pruco life of new jersey’s insurance prospectus val · appreciable life insurance. pruco life of...

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Pruco Life of New Jersey’s Variable Appreciable Life®

Insurance

Prospectus

Pruco Life of New Jersey

Variable Appeciable

Account

May 1, 2002

Pruco Life Insurance Company of New Jersey

PROSPECTUSMay 1, 2002

PRUCO LIFE INSURANCE COMPANYOF NEW JERSEYVARIABLE APPRECIABLE ACCOUNT

VariableAPPRECIABLELIFE�INSURANCE CONTRACTSThis prospectus describes two forms of an individual variable life insurance contract (the “Contract”) offered by PrucoLife Insurance Company of New Jersey (“Pruco Life of New Jersey”, “us”, “we”, or “our”) under the name VariableAppreciable Life� Insurance. Pruco Life of New Jersey, a stock life insurance company, is an indirect, wholly-ownedsubsidiary of The Prudential Insurance Company of America (“Prudential”). The first form of the Contract provides adeath benefit that generally remains fixed in an amount you, as the Contract owner, choose and cash surrender valuesthat vary daily. The second form also provides cash surrender values that vary daily and a death benefit that will alsovary daily. Under both forms of contract, the death benefit will never be less than the “face amount” of insurance youchoose. There is no guaranteed minimum cash surrender value.

As of May 1, 1992, Pruco Life of New Jersey no longer offered these Contracts for sale.

You may choose to invest your Contract’s premiums and its earnings in one or more of the following ways:

• Invest in one or more of 13 available subaccounts of the Pruco Life of New Jersey Variable Appreciable Account(the “Account”), each of which invests in a corresponding portfolio of The Prudential Series Fund, Inc. (the “SeriesFund”):

Conservative Balanced Diversified Bond Equity Flexible Managed Global

Government Income High Yield Bond Jennison Money Market

Natural Resources Small Capitalization Stock Stock Index Value

• Invest in the fixed-rate option, which pays a guaranteed interest rate.

• Invest in the Pruco Life of New Jersey Variable Contract Real Property Account (the “Real Property Account”),described in a prospectus attached to this one.

This prospectus describes the Contract generally and the Account. The attached prospectus for the Series Fund, andthe Series Fund’s statement of additional information describe the investment objectives and the risks of investing inthe Series Fund portfolios. Pruco Life of New Jersey may add additional investment options in the future. Please readthis prospectus and keep it for future reference.

The Securities and Exchange Commission (“SEC”) maintains a Web site (http://www.sec.gov) that contains materialincorporated by reference and other information regarding registrants that file electronically with the SEC.

Neither the Securities and Exchange Commission nor any state securities commission has approved ordisapproved of these securities or determined if this prospectus is accurate or complete. Any representationto the contrary is a criminal offense.

Pruco Life Insurance Company of New Jersey213 Washington Street

Newark, New Jersey 07102-2992Telephone: (800) 778-2255

Appreciable Life is a registered mark of Prudential.

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PageDEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS ............................................................................ 1

INTRODUCTION AND SUMMARY.................................................................................................................................. 2Brief Description of the Contract .............................................................................................................................. 2Charges ........................................................................................................................................................................ 2Types of Death Benefit ............................................................................................................................................... 4Premium Payments..................................................................................................................................................... 4Lapse and Guarantee Against Lapse ........................................................................................................................ 4

GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY, PRUCO LIFE OFNEW JERSEY VARIABLE APPRECIABLE ACCOUNT, AND THE VARIABLE INVESTMENT OPTIONSAVAILABLE UNDER THE CONTRACT .......................................................................................................................... 5

Pruco Life Insurance Company of New Jersey ........................................................................................................ 5Pruco Life of New Jersey Variable Appreciable Account ....................................................................................... 5The Prudential Series Fund, Inc. ............................................................................................................................... 6Voting Rights............................................................................................................................................................... 8The Fixed-Rate Option................................................................................................................................................ 8The Pruco Life of New Jersey Variable Contract Real Property Account ............................................................. 9Which Investment Option Should Be Selected? ...................................................................................................... 9

DETAILED INFORMATION FOR CONTRACT OWNERS .............................................................................................. 9Charges and Expenses............................................................................................................................................... 9Requirements for Issuance of a Contract............................................................................................................... 13Short-Term Cancellation Right or “Free-Look” ..................................................................................................... 13Contract Forms ......................................................................................................................................................... 14Contract Date............................................................................................................................................................. 15Premiums................................................................................................................................................................... 15Allocation of Premiums ............................................................................................................................................ 17Dollar Cost Averaging .............................................................................................................................................. 17Transfers.................................................................................................................................................................... 17Reduction of Charges for Concurrent Sales to Several Individuals .................................................................... 18How a Contract's Cash Surrender Value Will Vary ................................................................................................ 18How a Contract's Death Benefit Will Vary .............................................................................................................. 19When a Contract Becomes Paid-Up ........................................................................................................................ 20Flexibility as to Payment of Premiums ................................................................................................................... 21Surrender of a Contract............................................................................................................................................ 21Withdrawal of Excess Cash Surrender Value......................................................................................................... 22Increases in Face Amount........................................................................................................................................ 22Decreases in Face Amount ...................................................................................................................................... 24Lapse and Reinstatement ........................................................................................................................................ 24When Proceeds Are Paid.......................................................................................................................................... 25Living Needs Benefit................................................................................................................................................. 25Illustrations of Cash Surrender Values, Death Benefits, and Accumulated Premiums ..................................... 26Contract Loans.......................................................................................................................................................... 28Reports to Contract Owners .................................................................................................................................... 29Options on Lapse...................................................................................................................................................... 29Right to Exchange a Contract for a Fixed-Benefit Insurance Policy ................................................................... 30Sale of the Contract and Sales Commissions........................................................................................................ 30Tax Treatment of Contract Benefits ........................................................................................................................ 30Tax-Qualified Pension Plans.................................................................................................................................... 32Legal Considerations Relating to Sex-Distinct Premiums and Benefits ............................................................. 32Other General Contract Provisions ......................................................................................................................... 32Riders ......................................................................................................................................................................... 33Substitution of Series Fund Shares ........................................................................................................................ 33State Regulation........................................................................................................................................................ 33Experts ....................................................................................................................................................................... 34Litigation and Regulatory Proceedings .................................................................................................................. 34

Additional Information.............................................................................................................................................. 35Financial Statements ................................................................................................................................................ 35

DIRECTORS AND OFFICERS....................................................................................................................................... 36

FINANCIAL STATEMENTS OF THE VARIABLE APPRECIABLE LIFE SUBACCOUNTS OF PRUCO LIFE OFNEW JERSEY VARIABLE APPRECIABLE ACCOUNT ...............................................................................................A1

FINANCIAL STATEMENTS OF PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY......................................B1

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attained age— The insured’s age on the Contract dateplus the number of Contract years since then.

cash surrender value—The amount payable to theContract owner upon surrender of the Contract. It isequal to the Contract Fund minus any Contract debtand applicable charges during the first 10 Contractyears or 10 years after an increase in the face amountof insurance.

Contract—Pruco Life of New Jersey VariableAppreciable Life Insurance Policy, an individualvariable life insurance contract.

Contract anniversary—The same date as theContract date in each later year.

Contract date—The date the Contract is issued, asspecified in the Contract.

Contract debt—The principal amount of alloutstanding loans plus any interest we have chargedthat is not yet due and that we have not yet added tothe loan.

Contract Fund—The total amount at any time creditedto the Contract. On any date, it is equal to the sum ofthe amounts in all variable investment options and thefixed-rate option, and the principal amount of anyContract debt plus any interest earned thereon.

Contract owner— You. Unless a different owner isnamed in the application, the owner of the Contract isthe insured.

Contract year—A year that starts on the Contract dateor on a Contract anniversary.

death benefit—The amount payable upon the death ofthe insured before the deduction of any outstandingContract debt.

face amount—The amount[s] of life insurance asshown in the Contract's schedule of face amounts.

fixed-rate option— An investment option under whichinterest is accrued daily at a rate that Pruco Lifedeclares periodically, but not less than an effectiveannual rate of 4%.

issue age—The insured's age as of the Contract date.

loan value—The maximum amount that a Contractowner may borrow.

Monthly date—The Contract date and the same datein each subsequent month.

Pruco Life Insurance Company of New Jersey —Us, we, our, Pruco Life of New Jersey. The companyoffering the contract.

Pruco Life of New Jersey Variable AppreciableAccount (the "Account")—A separate account ofPruco Life of New Jersey registered as a unitinvestment trust under the Investment Company Act of1940.

The Prudential Series Fund, Inc. (the “SeriesFund”)—A mutual fund with separate portfolios, one ormore of which may be chosen as an underlyinginvestment for the Contract.

subaccount—An investment division of the Account,the assets of which are invested in the shares of thecorresponding portfolio of the Series Fund.

us, we, our—Pruco Life Insurance Company of NewJersey ("Pruco Life of New Jersey").

valuation period—The period of time from onedetermination of the value of the amount invested in asubaccount to the next. Such determinations aremade when the net asset values of the portfolios of theSeries Fund are calculated, which is generally at 4:00p.m. Eastern time on each day during which the NewYork Stock Exchange is open.

variable investment option— Any of the portfoliosavailable in the Series Fund and/or the Pruco LifeVariable Contract Real Property Account.

you— The owner of the Contract.

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This Summary provides a brief overview of the more significant aspects of the Contract. We provide further detail inthe subsequent sections of this prospectus and in the Contract.

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As of May 1, 1992, Pruco Life of New Jersey no longer offered these Contracts for sale.

The Variable Appreciable Life Insurance Contract (the “Contract”) is issued by Pruco Life Insurance Company of NewJersey (“Pruco Life of New Jersey”, “we”, “us”, or “our”). The Contract is a form of flexible premium variable lifeinsurance. It is based on a Contract Fund, the value of which changes every business day. The Contract Fund is thetotal amount credited to a specific Contract. On any date it is equal to the sum of the amounts invested in the variableinvestment options and the fixed-rate option, and the principal amount of any Contract debt plus any interest earnedthereon. Contract debt is the principal amount of all outstanding loans plus any interest accrued. You will, however,have to pay a surrender charge if you decide to surrender the Contract during the first 10 years or 10 years after anincrease in the face amount of insurance. A broad objective of the Contract is to provide benefits that will increase in value if favorable investment results areachieved. You may invest premiums in one or more of the 13 available subaccounts, in the fixed-rate option, or in theReal Property Account.

Although the value of your Contract Fund will increase if there is favorable investment performance in the variableinvestment options you select, investment returns in the variable investment options are NOT guaranteed. There is arisk that investment performance will be unfavorable and that the value of your Contract Fund will decrease. The riskwill be different, depending upon which investment options you choose. See Which Investment Option Should BeSelected?, page 9. If you select the fixed-rate option, Pruco Life of New Jersey credits your account with a declaredrate or rates of interest. You assume the risk that the rate may change, although it will never be lower than aneffective annual rate of 4%.

Variable life insurance contracts are unsuitable as short-term savings vehicles. Withdrawals and loans may negateany guarantees against lapse (see Lapse and Reinstatement, page 24) and possibly may result in adverse taxconsequences. See Tax Treatment of Contract Benefits, page 30.

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We deduct certain charges from each premium payment and from the amounts held in the designated investmentoptions. In addition, Pruco Life of New Jersey makes additional charges if a Contract lapses or is surrendered duringthe first 10 Contract years or 10 years after an increase in the face amount of insurance. All these charges, which arelargely designed to cover insurance costs and risks as well as sales and administrative expenses, are fully describedunder Charges and Expenses on page 9. In brief, and subject to that fuller description, the following diagram outlinesthe maximum charges which Pruco Life of New Jersey may make:

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• less a charge for taxes attributable to premiums• less $2 processing fee• We deduct a sales charge from the Contract Fund of

up to 5% of the portion of the premium remainingafter deducting the $2 processing fee.

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• To be invested in one or a combination of:• The invested portfolios of the Series Fund• The fixed-rate option• The Real Property Account

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• We deduct management fees and expenses from the Series Fund and, if applicable, from the RealProperty assets. See Underlying Portfolio Expenses chart, below, and Pruco Life of New JerseyVariable Contract Real Property Account, page 9.

• We deduct a daily mortality and expense risk charge, equivalent to an annual rate of up to 0.60% fromassets in the variable investment options.

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• We reduce the Contract Fund by a guaranteed minimum death benefit risk charge of not more than $0.01per $1,000 of the face amount of insurance.

• We reduce the Contract Fund by an administrative charge of up to $2.50 per Contract and up to $0.02 per$1,000 of face amount of insurance.

• We deduct a charge for anticipated mortality, with the maximum charge based on 1980 CSO Tables.• If the Contract includes riders, we deduct rider charges from the Contract Fund.• If the rating class of the insured results in an extra charge, we will deduct that charge from the Contract

Fund.

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• During the first 10 years or 10 years after an increase in the face amount of insurance, if the Contractlapses or is surrendered, we assess a contingent deferred sales charge. The maximum contingentdeferred sales charges are reduced for Contracts that have been in-force for more than five years.

• During the first 10 years, if the Contract lapses or is surrendered, we assess a contingent deferredadministrative charge; this charge begins to decline uniformly after the fifth Contract year so that itdisappears on the 10th Contract anniversary.

• We assess an administrative processing charge equal to the lesser of $15 or 2% for each withdrawal ofexcess cash surrender value.

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PortfolioInvestment

Advisory FeeOther

Expenses

TotalContractualExpenses

Total Actual Expenses*

Conservative BalancedDiversified BondEquityFlexible ManagedGlobalGovernment IncomeHigh Yield BondJennisonMoney MarketNatural ResourcesSmall Capitalization StockStock IndexValue

0.55%0.40%0.45%0.60%0.75%0.40%0.55%0.60%0.40%0.45%0.40%0.35%0.40%

0.03% 0.04% 0.04% 0.04% 0.09% 0.07% 0.05% 0.18% 0.03% 0.07% 0.08% 0.04% 0.04%

0.58% 0.44% 0.49% 0.64% 0.84% 0.47% 0.60% 0.64% 0.43% 0.52% 0.48% 0.39% 0.44%

0.40% 0.40% 0.40% 0.40% 0.84% 0.47% 0.60% 0.64% 0.40% 0.52% 0.48% 0.39% 0.44%

* Some investment management fees and expenses charged to the Series Fund may be higher than those that were previously charged to thePruco Life Series Fund, Inc. (0.40%), in which the Account previously invested. Pruco Life currently makes payments to the following fivesubaccounts so that the portfolio expenses indirectly borne by a Contract owner investing in the Conservative Balanced, Diversified Bond,Equity , Flexible Managed, and Money Market Portfolios will not exceed 0.40%. No such offset will be made with respect to the remainingportfolios, which had no counterparts in the Pruco Life Series Fund, Inc.

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You choose either of two Contract Forms. Under a newer version, sold in most jurisdictions beginning in September1986, the death benefit may be increased to ensure that the Contract continues to satisfy the Internal Revenue Code’sdefinition of life insurance. Under Contract Form A, the death benefit remains fixed in amount (unless the Contractbecomes paid-up) and only the cash surrender value will vary with investment experience. Under Contract Form B,both the death benefit and the cash surrender value will vary with investment experience. However, the death benefitwill never be less than the face amount regardless of investment experience. There is no minimum cash surrendervalue under either form of the Contract. (Unless we specifically state otherwise, all descriptions of and references tothe “Contract” apply to both old and new Form A and Form B Contracts.)

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You have flexibility with respect to the payment of premiums. The Contract sets forth Scheduled Premiums payableannually, semi-annually quarterly or monthly. But you are generally permitted, within very broad limits, to pay greaterthan Scheduled Premiums. However, the payment of premiums in excess of Scheduled Premiums may cause theContract to be classified as a Modified Endowment Contract for federal income tax purposes. See Premiums, page15 and Tax Treatment of Contract Benefits, page 30. The net portion of such payments will promptly be invested inthe manner you previously selected. Cash surrender values will generally be increased whenever premiums are paid,unless earlier unfavorable investment experience must first be offset. The amount payable upon death under ContractForm B will also, generally, be increased by the payment of premiums.

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As long as you pay Scheduled Premiums on or before the due dates (or within a 61-day grace period after thescheduled due date) and missed premiums are made up later with interest, the Contract will not lapse, even ifinvestment experience is unfavorable. Thus, the payment of Scheduled Premiums guarantees insurance protection atleast equal to the face amount of the Contract. However, the failure to pay a minimum Scheduled Premium will notnecessarily result in lapse of the Contract. If the net investment experience has been greater than the 4% assumednet rate of return used by Pruco Life of New Jersey's actuaries in designing this Contract, with a consequent increasein the amount invested under the Contract, and the Contract owner then fails to pay premiums when due, Pruco Life ofNew Jersey will use the “excess” amount to pay the charges due under the Contract and thus keep the Contract in-force. See Lapse and Reinstatement, page 24 . In this case, so long as the excess amount is sufficient, theContract will not lapse despite the owner’s failure to pay Scheduled Premiums.

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The amount of the Scheduled Premium, for a specific face amount of insurance, depends upon the insured’s sex(except where unisex rates apply), age at issue, and risk classification. The Scheduled Premium cannot be increaseduntil the Contract anniversary after the insured’s 65th birthday or, if later, 10 years from the date the Contract is issued.A new, higher Scheduled Premium, called the “second premium amount,” is payable after this period. The secondpremium amount will be stated in each Contract. It is calculated on the assumptions that only Scheduled Premiumshave been paid, and they have been paid when due, that maximum mortality charges (covering the cost of insurancefor the period in question) and expense charges have been deducted, and that the net investment return upon theamount invested under the Contract has been equal to the 4% assumed net rate of return. If the amount investedunder the Contract net of any excess premiums is higher than would be the case if the above conservativeassumptions are borne out by experience, premiums after the insured’s 65th birthday (or at 10 years after the issuedate, if later) will be lower than the second premium amount stated in the Contract (and may or may not be higher thanthe initial Scheduled Premium).

The replacement of life insurance is generally not in your best interest. In most cases, if you requireadditional coverage, the benefits of your existing contract can be protected by purchasing additionalinsurance or a supplemental contract. If you are considering replacing a contract, you should compare thebenefits and costs of supplementing your existing contract with the benefits and costs of purchasing anothercontract and you should consult a qualified tax adviser.

This prospectus was only offered in jurisdictions in which the offering was lawful. No person is authorized tomake any representations in connection with this offering other than those contained in this prospectus, ThePrudential Series Fund prospectus and statement of additional information, and the prospectus for the RealProperty Account.

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Pruco Life Insurance Company of New Jersey (“Pruco Life of New Jersey”, “us”, “we”, or “our”) is a stock life insurancecompany, organized in 1982 under the laws of the State of New Jersey. It is licensed to sell life insurance andannuities only in the States of New Jersey and New York.

Pruco Life of New Jersey is an indirect wholly-owned subsidiary of The Prudential Insurance Company of America("Prudential"), a New Jersey stock life insurance company that has been doing business since 1875. Prudential is anindirect wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”), a New Jersey insurance holdingcompany. As Pruco Life of New Jersey’s ultimate parent, Prudential Financial exercises significant influence over theoperations and capital structure of Pruco Life of New Jersey and Prudential. However, neither Prudential Financial,Prudential, nor any other related company has any legal responsibility to pay amounts that Pruco Life of New Jerseymay owe under the contract or policy.

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We have established a separate account, the Pruco Life of New Jersey Variable Appreciable Account (the “Account”),to hold the assets that are associated with the Contracts. The Account was established on January 13, 1984 underNew Jersey law and is registered with the Securities and Exchange Commission (“SEC”) under the InvestmentCompany Act of 1940 (“1940 Act”) as a unit investment trust, which is a type of investment company. The Accountmeets the definition of a “separate account” under the federal securities laws. The Account holds assets that aresegregated from all of Pruco Life of New Jersey’s other assets.

Pruco Life of New Jersey is also the legal owner of the assets in the Account. Pruco Life of New Jersey will maintainassets in the Account with a total market value at least equal to the reserve and other liabilities relating to the variablebenefits attributable to the Account. These assets may not be charged with liabilities which arise from any otherbusiness Pruco Life of New Jersey conducts. In addition to these assets, the Account's assets may include funds

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contributed by Pruco Life of New Jersey to commence operation of the Account and may include accumulations of thecharges Pruco Life of New Jersey makes against the Account. From time to time these additional assets will betransferred to Pruco Life of New Jersey’s general account. Before making any such transfer, Pruco Life of New Jerseywill consider any possible adverse impact the transfer might have on the Account.

The obligations to Contract owners and beneficiaries arising under the Contract are general corporate obligations ofPruco Life of New Jersey.

Currently, you may invest in one or a combination of 13 subaccounts. When you choose a subaccount, we purchaseshares of the Series Fund which are held as an investment for that option. We hold these shares in the Account. Wemay add additional subaccounts in the future. The Account’s financial statements begin on page A1.

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The Prudential Series Fund, Inc. (the “Series Fund”) is registered under the 1940 Act as an open-end diversifiedmanagement investment company. Its shares are currently sold only to separate accounts of Prudential and certainother insurers that offer variable life insurance and variable annuity contracts. On October 31, 1986, the Pruco LifeSeries Fund, Inc., an open-end diversified management investment company, which sold its shares only to separateaccounts of Pruco Life Insurance Company (“Pruco Life”) and Pruco Life of New Jersey, was merged into the SeriesFund. Prior to that date, the Account invested only in shares of Pruco Life Series Fund, Inc. The Account willpurchase and redeem shares from the Series Fund at net asset value. Shares will be redeemed to the extentnecessary for Pruco Life of New Jersey to provide benefits under the Contracts and to transfer assets from onesubaccount to another, as requested by Contract owners. Any dividend or capital gain distribution received from aportfolio of the Series Fund will be reinvested immediately at net asset value in shares of that portfolio and retained asassets of the corresponding subaccount.

The Series Fund has a separate prospectus that is provided with this prospectus. You should read the SeriesFund prospectus before you decide to allocate assets to the Series Fund subaccounts. There is noassurance that the investment objectives of the Series Fund portfolios will be met.

Listed below are the available portfolios of the Series Fund and their investment objectives:

• Conservative Balanced Portfolio: The investment objective is a total investment return consistent with aconservatively managed diversified portfolio. The Portfolio invests in a mix of equity securities, debt obligationsand money market instruments.

• Diversified Bond Portfolio: The investment objective is a high level of income over a longer term while providing

reasonable safety of capital. The Portfolio normally invests at least 80% of its investable assets in higher gradedebt obligations and high quality money market investments.

• Equity Portfolio: The investment objective is capital appreciation. The Portfolio normally invests at least 80% of

its investable assets in common stocks of major established corporations as well as smaller companies that webelieve offer attractive prospects of appreciation.

