9% per annum for
all of our variable  annuity  products  for our  evaluation  of deferred  policy
acquisition costs as of December 31, 2004.

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 our
application  of the  corridor  approach,  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 thousands)
Increase in projected rate of return by 100 basis points         $      640
Decrease in projected rate of return by 100 basis points
                                                                 $     (626)

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

Tax  regulations  require  items to be included  in the tax return at  different
times than the items are 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.
Timing  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 of 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.

To the extent our  effective  tax rate  increases  or  decreases by 1 percent of
income from operations  before income taxes and cumulative  effect of accounting
change,   consolidated  income  from  operations  before  cumulative  effect  of
accounting change would have increased or declined by $0.4 million in 2004.

The amount of income  taxes paid by the Company is subject to ongoing  audits in
various   jurisdictions.   We  reserve  for  our  best   estimate  of  potential
payments/settlements to be made to the Internal Revenue Service and other taxing
jurisdictions  for audits on-going or not yet commenced.  We anticipate that the
Internal  Revenue  Service will  complete its  examination  of 1997 through 2001
during  the first half of 2005.  Although  the  results of these  audits are not
final,  based on currently  available  information,  we believe that the outcome
will not have an adverse effect on our financial position, cash flows or results
of operations.

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


                                       8
<PAGE>

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.

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

Effective New Accounting Policies Adopted

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

Changes in Financial Condition

2004 versus 2003

From  December  31,  2003 to  December  31,  2004 there was an  increase of $403
million in total  assets  from  $3,219  million to $3,621  million.  The largest
increase was in separate account assets, which increased by $187 million in 2004
primarily  from  market  value  appreciation  of $197  million  as a  result  of
continued  strength  in the equity  markets,  positive  cash flows  (sales  less
withdrawals)  and partially offset by the  implementation  of AICPA Statement of
Position 03-1,  "SOP 03-1," in 2004. SOP 03-1 requires among other things,  that
certain individual market value adjusted annuity,  "MVA," contracts be accounted
for under general  account  accounting  treatment.  As a result of the adoption,
approximately  $40 million of fixed maturities  formerly  classified as separate
account assets were  reclassified as general account  assets.  Fixed  maturities
increased by $121 million as a result of the adoption of SOP 03-1 and  investing
positive cash flows.  Reinsurance  recoverables  increased $50 million from last
year  primarily as a result of larger  reinsurance  reserves held due to the new
coinsurance  agreement with Prudential Arizona  Reinsurance  Captive Company or,
PARCC,  to  reinsure  the  entire  term  business.  Reinsurance  reserves  under
coinsurance  are  generally  much larger than those for yearly  renewable  term,
"YRT." Cash and cash equivalents are higher by $36 million as cash received from
financing and operating activities exceeded cash used in investing activities in
2004. DAC increased  nearly $7 million driven by an $8 million increase from the
implementation  of SOP 03-1 and a change in unrealized gains. DAC also decreased
$2  million  as a result of $23  million of  amortization  mostly  offset by $21
million in net  capitalization  of acquisition  expenses.  Capitalization in the
Life business reflects a reduction of $37 million resulting from  capitalization
of ceding  allowances that are part of the new coinsurance  agreement  mentioned
above.  Excluding  ceded DAC on the  coinsurance  agreement,  capitalization  of
distribution expenses from new sales exceeded amortization of DAC.

During the year, total liabilities increased by $377 million from $2,926 million
to  $3,303  million.  Corresponding  with the  asset  change,  separate  account
liabilities  increased by $187 million from $1,926 million in 2003, as described
above.  Policyholders'  account  balances  increased by $121 million,  from $676
million in 2003, primarily due to positive net sales and the reclassification of
MVA  contracts as  described  above.  Future  policy  benefits  increased by $31
million,  from $159 million in 2003, as a result of growth in the term insurance
business and the establishment of guaranteed minimum death benefit, or GMDB, and
guaranteed minimum income benefit, or GMIB, reserves.  Income taxes payable, net
of receivables, increased by $25 million mainly as a result of tax expense and a
tax refund  received  from  Prudential  Financial.  In  accordance  with the tax
sharing  agreement  with  Prudential  Financial,  the Company was reimbursed for
operating losses utilized in the consolidated federal tax return.

Stockholder's equity increased by $26 million, from $293 million at December 31,
2003, to $319 million at December 31, 2004, primarily as a result of net income.
Details of results of operations are discussed below.


                                       9
<PAGE>

Results of Operations

2004 to 2003 Annual Comparison

Net Income

Net  income of $25  million  for 2004 was $4 million  more than the $21  million
earned for 2003.  The growth in earnings was driven by higher  policy charge and
fee income from higher sales,  growth in the separate  accounts  from  continued
strength in the financial  markets and increased  spread revenue  resulting from
the adoption of SOP 03-1.  DAC  amortization  dampened the above,  increasing $6
million  driven by higher  gross  profits and a lower  unlocking  in the annuity
business.

Revenues

Revenues increased by $13 million,  from $158 million in 2003 to $171 million in
2004.  Policy  charges and fee income,  consisting  primarily of  mortality  and
expense,  loading and other insurance  charges  assessed on general and separate
account policyholders' fund balances,  increased by $8 million, from $70 million
in 2003. The increase was a result of a $6 million  increase for individual life
products  while  annuity  products  added $2 million.  Mortality and sales based
loading  charges  for life  products  increased  as a result of growth in the in
force  business.  The gross  variable in force business grew to $11.5 billion at
December  31, 2004 from $10.3  billion at December  31,  2003.  Annuity fees are
mainly  asset  based  fees which are  dependent  on the fund  balances  that are
affected  by net  sales as well as asset  depreciation  or  appreciation  on the
underlying  investment  funds in which the  customer  has the  option to invest.
Average  annuity  fund  balances  have  increased  over last year as a result of
favorable market performance and positive net sales.

Net investment  income increased by $7 million,  from $45 million in 2003 to $52
million in 2004, as a result of increased income from fixed maturities due to an
increase  in the  portfolio  balance  from  the  adoption  of SOP  03-1  and the
investment of positive cash flows into the fixed  maturity  portfolio.  This was
partially  offset by the effect of lower  reinvestment  rates for maturing fixed
maturities   and  short-term   investments   due  to  the  lower  interest  rate
environment.

Premiums  decreased  by $6 million  from $38  million in 2003 to $32  million in
2004, due to increased  reinsurance  premiums resulting from the new coinsurance
agreement  with PARCC,  effective  August 1, 2004, to reinsure 90% of the entire
term book of business,  replacing  existing YRT  reinsurance  on that  business.
Coinsurance  premiums  are  generally  greater  than YRT and as a result,  total
reinsurance term premiums were $23 million higher than last year,  exceeding $19
million of growth in the direct  term  business.  Extended  term life  insurance
decreased $2 million as a result of comparatively  favorable market  performance
in the current year, which caused a decrease in lapses.  Premiums in the annuity
business resulting from annuitizations, increased less than $1 million from last
year.

Realized  investment  gains and  losses  improved  by $3  million as a result of
increased gains on sales of fixed maturities and less impairments in the current
year as a result of continued improvement in the credit environment.

Asset management fees increased by $1 million in 2004 as a result of an increase
in average  separate  account  balances from continued  market  appreciation and
positive cash flows.

Benefits and Expenses

Total  benefits and  expenses  increased $6 million from $129 million in 2003 to
$135  million  in  2004,  as  the  effects  of  higher   interest   credited  to
policyholders'  account balances and increased DAC  amortization  were partially
offset by lower  policyholders'  benefits.  Interest  credited to policyholders'
account balances  exceeded the 2003 amount of $23 million by $7 million,  due to
an increase in policyholders'  account balances,  primarily from the adoption of
SOP 03-1 and from positive net sales.

DAC  amortization  increased  by $6  million,  from $17  million  in 2003 to $23
million in 2004,  driven by higher  gross  profits  and lower  unlocking  in the
annuity  business.  Amortization in the life business was only slightly lower in
2004 as current period  amortization  was reduced due to ceded DAC  amortization
associated  with the new  coinsurance  treaty  with PARCC  described  in note 13
below.

Policyholders' benefits,  including related changes in reserves, were $6 million
lower than 2003.  Policyholders'  benefits  decreased  by $3  million,  from $32
million in 2003 to $29 million in 2004,  due to increased  reinsurance  coverage
from the PARCC  reinsurance  treaty and a new excess of loss reinsurance  treaty
with  Prudential  Insurance  that  carries  lower per policy  retention  limits.
Reserve  provisions  were also lower,  declining  $3 million from $19 million in
2003, as a result of increased  reinsurance  reserves  from the new  reinsurance
agreements  mentioned  above.  Partly  offsetting the decreases from reinsurance
contracts was $2 million of higher  deferred  policy charge revenues in the life
business from increased sales of the newer variable and universal life products.