• Flexible Managed Portfolio: The investment objective is a high total return consistent with an aggressively

managed diversified portfolio. The Portfolio invests in a mix of equity securities, debt obligations and moneymarket instruments.

• Global Portfolio: The investment objective is long-term growth of capital. The Portfolio invests primarily in

common stocks (and their equivalents) of foreign and U.S. companies. • Government Income Portfolio: The investment objective is a high level of income over the longer term

consistent with the preservation of capital. The Portfolio normally invests at least 80% of its investable assets inU.S. government securities, including intermediate and long-term U.S. Treasury securities and debt obligationsissued by agencies or instrumentalities established by the U.S. government and collateralized mortgageobligations.

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• High Yield Bond Portfolio: The investment objective is a high total return. The Portfolio normally invests at least80% if its investable assets in high yield/high risk debt securities.

• Jennison Portfolio (formerly Prudential Jennison Portfolio): The investment objective is long-term growth ofcapital. The Portfolio invests primarily in equity securities of major, established corporations that we believe offerabove-average growth prospects.

• Money Market Portfolio: The investment objective is maximum current income consistent with the stability of

capital and the maintenance of liquidity. The Portfolio invests in high quality short-term money market instrumentsissued by the U.S. government or its agencies, as well as domestic and foreign corporations and banks.

• Natural Resources Portfolio: The investment objective is long-term growth of capital. The Portfolio normally

invests at least 80% of its investable assets in common stocks and convertible securities of natural resourcecompanies and securities that are related to the market value of some natural resource.

• Small Capitalization Stock Portfolio: The investment objective is to achieve long-term growth of capital. ThePortfolio invests primarily in equity securities of publicly-traded companies with small market capitalizations. ThePortfolio attempts to duplicate the price and yield performance of the Standard & Poor’s Small Capitalization 600Stock Index (the “S&P SmallCap 600 Index”) by investing at least 80% of its investable assets in all or arepresentative sample of stocks in the S&P SmallCap 600 Index.

• Stock Index Portfolio: The investment objective is investment results that generally correspond to the

performance of publicly-traded common stocks. The Portfolio attempts to duplicate the price and yield of theStandard & Poor’s 500 Composite Stock Price Index (the “S&P 500”) by investing at least 80% of its investableassets in S&P 500 stocks.

• Value Portfolio: The investment objective is capital appreciation. The Portfolio invests primarily in commonstocks that are trading below their underlying asset value, cash generating ability, and overall earnings andearnings growth.

Prudential Investments LLC (“PI”), an indirect wholly-owned subsidiary of Prudential Financial, serves as the overallinvestment adviser for the Series Fund. PI will furnish investment advisory services in connection with themanagement of the Series Fund portfolios under a “manager-of-managers” approach. Under this structure, PI isauthorized to select (with approval of the Series Fund’s independent directors) one or more sub-advisers to handle theactual day-to-day investment management of each Portfolio. PI’s business address is 100 Mulberry Street, GatewayCenter Three, Newark, New Jersey 07102.

Prudential Investment Management, Inc. (“PIM”), also an indirect wholly-owned subsidiary of Prudential Financial,serves as the sole sub-adviser for the Conservative Balanced, the Diversified Bond, the Flexible Managed, theGovernment Income, the High Yield Bond, the Money Market, the Small Capitalization Stock, the Stock Index, and theZero Coupon Bond 2005 Portfolios. PIM’s business address is 100 Mulberry Street, Gateway Center Two, Newark,New Jersey 07102.

Deutsche Asset Management, Inc. (“DAMI”) serves as a sub-adviser for approximately 25% of the assets of the ValuePortfolio. DAMI is a wholly-owned subsidiary of Deutsche Bank AG. DAMI’s business address is 280 Park Avenue,New York, New York 10017.

GE Asset Management Incorporated (“GEAM”) serves as a sub-adviser to approximately 25% of the assets of theEquity Portfolio. GEAM’s ultimate parent is General Electric Company. GEAM’s business address is 3003 SummerStreet, Stamford, Connecticut 06904.

Jennison Associates LLC (“Jennison”), also an indirect wholly-owned subsidiary of Prudential Financial, serves as thesole sub-adviser for the Global, the Jennison and the Natural Resources Portfolios. Jennison serves as a sub-adviserfor a portion of the assets of the Equity and the Value Portfolios. Jennison’s business address is 466 LexingtonAvenue, New York, New York 10017.

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Salomon Brothers Asset Management, Inc. (“Salomon”) serves as a sub-adviser for a portion of the assets of theEquity Portfolio. It is expected that under normal circumstances Salomon will manage approximately 25% of thePortfolio. Salomon is a part of the global asset management arm of Citigroup, Inc. which was formed in 1998 as aresult of the merger of Travelers Group and Citicorp, Inc. Salomon’s business address is 388 Greenwich Street, NewYork, New York 10013.

Victory Capital Management, Inc. (“Victory”) (formerly Key Asset Management, Inc.) serves as a sub-adviser forapproximately 25% of the assets of the Value Portfolio. Victory is a wholly-owned subsidiary of KeyCorp, Inc. Victory’s business address is 127 Public Square, Cleveland, Ohio 44114.

As an investment adviser, PI charges the Series Fund a daily investment management fee as compensation for itsservices. PI pays each sub-adviser out of the fee that PI receives from the Series Fund. In addition to the investmentmanagement fee, each portfolio incurs certain expenses, such as accounting and custodian fees. See Charges andExpenses, page 9.

In the future it may become disadvantageous for both variable life insurance and variable annuity contract separateaccounts to invest in the same underlying mutual fund. Neither the companies that invest in the Series Fund nor theSeries Fund currently foresees any such disadvantage. The Series Fund's Board of Directors intends to monitorevents in order to identify any material conflict between variable life insurance and variable annuity contract ownersand to determine what action, if any, should be taken. Material conflicts could result from such things as: (1) changesin state insurance law; (2) changes in federal income tax law; (3) changes in the investment management of anyportfolio of the Series Fund; or (4) differences between voting instructions given by variable life insurance and variableannuity contract owners.

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We are the legal owner of the shares in the Series Fund associated with the subaccounts. However, we vote theshares in the Series Fund according to voting instructions we receive from Contract owners. We will mail you a proxy,which is a form you need to complete and return to us to tell us how you wish us to vote. When we receive thoseinstructions, we will vote all of the shares we own on your behalf in accordance with those instructions. We will votethe shares for which we do not receive instructions and shares that we own, in the same proportion as the shares forwhich instructions are received. We may change the way your voting instructions are calculated if it is required byfederal regulation. Should the applicable federal securities laws or regulations, or their current interpretation, changeso as to permit Pruco Life of New Jersey to vote shares of the Series Fund in its own right, it may elect to do so.

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Because of exemptive and exclusionary provisions, interests in the fixed-rate option under the Contract havenot been registered under the Securities Act of 1933 and the general account has not been registered as aninvestment company under the Investment Company Act of 1940. Accordingly, interests in the fixed-rateoption are not subject to the provisions of these Acts, and Pruco Life of New Jersey has been advised thatthe staff of the SEC has not reviewed the disclosure in this prospectus relating to the fixed-rate option. Anyinaccurate or misleading disclosure regarding the fixed-rate option may, however, be subject to certaingenerally applicable provisions of federal securities laws.

You may choose to allocate, either initially or by transfer, all or part of your Contract Fund to a fixed-rate option. Thisamount becomes part of Pruco Life of New Jersey's general account. The general account consists of all assetsowned by Pruco Life of New Jersey other than those in the Account and in other separate accounts that have been ormay be established by Pruco Life of New Jersey. Subject to applicable law, Pruco Life of New Jersey has solediscretion over the investment of the general account assets. Contract owners do not share in the investmentexperience of those assets. Instead, Pruco Life of New Jersey guarantees that the part of the Contract Fund allocatedto the fixed-rate option will accrue interest daily at an effective annual rate that Pruco Life of New Jersey declaresperiodically, but not less than an effective annual rate of 4%.

Transfers from the fixed-rate option are subject to strict limits. See Transfers, page 17. The payment of any cashsurrender value attributable to the fixed-rate option may be delayed up to six months. See When Proceeds are Paid,page 25.

9

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The Real Property Account is a separate account of Pruco Life of New Jersey. This account, through a generalpartnership formed by Prudential and two of its wholly-owned subsidiaries, Pruco Life of New Jersey and Pruco Life,invests primarily in income-producing real property such as office buildings, shopping centers, agricultural land, hotels,apartments or industrial properties. It also invests in mortgage loans and other real estate-related investments,including sale-leaseback transactions. The objectives of the Real Property Account and the Partnership are topreserve and protect capital, provide for compounding of income as a result of reinvestment of cash flow frominvestments, and provide for increases over time in the amount of such income through appreciation in the asset value.

The Partnership has entered into an investment management agreement with Prudential, under which Prudentialselects the properties and other investments held by the Partnership. Prudential charges the Partnership a daily feefor investment management which amounts to 1.25% per year of the average daily gross assets of the Partnership.

A full description of the Real Property Account, its management, policies, restrictions, charges and expenses,investment risks, investment objectives, and all other aspects of the Real Property Account’s and thePartnership’s operations is contained in the attached prospectus for the Real Property Account. It should beread together with this prospectus by any Contract owner considering the real estate investment option.There is no assurance that the investment objectives of the Real Property Account will be met.

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Historically, for investments held over relatively long periods, the investment performance of common stocks hasgenerally been superior to that of short or long-term debt securities, even though common stocks have been subject tomuch more dramatic changes in value over short periods of time. Accordingly, the Equity, Global, Jennison, NaturalResources, Small Capitalization Stock, Stock Index, or Value Portfolios may be desirable options for Contract ownerswho are willing to accept such volatility in their Contract values. Each of these equity portfolios involves differentinvestment risks, policies, and programs.

You may prefer the somewhat greater protection against loss of principal (and reduced chance of high total return)provided by the Diversified Bond or Government Income Portfolios. Or, you may want even greater safety of principaland may prefer the Money Market Portfolio or the fixed-rate option, recognizing that the level of short-term rates maychange rather rapidly. If you are willing to take risks and possibly achieve a higher total return, you may prefer theHigh Yield Bond Portfolio, recognizing that the risks are greater for lower quality bonds with normally higher yields. Youmay wish to divide your invested premium among two or more of the portfolios. You may wish to obtain diversificationby relying on Prudential’s judgment for an appropriate asset mix by choosing the Conservative Balanced or FlexibleManaged Portfolios. The Real Property Account permits diversification to your investment under the Contract toinclude an interest in a pool of income-producing real property, and real estate is often considered to be a hedgeagainst inflation.

Your choice should take into account how willing you are to accept investment risks, how your other assets areinvested, and what investment results you may experience in the future. You should consult your Pruco Life of NewJersey representative from time to time about choices available to you under the Contract. Pruco Life of New Jerseyrecommends against frequent transfers among the several options. Experience generally indicates that "markettiming" investing, particularly by non-professional investors, is likely to prove unsuccessful.

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This section provides a more detailed description of each charge that is described briefly in the chart on page 4.

In several instances we use the terms “maximum charge” and “current charge.” The “maximum charge,” in eachinstance, is the highest charge that Pruco Life of New Jersey is entitled to make under the Contract. The "currentcharge" is the lower amount that Pruco Life of New Jersey is now charging. If circumstances change, Pruco Life ofNew Jersey reserves the right to increase each current charge, up to the maximum charge, without giving any advancenotice.

10

All of the charges we make, whether deducted from premiums or from the Contract Fund, are described below:

1. We deduct a charge of $2 from each premium payment to cover the cost of collecting and processingpremiums. Thus, if you pay premiums annually, you will incur lower aggregate processing charges thanthose who pay premiums more frequently. During 2001, 2000, and 1999, Pruco Life of New Jersey receiveda total of approximately $628,000, $626,000, and $331,000, respectively, in processing charges.

2. We deduct a charge of up to 5% from each premium payment for sales expenses. This charge, often calleda “sales load”, is deducted to compensate us for the costs of selling the Contracts, including commissions,advertising, and the printing and distribution of prospectuses and sales literature. We will deduct part of thissales load from each premium received in an amount up to 5% of the portion of the premium remaining afterthe $2 administrative charge has been deducted. We also deduct 5% of each additional premium, whetherscheduled or unscheduled. We will deduct the remainder of the sales load only if the Contract is surrenderedor stays in default past its days of grace. This second part is called the deferred sales charge. However, wewill not deduct the deferred sales charge for Contracts that lapse or are surrendered on or after the Contract's10th anniversary. The deferred sales charge will be reduced for Contracts that lapse or are surrenderedsometime between the eighth month of the sixth year and the 10th anniversary. No deferred sales charge isapplicable to the death benefit, no matter when that becomes payable.

For Contracts under which premiums are payable annually, we will charge the maximum deferred salescharge if the Contract lapses or is surrendered, until the seventh month of the sixth Contract year, or anincrease in the face amount of insurance. Thereafter, the sales charge will be the maximum charge reduceduniformly until it becomes zero at the end of the 10th Contract year. More precisely, the deferred salescharge will be the maximum charge reduced by a factor equal to the number of complete months that haveelapsed between the end of the sixth month in the Contract's sixth year and the date of surrender or lapse,divided by 54 (since there are 54 months between that date and the Contract's 10th anniversary). Thefollowing table shows illustrative deferred sales load charges that will be made when such Contracts aresurrendered or lapse.

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Entire Year 1Entire Year 2Entire Year 3Entire Year 4Entire Year 5First 7 Months of Year 6First Month of Year 7First Month of Year 8First Month of Year 9First Month of Year 10First Month of Year 11 and Thereafter

25%30%35%40%45%45%40%30%20%10%

0%

25.00%15.00%11.67%10.00% 9.00% 7.50% 5.71% 3.75% 2.22% 1.00%

0.00%

For Contracts under which premiums are payable more frequently than annually, the deferred sales charge willbe 25% of the first year's Scheduled Premiums due on or before the date of surrender or lapse and 5% of theScheduled Premiums for the second through fifth Contract years due on or before the date of surrender orlapse. Thus, for such Contracts the maximum deferred sales charge will also be equal to 9% of the totalScheduled Premiums for the first five Contract years. This amount will be higher in dollar amount than it wouldhave been had premiums been paid annually because the total of the Scheduled Premiums is higher. SeePremiums Payments, page 4. To compensate for this, the reduction in the deferred sales charge will startslightly earlier for Contracts under which premiums are paid semi-annually, still earlier if premiums are paidquarterly and even earlier if premiums are paid monthly. The reductions are graded smoothly so that the dollaramount of the deferred sales charge for two persons of the same age, sex, contract size, and Contract Date,will be identical beginning in the seventh month of the sixth Contract year without regard to the frequency atwhich premiums were paid.

11

For purposes of determining the deferred sales charge, the Scheduled Premium is the premium payable for aninsured in the preferred rating class, even if the insured is in a higher rated risk class. Moreover, if premiumshave been paid in excess of the Scheduled Premiums, the charge is based upon the Scheduled Premiums. If aContract is surrendered when less than the aggregate amount of the Scheduled Premiums due on or before thedate of surrender has been paid, the deferred sales charge percentages will be applied to the premiumpayments due on or before the fifth anniversary date that were actually paid, whether timely or not, beforesurrender. During 2001, 2000, and 1999, Pruco Life of New Jersey received a total of approximately $0, $0,and $0, respectively, in sales load charges.

We waive the portion of the sales load deducted from each premium (5% of the portion of the premiumremaining after the $2 processing charge has been deducted) for premiums paid after total premiums paidunder the Contract exceed five years of Scheduled Premiums on an annual basis. Thus, with respect to apremium paid after that total is reached, only the 2.5% premium tax charge and the $2 processing charge isdeducted before the premium is allocated to the Account, fixed-rate option, or the Real Property Account,according to your instructions. We may, on a uniform and non-contractual basis, withdraw or modify thisconcession, although we do not currently intend to do so. If you elect to increase the face amount of yourContract, the rules governing the non-guaranteed waiver of the 5% front-end sales load will apply separately tothe base Contract and the increase, as explained under Increases in Face Amount on page 22.

3. We deduct a charge from each premium payment for state and local premium-based taxes. This charge isequal to 2.5% of the premium remaining after the $2 processing charge has been deducted. (The 7.5%deduction referred to on page 17 is made up of the 5% sales load charge and the 2.5% premium tax charge).The premium tax charge is Pruco Life of New Jersey’s estimate of the average burden of state taxes generally.The rate applies uniformly to all contract owners without regard to state of residence. Pruco Life of New Jerseymay collect more for this charge than it actually pays for premium taxes. During 2001, 2000, and 1999, PrucoLife of New Jersey received a total of approximately $814,000, $813,000, and $890,000, respectively, incharges for payment of state premium taxes.

4. On each Monthly date, we reduce the Contract Fund by an expense charge of $2.50 per Contract and up to$0.02 per $1,000 of face amount (excluding the automatic increase under Contracts issued on insureds of 14years of age or less). Currently this $0.02 per $1,000 charge will not be greater than $2 per month. Wecurrently waive this $0.02 per $1,000 charge for Contracts issued after June 1, 1987 on a Pru-Matic Plan basis.Thus, for a Contract with the minimum face amount of $60,000, not issued on a Pru-Matic Plan basis, theaggregate amount deducted each year will be $44.40. This charge is to compensate Pruco Life of New Jerseyfor administrative expenses incurred, among other things, for processing claims, paying cash surrender values,making Contract changes, keeping records, and communicating with Contract owners. We will not make thischarge if your Contract becomes paid-up or has been continued in-force, after lapse, as variable reducedpaid-up insurance. During 2001, 2000, and 1999, Pruco Life of New Jersey received a total of approximately$2,746,000, $2,931,000, and $3,096,000, respectively, in monthly administrative charges.

5. On each Monthly date, we reduce the Contract Fund by a charge of $0.01 per $1,000 of face amount(excluding the automatic increase under Contracts issued on insureds of 14 years of age or less). We deductthis charge for the risk we assume by guaranteeing that, no matter how unfavorable investment experiencemay be, the death benefit will never be less than the face amount, provided Scheduled Premiums are paid onor before the due date or during the grace period. We do not make this charge if your Contract becomespaid-up or has been continued in-force, after lapse, as variable reduced paid-up insurance. During 2001, 2000,and 1999, Pruco Life of New Jersey received a total of approximately $1,000, $103,000, and $209,000,respectively, for this risk charge.

6. On each Monthly date, we deduct a mortality charge from the Contract Fund to cover anticipated mortalitycosts. When an insured dies, the amount paid to the beneficiary is larger than the Contract Fund andsignificantly larger if the insured dies in the early years of a Contract. The mortality charges enable Pruco Lifeof New Jersey to pay this larger death benefit. We determine the charge by multiplying the "net amount at risk"under a Contract (the amount by which the Contract's death benefit, computed as if there were neither ridersnor Contract debt, exceeds the Contract Fund) by a rate based upon: (1) the insured's sex (except whereunisex rates apply); (2) current attained age; and (3) the anticipated mortality for that class of persons. Themaximum rate that Pruco Life of New Jersey may charge is based upon the 1980 CSO Tables. We maydetermine that a lesser amount than that called for by these mortality tables will be adequate to defrayanticipated mortality costs for insureds of particular ages. If this occurs, we may make a lower mortality chargefor such persons. We reserve the right to charge full mortality charges based on the applicable 1980 CSOTable, and any lower current mortality charges are not applicable to Contracts in-force pursuant to an option on

12

lapse. See Options on Lapse, page 29. If a Contract has a face amount of at least $100,000 and the insuredhas met strict underwriting requirements so that the Contract is in-force on a “Select Rating” basis for theparticular risk classification, current mortality charges for all ages may be lower still.

Certain Contracts, for example Contracts issued in connection with tax-qualified pension plans, may be issuedon a “guaranteed issue” basis and may have current mortality charges which are different from those mortalitycharges for Contracts which are individually underwritten. These Contracts with different current mortalitycharges may be offered to categories of individuals meeting eligibility guidelines determined by Pruco Life ofNew Jersey.

7. We deduct a charge for assuming mortality and expense risks. We deduct daily from the assets of each of thesubaccounts of the Account and/or from the subaccount of the Real Property Account relating to this Contract,a percentage of those assets equivalent to an effective annual rate of 0.60%. The mortality risk assumed isthat insureds may live for a shorter period of time than Pruco Life of New Jersey estimated. The expense riskassumed is that expenses incurred in issuing and administering the Contract will be greater than Pruco Life ofNew Jersey estimated. During 2001, 2000, and 1999, Pruco Life of New Jersey received a total ofapproximately $4,509,000, $4,989,000, and $4,878,000, respectively, in mortality and expense risk charges.This charge is not assessed against amounts allocated to the fixed-rate option.

8. We deduct an administrative charge of $5 for each $1,000 of face amount of insurance (excluding theautomatic increase under Contracts issued on insureds of 14 years of age or less) upon lapse or surrender ofthe Contract. This charge is made to cover the costs of: (1) processing applications; (2) conducting medicalexaminations; (3) determining insurability and the insured's risk class; and (4) establishing records relating tothe Contract. However, this charge will not be assessed upon issuance of the Contract, nor will it ever bededucted from any death benefit payable under the Contract. Rather, it will be deducted only if the Contract issurrendered or lapses when it is in default past its days of grace, and even then it will not be deducted at all forContracts that stay in-force through the end of the Contract’s 10th anniversary (later if additional insurance isadded after issue). And the charge will be reduced for Contracts that lapse or are surrendered before then butafter the Contract’s fifth anniversary. Specifically, the charge of $5 per $1,000 will be assessed uponsurrenders or lapses occurring on or before the Contract’s fifth anniversary. For each additional full month thatthe Contract stays in-force on a premium paying basis, this charge is reduced by $0.0833 per $1,000 of initialface amount, so that it disappears on the 10th anniversary. During 2001, 2000, and 1999, Pruco Life of NewJersey received a total of approximately $11,000, $12,000, and $22,000, respectively, from surrendered orlapsed Contracts. Additionally, if a Contract has a face amount of at least $100,000 and was issued on otherthan a Select Rating basis (see item 6, above), the owner may request that the Contract be reclassified to aSelect Rating basis. Requests for reclassification to a Select Rating basis may be subject to an underwritingfee of up to $250, but we currently intend to waive that charge if the reclassification is effected concurrently withan increase in face amount.

9. We deduct an administrative processing charge, in connection with each withdrawal of cash surrender value,which is the lesser of : (a) $15; and (b) 2% of each withdrawal amount. See Withdrawal of Excess CashSurrender Value, page 22.

10. If the Contract includes riders, we make monthly deductions from the Contract Fund for charges applicable tothose riders. A deduction will also be made if the rating class of the insured results in an extra charge.

11. An investment advisory fee is deducted daily from each portfolio at a rate, on an annualized basis, from 0.35%

for the Stock Index Portfolio to 0.75% for the Global Portfolio. The expenses incurred in conducting theinvestment operations of the portfolios (such as custodian fees and preparation and distribution of annualreports) are paid out of the portfolio's income. These expenses also vary from portfolio to portfolio.

The total expenses of each portfolio for the year ended December 31, 2001, expressed as a percentage of theaverage assets during the year, are shown below:

13

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PortfolioInvestment

Advisory FeeOther

Expenses

TotalContractualExpenses

Total ActualExpenses*

Conservative BalancedDiversified BondEquityFlexible ManagedGlobalGovernment IncomeHigh Yield BondJennisonMoney MarketNatural ResourcesSmall Capitalization StockStock IndexValue

0.55%0.40%0.45%0.60%0.75%0.40%0.55%0.60%0.40%0.45%0.40%0.35%0.40%

0.03% 0.04% 0.04% 0.04% 0.09% 0.07% 0.05% 0.18% 0.03% 0.07% 0.08% 0.04%0.04%

0.58% 0.44% 0.49% 0.64% 0.84% 0.47% 0.60% 0.64% 0.43% 0.52% 0.48% 0.39% 0.44%

0.40% 0.40% 0.40% 0.40% 0.84% 0.47% 0.60% 0.64% 0.40% 0.52% 0.48%0.39%0.44%

* Some investment management fees and expenses charged to the Series Fund may be higher than those that were previouslycharged to the Pruco Life Series Fund, Inc. (0.40%), in which the Account previously invested. Pruco Life currently makespayments to the following five subaccounts so that the portfolio expenses indirectly borne by a Contract owner investing in theConservative Balanced, Diversified Bond, Equity , Flexible Managed, and Money Market Portfolios will not exceed 0.40%. Nosuch offset will be made with respect to the remaining portfolios, which had no counterparts in the Pruco Life Series Fund, Inc.

The earnings of the Account are taxed as part of the operations of Pruco Life of New Jersey. Currently, no charge isbeing made to the Account for Pruco Life of New Jersey’s federal income taxes. We will review the question of acharge to the Account for Pruco Life of New Jersey’s federal income taxes periodically. Such a charge may be madein the future for any federal income taxes that would be attributable to the Contracts.

Under current laws, Pruco Life of New Jersey may incur state and local taxes (in addition to premium taxes) in severalstates. At present, these taxes are not significant and they are not charged against the Contracts or the Account. Ifthere is a material change in applicable state or local tax laws, the imposition of any such taxes upon Pruco Life ofNew Jersey that are attributable to the Account may result in a corresponding charge against the Account.

The investment management fee and other expenses charged against the Real Property Account are described in theattached prospectus for that investment option.

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As of May 1, 1992, Pruco Life of New Jersey no longer offered these Contracts for sale. Generally, the minimum initialguaranteed death benefit was $60,000. However, higher minimums are applied to insureds over the age of 75.Insureds 14 years of age or less could apply for a minimum initial guaranteed death benefit of $40,000. The Contractwas generally issued on insureds below the age of 81. Before issuing any Contract, Pruco Life of New Jersey requiredevidence of insurability which may have included a medical examination. Non-smokers who met preferredunderwriting requirements were offered the most favorable premium rate. A higher premium is charged if an extramortality risk is involved. Certain classes of Contracts, for example a Contract issued in connection with a tax-qualifiedpension plan, may have been issued on a “guaranteed issue” basis and may have a lower minimum initial deathbenefit than a Contract which was individually underwritten. These are the current underwriting requirements. Wereserve the right to change them on a non-discriminatory basis.

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Generally, a Contract may be returned for a refund within 10 days after it is received by the Contract owner, within 45days after Part I of the application for insurance is signed or within 10 days after Pruco Life of New Jersey mails ordelivers a Notice of Withdrawal Right, whichever is latest. Some states allow a longer period of time during which aContract may be returned for a refund. A refund can be requested by mailing or delivering the Contract to therepresentative who sold it or to the Home Office specified in the Contract. A Contract returned according to thisprovision shall be deemed void from the beginning. The Contract owner will then receive a refund of all premiumpayments made, plus or minus any change due to investment experience. However, if applicable law so requires, the

14

Contract owner who exercises his or her short-term cancellation right will receive a refund of all premium paymentsmade, with no adjustment for investment experience.

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Two forms of the Contract were available. The Scheduled Premium for the Contract was the same for a given insured,regardless of which Contract Form you chose. Contract Form A has a death benefit equal to the initial face amount ofinsurance. The death benefit of a Form A Contract does not vary with the investment performance of the investmentoptions you selected, unless the Contract becomes paid-up or, under a revised version of the Contract, unless thedeath benefit is increased to ensure that the Contract meets the Internal Revenue Code’s definition of life insurance.See How a Contract’s Death Benefit Will Vary, page 19. Favorable investment results on the assets related to theContract and greater than Scheduled Premiums will generally result in increases in the cash surrender value. SeeHow a Contract’s Cash Surrender Value Will Vary, page 18.

Contract Form B also has an initial face amount of insurance but favorable investment performance and greater thanScheduled Premiums generally result in an increase in the death benefit and, over time, in a lesser increase in thecash surrender value than under the Form A Contract. The death benefit may be increased to ensure that theContract meets the Internal Revenue Code’s definition of life insurance. See How a Contract’s Cash SurrenderValue Will Vary, page 18 and How a Contract’s Death Benefit Will Vary, page 19. Unfavorable investmentperformance will result in decreases in the death benefit (but never below the face amount stated in the Contract) andin the cash surrender value.

Both Form A and Form B Contracts covering insureds of 14 years of age or less contain a special provision providingthat the face amount of insurance will automatically be increased, on the Contract anniversary after the insured's 21stbirthday, to 150% of the initial face amount, so long as the Contract is not then in default. This new face amountbecomes the new guaranteed minimum death benefit. The death benefit will also usually increase, at the same time,by the same dollar amount. In certain circumstances, however, it may increase by a smaller amount. See When aContract Becomes Paid-Up, page 20 and How a Contract’s Death Benefit Will Vary, page 19. This increase indeath benefit will also generally increase the net amount at risk under the Contract, thus increasing the mortalitycharge deducted each month from amounts invested under the Contract. See item 6 under Charges and Expenses,page 9. The automatic increase in the face amount of insurance may affect the level of future premium payments youcan make without causing the Contract to be classified as a Modified Endowment Contract. See Tax Treatment ofContract Benefits, page 30. You should consult your tax adviser and Pruco Life of New Jersey representative beforemaking unscheduled premium payments.

Contract owners of Form A Contracts should note that a withdrawal may result in a portion of the surrender chargebeing deducted from the Contract Fund. Furthermore, a Form A Contract owner cannot make withdrawals that wouldreduce the Contracts face amount below the minimum face amount. Contract owners of Form B Contracts will notincur a surrender charge for a withdrawal and are not restricted if they purchased a minimum size Contract. SeeWithdrawal of Excess Cash Surrender Value, page 22.

Under the original versions of these Contracts, there are other distinctions between the Contract Forms. ContractForm A will become paid-up more rapidly than a comparable Form B Contract. But Contract owners of Form AContracts should be aware that since premium payments and favorable investment experience do not increase thedeath benefit, unless the Contract has become paid-up, the beneficiary will not benefit from the possibility that theContract will have a large cash surrender value at the time of the insured's death.

Under a revised version of the Contract that was made available beginning in September 1986, in jurisdictions where itis approved, the Contract will never become paid-up. Instead, the death benefit under these revised Contracts isalways at least as great as the Contract Fund divided by the net single premium. See How a Contract’s DeathBenefit Will Vary, page 19. Thus, instead of becoming paid-up, the Contract's death benefit will always be largeenough to meet the Internal Revenue Code's definition of life insurance. Whenever the death benefit is determined inthis way, Pruco Life of New Jersey reserves the right to refuse to accept further premium payments, although inpractice the payment of at least Scheduled Premiums will be allowed.

15

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The Contract Date will ordinarily be the later of the application date and the medical examination date. Under certaincircumstances, we allowed the Contract to be back-dated, but only to a date not earlier than six months prior to theapplication date. This may be advantageous for some Contract owners as a lower issue age may result in lowercurrent charges. For a Contract that is backdated, we will credit the initial premium as of the date of receipt and willdeduct any charges due on or before that date.

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Scheduled Premiums on the Contract are payable during the insured’s lifetime on an annual, semi-annual, quarterly ormonthly basis on due dates set forth in the Contract. If you pay premiums more often than annually, the aggregateannual premium will be higher to compensate Pruco Life of New Jersey both for the additional processing costs (seeitem 1 under Charges and Expenses, page 9) and for the loss of interest (computed generally at an annual rate of8%) incurred because premiums are paid throughout rather than at the beginning of each Contract year. The premiumamount depends on the Contract’s initial death benefit and the insured’s age at issue, sex (except where unisex ratesapply), and risk classification. If you pay premiums other than monthly, we will notify you about three weeks beforeeach due date, that a premium is due. If you pay premiums monthly, we will send to you each year a book with 12coupons that will serve as a reminder. You may change the frequency of premium payments with Pruco Life of NewJersey’s consent.

You may elect to have monthly premiums paid automatically under the "Pru-Matic Premium Plan" by pre-authorizedtransfers from a bank checking account. Currently, Contract owners selecting the Pru-Matic Premium Plan onContracts issued after June 1, 1987 will have reduced current monthly expense charges. See item 4 under Chargesand Expenses, page 9. You may also be eligible to have monthly premiums paid by pre-authorized deductions froman employer’s payroll.

Each Contract sets forth two premium amounts. The initial premium amount is payable on the Contract Date (the datethe Contract was issued, as noted in each individual Contract) and on each subsequent due date until the Contract’sanniversary immediately following the insured’s 65th birthday (or until the Contract’s tenth anniversary, if that is later).The second and higher premium amount set forth in the Contract is payable on and after that anniversary (the“premium change date”). However, if the amount invested under the Contract, net of any excess premiums, is higherthan it would have been had only Scheduled Premiums been paid, had maximum contractual charges been deducted,and had only an average net rate of return of 4% been earned, then the second premium amount will be lower than themaximum amount stated in the Contract. We will tell you what the amount of your second premium will be. Under theoriginal version of the Contracts, if investment experience has been favorable enough, the Contract may becomepaid-up before or by the premium change date. We reserve the right not to accept any further premium payments on apaid-up Contract.

The Contracts include a premium change date, with Scheduled Premiums potentially increasing after that date to asecond premium amount. Thus, you are provided with both the flexibility to pay lower initial Scheduled Premiums anda guarantee of lifetime insurance coverage, if all Scheduled Premiums are paid. The tables on pages T1 through T4show how the second premium amount compares with the first premium amount under Contracts and for differenthypothetical investment results.

The following table shows, for two face amounts, representative initial preferred rating and standard rating annualpremium amounts under either Form A or Form B Contracts issued on insureds who are not substandard risks:

16

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��"�$ 554.80 $ 669.40 $ 902.00 $1,093.00

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$ 698.80 $ 787.60 $1,142.00 $1,290.00

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��"�$1,556.20 $1,832.20 $2,571.00 $3,031.00

The following table compares annual and monthly premiums for insureds who are in the preferred rating class. Notethat in these examples the sum of 12 monthly premiums for a particular Contract is approximately 105% to 109% ofthe annual premium for that Contract.

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$ 62.60 $ 698.80 $101.00 $1,142.00

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��"�$136.40 $1,556.20 $224.00 $2,571.00

You may select a higher contemplated premium than the Scheduled Premium. We will bill you for the chosenpremium. In general, the regular payment of higher premiums will result in higher cash surrender values and, at leastunder Form B, in higher death benefits. Under the original version of the Contracts, such payments may also providea means of obtaining a paid-up Contract earlier than if only Scheduled Premiums are paid.

In some cases the payment of greater than Scheduled Premiums or favorable investment experience may result in theContract becoming paid-up so that no further premium payments will be necessary. If this happens, Pruco Life of NewJersey may refuse to accept any further premium payments. If a Contract becomes paid-up, the death benefit then in-force becomes the guaranteed minimum death benefit; apart from this guarantee, the death benefit and the cashsurrender value of the paid-up Contract will thereafter vary daily to reflect the investment experience of amountsinvested under the Contract. Contracts sold beginning in September 1986 in jurisdictions where all necessaryapprovals have been obtained will no longer become paid-up. Instead, the death benefit will be increased so that it isalways at least as great as the Contract Fund divided by the net single premium for the insured’s attained age at suchtime. See How a Contract’s Death Benefit Will Vary, page 19. The term “Contract Fund” refers generally to thetotal amount invested under the Contract and is defined under Charges and Expenses on page 9. The term “netsingle premium,” the factor which determines how much the death benefit will increase for a given increase in theContract Fund, is defined and illustrated under item 2 of How a Contract’s Death Benefit Will Vary on page 19.Whenever the death benefit is determined in this way, Pruco Life of New Jersey reserves the right to refuse to acceptfurther premium payments, although in practice the payment of the lesser of two years’ Scheduled Premiums or theaverage of all premiums paid over the last five years will generally be allowed.

The payment of premiums substantially in excess of Scheduled Premiums may cause the Contract to be classified asa Modified Endowment Contract. If this happens, loans and other distributions which otherwise would not be taxableevents may be subject to federal income taxation. See Tax Treatment of Contract Benefits, page 30.

17

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The initial premium, after we deduct applicable charges, is allocated among the subaccounts, the fixed-rate option orthe Real Property Account on the Contract Date, according to the desired allocation specified in the application form.The invested portion of all subsequent premiums, are placed in the selected investment option[s] on the date of receiptat a Home Office. A $2 per payment processing charge and a deduction of up to 7.5% to cover certain charges applyto all subsequent premium payments. The remainder will be invested as of the end of the valuation period in which it isreceived at a Home Office in accordance with the allocation you previously designated. The "valuation period" meansthe period of time from one determination of the value of the amount invested in a subaccount to the next. Suchdeterminations are made when the net asset values of the portfolios of the Series Fund are calculated, which isgenerally at 4:00 p.m. Eastern time on each day during which the New York Stock Exchange is open.

Provided the Contract is not in default, you may change the way in which subsequent premiums are allocated by givingwritten notice to a Home Office or by telephoning a Home Office, provided you are enrolled to use the TelephoneTransfer System. There is no charge for reallocating future premiums among the investment options. If any portion ofa premium is allocated to a particular subaccount, to the fixed-rate option or to the Real Property Account, that portionmust be at least 10% on the date the allocation takes effect. All percentage allocations must be in whole numbers. Forexample, 33% can be selected but 33�% cannot. Of course, the total allocation of all selected investment optionsmust equal 100%.

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Under the Dollar Cost Averaging (“DCA”) feature, either fixed dollar amounts or a percentage of the amount youdesignate under the DCA option will be transferred periodically from the DCA Money Market subaccount into othersubaccounts available under the Contract, excluding the Money Market subaccount and the fixed-rate option, butincluding the Real Property Account. Automatic monthly transfers must be at least 3% of the amount allocated to theDCA account and must be a minimum of $20 transferred into any one investment option. These amounts are subjectto change at Pruco Life of New Jersey's discretion. The minimum transfer amount will only be recalculated if theamount designated for transfer is increased.

Currently, the amount initially designated to DCA must be at least $2,000. This minimum is subject to change at PrucoLife of New Jersey's discretion. Subject to the limitations on premium payments and transfers, you may allocate ortransfer amounts to the DCA account after DCA has been established and as long as the DCA account has a positivebalance. In addition, if you pay premiums on an annual or semi-annual basis and you have already established DCA,the premium allocation instructions may include an allocation of all or a portion of all your premium payments to theDCA account.

Each automatic monthly transfer will take effect as of the end of the valuation period on the Monthly Date (i.e. theContract Date and the same date in each subsequent month), provided the New York Stock Exchange (“NYSE”) isopen on that date. If the NYSE is not open on the Monthly Date, the transfer will take effect as of the end of thevaluation period on the next day that the NYSE is open. If the Monthly Date does not occur in a particular month (e.g.,February 30), the transfer will take effect as of the end of the valuation period on the last day of that month that theNYSE is open. Automatic monthly transfers will continue until the balance in the DCA account reaches zero, or untilthe Contract owner gives notification of a change in allocation or cancellation of the feature. If the Contract hasoutstanding premium allocation to the DCA account, but the DCA option has previously been canceled, premiumsallocated to the DCA account will be allocated to the Money Market subaccount. Currently, there is no charge forusing the DCA feature.

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If the Contract is not in default, or if the Contract is in-force as variable reduced paid-up insurance (see Options onLapse, page 29), you may, up to four times in each Contract year, transfer amounts from one subaccount to anothersubaccount, to the fixed-rate option or to the Real Property Account. Currently, you may make additional transferswith our consent without charge. All or a portion of the amount credited to a subaccount may be transferred.

Transfers among subaccounts will take effect as of the end of the valuation period in which a proper transfer request isreceived at a Home Office. The request may be in terms of dollars, such as a request to transfer $10,000 from onesubaccount to another, or may be in terms of a percentage reallocation among subaccounts. In the latter case, as withpremium reallocations, the percentages must be in whole numbers. You may transfer amounts by proper writtennotice to a Home Office or by telephone, provided you are enrolled to use the Telephone Transfer System. You willautomatically be enrolled to use the Telephone Transfer System unless the Contract is jointly owned or if you elect not

18

to have this privilege. Telephone transfers may not be available on Contracts that are assigned, see Assignment,page 32 , depending on the terms of the assignment.

We will use reasonable procedures, such as asking you to provide certain personal information provided on yourapplication for insurance, to confirm that instructions given by telephone are genuine. We will not be held liable forfollowing telephone instructions that we reasonably believe to be genuine. Pruco Life of New Jersey cannot guaranteethat you will be able to get through to complete a telephone transfer during peak periods such as periods of drasticeconomic or market change.

Only one transfer from the fixed-rate option will be permitted during each Contract year and only during the 30-dayperiod beginning on the Contract anniversary. The maximum amount which may be transferred out of the fixed-rateoption each year is the greater of: (a) 25% of the amount in the fixed-rate option, and (b) $2,000. Such transferrequests received prior to the Contract anniversary will be effected on the Contract anniversary. Transfer requestsreceived within the 30-day period beginning on the Contract anniversary will be effected as of the end of the valuationperiod in which a proper transfer request is received at a Home Office. Pruco Life of New Jersey may change theselimits in the future. Transfers to and from the Real Property Account are subject to restrictions described in theattached prospectus for the Real Property Account.

The Contract was not designed for professional market timing organizations, other organizations, or individuals usingprogrammed, large, or frequent transfers. A pattern of exchanges that coincides with a “market timing” strategy maybe disruptive to the subaccounts or to the disadvantage of other contract owners. If such a pattern were to be found,we may modify your right to make transfers by restricting the number, timing, and amount of transfers. We alsoreserve the right to prohibit transfer requests made by an individual acting under a power of attorney on behalf of morethan one contract owner.

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We may reduce the sales charges and/or other charges on individual Contracts sold to members of a class ofassociated individuals, or to a trustee, employer or other entity representing a class, where it is expected that suchmultiple sales will result in savings of sales or administrative expenses. Pruco Life of New Jersey determines both theeligibility for such reduced charges, as well as the amount of such reductions, by considering the following factors:

(1) the number of individuals;(2) the total amount of premium payments expected to be received from these Contracts;(3) the nature of the association between these individuals, and the expected persistency of the individual Contracts;(4) the purpose for which the individual Contracts are purchased and whether that purpose makes it likely that

expenses will be reduced; and(5) any other circumstances which we believe to be relevant in determining whether reduced sales or administrative

expenses may be expected.

Some of the reductions in charges for these sales may be contractually guaranteed; other reductions may bewithdrawn or modified by Pruco Life of New Jersey on a uniform basis. Pruco Life of New Jersey's reductions incharges for these sales will not be unfairly discriminatory to the interests of any individual Contract owners.

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Your Contract has a cash surrender value which may be obtained while the insured is living by surrender of theContract. Unlike traditional fixed-benefit whole-life insurance, however, a Contract's cash surrender value is not knownin advance because it varies daily with the investment performance of the subaccount[s] and/or Real Property Accountin which the Contract participates.

On the Contract Date, the Contract Fund value is the invested portion of the initial premium less the first monthlydeductions. This amount is placed in the investment option[s] designated by the owner. Thereafter, the ContractFund value changes daily, reflecting increases or decreases in:

(1) the value of the securities in which the assets of the subaccount[s] have been invested;(2) the investment performance of the Real Property Account if that option has been selected;(3) interest credited on amounts allocated to the fixed-rate option;

19

(4) the daily asset charge for mortality and expense risk equal to 0.001639% of the assets of the subaccount[s] of theAccount; and

(5) the subaccount of the Real Property Account relating to this Contract.

The Contract Fund value also changes to reflect the receipt of additional premium payments and the monthlydeductions described in the preceding section.

A Contract’s cash surrender value on any date will be the Contract Fund value reduced by the deferred sales andadministrative charges, if any, and any Contract debt. Upon request, Pruco Life of New Jersey will tell a Contractowner the cash surrender value of his or her Contract. It is possible that the cash surrender value of a Contract coulddecline to zero because of unfavorable investment experience, even if a Contract owner continues to pay ScheduledPremiums when due.

If the net investment return in the selected investment option[s] is greater than 4%, the Contract Fund and cashsurrender value for a Form B Contract can be expected to be less than the Contract Fund and cash surrender valuefor a Form A Contract with identical premiums and investment experience. This is because the monthly mortalitycharges under the Form B Contract will be higher to compensate for the higher amount of insurance.

The tables on pages T1 through T4 of this prospectus illustrate what the cash surrender values would be forrepresentative Contracts, assuming uniform hypothetical investment results in the selected Series Fund portfolio[s],and also provide information about the aggregate Scheduled Premiums payable under those Contracts. Alsoillustrated is what the death benefit would be under Form B Contracts given the stated assumptions. The tables alsoshow the premium amount that would be required on the premium change date to guarantee the Contract againstlapse regardless of investment performance for each illustrated Contract under each of the assumed investmentreturns.

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As described earlier, there are two forms of the Contract, Form A and Form B. Moreover, in September 1986 PrucoLife of New Jersey began issuing revised versions of both Form A and Form B Contracts. The primary differencebetween the original Contract and the revised Contract is that the original Contract may become paid-up, while thedeath benefit under the revised Contract operates differently and will not become paid-up.

1. Original Contracts:

(A) If a Form A Contract is chosen, the death benefit will not vary (except for Contracts issued on insureds of age 14or less, see Requirements for Issuance of a Contract on page 13) regardless of the payment of additionalpremiums or the investment results of the selected investment options, unless the Contract becomes paid-up.See When a Contract Becomes Paid-Up, page 20. The death benefit does reflect a deduction for the amountof any Contract debt. See Contract Loans, page 28.