The change in reserves for annuity  products was essentially  unchanged from the
prior  year.  Included  in the  change in  reserves,  are  changes  for  annuity
guaranteed  minimum death benefits  which were lower due to continued  favorable
market performance during 2004.


                                       10
<PAGE>

The GMDB feature  provides  annuity  contractholders  with a guarantee  that the
benefit received at death will be no less than a prescribed minimum amount. This
minimum  amount is based on the net  deposits  paid into the  contract,  the net
deposits  accumulated at a specified rate, the highest  historical account value
on a contract  anniversary,  or more  typically,  the greatest of these  values,
depending  on  features  offered  in  various   contracts  and  elected  by  the
contractholders.  With the adoption of SOP 03-1  effective  January 1, 2004,  we
recorded a liability of $1.6 million  based on  application  of an expected loss
ratio to  "cumulative  assessments"  through  the balance  sheet date,  and then
subtracting  "cumulative  excess  payments"  through  that  date.  Also,  in our
periodic evaluation of unamortized  deferred policy acquisition costs associated
with our  variable  annuity  business,  we  considered  the  expected  net costs
associated  with the  guaranteed  minimum death  benefits in our  calculation of
expected  gross  profits  from  this  business.   Accordingly,   the  effect  of
establishing  the  guaranteed  minimum  death  benefit  reserve  related to this
business  was  partially  offset  by an  increase  of less  than $1  million  in
unamortized deferred policy acquisition costs.

General,  administrative  and other expenses,  excluding DAC amortization,  were
unchanged  from last year.  Overall,  general and  administrative  expenses  are
higher as a result of new  business  and the  growing in force.  Offsetting  the
growth in general and  administrative  expenses are lower net distribution costs
resulting from reinsurance  expense  allowances,  net of capitalization,  in the
life business as a result of the PARCC  coinsurance  agreement  mentioned above.
These  allowances  received  are  included in net  distribution  expense  within
operating expenses and reduce overall distribution costs.

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 our core business.

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
market risks.  The market risks  incurred and our  strategies for managing these
risks vary by product.

With respect to non-variable life insurance  products,  fixed rate annuities and
the fixed rate options in our variable life insurance and annuity  products,  we
incur market risk  primarily in the form of interest  rate risk.  We manage this
risk  through  asset/liability  management  strategies  that  seek to match  the
interest rate  sensitivity of the assets to that of the underlying  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.

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  management  fees  decrease  as a result of
declines in assets under  management due to changes in prices of securities.  We
also  run the risk  that  asset  management  fees  calculated  by  reference  to
performance  could be lower.  For variable  annuity and variable life  insurance
products with minimum guaranteed death and other benefits, we also face the risk
that declines in the value of underlying  investments  as a result of changes in
prices of  securities  may  increase  our net  exposure to these death and other
benefits under these  contracts.  See  "Management's  Discussion and Analysis of
Financial  Condition  and  Results of  Operations--Results  of  Operations"  for
payments made under the  guaranteed  minimum death benefit  provision of certain
individual annuity contracts.

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 source of our  exposure to market  risk is related to "other  than  trading"
activities conducted primarily in our insurance and annuity products operations.

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.


                                       11
<PAGE>

Insurance, Annuities, and Guaranteed 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, 2004 and 2003,
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,  and policy loans.  In the aggregate,  the
carrying value of these assets represented 70% of our consolidated assets, other
than assets that we held in separate  accounts,  as of December 31, 2004 and 73%
as of December 31, 2003.

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 investment-type contracts.

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
potential loss in fair value from a hypothetical 100 basis point upward shift as
of December 31, 2004 and 2003, 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.


                                       12
<PAGE>

The following  presentation  excludes $587 million and $522 million of insurance
reserves and deposit  liabilities  at December 31, 2004 and 2003,  respectively.
The Company  believes that the interest rate  sensitivities  of these  insurance
liabilities  offset,  in large measure,  the interest rate risk of the financial
assets set forth in the following tables.

<TABLE>
<CAPTION>
                                                                        December 31, 2004
                                                 ---------------------------------------------------------------
                                                                                 Hypothetical
                                                                                  Fair Value
                                                                                  After + 100
                                                    Notional                      Basis Point    Hypothetical
                                                    Value of         Fair          Parallel        Change in
                                                  Derivatives        Value        Yield Curve     Fair Value
                                                                                     Shift
                                                 ---------------------------------------------------------------
Financial Assets with Interest Rate                                        (In millions)
<S>                                                   <C>            <C>              <C>           <C>
Risk:
Financial Assets:
     Fixed maturities, available for sale                            $ 904            $872          $ (32)
     Policy loans                                                      175             163            (12)

Derivatives:
     Futures                                          $(5)              --              --             --

Financial Liabilities:
     Investment Contracts                                             (399)           (399)            --

                                                                                                    -----
Total Estimated Potential Loss                                                                      $ (44)
                                                                                                    =====
<CAPTION>

                                                                       December 31, 2003
                                                 ---------------------------------------------------------------
                                                                                 Hypothetical
                                                                                  Fair Value
                                                                                  After + 100
                                                    Notional                      Basis Point    Hypothetical
                                                    Value of         Fair          Parallel        Change in
                                                  Derivatives        Value        Yield Curve     Fair Value
                                                                                     Shift
                                                 ---------------------------------------------------------------
Financial Assets with Interest Rate                                       (In millions)
<S>                                                     <C>          <C>              <C>           <C>
Risk:
Financial Assets:
     Fixed maturities, available for sale                            $ 783            $755          $ (28)
     Policy loans                                                      179             168            (11)

Derivatives:
     Futures                                            $6              --              --             --

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

                                                                                                    -----
Total Estimated Potential Loss                                                                      $ (39)
                                                                                                    =====
</TABLE>

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  is exposed to foreign  currency  exchange  risk in its  investment
portfolio and previously through its operations in Taiwan. The Company generally
hedges substantially all foreign  currency-denominated  fixed-income investments
supporting its U.S. insurance operations into U.S. dollars, in order to mitigate
the risk  that the fair  value of these  investments  fluctuates  as a result of
changes in foreign exchange rates.


                                       13
<PAGE>

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

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,  you
should not view VaR models 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.

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 10 to the Financial Statements for a description
of our derivative  activities as of December 31, 2004 and 2003.  Under insurance
statutes,  our 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. We
use  derivative  financial  instruments  primarily to seek to reduce market risk
from changes in interest rates or foreign currency  exchange rates, and to alter
interest rate or foreign  currency  exposures  arising from  mismatches  between
assets and liabilities.

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

In order to ensure that the information we must disclose in our filings with 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),  as of
December 31, 2004.  Based on such  evaluation,  the Chief Executive  Officer and
Chief  Financial  Officer have  concluded  that,  as of December  31, 2004,  our
disclosure  controls and procedures  were  effective in timely  alerting them to
material information relating to us (and our consolidated subsidiaries) required
to be included in our periodic SEC  filings.  No change in our internal  control
over financial  reporting  occurred  during the quarter ended December 31, 2004,
that has materially affected,  or is reasonably likely to materially affect, our
internal  control  over  financial  reporting,  as defined in Exchange  Act Rule
13a-15(f).  These  conclusions are not affected by the matters  discussed in the
following two paragraphs.

In determining the Company's state income tax expense for the three months ended
June 30,  2004,  an error  was  made  relating  to the  treatment  of state  net
operating loss  carryforwards.  This error resulted in an  understatement of tax
expense,  and  corresponding  overstatement  of net income for the three and six
months ended June 30, 2004 and nine months ended September 30, 2004.  Correction
of this error has been reflected in the Company's  results of operations for the
three months ended December 31, 2004. Management of the Company does not believe
the  effect  of the  error on any prior  period  to be  material.  The error was
identified by the Company in the course of a review and inventory by the Company
of its deferred tax balances undertaken during the fourth quarter of 2004.

The Company has implemented  enhancements to its internal control over financial
reporting  to provide  reasonable  assurance  that  errors of this type will not
recur. These steps include the completion of the Company's  comprehensive review
and  inventory  of deferred  tax assets and  liabilities.  The Company is in the
process  of  implementing   definitive  standards  for  detailed   documentation
supporting  deferred tax balances and expects to complete this implementation in
2005. The Company is also in the process of implementing an


                                       14
<PAGE>

automated  application to further enhance control with respect to the collection
of detailed  deferred tax  information,  and it expects to fully  implement such
application in 2005.

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,  as well as to our  directors  and 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.


                                       15
<PAGE>

PART III

Item 14. Principal Accounting 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 Auditors" in Prudential  Financial's definitive proxy
statement for the Annual Meeting of  Shareholders to be held on June 7, 2005, to
be filed with the Securities and Exchange  Commission pursuant to Regulation 14A
within 120 days after the year ended December 31, 2004.