(B) If a Form B Contract is chosen, the death benefit will vary with investment experience and premium payments.Assuming no Contract debt, the death benefit under a Form B Contract will, on any day, be equal to the faceamount of insurance plus the amount (if any) by which the Contract Fund value exceeds the applicable “TabularContract Fund Value” for the Contract. The “Tabular Contract Fund Value” for each Contract year is an amountthat is slightly less than the Contract Fund value that would result as of the end of such year if:

(1) you paid only Scheduled Premiums;(2) you paid Scheduled Premiums when due;(3) your selected investment options earned a net return at a uniform rate of 4% per year;(4) we deducted full mortality charges based upon the 1980 CSO Table;(5) we deducted maximum sales load and expense charges; and(6) there was no Contract debt.

Each Contract contains a table that sets forth the Tabular Contract Fund Value as of the end of each of the first 20years of the Contract. Tabular Contract Fund Values between Contract anniversaries are determined by interpolation.

Thus, under a Form B Contract with no Contract debt, the death benefit will equal the face amount if the Contract Fundequals the Tabular Contract Fund Value. If, due to investment results greater than a net return of 4%, or to greaterthan Scheduled Premiums, or to lesser than maximum charges, the Contract Fund value is a given amount greaterthan the Tabular Contract Fund Value, the death benefit will be the face amount plus that excess amount. If, due to

20

investment results less favorable than a net return of 4%, the Contract Fund value is less than the Tabular ContractFund Value, and the Contract nevertheless remains in-force because Scheduled Premiums have been paid, the deathbenefit will not fall below the initial face amount stated in the Contract. The death benefit will also reflect a deductionfor the amount of any Contract debt. See Contract Loans, page 28. Any unfavorable investment experience mustsubsequently be offset before favorable investment results or greater than Scheduled Premiums will increase thedeath benefit.

You may also increase or decrease the face amount of your Contract, subject to certain conditions. See Increases inFace Amount, page 22 and Decreases in Face Amount, page 24.

2. Revised Contracts:

Under the revised Contracts issued since September 1986, the death benefit will be calculated as follows:

(A) Under a Form A Contract, the death benefit will be the greater of (1) the face amount; or (2) the Contract Funddivided by the net single premium per $1 of death benefit at the insured’s attained age on that date. In otherwords, the second alternative ensures that the death benefit will not be less than the amount of life insurancethat could be provided for an invested single premium amount equal to the amount of the Contract Fund.

(B) Under a Form B Contract, the death benefit will be the greater of (1) the face amount plus the excess, if any, ofthe Contract Fund over the Tabular Contract Fund Value; or (2) the Contract Fund divided by the net singlepremium per $1 of death benefit at the insured’s attained age on that date. Thus, under the revised Contracts,the death benefit may be increased based on the size of the Contract Fund and the insured’s attained age andsex. This ensures that the Contract will satisfy the Internal Revenue Code’s definition of life insurance. The netsingle premium is used only in the calculation of the death benefit, not for premium payment purposes. Thefollowing is a table of illustrative net single premiums for $1 of death benefit.

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$10.12$ 5.42$ 3.91$ 2.11$ 1.64

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.15687

.21874

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$12.20$ 6.37$ 4.57$ 2.45$ 1.85

Whenever the death benefit is determined in this way, Pruco Life of New Jersey reserves the right to refuse to acceptfurther premium payments, although in practice the payment of the average of all premiums paid over the last fiveyears will generally be allowed.

You may also increase or decrease the face amount of your Contract, subject to certain conditions. See Increases inFace Amount, page 22 and Decreases in Face Amount, page 24.

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Under the original Contracts, it is possible that favorable investment experience, either alone or with greater thanScheduled Premium payments, will cause the Contract Fund to increase. The Contract Fund may increase to thepoint where no further premium payments are necessary to provide for the then existing death benefit for theremaining life of the insured. If this should occur, Pruco Life of New Jersey will notify the owner that no furtherpremium payments are needed. We reserve the right to refuse to accept further premiums after the Contract becomespaid-up. The purchase of an additional fixed benefit rider may, in some cases, affect the point at which the Contractbecomes paid-up. See Riders, page 33. The revised Contracts will not become paid-up.

We guarantee that the death benefit of a paid-up Contract then in-force will not be reduced by the investmentexperience of the investment options in which the Contract participates. The cash surrender value of a paid-upContract continues to vary daily to reflect investment experience and monthly to reflect continuing mortality charges,but the other monthly deductions (see items 4 and 5 under Charges and Expenses, page 9) will not be made. Thedeath benefit of a paid-up Contract on any day (whether the Contract originally was Form A or Form B) will be equal to

21

the amount of paid-up insurance that can be purchased with the Contract Fund on that day, but never less than theguaranteed minimum amount.

As noted earlier, Contracts issued on insureds of 14 years of age or less include a special provision under which theface amount of insurance increases automatically to 150% of the initial face amount on the Contract anniversary afterthe insured reaches the age of 21. If a Contract becomes paid-up prior to that anniversary, Pruco Life of New Jerseywill, instead of declaring the Contract to be paid-up, increase the death benefit by the amount necessary to keep theContract in-force as a premium paying Contract. If this should occur, the increase in the death benefit on the Contractanniversary after the insured reaches the age of 21 will be smaller in dollar amount, than the increase in the faceamount of insurance.

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A significant feature of this Contract is that it permits the owner to pay greater than Scheduled Premiums. Conversely,payment of a Scheduled Premium need not be made if the Contract Fund is large enough to pay the charges dueunder the Contract without causing the Contract to lapse. See Lapse and Reinstatement, page 24. In general, wewill accept any premium payment if the payment is at least $25. Pruco Life of New Jersey does reserve the right,however, to limit unscheduled premiums to a total of $10,000 in any Contract year; to refuse to accept premiums oncea Contract becomes paid-up; and to refuse to accept premiums that would immediately result in more than adollar-for-dollar increase in the death benefit. The flexibility of premium payments provides Contract owners withdifferent opportunities under the two forms of Contract. Greater than scheduled payments under an original versionForm A Contract increase the Contract Fund and make it more likely that the Contract will become paid-up. Greaterthan scheduled payments under an original version Form B Contract increase both the Contract Fund and the deathbenefit, but it is less likely to become paid-up than a Form A Contract on which the same premiums are paid. For allContracts, the privilege of making large or additional premium payments offers a way of investing amounts whichaccumulate without current income taxation.

There may, however, be a disadvantage if you make premium payments substantially in excess of ScheduledPremiums. Such payments may cause the Contract to be classified as a Modified Endowment Contract. The federalincome tax laws, discussed more fully under Tax Treatment of Contract Benefits, page 30, may impose an incometax, as well as a penalty tax, upon distributions to contract owners under life insurance contracts that are classified asModified Endowment Contracts. You should consult your own tax adviser and Pruco Life of New Jerseyrepresentative before making a large premium payment.

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You may surrender your Contract, in whole or in part, for its cash surrender value or a fixed reduced paid-up insurancebenefit while the insured is living. Partial surrender involves splitting the Contract into two Contracts. One issurrendered for its cash surrender value; the other is continued in-force on the same terms as the original Contractexcept that premiums and cash surrender values will be proportionately reduced. The reduction is based upon theface amount of insurance. The Contract’s face amount of insurance must be at least equal to the minimum faceamount applicable to the insured's Contract. See Requirements for Issuance of a Contract, page 13. For paid-upContracts, both the death benefit and the guaranteed minimum death benefit will be reduced. The death benefitimmediately after the partial withdrawal must be at least equal to the minimum face amount applicable to the insured'sContract.

To surrender a Contract, in whole or in part, you must deliver or mail the Contract with a written request in a form thatmeets Pruco Life of New Jersey’s needs, to a Home Office. The cash surrender value of a surrendered or partiallysurrendered Contract (taking into account the deferred sales and administrative charges, if any) will be determined asof the date such request is received in a Home Office. Surrender of all or part of a Contract may have taxconsequences. See Tax Treatment of Contract Benefits, page 30.

22

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You may surrender your Contract, in whole or in part, for its cash surrender value. This is available only before theContract becomes paid up and avoids splitting the Contract into two Contracts. You may make a partial withdrawalonly if the following conditions are satisfied. The basic limiting condition is that you may make a withdrawal only to theextent that the cash surrender value plus any Contract loan exceeds the applicable tabular cash surrender value. (The“tabular cash surrender value” refers to the Tabular Contract Fund Value minus any applicable surrender charges.) Butbecause this excess over the applicable tabular cash surrender value may be made up in part by an outstandingContract loan, there is a further condition that the amount withdrawn may not be larger than an amount sufficient toreduce the cash surrender value to zero. The amount withdrawn must be at least $2,000 under a Form A Contractand at least $500 under a Form B Contract. You may make no more than four withdrawals in a Contract year, andthere is a fee equal to the lesser of $15 or 2% for each withdrawal. You may only repay an amount withdrawn as ascheduled or unscheduled premium, which is subject to the Contract charges. Upon request, we will tell you howmuch you may withdraw. Withdrawal of part of the cash surrender value may have tax consequences. See TaxTreatment of Contract Benefits, page 30.

Whenever a partial withdrawal is made, the death benefit payable will immediately be reduced, generally by theamount of the withdrawal. This will not change the guaranteed minimum amount of insurance under a Form BContract (i.e., the face amount) or the amount of the Scheduled Premium that will be payable thereafter on such aContract. Under a Form A Contract, however, the guaranteed minimum amount of insurance will be reduced by theamount of the partial withdrawal. A partial withdrawal will not be permitted under a Form A Contract if it would result ina new face amount less than the minimum face amount applicable to the insured's Contract. See Requirements forIssuance of a Contract, page 13. It is important to note, however, that if the face amount is decreased, the Contractmight be classified as a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 30. Beforemaking any withdrawal which causes a decrease in face amount, you should consult your tax adviser and Pruco Life ofNew Jersey representative. In addition, the amount of the Scheduled Premiums due thereafter under a Form AContract will be reduced to reflect the lower face amount of insurance. Since a withdrawal under a Form A Contractmay result in a decrease in the face amount of insurance, the Contract Fund may be reduced, not only by the amountwithdrawn but also by a proportionate part of any applicable surrender charges, based upon the percentage reductionin face amount. We will send replacement Contract pages showing the new face amount, new tabular values and, ifapplicable, a new table of surrender charges to owners of a Form A Contract who make a partial withdrawal.

Withdrawal of part of the cash surrender value increases the risk that the Contract Fund may be insufficient to providefor benefits under the Contract. If such a withdrawal is followed by unfavorable investment experience, the Contractmay lapse even if Scheduled Premiums continue to be paid when due. This is because, Pruco Life of New Jerseytreats withdrawals as a return of premium for purposes of determining whether a lapse has occurred. Withdrawalsfrom paid up Contracts may result in an increased mortality charge.

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You may increase the amount of your insurance by increasing the face amount of the Contract (which is also theguaranteed minimum death benefit), subject to state approval and underwriting requirements determined by Pruco Lifeof New Jersey. An increase in face amount is in many ways similar to the purchase of a second Contract. It differs inthe following respects:

(1) the minimum permissible increase is $25,000, while the minimum for a new Contract was $60,000;(2) monthly fees are lower because only a single $2.50 per month administrative charge is made rather than two;(3) a combined premium payment results in deduction of a single $2 per premium processing charge while

separate premium payments for separate Contracts would involve two charges;(4) the monthly expense charge of $0.02 per $1,000 of face amount may be lower if the increase is to a face

amount greater than $100,000; and(5) the Contract will lapse or become paid-up as a unit, unlike the case if two separate Contracts are purchased.

Despite these differences, the decision to increase face amount is comparable to the purchase of a second Contract inthat it involves a commitment to higher Scheduled Premiums in exchange for greater insurance benefits.

You may elect to increase the face amount of your Contract no earlier than the first anniversary of the Contract. Thefollowing conditions must be met:

(1) You must ask for the increase in writing on an appropriate form;(2) The amount of the increase in face amount must be at least $25,000;

23

(3) The insured must supply evidence of insurability for the increase satisfactory to Pruco Life of New Jersey;(4) If Pruco Life of New Jersey requests, you must send in the Contract to be suitably endorsed ;(5) The Contract must be neither paid up nor in default on the date the increase takes effect;(6) You must pay an appropriate premium at the time of the increase;(7) Pruco Life of New Jersey has the right to deny more than one increase in a Contract year; and(8) If between the Contract Date and the date that your requested increase in face amount would take effect,

Pruco Life of New Jersey has changed any of the bases on which benefits and charges are calculated fornewly issued Contracts, then we have the right to deny the increase.

An increase in face amount resulting in a total face amount under the Contract of at least $100,000 may, subject tostrict underwriting requirements, render the Contract eligible for a Select Rating for a non-smoker, which provideslower current cost of insurance rates.

Upon an increase in face amount, Pruco Life of New Jersey will recompute the Contract’s Scheduled Premiums,deferred sales and administrative charges, tabular values, and monthly deductions from the Contract Fund. You havea choice, limited only by applicable state law, as to whether the recomputation will be made as of the prior or nextContract anniversary. There may be a payment required on the date of increase; the amount of the payment willdepend, in part, on which Contract anniversary you select for the recomputation. We will tell you the amount of anyrequired payment. You should also note that an increase in face amount could cause the Contract to be classified as aModified Endowment Contract. See Tax Treatment of Contract Benefits, page 30. Therefore, before increasing theface amount, you should consult your own tax adviser and Pruco Life of New Jersey representative.

Provided the increase is approved, the new insurance will take effect once Pruco Life of New Jersey receives theproper forms, any medical evidence necessary to underwrite the additional insurance and any amount needed by thecompany.

We will supply you with pages showing the increased face amount, the effective date of the increase, and therecomputed items described earlier. The pages will also describe how the face amount increase affects the variousprovisions of the Contract. Including a statement that, for the amount of the increase in face amount, the period statedin the Incontestability and Suicide provisions (see Other General Contract Provisions, page 32) will run from theeffective date of the increase.

Pruco Life of New Jersey will assess, upon lapse or surrender following an increase in face amount, the sum of (a) thedeferred sales and administrative charges that would have been assessed if the initial base Contract had not beenamended and had lapsed or been surrendered; and (b) the deferred sales and administrative charges that would havebeen assessed if the increase in death benefit had been achieved by the issuance of a new Contract, and thatContract had lapsed or been surrendered. All premiums paid after the increase will, for purposes of determining thedeferred sales charge applicable in the event of surrender or lapse, be deemed to have been made partially under thebase Contract, and partially in payment of the increase, in the same proportion as that of the original ScheduledPremium and the increase in Scheduled Premiums. Because an increase in face amount triggers new contingentdeferred sales and administrative charges, you should not elect to increase the face amount of your Contract if you arecontemplating a total or partial surrender or a decrease in the face amount of insurance.

An increase in face amount will be treated comparably to the issuance of a new Contract for purposes of thenon-guaranteed waiver of the 5% front-end sales load, described under item 2 of Charges and Expenses on page 9.Thus, premiums paid after the increase will, for purposes of determining whether the 5% front-end sales load will bewaived, be allocated to the base Contract and to the increase based on the proportional premium allocation rule justdescribed. The waiver will apply to the premiums paid after the increase only after the premiums so allocated exceedfive scheduled annual premiums for the increase. Thus, a Contract owner considering an increase in face amountshould be aware that such an increase will entail sales charges comparable to the purchase of a new Contract.

If you elect to increase the face amount of your Contract, you will receive a “free-look” right and a right to convert to afixed-benefit contract, which will apply only to the increase in face amount, not the entire Contract. These rights arecomparable to the rights afforded to the purchaser of a new Contract.

The “free-look” right allows a Contract to be returned for a refund within 10 days after it is received by the Contractowner, within 45 days after Part I of the application for insurance is signed or within 10 days after Pruco Life of NewJersey mails or delivers a Notice of Withdrawal Right, whichever is latest. Some states allow a longer period of timeduring which a Contract may be returned for a refund. A refund can be requested by mailing or delivering the Contractto the representative who sold it or to the Home Office specified in the Contract. A Contract returned according to thisprovision shall be deemed void from the beginning. The Contract owner will then receive a refund of all premium

24

payments made, plus or minus any change due to investment experience. However, if applicable law so requires, theContract owner who exercises his or her short-term cancellation right will receive a refund of all premium paymentsmade, with no adjustment for investment experience.

Charges deducted since the increase will be recomputed as though no increase had been effected. The right toconvert the increase in face amount to a fixed-benefit policy will exist for 24 months after the increase is issued and theform of exchange right will be the same as that available under the base Contract purchased. There may be a cashpayment required upon the exchange.

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As explained earlier, you may effect a partial surrender of a Contract (see Surrender of a Contract, page 21) or apartial withdrawal of excess cash surrender value (see Withdrawal of Excess Cash Surrender Value, page 22). Youalso have the option of decreasing the face amount (which is also the guaranteed minimum death benefit) of yourContract without withdrawing any cash surrender value. Contract owners who conclude that, because of changedcircumstances, the amount of insurance is greater than needed will be able to decrease their amount of insuranceprotection without decreasing their current cash surrender value. This will result in a decrease in the amount of futureScheduled Premiums and in the monthly deductions for the cost of insurance. The cash surrender value of theContract on the date of the decrease will not change, except that an administrative processing fee of $15 may bededucted from that value (unless that fee is separately paid at the time the decrease in face amount is requested).Your Contract Fund value, however, will be reduced by deduction of a proportionate part of the contingent deferredsales and administrative charges, if any. Scheduled Premiums for the Contract will also be proportionately reduced.The Contracts of owners who exercise the right to reduce face amount will be amended to show the new face amount,tabular values, Scheduled Premiums, monthly charges, and if applicable, the remaining contingent deferred sales andadministrative charges.

The minimum permissible decrease is $10,000. A decrease will not be permitted if it causes the face amount of theContract to drop below the minimum face amount applicable to the insured’s Contract. See Requirements forIssuance of a Contract, page 13. A reduction will not be permitted if it causes the Contract to fail to qualify as "lifeinsurance" for purposes of section 7702 of the Internal Revenue Code. A Contract is no longer eligible for the SelectRating if the face amount is reduced below $100,000.

It is important to note, however, that if the face amount is decreased there is a danger that the Contract might beclassified as a Modified Endowment Contract. See Tax Treatment of Contract Benefits, page 30. Before makingany withdrawal which causes a decrease in face amount, you should consult your own tax adviser and Pruco Life ofNew Jersey representative.

��&��!��

If Scheduled Premiums are paid on or before each due date or within the grace period after each due date, (or missedpremiums are paid later with interest) and there are no withdrawals, a Contract will remain in-force even if theinvestment results of that Contract’s variable investment option[s] have been so unfavorable that the Contract Fundhas decreased to zero or less.

In addition, even if a Scheduled Premium is not paid, the Contract will remain in-force as long as the Contract Fund onany Monthly date is equal to or greater than the Tabular Contract Fund Value on the next Monthly date. This couldoccur because of such factors as favorable investment experience, deduction of less than the maximum permissiblecharges, or the previous payment of greater than Scheduled Premiums.

However, if a Scheduled Premium is not paid, and the Contract Fund is insufficient to keep the Contract in-force, theContract will go into default. Should this happen, Pruco Life of New Jersey will send the Contract owner a notice ofdefault setting forth the payment necessary to keep the Contract in-force on a premium paying basis. This paymentmust be received at a Home Office within the 61 day grace period after the notice of default is mailed or the Contractwill lapse. A Contract that lapses with an outstanding Contract loan may have tax consequences. See Tax Treatmentof Contract Benefits on page 30.

A Contract that has lapsed may be reinstated within three years after the date of default unless the Contract has beensurrendered for its cash surrender value. To reinstate a lapsed Contract, Pruco Life of New Jersey requires renewedevidence of insurability, and submission of certain payments due under the Contract.

25

If a Contract does lapse, it may still provide some benefits. Those benefits are described under Options on Lapse,page 29.

)��&��&

We will generally pay any death benefit, cash surrender value, loan proceeds or partial withdrawal within seven daysafter receipt at a Home Office of all the documents required for such a payment. Other than the death benefit, which isdetermined as of the date of death, the amount will be determined as of the end of the valuation period in which thenecessary documents are received at a Home Office. However, we may delay payment of proceeds from thesubaccount[s] and the variable portion of the death benefit due under the Contract if the disposal or valuation of theAccount’s assets is not reasonably practicable because: (1) the New York Stock Exchange is closed for other than aregular holiday or weekend; (2) trading is restricted by the SEC; or (3) the SEC declares that an emergency exists.

With respect to the amount of any cash surrender value allocated to the fixed-rate option, and with respect to aContract in-force as extended term insurance, we expect to pay the cash surrender value promptly upon request.However, we have the right to delay payment of such cash surrender value for up to six months (or a shorter period ifrequired by applicable law). We will pay interest of at least 3% a year if we delay such a payment for more than 30days (or a shorter period if required by applicable law).

��0�� &��

The Living Needs Benefit� is available on your Contract. The benefit may vary by state. There is no charge foradding the benefit to a Contract. However, an administrative charge (not to exceed $150) will be made at the time theLiving Needs Benefit is paid.

Subject to state regulatory approval, the Living Needs Benefit allows you to elect to receive an accelerated paymentof all or part of the Contract’s death benefit, adjusted to reflect current value, at a time when certain special needsexist. The adjusted death benefit will always be less than the death benefit, but will generally be greater than theContract’s cash surrender value. One or both of the following options may be available. You should consult with aPruco Life of New Jersey representative as to whether additional options may be available.

Terminal Illness Option. This option is available if the insured is diagnosed as terminally ill with a life expectancy ofsix months or less. When satisfactory evidence is provided, Pruco Life of New Jersey will provide an acceleratedpayment of the portion of the death benefit selected by the Contract owner as a Living Needs Benefit. The Contractowner may (1) elect to receive the benefit in a single sum or (2) receive equal monthly payments for six months. If theinsured dies before all of the payments have been made, the present value of the remaining payments will be paid tothe beneficiary designated in the Living Needs Benefit claim form.

Nursing Home Option. This option is available after the insured has been confined to an eligible nursing home for sixmonths or more. When satisfactory evidence is provided, including certification by a licensed physician, that theinsured is expected to remain in the nursing home until death, Pruco Life of New Jersey will provide an acceleratedpayment of the portion of the death benefit selected by the Contract owner as a Living Needs Benefit. The Contractowner may (1) elect to receive the benefit in a single sum or (2) receive equal monthly payments for a specifiednumber of years (not more than 10 nor less than two), depending upon the age of the insured. If the insured diesbefore all of the payments have been made, the present value of the remaining payments will be paid to thebeneficiary designated in the Living Needs Benefit claim form in a single sum.