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

Regulation S-K

2.    Not applicable.

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

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

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

      4.    Exhibits

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

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

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

            4(d)  Market-Value    Adjustment   Annuity   Contract    Endorsement
                  (Strategic   Partners   Annuity  One   variable   annuity)  is
                  incorporated  by  reference to the  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.


                                       16
<PAGE>

      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.


                                       17
<PAGE>

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 30th day of March 2005.

                             PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
                             (Registrant)

                                         By:      /s/ Bernard J. Jacob
                                             ---------------------------------
                                         Bernard J. Jacob
                                         Chief Executive Officer
                                         (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  Registrant and
in the capacities indicated on March 30, 2005.

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

James J. Avery, Jr.  *                    Director
---------------------------------
James J. Avery, Jr.


  /s/ Bernard J. Jacob *                  Director and President
---------------------------------
(Principal Executive Officer)

Bernard J. Jacob


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


Andrew J. Mako   *                        Director
---------------------------------
Andrew J. Mako


C. Edward Chaplin *                       Director
---------------------------------
C. Edward Chaplin


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


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


  /s/ John Chieffo                        Chief Financial and Accounting Officer
---------------------------------
John Chieffo
(Principal Accounting and Financial Officer)


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


                                       18
<PAGE>

                   PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY
                            Financial Statements and
             Report of Independent Registered Public Accounting Firm

                           December 31, 2004 and 2003


                                       29
<PAGE>

                   PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

                          INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
   Financial Statements                                                                                Page No.
                                                                                                       --------
<S>                                                                                                       <C>
   PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY

   Report of Independent Registered Public Accounting Firm                                                F-2

   Financial Statements:

         Statements of Financial Position - December 31, 2004 and 2003                                    F-3

         Statements of Operations and Comprehensive Income
         Years Ended December 31, 2004, 2003 and 2002                                                     F-4

         Statements of Stockholder's Equity - Years Ended December 31, 2004, 2003 and 2002                F-5

         Statements of Cash Flows - Years Ended December 31, 2004, 2003 and 2002                          F-6

         Notes to Financial Statements                                                                    F-7
</TABLE>


                                      F-1
<PAGE>

             Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder of
Pruco Life Insurance Company of New Jersey

In our  opinion,  the  financial  statements  listed in the  accompanying  index
present fairly, in all material  respects,  the financial position of Pruco Life
Insurance  Company of New Jersey (an  indirect,  wholly-owned  subsidiary of The
Prudential  Insurance Company of America) at December 31, 2004 and 2003, and the
results of its  operations and its cash flows for each of the three years in the
period  ended  December 31,  2004,  in  conformity  with  accounting  principles
generally accepted in the United States of America.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express  an  opinion  on these  financial  statements  based on our  audits.  We
conducted our audits of these statements in accordance with the standards of the
Public Company  Accounting  Oversight  Board (United  States).  Those  standards
require that we plan and perform the audit to obtain reasonable  assurance about
whether the financial  statements  are free of material  misstatement.  An audit
includes  examining,  on a test  basis,  evidence  supporting  the  amounts  and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.

As  described  in Note 2, the Company  adopted  American  Institute of Certified
Public  Accountants  Statement of Position  03-1,  "Accounting  and Reporting by
Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for
Separate  Accounts"  as of  January 1, 2004,  and the fair value  provisions  of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock Based
Compensation" as of January 1, 2003.


PricewaterhouseCoopers LLP
New York, New York
March 25, 2005


                                      F-2
<PAGE>

Pruco Life Insurance Company of New Jersey

Statements of Financial Position
As of December 31, 2004 and December 31, 2003 (in thousands, except share
amounts)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                               2004           2003
                                                                           -----------    -----------
<S>                                                                        <C>            <C>
ASSETS
Fixed maturities available for sale,
    at fair value (amortized cost, 2004 - $874,200; and 2003 - $746,370)   $   903,685    $   782,685
Policy loans                                                                   153,359        154,659
Short-term investments                                                          44,549         44,571
Other long-term investments                                                      1,977          2,765
                                                                           -----------    -----------
    Total investments                                                        1,103,570        984,680
Cash and cash equivalents                                                      108,117         72,547
Deferred policy acquisition costs                                              183,219        176,529
Accrued investment income                                                       15,045         13,635
Reinsurance recoverables                                                        67,411         17,850
Receivables from affiliates                                                     17,152         17,173
Other assets                                                                    13,789          9,954
Separate account assets                                                      2,112,866      1,926,301
                                                                           -----------    -----------
TOTAL ASSETS                                                               $ 3,621,169    $ 3,218,669
                                                                           ===========    ===========

LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES
Policyholders' account balances                                            $   796,421    $   675,823
Future policy benefits and other policyholder liabilities                      189,673        158,752
Cash collateral for loaned securities                                           74,527         78,855
Securities sold under agreements to repurchase                                  24,754         14,483
Income taxes payable                                                            76,878         51,383
Other liabilities                                                               27,788         20,317
Separate account liabilities                                                 2,112,866      1,926,301
                                                                           -----------    -----------
Total liabilities                                                            3,302,907      2,925,914
                                                                           -----------    -----------

CONTINGENCIES  (See Note 12)

STOCKHOLDER'S EQUITY
Common stock, ($5 par value;
      400,000 shares, authorized;
      issued and outstanding at
      December 31, 2004 and December 31, 2003)                                   2,000          2,000
Additional paid-in-capital                                                     168,810        168,742
Deferred compensation                                                             (152)          (108)
Accumulated other comprehensive income                                          13,246         13,178
Retained earnings                                                              134,358        108,943
                                                                           -----------    -----------
Total stockholder's equity                                                     318,262        292,755
                                                                           -----------    -----------
TOTAL LIABILITIES AND
    STOCKHOLDER'S EQUITY                                                   $ 3,621,169    $ 3,218,669
                                                                           ===========    ===========
</TABLE>

                        See Notes to Financial Statements


                                      F-3
<PAGE>

Pruco Life Insurance Company of New Jersey

Statements of Operations  and  Comprehensive  Income
Years Ended December 31, 2004, 2003 and 2002 (in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                    2004         2003         2002
                                                 ---------    ---------    ---------
<S>                                              <C>          <C>          <C>
REVENUES

Premiums                                         $  31,822    $  38,141    $  28,321
Policy charges and fee income                       77,872       70,060       70,444
Net investment income                               52,499       45,148       44,812
Realized investment gains (losses), net              1,885         (838)     (14,204)
Asset management fees                                4,976        4,029        1,264
Other income                                         1,947        1,717        1,709
                                                 ---------    ---------    ---------

Total revenues                                     171,001      158,257      132,346
                                                 ---------    ---------    ---------

BENEFITS AND EXPENSES

Policyholders' benefits                             44,968       50,898       45,543
Interest credited to policyholders' account
balances                                            29,324       22,641       20,449
General, administrative and other expenses          60,742       55,167       56,145
                                                 ---------    ---------    ---------

Total benefits and expenses                        135,034      128,706      122,137
                                                 ---------    ---------    ---------

Income from operations before income taxes and
cumulative effect of accounting change              35,967       29,551       10,209
                                                 ---------    ---------    ---------

Income taxes:
   Current                                          14,584      (15,103)      (8,717)
   Deferred                                         (4,216)      24,037        3,558
                                                 ---------    ---------    ---------
Total income tax expense (benefit)                  10,368        8,934       (5,159)
                                                 ---------    ---------    ---------

Net Income from Operations Before Cumulative
Effect of Accounting Change                         25,599       20,617       15,368

Cumulative effect of change in accounting
principle, net of taxes                               (184)          --           --
                                                 ---------    ---------    ---------
NET INCOME                                          25,415       20,617       15,368
                                                 ---------    ---------    ---------

Other comprehensive income, net of tax
Increase (decrease) in net unrealized
investment gains, net of taxes                        (479)       3,483        5,971
Cumulative effect of accounting change, net of         547           --           --
tax
                                                 ---------    ---------    ---------

 Other comprehensive income, net of tax                 68        3,483        5,971
                                                 ---------    ---------    ---------

 COMPREHENSIVE INCOME                            $  25,483    $  24,100    $  21,339
                                                 =========    =========    =========
</TABLE>

                        See Notes to Financial Statements


                                      F-4
<PAGE>

Pruco Life Insurance Company of New Jersey

Statements of Stockholder's Equity
Periods Ended December 31, 2004, 2003 and 2002 (in thousands)
-------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                                            Accumulated
                                                                                                Other           Total
                                       Common     Paid - in   Retained       Deferred       Comprehensive    Stockholder's
                                        Stock      Capital    Earnings     Compensation     Income (Loss)       Equity
                                      ---------   ---------   ---------    -------------    -------------    -------------
<S>                                   <C>         <C>         <C>          <C>              <C>              <C>
Balance, January 1, 2002              $   2,000   $ 128,689   $  72,959    $          --    $       3,724    $     207,372

   Net income                                --          --      15,368               --               --           15,368
   Adjustments to policy credits
   issued to eligible policyholders          --          --          (1)              --               --               (1)
   Change in net unrealized
   investment gains, net of taxes            --          --          --               --            5,971            5,971
                                      ---------   ---------   ---------    -------------    -------------    -------------
Balance, December 31, 2002                2,000     128,689      88,326               --            9,695          228,710

   Net income                                --          --      20,617               --               --           20,617
   Contribution from Parent                  --      40,000          --               --               --           40,000
   Stock-based compensation
   programs                                  --          53          --             (108)              --              (55)
   Change in net unrealized
   investment gains, net of taxes            --          --          --               --            3,483            3,483
                                      ---------   ---------   ---------    -------------    -------------    -------------
Balance, December 31, 2003                2,000     168,742     108,943             (108)          13,178          292,755

   Net income                                --          --      25,415               --               --           25,415
   Stock-based compensation
   programs                                  --          68          --              (44)              --               24
   Cumulative effect of
   accounting change, net of taxes           --          --          --               --              547              547
   Change in net unrealized
   investment gains, net of  taxes           --          --          --               --             (479)            (479)
                                      ---------   ---------   ---------    -------------    -------------    -------------
Balance, December 31, 2004            $   2,000   $ 168,810   $ 134,358    $        (152)   $      13,246    $     318,262
                                      =========   =========   =========    =============    =============    =============
</TABLE>

                        See Notes to Financial Statements


                                      F-5
<PAGE>

Pruco Life Insurance Company of New Jersey

Statements of Cash Flows
Years Ended December 31, 2004, 2003 and 2002 (in thousands)
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                  2004         2003         2002
                                                               ---------    ----------------------
<S>                                                            <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                  $  25,415    $  20,617    $  15,368
   Adjustments to reconcile net income to net cash (used in)
   provided by operating activities:
      Policy charges and fee income                              (19,556)     (15,786)     (12,057)
      Interest credited to policyholders' account balances        29,324       22,641       20,449
      Realized investment (gains) losses, net                     (1,885)         838       14,204
      Amortization and other non-cash items                       20,192        1,616       (7,651)
      Cumulative effect of accounting change                         184           --           --
      Change in:
        Future policy benefits and other policyholders'
        liabilities                                               29,266       24,544       14,808
        Reinsurance recoverable                                  (49,561)      (9,671)          --
        Accrued investment income                                   (784)      (2,344)        (892)
        Policy loans                                               1,300        3,772          323
        Receivable from affiliates                                    21           13       (7,416)
        Deferred policy acquisition costs                         (6,302)     (39,476)     (18,078)
        Income taxes payable                                      25,597       17,737       (2,366)
        Other, net                                                 3,643       11,766       (8,341)
                                                               ---------    ----------------------
Cash Flows From Operating Activities                              56,854       36,267        8,351
                                                               ---------    ----------------------

CASH FLOWS USED IN INVESTING ACTIVITIES:
   Proceeds from the sale/maturity of:
      Fixed maturities available for sale                        449,653      314,559      271,401
   Payments for the purchase of:
      Fixed maturities available for sale                       (543,373)    (540,203)    (331,512)
   Other long-term investments                                       (86)       1,083       (2,458)
   Short term investments, net                                     2,443      (14,254)       2,822
                                                               ---------    ----------------------
Cash Flows Used in Investing Activities                          (91,363)    (238,815)     (59,747)
                                                               ---------    ----------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Policyholders' account:
      Deposits                                                   221,728      210,872      135,163
      Withdrawals                                               (157,616)     (73,794)     (73,518)
    Cash collateral for loaned securities, net                    (4,328)      53,820      (11,057)
    Securities sold under agreements to repurchase, net           10,271      (17,230)      13,199
    Contribution from Parent                                          --       40,000           --
    Deferred compensation                                            (44)        (108)          --
    Stock-based compensation                                          68           53           --
     Cash payments to eligible policyholders                          --           --       (9,121)
                                                               ---------    ----------------------
Cash Flows From Financing Activities                              70,079      213,613       54,666
                                                               ---------    ----------------------

Net increase in cash and cash equivalents                         35,570       11,065        3,270
Cash and cash equivalents, beginning of year                      72,547       61,482       58,212
                                                               ---------    ----------------------
CASH AND CASH EQUIVALENTS, END OF YEAR                         $ 108,117    $  72,547    $  61,482
                                                               =========    ======================
</TABLE>

                        See Notes to Financial Statements


                                      F-6
<PAGE>

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.  Due to  these
relationships,  it is possible that the terms of these  transactions are not the
same as those  that  would  result  from  transactions  among  wholly  unrelated
parties.

Use of Estimates

The  preparation  of  financial  statements  in  conformity  with GAAP  requires
management to make estimates and assumptions that affect the reported amounts of
assets  and  liabilities,  in  particular  deferred  policy  acquisition  costs,
investments,  future policy benefits,  provision for income taxes, disclosure of
contingent  liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the period.  Actual results could differ
from those estimates.

Stock  Options

Effective  January 1, 2003,  Prudential  Financial  changed its  accounting  for
employee  stock options to adopt the fair value  recognition  provisions of SFAS
No. 123,  "Accounting for Stock-Based  Compensation," as amended,  prospectively
for  all  new  awards  granted  to  employees  on  or  after  January  1,  2003.
Accordingly,  results of operations of the Company for the years ended  December
31, 2004 and 2003,  include  costs of less than $0.1  million and $0.1  million,
respectively,  associated  with  employee  stock  options  issued by  Prudential
Financial  to  certain  employees  of the  Company.  Prior to  January  1, 2003,
Prudential  Financial  accounted for employee  stock options using the intrinsic
value  method of APB No. 25,  "Accounting  for Stock Issued to  Employees,"  and
related interpretations. Under this method, Prudential Financial and the Company
did not recognize any stock-based  compensation costs as all options granted had
an exercise  price equal to the market value of  Prudential  Financial's  Common
Stock on the date of grant.

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

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


                                      F-7
<PAGE>

Pruco Life Insurance Company of New Jersey

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Investments

Fixed  maturities  classified as "available for sale" are carried at fair value.
The  amortized  cost of fixed  maturities  is  written  down to fair  value if a
decline in value is considered to be other than  temporary.  See the  discussion
below on  realized  gains and losses for a  description  of the  accounting  for
impairment  adjustments.   Unrealized  gains  and  losses  on  fixed  maturities
"available for sale",  including the effect on deferred policy acquisition costs
and  policyholders'  account  balances that would result from the realization of
unrealized  gains and losses are included in  "Accumulated  other  comprehensive
income (loss)."

Policy loans are carried at unpaid principal balances.

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

Securities  repurchase and resale  agreements that satisfy certain  criteria are
treated as collateralized  financing arrangements.  These agreements are carried
at  the  amounts  at  which  the  securities  will  be  subsequently  resold  or
reacquired, as specified in the respective agreements.  For securities purchased
under  agreements  to resell,  the  Company's  policy is to take  possession  or
control of the securities and to value the  securities  daily.  Securities to be
resold are the same, or substantially the same, as the securities received.  For
securities  sold  under  agreements  to  repurchase,  the  market  value  of the
securities to be repurchased is monitored, and additional collateral is obtained
where  appropriate,  to  protect  against  credit  exposure.  Securities  to  be
repurchased are the same, or  substantially  the same as those sold.  Income and
expenses related to these transactions  executed within the general are reported
as "Net investment income," however,  for transactions used to borrow funds, the
associated  borrowing cost is reported as interest expense (included in "General
and administrative expenses").

Securities  borrowed and securities loaned transactions are treated as financing
arrangements  and are recorded at the amount of cash advanced or received.  With
respect to securities loaned transactions,  the Company obtains collateral in an
amount  equal to 102% and 105% of the fair  value of the  domestic  and  foreign
securities,   respectively.  The  Company  monitors  the  market  value  of  the
securities  borrowed  and  loaned on a daily  basis with  additional  collateral
obtained or provided as necessary. Substantially all of the Company's securities
borrowed  transactions  are with  brokers  and  dealers,  commercial  banks  and
institutional  clients.  Substantially  all of the Company's  securities  loaned
transactions are with large brokerage firms. Income and expenses associated with
securities  borrowing  transactions  are  reported as "Net  investment  income."
Income and expenses  associated  with  securities  loaned  transactions  used to
generate income are generally reported as "Net investment income;" however,  for
securities  loaned  transactions used for funding purposes the associated rebate
is  reported as  interest  expense  (included  in  "General  and  administrative
expenses").