All or part of the Contract’s death benefit may be accelerated under the Living Needs Benefit. If the benefit is onlypartially accelerated, a death benefit of at least $25,000 must remain under the Contract. Pruco Life of New Jerseyreserves the right to determine the minimum amount that may be accelerated.

No benefit will be payable if the Contract owner is required to elect it in order to meet the claims of creditors or toobtain a government benefit. Pruco Life of New Jersey can furnish details about the amount of Living Needs Benefitthat is available to an eligible Contract owner under a particular Contract, and the adjusted premium payments thatwould be in effect if less than the entire death benefit is accelerated.

You should consider whether adding this settlement option is appropriate in your given situation. Adding the LivingNeeds Benefit to the Contract has no adverse consequences; however, electing to use it could. With the exception ofcertain business-related policies, the Living Needs Benefit is excluded from income if the insured is terminally ill orchronically ill as defined in the tax law (although the exclusion in the latter case may be limited). You should consult a

26

qualified tax adviser before electing to receive this benefit. Receipt of a Living Needs Benefit payment may alsoaffect your eligibility for certain government benefits or entitlements.

$$"��"��&��,�$"��+��+��&��"!"$��&��!�"!�

The following four tables show how a Contract’s death benefit and cash surrender values change with the investmentperformance of the Account. They are “hypothetical” because they are based, in part, upon several assumptionswhich are described below. All four tables assume the following:

• a Contract with a face amount of $60,000 bought by a 35 year old male, non-smoker, with no extra risks orsubstandard ratings, and no extra benefit riders added to the Contract.

• the Scheduled Premium of $554.80 is paid on each Contract anniversary and no loans are taken. • the Contract Fund has been invested in equal amounts in each of the 13 available portfolios of the Series Fund

and no portion of the Contract Fund has been allocated to the fixed-rate option or the Real Property Account.

The tables are not applicable to Contracts issued on a guaranteed issue basis or to Contracts where the riskclassification is on a multiple life basis.

The tables reflect values applicable to both revised and original Contracts. However, these values are not applicableto the original Contracts where the death benefit has been increased to the Contract Fund divided by the net singlepremium.

The first table (page T1) assumes a Form A Contract has been purchased and the second table (page T2) assumes aForm B Contract has been purchased. Both assume the current charges will continue for the indefinite future.Moreover, these tables reflect Pruco Life of New Jersey's current practice of waiving the front-end sales load of 5%after total premiums paid exceeds five scheduled annual premiums. See Charges and Expenses, page 9. The tablesalso reflect Pruco Life of New Jersey's current practice of increasing the Contract Fund on a percentage basis basedon the attained age of the insured. While we do not currently intend to withdraw or modify these reductions in chargesor additions to the Contract Fund, we reserve the right to do so.

The third and fourth tables (pages T3 and T4) assume that Form A and Form B Contracts have been purchased,respectively, and the maximum contractual charges have been made from the beginning. Neither reflect the waiver ofthe front-end sales load nor the monthly additions to the Contract Fund that further reduce the cost of insurancecharge.

Finally, there are four assumptions, shown separately, about the average investment performance of the portfolios.The first is that there will be a uniform 0% gross rate of return with the average value of the Contract Fund uniformlyadversely affected by very unfavorable investment performance. The other three assumptions are that investmentperformance will be at a uniform gross annual rate of 4%, 8% and 12%. Actual returns will fluctuate from year to year. In addition, death benefits and cash surrender values would be different from those shown if investment returnsaveraged 0%, 4%, 8% and 12% but fluctuated from those averages throughout the years. Nevertheless, theseassumptions help show how the Contract values change with investment experience.

The first column in the following four tables (pages T1 through T4) shows the Contract year. The second column, toprovide context, shows what the aggregate amount would be if the Scheduled Premiums had been invested to earninterest, after taxes, at 4% compounded annually. The next four columns show the death benefit payable in each ofthe years shown for the four different assumed investment returns. The last four columns show the cash surrendervalue payable in each of the years shown for the four different assumed investment returns. The cash surrender valuesin the first 10 years reflect the surrender charges that would be deducted if the Contract were surrendered in thoseyears.

A gross return (as well as the net return) is shown at the top of each column. The gross return represents thecombined effect of investment income and capital gains and losses, realized or unrealized, of the portfolios before anyreduction is made for investment advisory fees or other Series Fund expenses. The net return reflects average totalannual expenses of the 13 portfolios of 0.49%, and the daily deduction from the Contract Fund of 0.60% per year.Thus, based on the above assumptions, gross investment returns of 0%, 4%, 8% and 12% are the equivalent of netinvestment returns of -1.09%, 2.91%, 6.91% and 10.91%, respectively. The actual fees and expenses of the portfoliosassociated with a particular Contract may be more or less than 0.49% and will depend on which subaccounts are

27

selected. The death benefits and cash surrender values shown reflect the deduction of all expenses and charges bothfrom the Series Fund and under the Contract.

Your Pruco Life of New Jersey representative can provide you with a hypothetical illustration for your own age, sex andrating class.

ILLUSTRATIONS-------------

VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTFORM A -- FIXED DEATH BENEFITMALE PREFERRED ISSUE AGE 35

$60,000 GUARANTEED DEATH BENEFIT$554.80 MINIMUM INITIAL SCHEDULED PREMIUM (1) (4)

USING CURRENT SCHEDULE OF CHARGES

Death Benefit (2)(3) Cash Surrender Value (2)(3)---------------------------------------------------- ----------------------------------------------------

Assuming Hypothetical Gross (and Net) Assuming Hypothetical Gross (and Net)Premiums Annual Investment Return of Annual Investment Return of

End of Accumulated ---------------------------------------------------- ----------------------------------------------------Policy at 4% Interest 0% Gross 4% Gross 8% Gross 12% Gross 0% Gross 4% Gross 8% Gross 12% GrossYear Per Year (4) (-1.09% Net) (2.91% Net) (6.91% Net) (10.91% Net) (-1.09% Net) (2.91% Net) (6.91% Net) (10.91% Net)------ -------------- ------------ ----------- ----------- ------------ ------------ ----------- ----------- ------------

1 $ 577 $60,000 $60,000 $ 60,000 $ 60,000 $ 0 $ 0 $ 0 $ 02 $ 1,177 $60,000 $60,000 $ 60,000 $ 60,000 $ 226 $ 274 $ 323 $ 3753 $ 1,801 $60,000 $60,000 $ 60,000 $ 60,000 $ 527 $ 621 $ 720 $ 8254 $ 2,450 $60,000 $60,000 $ 60,000 $ 60,000 $ 820 $ 974 $ 1,141 $ 1,3225 $ 3,125 $60,000 $60,000 $ 60,000 $ 60,000 $ 1,102 $ 1,330 $ 1,586 $ 1,8706 $ 3,827 $60,000 $60,000 $ 60,000 $ 60,000 $ 1,513 $ 1,832 $ 2,197 $ 2,6167 $ 4,557 $60,000 $60,000 $ 60,000 $ 60,000 $ 1,939 $ 2,363 $ 2,864 $ 3,4538 $ 5,317 $60,000 $60,000 $ 60,000 $ 60,000 $ 2,353 $ 2,899 $ 3,561 $ 4,3619 $ 6,106 $60,000 $60,000 $ 60,000 $ 60,000 $ 2,755 $ 3,439 $ 4,291 $ 5,35010 $ 6,927 $60,000 $60,000 $ 60,000 $ 60,000 $ 3,147 $ 3,984 $ 5,057 $ 6,42815 $11,553 $60,000 $60,000 $ 60,000 $ 60,000 $ 4,494 $ 6,416 $ 9,258 $ 13,46520 $17,182 $60,000 $60,000 $ 60,000 $ 60,000 $ 5,426 $ 8,952 $ 15,035 $ 25,56525 $24,029 $60,000 $60,000 $ 60,000 $ 85,622 $ 5,694 $11,400 $ 23,034 $ 46,275

30 (Age 65) $32,361 $60,000 $60,000 $ 60,000 $132,557 $ 4,924 $13,455 $ 34,384 $ 80,84135 $49,748 $60,000 $60,000 $ 74,482 $203,082 $16,904 $21,925 $ 50,556 $137,84440 $70,902 $60,000 $60,000 $ 97,318 $310,266 $27,908 $31,137 $ 72,424 $230,90045 $96,639 $60,000 $60,000 $126,761 $475,643 $38,160 $41,626 $101,578 $381,152

(1) If premiums are paid more frequently than annually, the initial payments would be $284.80 semi-annually, $145.40quarterly or $50 monthly. The ultimate payments would be $1,775.20 semi-annually, $897.80 quarterlyor $302.60 monthly. The death benefits and cash surrender values would be slightly different for a Contractwith more frequent premium payments.

(2) Assumes no Contract loan has been made.

(3) Values shown in the table are applicable to both the original Contracts (the "1984 Contracts") and the revised Contractsthat first began to be issued in September of 1986 (the "1986 Contracts"), except where the death benefit has been increasedto the Contract fund divided by the net single premium, in which case the cash surrender value and death benefit figuresshown are applicable only to the 1986 Contracts. This first occurs at the time when the 1984 Contracts would become paid-up.

(4) For a hypothetical gross investment return of 0%, the second Scheduled Premium will be $3,399.91. For a gross return of 4%, thesecond Scheduled Premium will be $1,842.04. For a gross return of 8%, the second Scheduled Premium will be $554.80. For agross return of 12%, the second Scheduled Premium will be $554.80. The premiums accumulated at 4% interest in column 2 arethose payable if the gross investment return is 4%. For an explanation of why the scheduled premium may increase on the premiumchange date, see Premiums.

The hypothetical investment rates of return shown above and elsewhere in this prospectus are illustrative only and shouldnot be deemed a representation of past or future investment rates of return. Actual rates of return may be more or lessthan those shown and will depend on a number of factors including the investment allocations made by an owner, prevailinginterest rates, and rates of inflation. The death benefit and cash surrender value for a contract would be different fromthose shown if the actual rates of return averaged 0%, 4%, 8%, and 12% over a period of years but also fluctuated above orbelow those averages for individual contract years. No representations can be made by Pruco Life of New Jersey or theSeries Fund that these hypothetical rates of return can be achieved for any one year or sustained over any period of time.

T1

VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTFORM B -- VARIABLE DEATH BENEFITMALE PREFERRED ISSUE AGE 35


USING CURRENT SCHEDULE OF CHARGES




1 $ 577 $60,000 $60,016 $ 60,033 $ 60,050 $ 0 $ 0 $ 0 $ 02 $ 1,177 $60,000 $60,031 $ 60,081 $ 60,132 $ 225 $ 273 $ 322 $ 3733 $ 1,801 $60,000 $60,048 $ 60,147 $ 60,251 $ 526 $ 619 $ 718 $ 8234 $ 2,450 $60,000 $60,066 $ 60,232 $ 60,413 $ 818 $ 971 $ 1,138 $ 1,3185 $ 3,125 $60,000 $60,086 $ 60,340 $ 60,622 $ 1,100 $ 1,327 $ 1,581 $ 1,8636 $ 3,827 $60,000 $60,137 $ 60,500 $ 60,916 $ 1,511 $ 1,827 $ 2,190 $ 2,6067 $ 4,557 $60,000 $60,193 $ 60,689 $ 61,273 $ 1,936 $ 2,357 $ 2,854 $ 3,4388 $ 5,317 $60,000 $60,254 $ 60,910 $ 61,702 $ 2,350 $ 2,892 $ 3,547 $ 4,3409 $ 6,106 $60,000 $60,322 $ 61,164 $ 62,211 $ 2,752 $ 3,430 $ 4,272 $ 5,31910 $ 6,927 $60,000 $60,398 $ 61,457 $ 62,810 $ 3,143 $ 3,972 $ 5,032 $ 6,38515 $ 11,553 $60,000 $61,166 $ 63,956 $ 68,075 $ 4,509 $ 6,407 $ 9,197 $ 13,31620 $ 17,182 $60,000 $62,460 $ 68,351 $ 78,503 $ 5,465 $ 8,921 $14,812 $ 24,96425 $ 24,029 $60,000 $64,663 $ 75,649 $ 97,961 $ 5,761 $11,252 $22,238 $ 44,549

30 (Age 65) $ 32,361 $60,510 $68,399 $ 87,302 $133,008 $ 5,010 $12,899 $31,802 $ 77,50835 $ 51,884 $62,448 $68,227 $ 89,837 $195,651 $16,750 $22,529 $44,139 $132,80040 $ 75,637 $63,521 $69,177 $ 97,040 $300,408 $27,131 $32,787 $60,650 $223,56345 $104,537 $64,227 $71,826 $111,244 $462,718 $35,966 $43,564 $82,982 $370,794

(1) If premiums are paid more frequently than annually, the initial payments would be $284.80 semi-annually, $145.40quarterly or $50 monthly. The ultimate payments would be $1,775.20 semi-annually, $897.80 quarterlyor $302.60 monthly. The death benefits and cash surrender values would be slightly different for a Contractwith more frequent premium payments.



(4) For a hypothetical gross investment return of 0%, the second Scheduled Premium will be $3,401.07. For a gross return of 4%, thesecond Scheduled Premium will be $2,221.30. For a gross return of 8%, the second Scheduled Premium will be $554.80. For agross return of 12%, the second Scheduled Premium will be $554.80. The premiums accumulated at 4% interest in column 2 arethose payable if the gross investment return is 4%. For an explanation of why the scheduled premium may increase on the premiumchange date, see Premiums.


T2

VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTFORM A -- FIXED DEATH BENEFITMALE PREFERRED ISSUE AGE 35


USING MAXIMUM CONTRACTUAL CHARGES




1 $ 577 $60,000 $60,000 $60,000 $ 60,000 $ 0 $ 0 $ 0 $ 02 $ 1,177 $60,000 $60,000 $60,000 $ 60,000 $ 185 $ 231 $ 279 $ 3283 $ 1,801 $60,000 $60,000 $60,000 $ 60,000 $ 460 $ 550 $ 645 $ 7464 $ 2,450 $60,000 $60,000 $60,000 $ 60,000 $ 723 $ 869 $ 1,028 $ 1,2025 $ 3,125 $60,000 $60,000 $60,000 $ 60,000 $ 970 $ 1,186 $ 1,428 $ 1,6986 $ 3,827 $60,000 $60,000 $60,000 $ 60,000 $1,312 $ 1,611 $ 1,955 $ 2,3507 $ 4,557 $60,000 $60,000 $60,000 $ 60,000 $1,664 $ 2,058 $ 2,524 $ 3,0758 $ 5,317 $60,000 $60,000 $60,000 $ 60,000 $1,996 $ 2,498 $ 3,109 $ 3,8529 $ 6,106 $60,000 $60,000 $60,000 $ 60,000 $2,309 $ 2,931 $ 3,711 $ 4,68610 $ 6,927 $60,000 $60,000 $60,000 $ 60,000 $2,601 $ 3,355 $ 4,328 $ 5,58215 $ 11,553 $60,000 $60,000 $60,000 $ 60,000 $3,150 $ 4,728 $ 7,108 $ 10,69020 $ 17,182 $60,000 $60,000 $60,000 $ 60,000 $2,886 $ 5,514 $10,234 $ 18,65825 $ 24,029 $60,000 $60,000 $60,000 $ 60,000 $1,284 $ 5,066 $13,432 $ 31,500

30 (Age 65) $ 32,361 $60,000 $60,000 $60,000 $ 85,420 $ 0 $ 2,288 $16,235 $ 52,09435 $ 58,960 $60,000 $60,000 $60,000 $122,416 $3,958 $11,137 $28,064 $ 83,09140 $ 91,322 $60,000 $60,000 $60,075 $173,275 $6,104 $18,472 $44,708 $128,95145 $130,695 $60,000 $60,000 $83,553 $243,785 $ 0 $22,502 $66,954 $195,355

(1) If premiums are paid more frequently than annually, the payments would be $284.80 semi-annually, $145.40 quarterlyor $50 monthly. The death benefits and cash surrender values would be slightly different for a Contract with morefrequent premium payments.



(4) For a hypothetical gross investment return of 0%, the premium after age 65 will be $3,477.40. for agross return of 4% the premium after age 65 will be $3,477.40. for a gross return of 8% the premiumafter age 65 will be $2,226.73. for a gross return of 12% the premium after age 65will be $554.80. The premiums accumulated at 4% interest in column 2 are those payable if the gross investmentreturn is 4%. For an explanation of why the scheduled premium may increase on the premium change date, see Premiums.


T3

VARIABLE APPRECIABLE LIFE INSURANCE CONTRACTFORM B -- VARIABLE DEATH BENEFITMALE PREFERRED ISSUE AGE 35


USING MAXIMUM CONTRACTUAL CHARGES




1 $ 577 $60,000 $60,000 $60,013 $ 60,030 $ 0 $ 0 $ 0 $ 02 $ 1,177 $60,000 $60,000 $60,036 $ 60,085 $ 183 $ 230 $ 278 $ 3273 $ 1,801 $60,000 $60,000 $60,072 $ 60,172 $ 459 $ 548 $ 643 $ 7434 $ 2,450 $60,000 $60,000 $60,120 $ 60,292 $ 721 $ 866 $ 1,025 $ 1,1975 $ 3,125 $60,000 $60,000 $60,182 $ 60,450 $ 967 $ 1,182 $ 1,423 $ 1,6916 $ 3,827 $60,000 $60,000 $60,258 $ 60,649 $1,310 $ 1,607 $ 1,948 $ 2,3397 $ 4,557 $60,000 $60,000 $60,350 $ 60,895 $1,661 $ 2,053 $ 2,515 $ 3,0608 $ 5,317 $60,000 $60,000 $60,459 $ 61,192 $1,993 $ 2,492 $ 3,096 $ 3,8309 $ 6,106 $60,000 $60,000 $60,585 $ 61,546 $2,306 $ 2,924 $ 3,693 $ 4,65410 $ 6,927 $60,000 $60,000 $60,731 $ 61,963 $2,599 $ 3,348 $ 4,306 $ 5,53815 $ 11,553 $60,000 $60,000 $61,786 $ 65,240 $3,148 $ 4,719 $ 7,027 $ 10,48120 $ 17,182 $60,000 $60,000 $63,510 $ 71,379 $2,884 $ 5,503 $ 9,971 $ 17,84025 $ 24,029 $60,000 $60,000 $66,056 $ 82,021 $1,281 $ 5,052 $12,644 $ 28,609

30 (Age 65) $ 32,361 $60,000 $60,000 $69,517 $ 99,598 $ 0 $ 2,269 $14,017 $ 44,09835 $ 58,960 $60,000 $60,000 $72,204 $117,021 $3,955 $11,094 $26,506 $ 71,32440 $ 91,322 $60,000 $60,000 $77,694 $153,188 $6,101 $18,408 $41,304 $114,00245 $130,695 $60,000 $60,000 $87,111 $221,243 $ 0 $22,391 $58,849 $177,291

(1) If premiums are paid more frequently than annually, the payments would be $284.80 semi-annually, $145.40 quarterlyor $50 monthly. The death benefits and cash surrender values would be slightly different for a Contract with morefrequent premium payments.



(4) For a hypothetical gross investment return of 0%, the premium after age 65 will be $3,477.40. for agross return of 4% the premium after age 65 will be $3,477.40. for a gross return of 8% the premiumafter age 65 will be $2,947.35. for a gross return of 12% the premium after age 65will be $1,272.04. The premiums accumulated at 4% interest in column 2 are those payable if the gross investmentreturn is 4%. For an explanation of why the scheduled premium may increase on the premium change date, see Premiums.


T4

28

��

You may borrow from Pruco Life of New Jersey an amount up to the current loan value of your Contract using theContract as the only security for the loan. The loan value of a Contract is 90% of an amount equal to its ContractFund, reduced by any charges due upon surrender. However, we will, on a non-contractual basis, increase the loanvalue by permitting you to borrow up to 100% of the portion of the Contract Fund attributable to the fixed-rate option(or any portion of the Contract Fund attributable to a prior loan supported by the fixed-rate option), reduced by anycharges due upon surrender. The minimum amount that may be borrowed at any one time is $500, unless the loan isused to pay premiums on the Contract. A Contract in default has no loan value.

If you request a loan you may choose one of two interest rates. You may elect to have interest charges accrued dailyat a fixed effective annual rate of 5.5%. Alternatively, you may elect a variable interest rate that changes from time totime. You may switch from the fixed to variable interest loan provision, or vice-versa, with Pruco Life of New Jersey’sconsent. If you elect the variable loan interest rate provision, interest charged on any loan will accrue daily at an annual ratePruco Life of New Jersey determines at the start of each Contract year (instead of at the fixed 5.5% rate). This interestrate will not exceed the greatest of: (1) the “Published Monthly Average” for the calendar month ending two monthsbefore the calendar month of the Contract anniversary; (2) 5%; or (3) the rate permitted by law in the state of issue ofthe Contract. The “Published Monthly Average” means Moody's Corporate Bond Yield Average-Monthly AverageCorporates, as published by Moody's Investors Service, Inc. or any successor to that service, or if that average is nolonger published, a substantially similar average established by the insurance regulator where the Contract is issued.For example, the Published Monthly Average in 2001 ranged from 7.32% to 7.69%.

Interest payments on any loan are due at the end of each Contract year. If interest is not paid when due, it is added tothe principal amount of the loan. The Contract debt is the principal amount of all outstanding loans plus any interestaccrued thereon. If at any time your Contract debt exceeds your Contract Fund, Pruco Life of New Jersey will notifyyou of its intent to terminate the Contract in 61 days, within which time you may repay all or enough of the loan to keepthe Contract in-force.

If you fail to keep the Contract in-force, the amount of unpaid Contract debt will be treated as a distribution and will beimmediately taxable to the extent of gain in the Contract. Reinstatement of the Contract after lapse will not eliminatethe taxable income which we are required to report to the Internal Revenue Service. See Lapse and Reinstatement,page 24 and Tax Treatment of Contract Benefits - Pre-Death Distributions, page 31.

When a loan is made, an amount equal to the loan proceeds is transferred out of the applicable investment options.The reduction is generally made in the same proportions as the value that each investment option bears to the totalvalue of the Contract. While a fixed-rate loan is outstanding, the amount that was so transferred will continue to betreated as part of the Contract Fund, but it will be credited with the assumed rate of return of 4% rather than with theactual rate of return of the applicable investment option[s]. While a loan made pursuant to the variable loan interestrate provision is outstanding, the amount that was transferred is credited with a rate which is less than the loan interestrate for the Contract year by no more than 1.5%, rather than with the actual rate of return of the subaccount[s], thefixed-rate option or the Real Property Account. Currently, we credit such amounts at a rate that is 1% less than theloan interest rate for the Contract year. If a loan remains outstanding at a time when Pruco Life of New Jersey fixes anew rate, the new interest rate applies.