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

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

Realized  investment  gains  (losses),  net  are  computed  using  the  specific
identification  method.  Costs of fixed  maturities  and equity  securities  are
adjusted for impairments,  which are declines in value that are considered to be
other  than  temporary.   Impairment   adjustments  are  included  in  "Realized
investment losses,  net." In evaluating whether a decline in value is other than
temporary,  the Company considers several factors including,  but not limited to
the following:  (1) the extent  (generally if greater than 20%) and the duration
(generally if greater than six months); (2) the reasons for the decline in value
(credit  event,  interest  related  or market  fluctuation);  (3) the  Company's
ability and intent to hold the  investments  for a period of time to allow for a
recovery of value; and (4) the financial condition of and near-term prospects of
the issuer.


                                      F-8
<PAGE>

Pruco Life Insurance Company of New Jersey

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

Cash and cash equivalents

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

Deferred Policy Acquisition Costs

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

The costs that vary with and that are related primarily to the production of new
insurance and annuity  business are deferred to the extent such costs are deemed
recoverable   from   future   profits.   For   annuity   products,   the  entire
transfer-pricing  fee is deemed to be related to the  production  of new annuity
business and is capitalized. For life products, there is a look-through into the
expenses incurred by the Prudential Insurance's agency network and expenses that
are  considered to be related to the  production  of new insurance  business are
deferred. The cost of policy issuance and underwriting are also considered to be
related  primarily to the  production of new insurance and annuity  business and
are fully capitalized.  Deferred policy acquisition costs ("DAC") are subject to
recoverability testing at the end of each accounting period. DAC, for applicable
products,  are  adjusted  for the  impact  of  unrealized  gains  or  losses  on
investments  as if these gains or losses had been realized,  with  corresponding
credits or charges included in "Accumulated other comprehensive income (loss)."

Policy  acquisition  costs  related  to  interest-sensitive  and  variable  life
products and certain  investment-type  products are deferred and amortized  over
the  expected  life of the  contracts  (periods  ranging from 25 to 30 years) in
proportion  to estimated  gross  profits  arising  principally  from  investment
results,   mortality  and  expense  margins,  and  surrender  charges  based  on
historical and anticipated future experience, which is updated periodically. The
effect of changes to estimated  gross profits on unamortized DAC is reflected in
"General,  administrative and other expenses" in the period such estimated gross
profits  are  revised.  DAC  related to  non-participating  term  insurance  are
amortized  over the  expected  life of the  contracts in  proportion  to premium
income.

The  Company  and  Prudential   Insurance  have  offered  programs  under  which
policyholders,  for a selected  product or group of  products,  can  exchange an
existing  policy or contract  issued by the Company or Prudential  Insurance for
another form of policy or  contract.  These  transactions  are known as internal
replacements.  If the terms of the new policies are not substantially similar to
those of the former policy,  the unamortized DAC on the surrendered  policies is
immediately  charged  to  expense.  If the new  policies  have  terms  that  are
substantially similar to those of the earlier policies, the DAC is retained with
respect to the new policies and amortized over the life of the new policies.

Reinsurance recoverables and payables

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

Separate account assets and liabilities

Separate account assets and liabilities are reported at fair value and represent
segregated funds which are invested for certain policyholders, pension funds and
other customers.  The assets consist of common stocks,  fixed  maturities,  real
estate  related   investments,   real  estate   mortgage  loans  and  short-term
investments. The assets of each account are legally segregated and are generally
not  subject to claims  that  arise out of any other  business  of the  Company.
Investment  risks  associated  with  market  value  changes  are  borne  by  the
customers,  except to the extent of minimum  guarantees made by the Company with
respect to certain  accounts.  See Note 8 for additional  information  regarding
separate account arrangements with contractual guarantees. The investment income
and gains or losses for separate accounts  generally accrue to the policyholders
and  are  not  included  in the  Statements  of  Operations.  Mortality,  policy
administration  and surrender charges assessed against the accounts are included
in  "Policy  charges  and fee  income."  Asset  management  fees  charged to the
accounts are included in "Asset management fees."


                                      F-9
<PAGE>

Pruco Life Insurance Company of New Jersey

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Other assets and other liabilities

The Company  provides sales  inducements  to  contractholders,  which  primarily
include an up-front  bonus  added to the  contractholder's  initial  deposit for
certain  annuity  contracts.  These costs are  deferred  and  recognized  on the
statement of financial  position in other assets.  They are amortized  using the
same methodology and assumptions used to amortized  deferred policy  acquisition
costs. The amortization  expense is included as a component of interest credited
to policyholders'  account balances.  As of December 31, 2004 and 2003, deferred
sales inducement costs included in other assets were $11 million and $8 million,
respectively.

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

Policyholders' Account Balances

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

Future Policy Benefits

The Company's liability for future policy benefits is primarily comprised of the
present  value of estimated  future  payments to or on behalf of  policyholders,
where the timing and amount of payment depends on policyholder  mortality,  less
the present value of future net premiums. For life insurance, expected mortality
is generally based on the Company's  historical  experience or standard industry
tables. Interest rate assumptions are based on factors such as market conditions
and  expected   investment   returns.   Although  mortality  and  interest  rate
assumptions  are  "locked-in"  upon the  issuance  of new  insurance  or annuity
business with fixed and guaranteed terms,  significant  changes in experience or
assumptions may require us to provide for expected future losses on a product by
establishing  premium deficiency  reserves.  The Company's  liability for future
policy benefits is also inclusive of liabilities for guarantee  benefits related
to certain  non-traditional long duration life and annuity contracts,  which are
discussed more fully in Note 8.

Unpaid Claims

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

Contingencies

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

Insurance Revenue and Expense Recognition

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

Certain  annuity  contracts  provide  the holder a  guarantee  that the  benefit
received  upon death will be no less than a minimum  prescribed  amount  that is
based upon a combination  of net deposits to the  contract,  net deposits to the
contract accumulated at a specified rate or the highest historical account value
on a contract  anniversary.  These  contracts are discussed in further detail in
Note 8.  Also,  as  more  fully  discussed  in Note  8,  the  liability  for the
guaranteed minimum death benefit under these contracts is determined each period
end by estimating the accumulated value of a percentage of the total assessments
to date less the  accumulated  value of death  benefits in excess of the account
balance.


                                      F-10
<PAGE>

Pruco Life Insurance Company of New Jersey

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Amounts received as payment for interest-sensitive  life, deferred annuities and
guaranteed  investment  contracts  are  reported as deposits to  "Policyholders'
account  balances."  Revenues from these contracts  reflected as "Policy charges
and fee income" consist primarily of fees assessed during the period against the
policyholders'  account balances for mortality  charges,  policy  administration
charges and surrender charges.  Benefits and expenses for these products include
claims  in  excess  of  related   account   balances,   expenses   of   contract
administration,   interest  credited  to  policyholders'  account  balances  and
amortization of DAC.

Premiums,  benefits and expenses  are stated net of  reinsurance  ceded to other
companies.  Estimated  reinsurance  recoverables and the cost of reinsurance are
recognized over the life of the reinsured policies using assumptions  consistent
with those used to account for the underlying policies.

Asset Management Fees

Beginning  October 1, 2002, the Company  receives in accordance with a servicing
agreement with  Prudential  Investments  LLC,  asset  management fee income from
policyholder  account balances  invested in The Prudential Series Funds ("PSF").
The PSF are a portfolio  of mutual  fund  investments  related to the  Company's
separate account products (see Note 13). In addition,  the Company receives fees
from  policyholders'  account  balances  invested in funds  managed by companies
other than Prudential Insurance.  Asset management fees are recognized as income
when earned.

Derivative Financial Instruments

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

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

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

If a derivative does not qualify for hedge  accounting,  all changes in its fair
value, including net receipts and payments, are included in "Realized investment
gains  (losses),  net"  without  considering  changes  in the fair  value of the
economically associated assets or liabilities.

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

Income Taxes

The  Company  is a member  of the  consolidated  federal  income  tax  return of
Prudential  Financial  and files  separate  company state and local tax returns.
Pursuant to the tax allocation  arrangement  with  Prudential  Financial,  total
federal income tax expense is determined on a separate  company  basis.  Members
with losses record tax benefits to the extent such losses are  recognized in the
consolidated federal tax provision.

Deferred  income taxes are recognized,  based on enacted rates,  when assets and
liabilities  have  different  values for  financial  statement and tax reporting
purposes.  A valuation  allowance  is recorded to reduce a deferred tax asset to
the amount expected to be realized.