Loans you take against the Contract are ordinarily treated as debt and are not considered distributions subject to tax.However, you should know that the Internal Revenue Service may take the position that the variable rate loan shouldbe treated as a distribution for tax purposes because of the relatively low differential between the loan interest rate andthe Contract’s crediting rate. Distributions are subject to income tax. Were the Internal Revenue Service to take thisposition, Prudential would take reasonable steps to attempt to avoid this result, including modifying the Contract’s loanprovisions, but cannot guarantee that such efforts would be successful.

A loan will not affect the amount of the premiums due. If the death benefit becomes payable while a loan isoutstanding, or should the Contract be surrendered, any Contract debt will be deducted from the death benefit or thecash surrender value otherwise payable.

A loan will have a permanent effect on a Contract's cash surrender value and may have a permanent effect on thedeath benefit because the investment results of the selected investment options will apply only to the amountremaining in those investment options. The longer the loan is outstanding, the greater the effect is likely to be. The

29

effect could be favorable or unfavorable. If investment results are greater than the rate being credited upon theamount of the loan while the loan is outstanding, Contract values will not increase as rapidly as they would have if noloan had been made. If investment results are below that rate, Contract values will be higher than they would havebeen had no loan been made. Loan repayments are allocated to the investment options proportionately based on theirbalances at the time of the loan repayment.

Loans from Modified Endowment Contracts may be treated for tax purposes as distributions of income. See TaxTreatment of Contract Benefits, page 30.

��-��

Once each Contract year (except where the Contract is in-force as fixed extended term insurance), Pruco Life of NewJersey will send you a statement that provides certain information pertinent to your own Contract. This statement willdetail values, transactions made, and specific Contract data that apply only to your particular Contract. On request,you will be sent a current statement in a form similar to that of the annual statement described above, but Pruco Life ofNew Jersey may limit the number of such requests or impose a reasonable charge if such requests are made toofrequently.

You will also be sent annual and semi-annual reports of the Series Fund showing the financial condition of theportfolios and the investments held in each portfolio.

��

If your Contract does lapse, it will still provide some benefits. You can receive the cash surrender value by making arequest of Pruco Life of New Jersey prior to the end of the 61 day grace period. You may also choose one of the threeforms of insurance described below for which no further premiums are payable.

1. Fixed Extended Term Insurance. With two exceptions explained below, if you do not communicate at all withPruco Life of New Jersey, life insurance coverage will continue for a length of time that depends on the cashsurrender value on the date of default (which reflects the deduction of the deferred sales load, administrativecharges, and Contract debt, if any), the amount of insurance, and the age and sex (except where unisex ratesapply) of the insured. The insurance amount will be what it would have been on the date of default taking intoaccount any Contract debt on that date. The amount will not change while the insurance stays in-force. Thisbenefit is known as extended term insurance. If you request, we will tell you in writing how long the insurance willbe in effect. Extended term insurance has a cash surrender value, but no loan value.

Contracts issued on the lives of certain insureds in high risk rating classes and Contracts issued in connection with

tax qualified pension plans will include a statement that extended term insurance will not be provided. In thosecases, variable reduced paid-up insurance will be the automatic benefit provided on lapse.

2. Variable Reduced Paid-Up Insurance. Variable reduced paid-up insurance provides insurance coverage for the

lifetime of the insured. The initial insurance amount will depend upon the cash surrender value on the date ofdefault (which reflects the deduction of the deferred sales load, administrative charges, and Contract debt, if any),and the age and sex of the insured. This will be a new guaranteed minimum death benefit. Aside from thisguarantee, the cash surrender value and the amount of insurance will vary with investment performance in thesame manner as the paid-up Contract described earlier. See When a Contract Becomes Paid-Up, page 20.Variable reduced paid-up insurance has a loan privilege identical to that available on premium paying Contracts.See Contract Loans, page 28. Acquisition of reduced paid-up insurance may result in your Contract becoming aModified Endowment Contract. See Tax Treatment of Contract Benefits, page 30.

As explained above, variable reduced paid-up insurance is the automatic benefit on lapse for Contracts issued oncertain insureds. Owners of other Contracts who want variable reduced paid-up insurance must ask for it inwriting, in a form that meets Pruco Life of New Jersey’s needs, within three months of the date of default; it will beavailable to such Contract owners only if the initial amount of variable reduced paid-up insurance would be at least$5,000. This minimum is not applicable to Contracts for which variable reduced paid-up insurance is the automaticbenefit upon lapse.

3. Payment of Cash Surrender Value. You can receive the cash surrender value by surrendering the Contract andmaking a written request in a form that meets Pruco Life of New Jersey’s needs. If we receive the request afterthe 61-day grace period has expired, the cash surrender value will be the net value of any extended term

30

insurance then in-force, or the net value of any reduced paid-up insurance then in-force, less any Contract debt.Surrender of your Contract may have tax consequences. See Tax Treatment of Contract Benefits, page 30.

�� '�� '�&/�� "��$��#

The only right to exchange the Contract for a fixed-benefit contract is provided by allowing Contract owners to transfertheir entire Contract Fund to the fixed-rate option at any time within two years of any increase in face amount withrespect to the amount of the increase. This is done without regard to the otherwise applicable limit of four transfers peryear. See Transfers, page 17. This conversion right will also be provided if the Series Fund or one of its portfolioshas a material change in its investment policy, as explained above.

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Pruco Securities Corporation (“Prusec”), an indirect wholly-owned subsidiary of Prudential, acts as the principalunderwriter of the Contract. Prusec, organized in 1971 under New Jersey law, is registered as a broker and dealerunder the Securities Exchange Act of 1934 and is a member of the National Association of Securities Dealers, Inc.Prusec's principal business address is 751 Broad Street, Newark, New Jersey 07102-3777. The Contract was sold byregistered representatives of Prusec who are also authorized by state insurance departments to do so. The Contractmay also have been sold through other broker-dealers authorized by Prusec and applicable law to do so.

Registered representatives of such other broker-dealers may be paid on a different basis than described below.Where the insured is less than 60 years of age, the representative will generally receive a commission of no more than50% of the Scheduled Premiums for the first year, no more than 12% of the Scheduled Premiums for the second, third,and fourth years, no more than 3% of the Scheduled Premiums for the fifth through 10th years, and no more than 2%of the Scheduled Premiums thereafter. For insureds over 59 years of age, the commission will be lower. Therepresentative may be required to return all or part of the first year commission if the Contract is not continued throughthe second year.

Representatives with less than three years of service may be paid on a different basis. Representatives who metcertain productivity, profitability, and persistency standards with regard to the sale of the Contract may be eligible foradditional compensation.

Sales expenses in any year are not equal to the deduction for sales load in that year. Pruco Life of New Jerseyexpects to recover its total sales expenses over the periods the Contracts are in effect. To the extent that the salescharges are insufficient to cover total sales expenses, the sales expenses will be recovered from Pruco Life of NewJersey's surplus, which may include amounts derived from the mortality and expense risk charge and the guaranteedminimum death benefit risk charge described in items 5 and 7 under Charges and Expenses, page 9.

��'��!��

This summary provides general information on the federal income tax treatment of the Contract. It is not a completestatement of what the federal income taxes will be in all circumstances. It is based on current law and interpretations,which may change. It does not cover state taxes or other taxes. It is not intended as tax advice. You should consultyour own qualified tax adviser for complete information and advice.

Treatment as Life Insurance. The Contract must meet certain requirements to qualify as life insurance for taxpurposes. These requirements include certain definitional tests and rules for diversification of the Contract’sinvestments. For further information on the diversification requirements, see Taxation of the Fund in the statement ofadditional information for the Series Fund.

We believe we have taken adequate steps to ensure that the Contract qualifies as life insurance for tax purposes.Generally speaking, this means that:

• you will not be taxed on the growth of the funds in the Contract, unless you receive a distribution from theContract,

• the Contract’s death benefit will be income tax free to your beneficiary.

Although we believe that the Contract should qualify as life insurance for tax purposes, there are some uncertainties,particularly because the Secretary of Treasury has not yet issued permanent regulations that bear on this question.

31

Accordingly, we reserve the right to make changes -- which will be applied uniformly to all Contract owners afteradvance written notice -- that we deem necessary to ensure that the Contract will qualify as life insurance.

Pre-Death Distributions. The tax treatment of any distribution you receive before the insured’s death depends onwhether the Contract is classified as a Modified Endowment Contract.

Contracts Not Classified as Modified Endowment Contracts.

• If you surrender the Contract or allow it to lapse, you will be taxed on the amount you receive in excess ofthe premiums you paid less the untaxed portion of any prior withdrawals. For this purpose, you will betreated as receiving any portion of the cash surrender value used to repay Contract debt. In other words,you will immediately have taxable income to the extent of gain in the Contract. Reinstatement of theContract will not eliminate the taxable income which we are required to report to the Internal RevenueService. The tax consequences of a surrender may differ if you take the proceeds under an incomepayment settlement option.

• Generally, you will be taxed on a withdrawal to the extent the amount you receive exceeds the premiumsyou paid for the Contract less the untaxed portion of any prior withdrawals. However, under some limitedcircumstances, in the first 15 Contract years, all or a portion of a withdrawal may be taxed if the ContractFund exceeds the total premiums paid less the untaxed portions of any prior withdrawals, even if totalwithdrawals do not exceed total premiums paid.

• Extra premiums for optional benefits and riders generally do not count in computing the premiums paidfor the Contract for the purposes of determining whether a withdrawal is taxable.

• Loans you take against the Contract are ordinarily treated as debt and are not considered distributions

subject to tax.

Modified Endowment Contracts.

• The rules change if the Contract is classified as a Modified Endowment Contract. The Contract could beclassified as a Modified Endowment Contract if premiums substantially in excess of Scheduled Premiumsare paid or a decrease in the face amount of insurance is made (or a rider removed). The addition of arider or an increase in the face amount of insurance may also cause the Contract to be classified as aModified Endowment Contract. You should first consult a qualified tax adviser and your Pruco Life ofNew Jersey representative if you are contemplating any of these steps.

• If the Contract is classified as a Modified Endowment Contract, then amounts you receive under theContract before the insured’s death, including loans and withdrawals, are included in income to the extentthat the Contract Fund before surrender charges exceeds the premiums paid for the Contract increasedby the amount of any loans previously included in income and reduced by any untaxed amountspreviously received other than the amount of any loans excludable from income. An assignment of aModified Endowment Contract is taxable in the same way. These rules also apply to pre-deathdistributions, including loans and assignments, made during the two-year period before the time that theContract became a Modified Endowment Contract.

• Any taxable income on pre-death distributions (including full surrenders) is subject to a penalty of 10

percent unless the amount is received on or after age 59½, on account of your becoming disabled or as alife annuity. It is presently unclear how the penalty tax provisions apply to Contracts owned bybusinesses.

All Modified Endowment Contracts issued by us to you during the same calendar year are treated as a singleContract for purposes of applying these rules.

Investor Control. Treasury Department regulations do not provide guidance concerning the extent to which you maydirect your investment in the particular variable investment options without causing you, instead of Pruco Life of NewJersey, to be considered the owner of the underlying assets. Because of this uncertainty, Pruco Life of New Jerseyreserves the right to make such changes as it deems necessary to assure that the Contract qualifies as life insurancefor tax purposes. Any such changes will apply uniformly to affected Contract owners and will be made with such noticeto affected Contract owners as is feasible under the circumstances.

32

Withholding. You must affirmatively elect that no taxes be withheld from a pre-death distribution. Otherwise, thetaxable portion of any amounts you receive will be subject to withholding. You are not permitted to elect out ofwithholding if you do not provide a social security number or other taxpayer identification number. You may be subjectto penalties under the estimated tax payment rules if your withholding and estimated tax payments are insufficient tocover the tax due.

Other Tax Considerations. If you transfer or assign the Contract to someone else, there may be gift, estate and/orincome tax consequences. If you transfer the Contract to a person two or more generations younger than you (ordesignate such a younger person as a beneficiary), there may be Generation Skipping Transfer tax consequences.Deductions for interest paid or accrued on Contract debt or on other loans that are incurred or continued to purchaseor carry the Contract may be denied. Your individual situation or that of your beneficiary will determine the federalestate taxes and the state and local estate, inheritance and other taxes due if you or the insured dies.

Business-Owned Life Insurance. If a business, rather than an individual, is the owner of the Contract, there aresome additional rules. Business Contract owners generally cannot deduct premium payments. Business Contractowners generally cannot take tax deductions for interest on Contract debt paid or accrued after October 13, 1995. Anexception permits the deduction of interest on policy loans on Contracts for up to 20 key persons. The interestdeduction for Contract debt on these loans is limited to a prescribed interest rate and a maximum aggregate loanamount of $50,000 per key insured person. The corporate alternative minimum tax also applies to business-owned lifeinsurance. This is an indirect tax on additions to the Contract Fund or death benefits received under business-ownedlife insurance policies.

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You may have acquired the Contract to fund a pension plan that qualifies for tax favored treatment under the InternalRevenue Code. We issue such a Contract with a minimum face amount of $10,000, with increases and decreases inface amount in minimum increments of $10,000. The monthly charge for anticipated mortality costs and the scheduledpremiums is the same for male and female insureds of a particular age and underwriting classification, as required forinsurance and annuity contracts sold to tax-qualified pension plans. We provided you with illustrations showingpremiums and charges if you wished to fund a tax-qualified pension plan. Only certain riders are available forContracts issued in connection with a tax-qualified pension plan. Fixed reduced paid-up insurance and payment of thecash surrender value are the only options on lapse available for a Contract issued in connection with a tax-qualifiedpension plan. See Lapse and Reinstatement, page 24. Finally, a Contract issued in connection with a tax-qualifiedpension plan may not invest in the Real Property Account.

You should consult a qualified tax adviser before purchasing a Contract in connection with a tax-qualified pension planto confirm, among other things, the suitability of the Contract for your particular plan.

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The Contract generally employs mortality tables that distinguish between males and females. Thus, premiums andbenefits differ under Contracts issued on males and females of the same age. However, in those states that haveadopted regulations prohibiting sex-distinct insurance rates, premiums and cost of insurance charges will be based ona blended unisex rate whether the insured is male or female. In addition, employers and employee organizations whopurchased a Contract should consult their legal advisers to determine whether a Contract based on sex-distinctactuarial tables is consistent with Title VII of the Civil Rights Act of 1964 or other applicable law.

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Assignment. This Contract may not be assigned if the assignment would violate any federal, state or local law orregulation. Generally, the Contract may not be assigned to another insurance company or to an employee benefitplan without Pruco Life of New Jersey’s consent. Pruco Life of New Jersey assumes no responsibility for the validity orsufficiency of any assignment. We will not be obligated to comply with any assignment unless we receive a copy at aHome Office.

Beneficiary. You designate and name your beneficiary in the application. Thereafter, you may change thebeneficiary, provided it is in accordance with the terms of the Contract. Should the insured die with no survivingbeneficiary, the insured's estate will become the beneficiary.

33

Incontestability. We will not contest the Contract after it has been in-force during the insured’s lifetime for two yearsfrom the issue date except when any change is made in the Contract that requires Pruco Life of New Jersey's approvaland would increase our liability. We will not contest such change after it has been in effect for two years during thelifetime of the insured.

Misstatement of Age or Sex. If the insured's stated age or sex (except where unisex rates apply) or both areincorrect in the Contract, Pruco Life of New Jersey will adjust the death benefits payable, as required by law, to reflectthe correct age and sex. Any such benefit will be based on what the most recent charge for mortality would haveprovided at the correct age and sex.

Settlement Options. The Contract grants to most owners, or to the beneficiary, a variety of optional ways of receivingContract proceeds, other than in a lump sum. Any Pruco Life of New Jersey representative authorized to sell thisContract can explain these options upon request.

Suicide Exclusion. If the insured dies by suicide within two years from the effective date of an increase in the faceamount of insurance, we will pay, as to the increase in amount, no more than the sum of the Scheduled Premiumsattributable to the increase.

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Contract owners may be able to obtain extra fixed benefits, which may require an additional premium. These optionalinsurance benefits will be described in what is known as a “rider” to the Contract. Charges applicable to the riders willbe deducted from the Contract Fund on each Monthly date.

One rider pays certain premiums into the Contract if the insured dies in an accident. Others waive certain premiums ifthe insured is disabled within the meaning of the provision (or, in the case of a Contract issued on an insured under theage of 15, if the applicant dies or becomes disabled within the meaning of the provision). Others pay certain premiumsinto the Contract if the insured dies within a stated number of years after issue; similar term insurance riders may beavailable for the insured's spouse or child. The amounts of these benefits are fully guaranteed at issue and do notdepend on the performance of the Account. Certain restrictions may apply; they are clearly described in the applicablerider. Any Pruco Life of New Jersey representative authorized to sell the Contract can explain these extra benefitsfurther. Samples of the provisions are available from Pruco Life of New Jersey upon written request.

Under one form of rider, which provides monthly renewable term life insurance, the amount payable upon the death ofthe insured may be substantially increased. If this rider is purchased, even the original Contract will not becomepaid-up, although, if the Contract Fund becomes sufficiently large, a time may come when Pruco Life of New Jerseywill have the right to refuse to accept further premiums. See When a Contract Becomes Paid-Up, page 20.

Under another form of rider that is purchased for a single premium, businesses that own a Contract covering certainemployees may be able to change the insured person from one key employee to another if certain requirements aremet.

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Although Pruco Life of New Jersey believes it to be unlikely, it is possible that in the Judgement of its management,one or more of the portfolios of the Series Fund may become unsuitable for investment by Contract owners because ofinvestment policy changes, tax law changes, or the unavailability of shares for investment. In that event, Pruco Life ofNew Jersey may seek to substitute the shares of another portfolio or of an entirely different mutual fund. Before thiscan be done, the approval of the SEC, and possibly one or more state insurance departments, will be required.Contract owners will be notified of such substitution.

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Pruco Life of New Jersey is subject to regulation and supervision by the Department of Insurance of the State of NewJersey, which periodically examines its operations and financial condition. It is also subject to the insurance laws andregulations of all jurisdictions in which it is authorized to do business.

Pruco Life of New Jersey is required to submit annual statements of its operations, including financial statements, tothe insurance departments of the various jurisdictions in which it does business to determine solvency and compliancewith local insurance laws and regulations.

34

In addition to the annual statements referred to above, Pruco Life of New Jersey is required to file with New Jersey andother jurisdictions a separate statement with respect to the operations of all its variable contract accounts, in a formpromulgated by the National Association of Insurance Commissioners.

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The financial statements of Pruco Life of New Jersey as of December 31, 2001 and 2000 and for each of the threeyears in the period ended December 31, 2001 and the financial statements of the Account as of December 31, 2001and for each of the three years in the period then ended included in this prospectus have been so included in relianceon the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm asexperts in auditing and accounting. PricewaterhouseCoopers LLP’s principal business address is 1177 Avenue of theAmericas, New York, New York 10036.

Actuarial matters included in this prospectus have been examined by Pamela A. Schiz, FSA, MAAA, Vice Presidentand Actuary of Prudential, whose opinion is filed as an exhibit to the registration statement.

�� &�� "$��#��&��

We are subject to legal and regulatory actions in the ordinary course of our businesses, including class actions.Pending legal and regulatory actions include proceedings specific to our practices and proceedings generallyapplicable to business practices in the industries in which we operate. In certain of these lawsuits, large and/orindeterminate amounts are sought, including punitive or exemplary damages.

Beginning in 1995, regulatory authorities and customers brought significant regulatory actions and civil litigation againstPruco Life of New Jersey and Prudential involving individual life insurance sales practices. In 1996, Prudential, onbehalf of itself and many of its life insurance subsidiaries, including Pruco Life of New Jersey, entered into settlementagreements with relevant insurance regulatory authorities and plaintiffs in the principal life insurance sales practicesclass action lawsuit covering policyholders of individual permanent life insurance policies issued in the United Statesfrom 1982 to 1995. Pursuant to the settlements, the companies agreed to various changes to their sales and businesspractices controls, to a series of fines, and to provide specific forms of relief to eligible class members. Virtually allclaims by class members filed in connection with the settlements have been resolved and virtually all aspects of theremediation program have been satisfied.

As of December 31, 2001 Prudential and/or Pruco Life of New Jersey remained a party to approximately 44 individualsales practices actions filed by policyholders who “opted out” of the class action settlement relating to permanent lifeinsurance policies issued in the United States between 1982 and 1995. In addition, there were 19 sales practicesactions pending that were filed by policyholders who were members of the class and who failed to “opt out” of the classaction settlement. Prudential and Pruco Life of New Jersey believed that those actions are governed by the classsettlement release and expects them to be enjoined and/or dismissed. Additional suits may be filed by class memberswho “opted out” of the class settlements or who failed to “opt out” but nevertheless seek to proceed against Prudentialand/or Pruco Life of New Jersey. A number of the plaintiffs in these cases seek large and/or indeterminate amounts,including punitive or exemplary damages. Some of these actions are brought on behalf of multiple plaintiffs. It ispossible that substantial punitive damages might be awarded in any of these actions and particularly in an actioninvolving multiple plaintiffs.

Prudential has indemnified Pruco Life of New Jersey for any liabilities incurred in connection with sales practiceslitigation covering policyholders of individual permanent life insurance policies issued in the United States from 1982 to1995.

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

35

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Pruco Life of New Jersey has filed a registration statement with the SEC under the Securities Act of 1933, relating tothe offering described in this prospectus. This prospectus does not include all the information set forth in theregistration statement. Certain portions have been omitted pursuant to the rules and regulations of the SEC. Theomitted information may, however, be obtained from the SEC’s Public Reference Section at 450 Fifth Street, N.W.,Washington, D.C. 20549, or by telephoning (800) SEC-0330, upon payment of a prescribed fee.

To reduce costs, we now generally send only a single copy of prospectuses and shareholder reports to eachhousehold ("householding"), in lieu of sending a copy to each contract owner that resides in the household. Youshould be aware that you can revoke or "opt out" of householding at any time by calling 1-877-778-5008.

Further information may also be obtained from Pruco Life of New Jersey. Its address and telephone number are setforth on the inside front cover of this prospectus.

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The financial statements of the Account should be distinguished from the financial statements of Pruco Life of NewJersey which should be considered only as bearing upon the ability of Pruco Life of New Jersey to meet its obligationsunder the Contracts.

36

� ��

The directors and major officers of Pruco Life of New Jersey, listed with their principal occupations during the past 5years, are shown below.

� �� )*��

JAMES J. AVERY, JR., Vice Chairman and Director – President, Prudential Individual Life Insurance since 1998;prior to 1998: Senior Vice President, Chief Actuary and CFO, Prudential Individual Insurance Group.

VIVIAN L. BANTA, President, Chairman, and Director - Executive Vice President, Individual Financial Services, U.S.Consumer Group since 2000; 1998 to 1999: Consultant, Individual Financial Services; prior to 1998: Consultant,Morgan Stanley.