                                      F-11
<PAGE>

Pruco Life Insurance Company of New Jersey

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

New Accounting Pronouncements

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

In December  2003,  the FASB issued FIN No.  46(R),  "Consolidation  of Variable
Interest  Entities,"  which  revised the original FIN No. 46 guidance  issued in
January  2003.  FIN No.  46(R)  addresses  whether  certain  types of  entities,
referred to as variable interest entities ("VIEs"),  should be consolidated in a
company's  financial  statements.  A VIE is an entity that either (1) has equity
investors that lack certain essential characteristics of a controlling financial
interest  (including the ability to control the entity, the obligation to absorb
the  entity's  expected  losses and the right to receive the  entity's  expected
residual  returns) or (2) lacks sufficient  equity to finance its own activities
without  financial  support  provided by other entities,  which in turn would be
expected  to absorb at least some of the  expected  losses of the VIE. An entity
should consolidate a VIE if, as the primary  beneficiary,  it stands to absorb a
majority  of the VIE's  expected  losses or to receive a  majority  of the VIE's
expected  residual  returns.  On December 31, 2003, the Company  adopted FIN No.
46(R) for all special purpose entities ("SPEs") and for  relationships  with all
VIEs that began on or after  February 1, 2003.  On March 31,  2004,  the Company
implemented  FIN No. 46(R) for  relationships  with  potential VIEs that are not
SPEs.  The  transition  to FIN No.  46(R) did not have a material  effect on the
Company's consolidated financial position or results of operations.

In July 2003,  the Accounting  Standards  Executive  Committee  ("AcSEC") of the
American Institute of Certified Public Accountants ("AICPA") issued Statement of
Position  ("SOP") 03-1,  "Accounting and Reporting by Insurance  Enterprises for
Certain Nontraditional Long-Duration Contracts and for Separate Accounts." AcSEC
issued this SOP to address the need for  interpretive  guidance in three  areas:
separate account presentation and valuation; the classification and valuation of
certain long-duration contract liabilities; and the accounting recognition given
sales inducements (bonus interest, bonus credits and persistency bonuses).

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

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


                                      F-12
<PAGE>

Pruco Life Insurance Company of New Jersey

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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

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

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

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

Reclassifications

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


                                      F-13
<PAGE>

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:

<TABLE>
<CAPTION>
                                                                          2004
                                                    -------------------------------------------------
                                                                   Gross        Gross
                                                    Amortized    Unrealized   Unrealized      Fair
                                                       Cost        Gains        Losses       Value
                                                    ----------   ----------   ----------   ----------
                                                                     (in thousands)
<S>                                                 <C>          <C>          <C>          <C>
      Fixed maturities available for sale
      U.S. Treasury securities and obligations of
      U.S. Government corporations and  agencies    $   40,178   $      527   $       94   $   40,611

      Foreign government bonds                              --           --           --           --

      Corporate securities                             795,984       30,808        1,788      825,004

      Mortgage-backed securities                        38,038          200          168       38,070
                                                    ----------   ----------   ----------   ----------

      Total fixed maturities, available for sale    $  874,200   $   31,535   $    2,050   $  903,685
                                                    ==========   ==========   ==========   ==========

<CAPTION>

                                                                          2003
                                                    -------------------------------------------------
                                                                   Gross        Gross
                                                    Amortized    Unrealized   Unrealized      Fair
                                                       Cost        Gains        Losses       Value
                                                    ----------   ----------   ----------   ----------
                                                                     (in thousands)
<S>                                                 <C>          <C>          <C>          <C>

Fixed maturities available for sale
U.S. Treasury securities and obligations of
U.S. Government corporations and agencies           $   31,909   $      668   $       --   $   32,577

Foreign government bonds                                 1,024          174           --        1,198

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

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

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


                                      F-14
<PAGE>

Pruco Life Insurance Company of New Jersey

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

3. INVESTMENTS (continued)

The amortized cost and estimated fair value of fixed maturities,  by contractual
maturities at December 31, 2003, is shown below:

                                    Available for Sale
                                   ---------------------
                                   Amortized     Fair
                                     Cost        Value
                                   ---------   ---------
                                      (in thousands)

Due in one year or less            $  56,439   $  56,990

Due after one year through five
years                                437,557     450,027

Due after five years through ten
years                                271,044     283,460

Due after ten years                   71,122      75,138

Mortgage-backed securities            38,038      38,070
                                   ---------   ---------

Total                              $ 874,200   $ 903,685
                                   =========   =========

Actual  maturities may differ from contractual  maturities  because issuers have
the right to call or prepay obligations.

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

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

Investment Income and Investment Gains and Losses

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

                                                 2004        2003        2002
                                               --------    --------    --------
                                                        (in thousands)

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


                                      F-15
<PAGE>

Pruco Life Insurance Company of New Jersey

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

3. INVESTMENTS (continued)

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

                                             2004      2003        2002
                                           -------    -------    --------
                                                  (in thousands)

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

Duration of Gross Unrealized Loss Positions for Fixed Maturities

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

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

As of December 31, 2004,  gross unrealized  losses on fixed  maturities  totaled
approximately  $2 million  comprising 99 issuers.  Of this amount,  there was $2
million in the less than twelve months  category  comprising 95 issuers and $0.1
million in the greater than twelve months category  comprising 4 issuers.  There
were no  individual  issuers  with gross  unrealized  losses  greater  than $0.1
million.  The $2  million  loss of  gross  unrealized  losses  is  comprised  of
investment  grade  securities.  The $0.1 million of gross  unrealized  losses of
twelve months or more were concentrated in the finance sector. Based on a review
of the above  information in  conjunction  with other factors as outlined in our
policy  surrounding  other  than  temporary  impairments  (see  Note 2), we have
concluded  that an  adjustment  for  other  than  temporary  impairments  is not
warranted at December 31, 2004.

Securities Pledged, Restricted Assets and Special Deposits

The  Company  pledges  investment  securities  it owns to  unaffiliated  parties
through certain transactions including securities lending, securities sold under
agreements to repurchase,  and futures contracts. At December 31, 2004 and 2003,
the  carrying  values of fixed  maturities  available  for sale pledged to third
parties as reported in the Statements of Financial Position were $96 million and
$91 million, respectively.

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


                                      F-16
<PAGE>

Pruco Life Insurance Company of New Jersey

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

3. INVESTMENTS (continued)

Net Unrealized Investment Gains (Losses)

Net  unrealized  investment  gains on fixed  maturities  available  for sale are
included in the Statements of Financial  Position as a component of "Accumulated
other  comprehensive  income."  Changes in these amounts include  adjustments to
exclude from "Other  comprehensive  income (loss)" those items that are included
as  part of "net  income"  for a  period  that  also  had  been  part of  "Other
comprehensive income (loss)" in earlier periods. The amounts for the years ended
December 31, net of tax, are as follows:

<TABLE>
<CAPTION>
                                                                                                                   Accumulated other
                                                                                                                     Comprehensive
                                                                                                                     Income (Loss)
                                                                     Deferred                         Deferred       Related to Net
                                                   Net Unrealized     policy       Policyholders'    Income Tax       Unrealized
                                                   Gains (Losses)   Acquisition       Account        (Liability)      Investment
                                                   on Investments      Costs          Balances         Benefit       Gains (Losses)
                                                   --------------   ----------     --------------    -----------   -----------------
                                                                                   (in thousands)
<S>                                                  <C>            <C>              <C>              <C>              <C>
Balance, January 1, 2002                             $   11,738     $   (7,134)      $    1,214       $   (2,094)      $    3,724
   Net investment gains on investments
   arising during the period                              3,607             --               --           (1,299)           2,308

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

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

   Impact of net unrealized investment gains on
   policyholders' account balances                                                        2,161             (778)           1,383
                                                     ----------     ----------       ----------       ----------       ----------
Balance, December 31, 2002                               28,035        (16,262)           3,375           (5,453)           9,695
   Net investment gains on investments
   arising  during the period                             7,160             --               --           (2,577)           4,583

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

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

   Impact of net unrealized investment gains on
   policyholders' account balances                           --             --              821             (296)             525
                                                     ----------     ----------       ----------       ----------       ----------
Balance, December 31, 2003                               36,318        (19,924)           4,196           (7,412)          13,178
   Net investment gains on investments
   arising  during the period                            (4,798)                                           2,043           (2,755)

   Reclassification adjustment for losses
   included in net income                                (2,024)                                             708           (1,316)

   Impact of net unrealized investment gains on
   deferred policy acquisition costs                                     8,075                            (3,026)           5,049

   Impact of net unrealized investment
   gains on policyholders' account balances                                              (1,465)             555             (910)
                                                     ----------     ----------       ----------       ----------       ----------
Balance, December 31, 2004                           $   29,496     $  (11,849)      $    2,731       $   (7,132)      $   13,246
                                                     ==========     ==========       ==========       ==========       ==========
</TABLE>


                                      F-17
<PAGE>

Pruco Life Insurance Company of New Jersey

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

4. DEFERRED POLICY ACQUISITION COSTS

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

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


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

5. POLICYHOLDERS' LIABILITIES

Future policy benefits at December 31 are as follows:

                                                2004          2003
                                              --------      --------
                                                  (in thousands)

            Life insurance                    $183,736      $154,410
            Individual Annuities                 5,937         4,342
                                              --------      --------
            Total future policy benefits      $189,673      $158,752
                                              ========      ========

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

Future  policy  benefits for life  insurance  are based on the net level premium
method, calculated using the guaranteed mortality and nonforfeiture rates, which
range from 2.50% to 7.50%.

Future policy benefits for individual annuities are equal to the aggregate of 1)
the  present  value of  expected  future  payments  on the  basis  of  actuarial
assumptions  established  at  issue,  and 2) any  premium  deficiency  reserves.
Assumptions as to mortality are based on the Company's experience when the basis
of the reserve is established.  The interest rates used in the  determination of
the individual  annuities reserves range from 4.75% to 8.75%, with less than 10%
of the reserves based on an interest rate in excess of 8%.

Policyholders' account balances at December 31 are as follows:

                                                    2004          2003
                                                  --------      --------
                                                       (in thousands)

       Interest-sensitive life contracts          $432,460      $390,044
       Individual annuities                        363,961       285,779
                                                  --------      --------
       Total policyholders' account balances      $796,421      $675,823
                                                  ========      ========

Policyholders'  account  balances  for  interest-sensitive  life and  individual
annuities  represent an accumulation of account deposits plus credited  interest
less  withdrawals,  expenses and  mortality  charges,  if  applicable.  Interest
crediting rates range from 2.97% to 5.90% for interest-sensitive life contracts.
Interest crediting rates for individual annuities range from 1.50% to 11.00%.


                                      F-18
<PAGE>

Pruco Life Insurance Company of New Jersey

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

6. REINSURANCE

The Company  participates in reinsurance  with Prudential  Insurance,  PARCC and
other  companies,  in order to  provide  greater  diversification  of  business,
provide  additional  capacity  for future  growth and limit the maximum net loss
potential  arising from large risks.  Life  reinsurance is accomplished  through
various plans of reinsurance,  primarily  yearly renewable term and coinsurance.
Reinsurance  ceded  arrangements  do not  discharge  the  Company as the primary
insurer.  Ceded balances would represent a liability of the Company in the event
the  reinsurers  were unable to meet their  obligations to the Company under the
terms of the reinsurance  agreements.  The likelihood of a material  reinsurance
liability reassumed by the Company is considered to be remote.

Reinsurance premiums, commissions, expense reimbursements, benefits and reserves
related to reinsured  long-duration contracts are accounted for over the life of
the underlying reinsured contracts using assumptions  consistent with those used
to account for the underlying  contracts.  Amounts  recoverable from reinsurers,
for both long and short duration  reinsurance  arrangements,  are estimated in a
manner consistent with the claim liabilities and policy benefits associated with
the reinsured policies.

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

<TABLE>
<CAPTION>
                                                        2004          2003          2002
                                                     ---------     ---------     ---------
                                                                 (in thousands)
<S>                                                  <C>           <C>           <C>
Direct premiums and policy charges and fee income    $ 147,511     $ 119,381     $ 104,180
Reinsurance ceded                                      (37,817)      (11,180)       (5,415)
                                                     ---------     ---------     ---------
Premiums and policy charges and fee income           $ 109,694     $ 108,201     $  98,765

Policyholders' benefits ceded                        $  20,028     $  11,223     $  12,929
                                                     ---------     ---------     ---------
</TABLE>

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

Reinsurance  recoverables,  included in the  Company's  Statements  of Financial
Position,  at  December  31,  2004 and 2003 were $67  million  and $18  million,
respectively.

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

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

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


                                      F-19
<PAGE>

Pruco Life Insurance Company of New Jersey

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

7. INCOME TAXES

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

                                               2004         2003         2002
                                             --------     --------     --------
                                                       (in thousands)
      Current tax (benefit) expense:
         U.S                                 $ 14,639     $(15,103)    $ (8,975)
         State and local                          (55)          --          258

                                             --------     --------     --------
       Total                                   14,584      (15,103)      (8,717)
                                             --------     --------     --------

      Deferred tax expense (benefit):
         U.S                                   (2,640)      23,735        3,918
         State and local                       (1,576)         302         (360)
                                             --------     --------     --------
         Total                                 (4,216)      24,037        3,558
                                             --------     --------     --------

       Total income tax expense (benefit)    $ 10,368     $  8,934     $ (5,159)
                                             ========     ========     ========

The income tax expense for the years ended  December 31, differs from the amount
computed by applying the expected  federal income tax rate of 35% to income from
operations  before income taxes and cumulative  effect of accounting  change for
the following reasons:

                                               2004         2003         2002
                                             --------     --------     --------
                                                       (in thousands)

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

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

                                                 2004       2003
                                               -------    -------
                                                  (in thousands)
      Deferred tax assets
         Net operating loss                    $    --    $ 1,074
         Investments                             1,661      1,673
         Other                                     841        204
                                               -------    -------
         Deferred tax assets                     2,502      2,951
                                               -------    -------

      Deferred tax liabilities
         Insurance reserves                    $ 3,249    $ 7,420
         Deferred acquisition costs             46,936     48,271
         Net unrealized gains on securities     10,324     13,075
         Other                                   3,209         --
                                               -------    -------
         Deferred tax liabilities               63,718     68,766
                                               -------    -------

      Net deferred tax liability               $61,216    $65,815
                                               =======    =======

Management  believes that based on its historical pattern of taxable income, the
Company will produce sufficient income in the future to realize its deferred tax
assets after valuation allowance. Adjustments to the valuation allowance will be
made if  there is a change  in  management's  assessment  of the  amount  of the
deferred  tax asset that is  realizable.  At  December  31, 2003 the Company had
state operating loss carryforwards of $70 million.


                                      F-20
<PAGE>

Pruco Life Insurance Company of New Jersey

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

7. INCOME TAXES (continued)

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

8. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS

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

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

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

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

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


                                      F-21
<PAGE>

Pruco Life Insurance Company of New Jersey

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

8. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)

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

<TABLE>
<CAPTION>
                                                                             December 31, 2004
                                                                --------------------------------------------
                                                                 In the Event of          At Annuitization /
                                                                      Death                  Accumulation
                                                                --------------------------------------------
   Variable Annuity Contracts                                             (dollars in thousands)
<S>                                                                   <C>                     <C>
   Return of Net Deposits
   Account value                                                     $ 253,843                      N/A
   Net amount at risk                                                $     395                      N/A
   Average attained age of contractholders                            61 years                      N/A

   Minimum return or anniversary contract value
   Account value                                                     $ 743,506                  $68,612
   Net amount at risk                                                $  67,040                       $0
   Average attained age of contractholders                            63 years                       56
   Average period remaining until earliest expected                        N/A                6.5 years
   annuitization

<CAPTION>

                                                                  Unadjusted Value         Adjusted Value
   Market value adjusted annuities
                                                                -------------------    ---------------------

<S>                                                                    <C>                      <C>
   Account value                                                       $34,053                  $35,885

<CAPTION>

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

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

                                                        December 31, 2004
                                                       ------------------
                                                          (in thousands)

      Equity funds ..................................        $552,820
      Bond funds ....................................          78,373
      Balanced funds ................................          21,584
      Money market funds ............................          23,605
      Specialty funds ...............................              81
                                                             --------
           Total ....................................        $676,463
                                                             ========


                                      F-22
<PAGE>

Pruco Life Insurance Company of New Jersey

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

8. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)

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

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

Liabilities For Guarantee Benefits

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

                                                     Guaranteed Minimum
                                                    Death Benefit (GMDB)
                                                    --------------------
                                                       (in thousands)

               Balance as of January 1, 2004 ......      $ 1,633

                 Incurred guarantee benefits ......          762

                 Paid guarantee benefits ..........       (1,154)
                                                         -------
               Balance as of December 31, 2004 ....      $ 1,241
                                                         =======

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

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

Sales Inducements

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

                                                    Sales Inducements
                                                    -----------------
                                                     (in thousands)

              Balance as of January 1, 2004 ......      $  7,879

                Capitalization ...................         4,461

                Amortization .....................        (1,225)
                                                        --------
              Balance as of December 31, 2004 ....      $ 11,115
                                                        ========


                                      F-23
<PAGE>

Pruco Life Insurance Company of New Jersey

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

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 income  (loss) of the  Company  amounted  to $57  million,  $(60)
million, and $(45) million for the years ended December 31, 2004, 2003 and 2002,
respectively.  Statutory surplus of the Company amounted to $148 million and $90
million at December 31, 2004 and 2003,  respectively.  The  statutory  losses in
2003,  and  2002  were  primarily  attributed  to the  surplus  strain  from new
business,  which results from higher commissions and selling expenses, which are
not deferred under statutory accounting,  and from increases to reserves. During
2004, the Company obtained  reinsurance on the term life business from a captive
affiliate,  mitigating  the surplus  strain on that  business.  The agreement is
discussed further in Note 13.