RICHARD J. CARBONE, Director – Senior Vice President and Chief Financial Officer since 1997.

HELEN M. GALT, Director – Company Actuary, Prudential since 1993.

JEAN D. HAMILTON, Director – Executive Vice President, Prudential Institutional since 1998; prior to 1998: President,Diversified Group.

RONALD P. JOELSON, Director – Senior Vice President, Prudential Asset, Liability and Risk Management since1999; prior to 1999: President, Guaranteed Products, Prudential Institutional.

DAVID R. ODENATH, JR., Director – President, Prudential Investments since 1999; prior to 1999: Senior VicePresident and Director of Sales, Investment Consulting Group, PaineWebber.

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SHAUN M. BYRNES, Senior Vice President – Senior Vice President, Director of Mutual Funds, Annuities and UITs,Prudential Investments since 2001; 2000 to 2001: Senior Vice President, Director of Research, PrudentialInvestments; 1999 to 2000: Senior Vice President, Director of Mutual Funds, Prudential Investments; prior to 1999:Vice President, Mutual Funds, Prudential Investments.

C. EDWARD CHAPLIN, Treasurer – Senior Vice President and Treasurer, Prudential since 2000; prior to 2000, VicePresident and Treasurer, Prudential.

THOMAS F. HIGGINS, Senior Vice President – Vice President, Annuity Services, Prudential Individual FinancialServices since 1999; 1998 to 1999: Vice President, Mutual Funds, Prudential Individual Financial Services; prior to1998: Principal, Mutual Fund Operations, The Vanguard Group.

CLIFFORD E. KIRSCH, Chief Legal Officer and Secretary – Chief Counsel, Variable Products, Prudential LawDepartment since 1995.

ANDREW J. MAKO, Executive Vice President – Vice President, Finance, U.S. Consumer Group since 1999; prior to1999: Vice President, Business Performance Management Group.

ESTHER H. MILNES, Senior Vice President – Vice President and Chief Actuary, Prudential Individual Life Insurancesince 1999; prior to 1999: Vice President and Actuary, Prudential Individual Insurance Group.

JAMES M. O’CONNOR, Senior Vice President and Actuary – Vice President, Guaranteed Products since 2001; 1998to 2000: Corporate Vice President, Guaranteed Products; prior to 1998: Corporate Actuary, Prudential Investments.

SHIRLEY H. SHAO, Senior Vice President and Chief Actuary – Vice President and Associate Actuary, Prudentialsince 1996.

37

WILLIAM J. ECKERT, IV, Vice President and Chief Accounting Officer – Vice President and IFS Controller,Prudential Enterprise Financial Management since 2000; 1999 to 2000: Vice President and Individual Life Controller,Prudential Enterprise Financial Management; prior to 1999: Vice President, Accounting, Enterprise FinancialManagement.

The business address of all directors and officers of Pruco Life of New Jersey is 213 Washington Street, Newark, NewJersey 07102-2992.

PLNJ directors and officers are elected annually.

STATEMENTS OF NET ASSETSDecember 31, 2001

SUBACCOUNTS SUBACCOUNTS (Continued)

MoneyMarketPortfolio

DiversifiedBond

PortfolioEquityPortfolio

FlexibleManagedPortfolio

ConservativeBalancedPortfolio

High YieldBond

Portfolio

StockIndex

PortfolioValue

Portfolio

NaturalResourcesPortfolio

GlobalPortfolio

GovernmentIncomePortfolio

PrudentialJennisonPortfolio

SmallCapitalization

StockPortfolio

ASSETS

Investment in The Prudential Series Fund, Inc.

Portfolios, at net asset value [Note 3] . . . . . . . . . . $ 7,981,122 $ 25,729,790 $146,419,642 $205,957,982 $101,514,906 $ 32,793,243 $ 92,150,788 $ 13,504,837 $ 8,623,690 $ 57,396,780 $ 1,499,218 $ 19,499,321 $ 57,931,413

Net Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7,981,122 $ 25,729,790 $146,419,642 $205,957,982 $101,514,906 $ 32,793,243 $ 92,150,788 $ 13,504,837 $ 8,623,690 $ 57,396,780 $ 1,499,218 $ 19,499,321 $ 57,931,413

NET ASSETS, representing:

Accumulation units [Note 9] . . . . . . . . . . . . . . . . . . . $ 7,981,122 $ 25,729,790 $146,419,642 $205,957,982 $101,514,906 $ 32,793,243 $ 92,150,788 $ 13,504,837 $ 8,623,690 $ 57,396,780 $ 1,499,218 $ 19,499,321 $ 57,931,413

$ 7,981,122 $ 25,729,790 $146,419,642 $205,957,982 $101,514,906 $ 32,793,243 $ 92,150,788 $ 13,504,837 $ 8,623,690 $ 57,396,780 $ 1,499,218 $ 19,499,321 $ 57,931,413

Units outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 3,851,492 7,429,898 20,140,307 45,114,814 26,398,112 14,583,273 38,188,985 2,639,394 2,244,058 33,173,812 599,210 8,388,864 25,175,859

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SEE NOTES TO FINANCIAL STATEMENTS ON PAGES A15 THROUGH A20

A2


A1

FINANCIAL STATEMENTS OF THEVARIABLE APPRECIABLE LIFE SUBACCOUNTS

OF PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNT

STATEMENTS OF OPERATIONSFor the years ended December 31, 2001, 2000 and 1999


Money MarketPortfolio

Diversified BondPortfolio

EquityPortfolio

Flexible ManagedPortfolio

Conservative BalancedPortfolio

2001 2000 1999 2001 2000 1999 2001 2000 1999 2001 2000 1999 2001 2000 1999

INVESTMENT INCOME

Dividend income . . . . . . . . . . . . . . . . . . . $ 311,620 $ 440,102 $ 362,423 $ 1,551,331 $ 1,453,002 $ 0 $ 1,282,928 $ 3,310,665 $ 3,250,226 $ 7,986,177 $ 8,423,889 $ 11,143 $ 3,518,834 $ 4,041,954 $ 4,689,573

EXPENSES

Charges to contract owners for assuming

mortality risk and expense risk

[Note 4A] . . . . . . . . . . . . . . . . . . . . . . . 45,910 43,718 44,562 151,840 139,022 144,104 927,931 1,052,093 1,150,889 1,309,601 1,448,957 1,509,261 644,366 693,384 718,530

Reimbursement for excess expenses

[Note 4D] . . . . . . . . . . . . . . . . . . . . . . . (2,325) (2,905) (1,825) (10,110) (11,804) (6,334) (152,606) (165,294) (158,561) (490,928) (539,155) (544,224) (177,587) (202,407) (190,933)

NET EXPENSES . . . . . . . . . . . . . . . . . . . . 43,585 40,813 42,737 141,730 127,218 137,770 775,325 886,799 992,328 818,673 909,802 965,037 466,779 490,977 527,597

NET INVESTMENT INCOME (LOSS) . . . . . . 268,035 399,289 319,686 1,409,601 1,325,784 (137,770) 507,603 2,423,866 2,257,898 7,167,504 7,514,087 (953,894) 3,052,055 3,550,977 4,161,976

NET REALIZED AND UNREALIZED GAIN

(LOSS) ON INVESTMENTS

Capital gains distributions received . . . . . 0 0 0 0 2,919 67,535 8,232,241 28,254,310 22,859,279 3,084,677 3,321,644 2,827,339 1,082,007 823,803 658,398

Realized gain (loss) on shares redeemed . . 0 0 0 105,815 53,547 41,756 (276,033) 5,712,248 5,681,025 (359,305) 1,182,171 1,322,321 (22,178) 573,190 787,439

Net change in unrealized gain (loss)

on investments . . . . . . . . . . . . . . . . . 0 0 0 24,833 665,982 (295,317) (28,252,361) (31,851,882) (9,060,032) (23,428,493) (16,361,667) 14,382,751 (6,728,564) (5,935,872) 1,388,838

NET GAIN (LOSS) ON INVESTMENTS . . . . 0 0 0 130,648 722,448 (186,026) (20,296,153) 2,114,676 19,480,272 (20,703,121) (11,857,852) 18,532,411 (5,668,735) (4,538,879) 2,834,675

NET INCREASE (DECREASE) IN NET

ASSETS RESULTING FROM

OPERATIONS. . . . . . . . . . . . . . . . . . . . . $ 268,035 $ 399,289 $ 319,686 $ 1,540,249 $ 2,048,232 $ (323,796) $ (19,788,550) $ 4,538,542 $ 21,738,170 $ (13,535,617) $ (4,343,765) $ 17,578,517 $ (2,616,681) $ (987,902) $ 6,996,651



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High Yield BondPortfolio

Stock IndexPortfolio

ValuePortfolio

Natural ResourcesPortfolio

GlobalPortfolio

2001 2000 1999 2001 2000 1999 2001 2000 1999 2001 2000 1999 2001 2000 1999

INVESTMENT INCOME

Dividend income . . . . . . . . . . . . . . . . . . . $ 3,949,700 $ 3,549,924 $ 85,549 $ 935,452 $ 761,936 $ 767,914 $ 214,768 $ 255,532 $ 273,914 $ 231,262 $ 41,764 $ 14,639 $ 215,564 $ 589,378 $ 295,800

EXPENSES



[Note 4A] . . . . . . . . . . . . . . . . . . . . . . . 195,440 182,255 193,583 479,993 521,945 443,707 80,796 67,287 71,439 46,740 17,558 12,695 370,495 491,115 411,889


[Note 4D] . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

NET EXPENSES . . . . . . . . . . . . . . . . . . . . 195,440 182,255 193,583 479,993 521,945 443,707 80,796 67,287 71,439 46,740 17,558 12,695 370,495 491,115 411,889

NET INVESTMENT INCOME (LOSS) . . . . . . 3,754,260 3,367,669 (108,034) 455,459 239,991 324,207 133,972 188,245 202,475 184,522 24,206 1,944 (154,931) 98,263 (116,089)



Capital gains distributions received . . . . . . 0 0 0 5,402,695 3,072,410 976,749 1,268,282 894,397 1,332,460 612,431 0 0 14,209,672 5,399,070 518,662

Realized gain (loss) on shares redeemed . . (129,005) (102,471) (217,380) 242,550 618,918 4,605,818 472,503 19,473 244,341 (3,958) 36,188 (57,207) (137,203) 546,962 1,889,924


on investments . . . . . . . . . . . . . . . . . . . (4,326,984) (5,925,033) 1,589,321 (17,922,602) (13,317,734) 8,162,150 (1,776,579) 524,291 (422,725) (1,862,229) 918,934 823,662 (26,692,302) (21,942,646) 25,916,670

NET GAIN (LOSS) ON INVESTMENTS . . . . (4,455,989) (6,027,504) 1,371,941 (12,277,357) (9,626,406) 13,744,717 (35,794) 1,438,161 1,154,076 (1,253,756) 955,122 766,455 (12,619,833) (15,996,614) 28,325,256



OPERATIONS. . . . . . . . . . . . . . . . . . . . . $ (701,729) $ (2,659,835) $ 1,263,907 $ (11,821,898) $ (9,386,415) $ 14,068,924 $ 98,178 $ 1,626,406 $ 1,356,551 $ (1,069,234) $ 979,328 $ 768,399 $ (12,774,764) $ (15,898,351) $ 28,209,167



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Government IncomePortfolio

Prudential JennisonPortfolio

Small Capitalization StockPortfolio

2001 2000 1999 2001 2000 1999 2001 2000 1999

INVESTMENT INCOME

Dividend income . . . . . . . . . . . . . . . . . . . $ 77,726 $ 77,981 $ 0 $ 35,503 $ 21,894 $ 22,451 $ 276,586 $ 260,355 $ 0

EXPENSES



[Note 4A] . . . . . . . . . . . . . . . . . . . . . . . 7,650 6,078 7,006 132,894 197,538 81,659 324,201 310,413 259,511


[Note 4D] . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 0 0 0 0 0 0

NET EXPENSES . . . . . . . . . . . . . . . . . . . . 7,650 6,078 7,006 132,894 197,538 81,659 324,201 310,413 259,511

NET INVESTMENT INCOME (LOSS) . . . . . . 70,076 71,903 (7,006) (97,391) (175,644) (59,208) (47,615) (50,058) (259,511)



Capital gains distributions received . . . . . . 0 2,837 0 210,333 4,317,956 970,020 7,313,184 2,831,349 906,707

Realized gain (loss) on shares redeemed . . 4,973 3,885 8,020 (2,463,081) 22,827 108,823 34,690 227,091 260,478


on investments . . . . . . . . . . . . . . . . . . . 14,375 37,506 (42,696) (3,214,381) (11,283,218) 4,732,816 (4,600,388) 2,900,631 6,174,691

NET GAIN (LOSS) ON INVESTMENTS . . . . 19,348 44,228 (34,676) (5,467,129) (6,942,435) 5,811,659 2,747,486 5,959,071 7,341,876



OPERATIONS. . . . . . . . . . . . . . . . . . . . . $ 89,424 $ 116,131 $ (41,682) $ (5,564,520) $ (7,118,079) $ 5,752,451 $ 2,699,871 $ 5,909,013 $ 7,082,365



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STATEMENTS OF CHANGES IN NET ASSETSFor the years ended December 31, 2001, 2000 and 1999




EquityPortfolio

Flexible ManagedPortfolio

Conservative BalancedPortfolio

2001 2000 1999 2001 2000 1999 2001 2000 1999 2001 2000 1999 2001 2000 1999

OPERATIONS

Net investment income (loss) . . . . . . . . . . $ 268,035 $ 399,289 $ 319,686 $ 1,409,601 $ 1,325,784 $ (137,770) $ 507,603 $ 2,423,866 $ 2,257,898 $ 7,167,504 $ 7,514,087 $ (953,894) $ 3,052,055 $ 3,550,977 $ 4,161,976

Capital gains distributions received . . . . . . 0 0 0 0 2,919 67,535 8,232,241 28,254,310 22,859,279 3,084,677 3,321,644 2,827,339 1,082,007 823,803 658,398

Realized gain (loss) on shares redeemed . . 0 0 0 105,815 53,547 41,756 (276,033) 5,712,248 5,681,025 (359,305) 1,182,171 1,322,321 (22,178) 573,190 787,439


on investments . . . . . . . . . . . . . . . . . . . 0 0 0 24,833 665,982 (295,317) (28,252,361) (31,851,882) (9,060,032) (23,428,493) (16,361,667) 14,382,751 (6,728,564) (5,935,872) 1,388,838



OPERATIONS. . . . . . . . . . . . . . . . . . . . . 268,035 399,289 319,686 1,540,249 2,048,232 (323,796) (19,788,550) 4,538,542 21,738,170 (13,535,617) (4,343,765) 17,578,517 (2,616,680) (987,902) 6,996,651

CONTRACT OWNER TRANSACTIONS

Contract Owner Net Payments . . . . . . . . . 22,330,932 1,417,335 18,255 1,033,234 949,512 485,236 7,170,174 6,903,314 484,980 14,979,604 14,061,606 4,963,270 7,421,780 7,155,408 2,955,315

Policy Loans . . . . . . . . . . . . . . . . . . . . . . (119,774) (451,268) (182,692) (600,783) (823,629) (553,832) (4,223,901) (5,748,041) (5,865,015) (5,716,384) (6,167,119) (7,384,636) (2,385,300) (2,686,924) (2,889,851)

Policy Loan Repayments and Interest . . . . 145,830 114,450 204,337 397,828 412,241 509,659 4,514,428 4,060,348 5,452,661 5,732,813 5,589,669 7,010,849 2,372,140 2,275,856 2,927,288

Surrenders, Withdrawals and Death

Benefits . . . . . . . . . . . . . . . . . . . . . . . . (373,531) (530,444) (433,849) (793,289) (794,828) (1,188,933) (8,325,637) (7,764,547) (7,992,313) (12,388,245) (12,338,277) (10,727,647) (5,670,009) (5,277,744) (5,619,206)

Net Transfers From (To) Other

Subaccounts or Fixed Rate Option . . . . . (21,357,864) (748,090) 252,166 264,320 (105,737) (351,534) (811,488) (18,619,709) (3,629,986) (1,302,894) (7,239,375) (4,161,991) (495,252) (3,856,084) (2,179,539)

Withdrawal and Other Charges . . . . . . . . . (299,681) (234,773) (231,397) (600,202) (535,298) (571,355) (4,653,648) (4,763,451) (5,119,578) (8,718,191) (9,108,467) (9,811,225) (4,483,120) (4,635,229) (4,974,621)


ASSETS RESULTING FROM CONTRACT

OWNER TRANSACTIONS . . . . . . . . . . . . 325,912 (432,790) (373,180) (298,892) (897,739) (1,670,759) (6,330,072) (25,932,086) (16,669,251) (7,413,297) (15,201,963) (20,111,380) (3,239,761) (7,024,717) (9,780,614)

TOTAL INCREASE (DECREASE) IN

NET ASSETS . . . . . . . . . . . . . . . . . . . . . 593,947 (33,501) (53,494) 1,241,357 1,150,493 (1,994,555) (26,118,622) (21,393,544) 5,068,919 (20,948,914) (19,545,728) (2,532,863) (5,856,441) (8,012,619) (2,783,963)

NET ASSETS

Beginning of year. . . . . . . . . . . . . . . . . . . 7,387,175 7,420,676 7,474,170 24,488,433 23,337,940 25,332,495 172,538,264 193,931,808 188,862,889 226,906,896 246,452,624 248,985,487 107,371,347 115,383,966 118,167,929

End of year . . . . . . . . . . . . . . . . . . . . . . . $ 7,981,122 $ 7,387,175 $ 7,420,676 $ 25,729,790 $ 24,488,433 $ 23,337,940 $146,419,642 $172,538,264 $193,931,808 $205,957,982 $226,906,896 $246,452,624 $101,514,906 $107,371,347 $115,383,966




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High Yield BondPortfolio

Stock IndexPortfolio

ValuePortfolio


GlobalPortfolio

2001 2000 1999 2001 2000 1999 2001 2000 1999 2001 2000 1999 2001 2000 1999

OPERATIONS

Net investment income (loss) . . . . . . . . . . $ 3,754,260 $ 3,367,669 $ (108,034) $ 455,459 $ 239,991 $ 324,207 $ 133,972 $ 188,245 $ 202,475 $ 184,522 $ 24,206 $ 1,944 $ (154,931) $ 98,263 $ (116,089)

Capital gains distributions received . . . . . . 0 0 0 5,402,695 3,072,410 976,749 1,268,282 894,397 1,332,460 612,431 0 0 14,209,672 5,399,070 518,662

Realized gain (loss) on shares redeemed . . (129,005) (102,471) (217,380) 242,550 618,918 4,605,818 472,503 19,473 244,341 (3,958) 36,188 (57,207) (137,203) 546,962 1,889,924


on investments . . . . . . . . . . . . . . . . . . . (4,326,984) (5,925,033) 1,589,321 (17,922,602) (13,317,734) 8,162,150 (1,776,579) 524,291 (422,725) (1,862,229) 918,934 823,662 (26,692,302) (21,942,646) 25,916,670



OPERATIONS. . . . . . . . . . . . . . . . . . . . . (701,729) (2,659,835) 1,263,907 (11,821,898) (9,386,415) 14,068,924 98,178 1,626,406 1,356,551 (1,069,234) 979,328 768,399 (12,774,764) (15,898,351) 28,209,167


Contract Owner Net Payments . . . . . . . . . 777,492 357,729 247,400 1,305,448 1,662,388 836,738 616,561 547,515 93,369 885,038 155,087 77,747 472,779 (36,670) (1,977,776)

Policy Loans . . . . . . . . . . . . . . . . . . . . . . (178,056) (118,636) (145,200) (894,245) (1,030,955) (768,138) (252,264) (231,609) (299,074) (110,074) (68,780) (71,684) (202,114) (228,803) (156,604)

Policy Loan Repayments and Interest . . . . 172,178 104,423 288,800 739,154 557,262 641,476 288,339 194,515 310,105 165,158 72,335 80,720 181,082 142,448 170,944


Benefits . . . . . . . . . . . . . . . . . . . . . . . . (282,162) (446,020) (164,918) (1,030,476) (1,876,277) (1,093,052) (501,908) (320,926) (501,214) (301,694) (95,483) 1,504 (346,712) (747,884) (19,903)


Subaccounts or Fixed Rate Option . . . . . 4,861,724 (618,028) (3,734,139) 16,553,115 14,910,332 (6,699,608) 717,608 (492,258) (548,343) 5,204,240 585,940 (238,572) (102,232) 3,209,197 (5,578,438)

Withdrawal and Other Charges . . . . . . . . . (289,706) (283,224) (332,102) (994,900) (944,712) (876,437) (372,741) (305,866) (331,274) (116,906) (90,581) (76,851) (487,951) (517,820) (418,808)



OWNER TRANSACTIONS . . . . . . . . . . . . 5,061,470 (1,003,756) (3,840,159) 15,678,096 13,278,038 (7,959,021) 495,595 (608,629) (1,276,431) 5,725,762 558,518 (227,136) (485,148) 1,820,468 (7,980,585)


NET ASSETS . . . . . . . . . . . . . . . . . . . . . 4,359,741 (3,663,591) (2,576,252) 3,856,198 3,891,623 6,109,903 593,773 1,017,777 80,120 4,656,528 1,537,846 541,263 (13,259,912) (14,077,883) 20,228,582

NET ASSETS

Beginning of year. . . . . . . . . . . . . . . . . . . 28,433,502 32,097,093 34,673,345 88,294,590 84,402,967 78,293,064 12,911,064 11,893,287 11,813,167 3,967,162 2,429,316 1,888,053 70,656,692 84,734,575 64,505,993

End of year . . . . . . . . . . . . . . . . . . . . . . . $ 32,793,243 $ 28,433,502 $ 32,097,093 $ 92,150,788 $ 88,294,590 $ 84,402,967 $ 13,504,837 $ 12,911,064 $ 11,893,287 $ 8,623,690 $ 3,967,162 $ 2,429,316 $ 57,396,780 $ 70,656,692 $ 84,734,575




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2001 2000 1999 2001 2000 1999 2001 2000 1999

OPERATIONS

Net investment income (loss) . . . . . . . . . . $ 70,076 $ 71,903 $ (7,006) $ (97,391) $ (175,644) $ (59,208) $ (47,615) $ (50,058) $ (259,511)

Capital gains distributions received . . . . . . 0 2,837 0 210,333 4,317,956 970,020 7,313,184 2,831,349 906,707

Realized gain (loss) on shares redeemed . . 4,973 3,885 8,020 (2,463,081) 22,827 108,823 34,690 227,091 260,478


on investments . . . . . . . . . . . . . . . . . . 14,375 37,506 (42,696) (3,214,381) (11,283,218) 4,732,816 (4,600,388) 2,900,631 6,174,691



OPERATIONS. . . . . . . . . . . . . . . . . . . . . 89,424 116,131 (41,682) (5,564,520) (7,118,079) 5,752,451 2,699,871 5,909,013 7,082,365


Contract Owner Net Payments . . . . . . . . . 92,971 67,199 34,276 2,438,873 1,004,701 918,991 288,894 82,627 (885,497)

Policy Loans . . . . . . . . . . . . . . . . . . . . . . (17,757) (19,901) (71,671) (699,421) (876,131) (541,040) (170,567) (186,248) (101,211)

Policy Loan Repayments and Interest . . . . 13,885 22,066 75,137 494,070 501,862 423,520 123,534 74,943 114,167


Benefits . . . . . . . . . . . . . . . . . . . . . . . . (63,169) (74,961) (34,096) (1,202,046) (825,690) (548,558) (75,674) (460,849) (55,230)


Subaccounts or Fixed Rate Option . . . . . 345,701 (155,106) (202,102) (5,759,410) 13,062,339 12,249,824 539,394 704,175 16,521,836

Withdrawal and Other Charges . . . . . . . . . (44,789) (38,022) (41,852) (687,525) (646,100) (318,494) (397,238) (312,408) (259,459)



OWNER TRANSACTIONS . . . . . . . . . . . . 326,842 (198,725) (240,308) (5,415,459) 12,220,981 12,184,243 308,343 (97,760) 15,334,606


NET ASSETS . . . . . . . . . . . . . . . . . . . . . 416,266 (82,594) (281,990) (10,979,979) 5,102,902 17,936,694 3,008,214 5,811,253 22,416,971

NET ASSETS

Beginning of year. . . . . . . . . . . . . . . . . . . 1,082,952 1,165,546 1,447,536 30,479,300 25,376,398 7,439,704 54,923,199 49,111,946 26,694,975

End of year . . . . . . . . . . . . . . . . . . . . . . . $ 1,499,218 $ 1,082,952 $ 1,165,546 $ 19,499,321 $ 30,479,300 $ 25,376,398 $ 57,931,413 $ 54,923,199 $ 49,111,946




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NOTES TO FINANCIAL STATEMENTS OF THEVARIABLE APPRECIABLE LIFE SUBACCOUNTS

OF PRUCO LIFE OF NEW JERSEY VARIABLE APPRECIABLE ACCOUNTDecember 31, 2001

Note 1: General

Pruco Life of New Jersey Variable Appreciable Account (the “Account”) was established on January 13, 1984under New Jersey law as a separate investment account of Pruco Life Insurance Company of New Jersey(“Pruco Life of New Jersey”) which is a wholly-owned subsidiary of Pruco Life Insurance Company (anArizona domiciled company) and is indirectly wholly-owned by The Prudential Insurance Company ofAmerica (“Prudential”). The assets of the Account are segregated from Pruco Life of New Jersey’s otherassets. Proceeds from the purchases of Pruco Life of New Jersey Variable Appreciable Life (“VAL”), PrucoLife of New Jersey PRUvider Variable Appreciable Life (“PRUvider”), Pruco Life of New Jersey PruSelect III(“PSEL III”), Pruco Life of New Jersey Survivorship Variable Universal Life (“SVUL”) and Pruco Life of NewJersey PruLife Custom Premier (“VUL”) contracts are invested in the Account.