In March  1998,  the NAIC  adopted  the  Codification  of  Statutory  Accounting
Principles  guidance or,  "Codification,"  which replaced the current Accounting
Practices  and  Procedures  manual as the NAIC's  primary  guidance on statutory
accounting as of January 1, 2001. Codification provided guidance for areas where
statutory accounting had been silent and changed current statutory accounting in
certain areas. The Company adopted the Codification  guidance  effective January
1, 2001.  As a result of these  changes,  the  Company  reported  an increase to
statutory  surplus of $7  million,  primarily  relating  to the  recognition  of
deferred tax assets.

The Company is subject to New Jersey law. The maximum amount of dividends, which
can be paid by State of New Jersey insurance  companies to shareholders  without
prior    approval    of   the    Insurance    Commissioner,    is   subject   to
N.J.S.A.17:27A-4.c(2)(b).  There have been no dividend payments to the Company's
parent in 2004,  2003 or 2002.  However,  the  Company  received  a $40  million
capital contribution from its Parent during 2003.

10. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values  presented below have been determined by using available  market
information and by applying valuation  methodologies.  Considerable  judgment is
applied in interpreting data to develop the estimates of fair value.  These fair
values may not be realized in a current  market  exchange.  The use of different
market assumptions and/or estimation  methodologies could have a material effect
on the fair values.  The methods and  assumptions  discussed  below were used in
calculating the fair values of the instruments.  See Note 11 for a discussion of
derivative instruments.

Fixed maturities

The fair values of public fixed  maturity  securities are based on quoted market
prices or estimates from independent pricing services.  However, for investments
in  private  placement  fixed  maturity  securities,  this  information  is  not
available. For these private investments, the fair value is determined typically
by using a discounted  cash flow model,  which  considers  current market credit
spreads for publicly traded issues with similar terms by companies of comparable
credit quality,  and an additional  spread  component for the reduced  liquidity
associated  with  private  placements.   This  additional  spread  component  is
determined  based on surveys  of various  third  party  financial  institutions.
Historically,  changes in estimated  future cash flows or the  assessment  of an
issuer's  credit quality have been the more  significant  factors in determining
fair values.

Policy loans

The fair value of policy loans is calculated  using a discounted cash flow model
based upon current U.S. Treasury rates and historical loan repayment patterns.

Investment contracts

For  individual  deferred  annuities and other deposit  liabilities,  fair value
approximates carrying value.

Derivative financial instruments

See note 11 for disclosure of fair value on these instruments.


                                      F-24
<PAGE>

Pruco Life Insurance Company of New Jersey

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

10. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued)

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

<TABLE>
<CAPTION>
                                                          2004                            2003
                                               --------------------------      --------------------------
                                                Carrying                        Carrying
                                                 Value         Fair Value        Value         Fair Value
                                               ----------      ----------      ----------      ----------
                                                                     (in thousands)
<S>                                            <C>             <C>             <C>             <C>
 Financial assets:

    Fixed  maturities, available for sale      $  903,685      $  903,685      $  782,685      $  782,685
    Policy loans                                  153,359         175,090         154,659         179,308
    Short-term investments                         44,549          44,549          44,571          44,571
    Cash and cash equivalents                     108,117         108,117          72,547          72,547
    Separate account assets                     2,112,866       2,112,866       1,926,301       1,926,301

 Financial liabilities:
    Investment contracts                       $  398,615      $  398,615      $  312,635      $  312,635
    Cash collateral for loaned securities          74,527          74,527          78,855          78,855
    Securities sold under agreementS
        to repurchase                              24,754          24,754          14,483          14,483
    Separate account liabilities                2,112,866       2,112,866       1,926,301       1,926,301
</TABLE>

11. DERIVATIVE INSTRUMENTS

Types of Derivative Instruments

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

Exchange-traded  futures and  options  are used by the Company to reduce  market
risks from changes in interest rates, to alter  mismatches  between the duration
of assets in a portfolio  and the  duration of  liabilities  supported  by those
assets,  and to hedge  against  changes  in the value of  securities  it owns or
anticipates acquiring or selling. In exchange-traded  futures transactions,  the
Company agrees to purchase or sell a specified  number of contracts,  the values
of which are determined by the values of designated  classes of securities,  and
to post  variation  margin on a daily basis in an amount equal to the difference
in the  daily  market  values  of  those  contracts.  The  Company  enters  into
exchange-traded futures and options with regulated futures commissions merchants
who are members of a trading exchange.

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

Credit Risk

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


                                      F-25
<PAGE>

Pruco Life Insurance Company of New Jersey

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

11. DERIVATIVE INSTRUMENTS (continued)

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

12. CONTINGENCIES AND LITIGATION AND REGULATORY MATTERS

Contingencies

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

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

Litigation and Regulatory Proceedings

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

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

The  Company's  litigation  is  subject  to many  uncertainties,  and  given the
complexity and scope, the outcomes cannot be predicted.  It is possible that the
results of operations or the cash flow of the Company in a particular  quarterly
or  annual  period  could be  materially  affected  by an  ultimate  unfavorable
resolution of litigation and regulatory matters.  Management believes,  however,
that the  ultimate  outcome of all pending  litigation  and  regulatory  matters
should not have a material adverse effect on the Company's financial position.

13. RELATED PARTY TRANSACTIONS

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

Expense Charges and Allocations

Many of the  Company's  expenses  are  allocations  or charges  from  Prudential
Insurance or other affiliates.  These expenses can be grouped into the following
categories:   general  and  administrative   expenses  and  agency  distribution
expenses.

The  Company's  general and  administrative  expenses are charged to the Company
using allocation methodologies based on business processes.  Management believes
that the  methodology  is reasonable  and reflects  costs incurred by Prudential
Insurance to process transactions on behalf of the Company. The Company operates
under service and lease  agreements  whereby services of officers and employees,
supplies,  use  of  equipment  and  office  space  are  provided  by  Prudential
Insurance.  Beginning  in 2003,  general  and  administrative  expenses  include
allocations of stock compensation expenses related to a stock option program and
a deferred compensation program issued by Prudential Financial.

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


                                      F-26
<PAGE>

Pruco Life Insurance Company of New Jersey

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

13. RELATED PARTY TRANSACTIONS (Continued)

Affiliated Asset Management Fee Income

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

Corporate Owned Life Insurance

The Company has sold two Corporate  Owned Life  Insurance  ("COLI")  policies to
Prudential Insurance. The cash surrender value included in separate accounts was
$462  million and $430  million at  December  31, 2004 and  December  31,  2003,
respectively.  Fees related to the COLI policies were $4 million, $3 million and
$7 million for the years ending December 31, 2004, 2003 and 2002, respectively.

Reinsurance with Affiliates

PARCC

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

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

Prudential Insurance

In  December  2004,  the  Company  recaptured  the  excess  of loss  reinsurance
agreement with  Prudential and replaced it with a revised yearly  renewable term
agreement  to  reinsure  all  risks,   not  otherwise   reinsured.   Reinsurance
recoverables  related to this agreement were $8 million as of December 31, 2004.
The Company is not relieved of its primary  obligation to the  policyholder as a
result of these reinsurance transactions.

Affiliated premiums ceded from these life reinsurance agreements for the periods
ended  December 31, 2004,  2003, and 2002 were $27 million,  $1 million,  and $1
million, respectively.  Affiliated benefits ceded for the periods ended December
31, 2004, 2003, and 2002 from these life reinsurance  agreements are $16 million
in 2004, $0 in 2003, and $8 million in 2002.

Debt Agreements

The Company and its parent, Pruco Life, have a revolving line of credit facility
of up to $800 million with Prudential Funding, LLC, a wholly owned subsidiary of
Prudential  Insurance.  The total of asset-based  financing and borrowing  under
this credit  facility  for the  Company and its parent  cannot be more than $800
million.  As of  December  31,  2004 and  2003,  there was $99  million  and $93
million, respectively, of asset-based financing. There is no outstanding debt to
Prudential Funding, LLC as of December 31, 2004 or December 31, 2003.


                                      F-27
<PAGE>

Pruco Life Insurance Company of New Jersey

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

14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

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

<TABLE>
<CAPTION>
                                                                      Three months ended
                                                ------------------------------------------------------------------
                                                  March 31          June 30         September 30      December 31
                                                ------------------------------------------------------------------
2004                                                                      (in thousands)
<S>                                             <C>               <C>               <C>               <C>
Total revenues                                  $     44,907      $     46,297      $     40,500      $     39,297
Total benefits and expenses                           35,106            39,646            33,536            26,746
Income from operations before income taxes
and cumulative effect of accounting change             9,801             6,651             6,964            12,551
Net income                                             6,912             4,774             6,432             7,297
                                                ------------------------------------------------------------------

                                                ------------------------------------------------------------------
2003                                                                       (in thousands)
Total revenues                                  $     35,410      $     42,421      $     38,893      $     41,533
Total benefits and expenses                           32,104            33,770            33,297            29,535
Income from operations before income taxes
and cumulative effect of accounting change             3,306             8,651             5,596            11,998
Net income                                             2,633             5,932             3,229             8,823
</TABLE>


                                      F-28