The Account is registered under the Investment Company Act of 1940, as amended, as a unit investmenttrust. The Account is a funding vehicle for individual variable life insurance contracts. Each contract offersthe option to invest in various subaccounts, each of which invests in a corresponding portfolio of ThePrudential Series Fund, Inc. (the “Series Fund”). Investment options vary by contract. Options available toVAL are: Money Market Portfolio, Diversified Bond Portfolio, Equity Portfolio, Flexible Managed Portfolio,Conservative Balanced Portfolio, High Yield Bond Portfolio, Stock Index Portfolio, Value Portfolio, NaturalResources Portfolio, Global Portfolio, Government Income Portfolio, Prudential Jennison Portfolio, SmallCapitalization Stock Portfolio. These financial statements relate only to the subaccounts available to VALcontract owners.

The Series Fund is a diversified open-end management investment company, and is managed by Prudential.

New sales of the VAL product, which invests in the Account, were discontinued as of May 1, 1992. However,premium payments made by the contract owners existing at that date will continue to be received bythe Account.

Note 2: Significant Accounting Policies

The accompanying financial statements are prepared in conformity with accounting principles generallyaccepted in the United States of America (“GAAP”). The preparation of the financial statements inconformity with GAAP requires management to make estimates and assumptions that affect the reportedamounts and disclosures. Actual results could differ from those estimates.

Investments—The investments in shares of the Series Fund are stated at the net asset values of therespective portfolios, which value their investment securities at fair value.

Security Transactions—Realized gains and losses on security transactions are reported on an average costbasis. Purchase and sale transactions are recorded as of the trade date of the security being purchasedor sold.

Distributions Received—Dividend and capital gain distributions received are reinvested in additional sharesof the Series Fund and are recorded on the ex-dividend date.

A15

Note 3: Investment Information for The Pruco Life of New Jersey Variable Appreciable Account

The net asset value per share for each portfolio of the Series Fund, the number of shares (rounded) of eachportfolio held by the subaccounts of the Account and the aggregate cost of investments in such shares atDecember 31, 2001 were as follows:

PORTFOLIOS

Money Diversified Flexible ConservativeMarket Bond Equity Managed Balanced

Number of shares (rounded): 798,112 2,264,946 7,145,907 13,925,489 7,415,260

Net asset value per share: $ 10.00 $ 11.36 $ 20.49 $ 14.79 $ 13.69

Cost: $ 7,981,122 $ 24,585,047 $160,335,993 $223,598,372 $105,305,620

PORTFOLIOS (Continued)

High Yield Stock NaturalBond Index Value Resources Global

Number of shares (rounded): 6,072,823 2,912,477 754,039 451,266 3,753,877

Net asset value per share: $ 5.40 $ 31.64 $ 17.91 $ 19.11 $ 15.29

Cost: $ 43,538,862 $ 97,425,814 $ 14,049,009 $ 9,361,982 $ 73,255,255


GovernmentIncome

PrudentialJennison

SmallCapitalization

Stock

Number of shares (rounded): 122,285 1,050,044 3,742,339

Net asset value per share: $ 12.26 $ 18.57 $ 15.48

Cost: $ 1,442,102 $ 27,263,419 $ 52,257,997

A16

Note 4: Charges and Expenses

A. Mortality Risk and Expense Risk Charges

The mortality risk and expense risk charges, at effective annual rates of up to 0.60%, 0.90%, 0.50%,0.90% and 0.45% are applied daily against the net assets of VAL, PRUvider, PSELIII, SVUL and VULcontract owners held in each subaccount, respectively. Mortality risk is that contract owners may not liveas long as estimated and expense risk is that the cost of issuing and administering the policies mayexceed related charges by Pruco Life of New Jersey. Pruco Life of New Jersey currently intends tocharge only 0.20% on PruSelect III contracts but reserves the right to make the full 0.50% charge.For VUL contracts Pruco Life of New Jersey intends to charge only 0.25% but reserves the right tocharge 0.45%.

B. Deferred Sales Charge

A deferred sales charge is imposed upon surrenders of certain VAL, PRUvider, SVUL and VULcontracts to compensate Pruco Life of New Jersey for sales and other marketing expenses. Theamount of any sales charge will depend on the number of years that have elapsed since the contractwas issued. No sales charge will be imposed after the tenth year of the contract. No sales charge will beimposed on death benefits.

C. Partial Withdrawal Charge

A charge is imposed by Pruco Life of New Jersey on partial withdrawals of the cash surrender value. Acharge equal to the lesser of $15 or 2% and $25 or 2% will be made in connection with each partialwithdrawal of the cash surrender value of a VAL or PRUvider contract and PruSelect III, SVUL or VULcontract, respectively.

D. Expense Reimbursement

The Account is reimbursed by Pruco Life of New Jersey for expenses in excess of 0.40% of the VALproduct’s average daily net assets incurred by the Money Market, Diversified Bond, Equity, FlexibleManaged and Conservative Balanced Portfolios of the Series Fund.

E. Cost of Insurance and Other Related Charges

Contract owner contributions are subject to certain deductions prior to being invested in the Account.The deductions are for (1) transaction costs which are deducted from each premium payment to coverpremium collection and processing costs; (2) state premium taxes; and (3) sales charges which arededucted in order to compensate Pruco Life of New Jersey for the cost of selling the contract.Contracts are also subject to monthly charges for the costs of administering the contract and tocompensate Pruco Life of New Jersey for the guaranteed minimum death benefit risk.

Note 5: Taxes

Pruco Life of New Jersey is taxed as a “life insurance company” as defined by the Internal Revenue Code.The results of operations of the Account form a part of Prudential’s consolidated federal tax return. Undercurrent federal law, no federal income taxes are payable by the Account. As such, no provision for taxliability has been recorded in these financial statements.

A17

Note 6: Unit Activity

Transactions in units (including transfers among subaccounts) for the years ended December 31, 2001, 2000and 1999 were as follows:

SUBACCOUNTS



2001 2000 1999 2001 2000 1999

Contract Owner Contributions: 22,696,520 1,942,266 1,394,252 1,661,959 683,886 1,817,938

Contract Owner Redemptions: (22,442,074) (2,035,300) (1,583,513) (1,731,229) (981,340) (2,374,019)

SUBACCOUNTS (Continued)

Equity Flexible ManagedPortfolio Portfolio

2001 2000 1999 2001 2000 1999

Contract Owner Contributions: 1,813,281 1,560,425 1,053,096 4,626,015 4,041,146 2,928,417

Contract Owner Redemptions: (2,562,975) (4,722,060) (3,213,126) (6,104,009) (6,990,317) (6,981,723)


Conservative Balanced High Yield BondPortfolio Portfolio

2001 2000 1999 2001 2000 1999

Contract Owner Contributions: 2,671,759 2,331,679 2,742,649 2,461,548 265,372 10,923,909

Contract Owner Redemptions: (3,426,688) (4,008,763) (5,207,302) (389,368) (680,602) (12,518,142)


Stock Index ValuePortfolio Portfolio

2001 2000 1999 2001 2000 1999

Contract Owner Contributions: 27,486,019 3,205,888 10,650,541 16,981,292 310,937 214,150

Contract Owner Redemptions: (5,200,149) (910,208) (12,168,789) (16,748,332) (430,110) (494,521)



GlobalPortfolio

2001 2000 1999 2001 2000 1999

Contract Owner Contributions: 1,544,989 306,275 152,344 666,932 1,770,930 31,717,854

Contract Owner Redemptions: (223,658) (156,772) (251,204) (876,609) (1,120,283) (35,712,959)




2001 2000 1999 2001 2000 1999

Contract Owner Contributions: 211,810 89,130 144,899 2,004,849 4,440,077 4,934,733

Contract Owner Redemptions: (77,561) (185,153) (257,810) (4,034,561) (1,064,529) (810,425)



2001 2000 1999

Contract Owner Contributions: 597,090 840,102 24,413,256

Contract Owner Redemptions: (464,626) (910,771) (14,590,716)

A18

Note 7: Purchases and Sales of Investments

The aggregate costs of purchases and proceeds from sales of investments in the Series Fund for the yearended December 31, 2001 were as follows:

PORTFOLIOS

Money Diversified Flexible ConservativeMarket Bond Equity Managed Balanced

Purchases . . . . . . . . . . . . . . . . . $ 21,036,175 $ 1,025,078 $ 827,693 $ 1,684,205 $ 936,662

Sales . . . . . . . . . . . . . . . . . . . . . $(20,753,848) $ (1,465,700) $ (7,933,091) $ (9,916,175) $ (4,643,202)


High Yield Stock NaturalBond Index Value Resources Global

Purchases . . . . . . . . . . . . . . . . . $ 5,431,285 $ 24,627,575 $ 21,059,036 $ 6,183,190 $ 340,997

Sales . . . . . . . . . . . . . . . . . . . . . $ (565,254) $ (9,429,473) $(20,644,238) $ (504,169) $ (1,196,640)


GovernmentIncome

PrudentialJennison

SmallCapitalization

Stock

Purchases . . . . . . . . . . . . . . . . . $ 417,889 $ 1,391,642 $ 621,271

Sales . . . . . . . . . . . . . . . . . . . . $ (98,698) $ (6,939,996) $ (637,128)

Note 8: Related Party Transactions

Prudential has purchased multiple individual VAL contracts of the Account insuring the lives of certainemployees. Prudential is the owner and beneficiary of the contracts. There were no net premium paymentsfor the year ended December 31, 2001. Equity of contract owners in that subaccount at December 31, 2001includes approximately $165.7 million owned by Prudential in the Small Capitalization Stock, High YieldBond, Global and Stock Index Subaccounts.

In addition, Prudential and its affiliates perform various services on behalf of the mutual fund company thatadministers the Series Fund in which the Account invests and may receive fees for the services performed.These services include, among other things, shareholder communications, preparation, postage, fundtransfer agency and various other record keeping and customer service functions.

A19

Note 9: Financial Highlights

The Pruco Life of New Jersey sells a number of variable life insurance products that are funded by theAccount. These products have unique combinations of features and fees that are charged against thecontract owner’s account balance. Differences in the fee structures result in a variety of unit values,expense ratios and total returns.

The following table was developed by determining which products offered by Pruco Life of New Jersey andfunded by the Account have the lowest and highest total return. Only product designs within eachsubaccount that had units outstanding throughout the respective periods were considered whendetermining the lowest and highest return. The summary may not reflect the minimum and maximumcontract charges offered by the Pruco Life of New Jersey as contract owners may not have selected allavailable and applicable contract options as discussed in note 4.

At December 31, 2001 For the year ended December 31, 2001

UnitsUnit FairValue Net Assets

Investment*Income

ExpenseRatio**

TotalReturn***

(000s) Lowest to Highest (000s) Ratio Lowest to Highest Lowest to Highest

Money Market Portfolio . . . . . . . . . . . . . . 3,851 $1.02864 to $2.19874 $ 7,981 4.04% .20% to .90% 3.17% to 3.88%

Diversified Bond Portfolio . . . . . . . . . . . . . 7,430 $1.03535 to $3.47473 $ 25,729 6.10% .25% to .90% 6.22% to 6.38%

Equity Portfolio. . . . . . . . . . . . . . . . . . . . 20,140 $0.93072 to $7.32260 $146,420 0.83% .25% to .90% –11.97% to –11.62%

Flexible Managed Portfolio . . . . . . . . . . . . 45,115 $0.92720 to $4.71001 $205,958 3.75% .35% to .90% –6.52% to –6.01%

Conservative Balanced Portfolio . . . . . . . . 26,398 $0.96841 to $4.00354 $101,516 3.40% .40% to .90% –2.88% to –2.41%

Value Portfolio . . . . . . . . . . . . . . . . . . . . 2,639 $0.93072 to $7.32260 $ 13,505 1.57% .60% to .90% –2.95% to –2.66%

High Yield Bond Portfolio . . . . . . . . . . . . . 14,583 $0.91872 to $2.24949 $ 32,793 12.05% .25% to .90% –1.30% to –1.03%

Natural Resources Portfolio . . . . . . . . . . . 2,244 $3.84290 to $3.84290 $ 8,624 2.94% .60% to .60% –10.62% to –10.62%

Stock Index Portfolio . . . . . . . . . . . . . . . . 38,189 $0.80562 to $4.90359 $ 92,152 1.08% .25% to .90% –12.83% to –12.23%

Global Portfolio . . . . . . . . . . . . . . . . . . . 33,174 $0.67974 to $1.73500 $ 57,397 0.35% .25% to .90% –18.34% to –18.10%

Government Income Portfolio . . . . . . . . . . 599 $2.50199 to $2.50199 $ 1,499 6.06% .60% to .60% 7.42% to 7.42%

Prudential Jennison Portfolio . . . . . . . . . . . 8,389 $0.64774 to $2.40452 $ 19,499 0.16% .25% to .90% –18.97% to –18.74%

Small Capitalization Stock Portfolio . . . . . . 25,176 $2.30107 to $2.30107 $ 57,931 0.51% .60% to .60% 4.92% to 4.92%

* These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net

of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality

and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the

timing of the declaration of dividends by the underlying fund in which the subaccounts invest.

** These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, net of

reimbursement of excess expenses for each period indicated. The ratios include only those expenses that result in a direct reduction to unit

values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded.

*** These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deductions

for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of

these expenses in the calculation would result in a reduction in the total return presented. The total return is calculated for the year ended

December 31, 2001.

A20

REPORT OF INDEPENDENT ACCOUNTANTS

To the Contract Owners of theVariable Appreciable Life Subaccounts ofPruco Life of New Jersey Variable Appreciable Accountand the Board of Directors ofPruco Life Insurance Company of New Jersey

In our opinion, the accompanying statements of net assets and the related statements of operationsand of changes in net assets present fairly, in all material respects, the financial position of each ofthe Variable Appreciable Life Subaccounts (as defined in Note 1) of Pruco Life of New JerseyVariable Appreciable Account at December 31, 2001, and the results of each of their operations andthe changes in each of their net assets for each of the periods presented, in conformity with accountingprinciples generally accepted in the United States of America. These financial statements are theresponsibility of the management of the Pruco Life Insurance Company of New Jersey; ourresponsibility is to express an opinion on these financial statements based on our audits. Weconducted our audits of these financial statements in accordance with auditing standards generallyaccepted in the United States of America, which require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles used and significant estimates made bymanagement, and evaluating the overall financial statement presentation. We believe that our audits,which included confirmation of fund shares owned at December 31, 2001 with the transfer agents ofthe investee mutual funds, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLPNew York, New YorkApril 15, 2002

A21

B- 1

Pruco Life Insurance Company and Subsidiary Consolidated Statements of Financial Position December 31, 2001 and 2000 (In Thousands) 2001 2000 ASSETS Fixed maturities Available for sale, at fair value (amortized cost, 2001: $3,935,472; 2000:$3,552,244) $ 4,024,893 $ 3,561,521 Held to maturity, at amortized cost (fair value, 2000: $320,634) - 324,546 Equity securities - available for sale, at fair value (cost, 2001: $173; 2000: $13,446) 375 10,804 Commercial loans on real estate 8,190 9,327 Policy loans 874,065 855,374 Short-term investments 215,610 202,815 Other long-term investments 84,342 83,738 Total investments 5,207,475 5,048,125 Cash and cash equivalents 374,185 453,071 Deferred policy acquisition costs 1,159,830 1,132,653 Accrued investment income 77,433 82,297 Reinsurance recoverable 300,697 31,568 Receivables from affiliates 33,074 51,586 Other assets 20,134 29,445 Separate Account assets 14,920,584 16,230,264 TOTAL ASSETS $ 22,093,412 $ 23,059,009

LIABILITIES AND STOCKHOLDER’S EQUITY Liabilities Policyholders’ account balances $ 3,947,690 $ 3,646,668 Future policy benefits and other policyholder liabilities 808,230 702,862 Cash collateral for loaned securities 190,022 185,849 Securities sold under agreements to repurchase 80,715 104,098 Income taxes payable 266,096 235,795 Other liabilities 228,596 120,891 Separate Account liabilities 14,920,584 16,230,264 Total liabilities 20,441,933 21,226,427 Contingencies (See Footnote 12) Stockholder’s Equity Common stock, $10 par value; 1,000,000 shares, authorized; 250,000 shares, issued and outstanding

2,500

2,500 Paid-in-capital 466,748 466,748 Retained earnings 1,147,665 1,361,924 Accumulated other comprehensive income (loss):

Net unrealized investment gains 34,718 4,730 Foreign currency translation adjustments (152) (3,320)

Accumulated other comprehensive income 34,566 1,410 Total stockholder’s equity 1,651,479 1,832,582 TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY

$ 22,093,412

$ 23,059,009

See Notes to Consolidated Financial Statements

B- 2

Pruco Life Insurance Company and Subsidiary Consolidated Statements of Operations and Comprehensive Income Years Ended December 31, 2001, 2000 and 1999 (In Thousands) 2001 2000 1999 REVENUES Premiums $ 90,868 $ 121,921 $ 98,976 Policy charges and fee income 490,185 474,861 414,425 Net investment income 343,638 337,919 276,821 Realized investment losses, net (60,476) (20,679) (32,545) Asset management fees 7,897 71,160 60,392 Other income 4,962 2,503 1,397 Total revenues 877,074 987,685 819,466 BENEFITS AND EXPENSES Policyholders’ benefits 256,080 248,063 205,042 Interest credited to policyholders’ account balances 195,966 171,010 136,852 General, administrative and other expenses 382,701 410,684 392,041 Total benefits and expenses 834,747 829,757 733,935 Income from operations before income taxes 42,327 157,928 85,531 Income tax (benefit) provision (25,255) 54,432 29,936 NET INCOME 67,582 103,496 55,595 Other comprehensive income (loss), net of tax: Unrealized gains (losses) on securities, net of reclassification adjustment 29,988 33,094 (38,266) Foreign currency translation adjustments 3,168 (993) (742) Other comprehensive income (loss) 33,156 32,101 (39,008) TOTAL COMPREHENSIVE INCOME $ 100,738 $ 135,597 $ 16,587


B- 3

Pruco Life Insurance Company and Subsidiary Consolidated Statements of Changes in Stockholder’s Equity Years Ended December 31, 2001, 2000 and 1999 (In Thousands)

Common

stock

Paid-in- capital

Retained earnings

Accumulated other

comprehensive income (loss)

Total

stockholder’s equity

Balance, January 1, 1999 $ 2,500 $ 439,582 $ 1,202,833 $ 8,317 $ 1,653,232 Net income - - 55,595 - 55,595 Change in foreign currency translation adjustments, net of taxes - -

- (742) (742)

Change in net unrealized investment losses, net of reclassification adjustment and taxes - - - (38,266) (38,266) Balance, December 31, 1999 2,500 439,582 1,258,428 (30,691) 1,669,819 Net income - - 103,496 - 103,496 Contribution from Parent - 27,166 - - 27,166 Change in foreign currency translation adjustments, net of taxes - - - (993)

(993)

Change in net unrealized investment losses, net of reclassification adjustment and taxes

-

-

- 33,094 33,094

Balance, December 31, 2000 2,500 466,748 1,361,924 1,410 1,832,582 Net income - - 67,582 - 67,582 Policy credits issued to eligible policyholders - - (128,025) - (128,025) Dividends to Parent - - (153,816) - (153,816) Change in foreign currency translation adjustments, net of taxes - - - 3,168 3,168

Change in net unrealized investment gains, net of reclassification adjustment and taxes

-

-

-

29,988

29,988 Balance, December 31, 2001 $ 2,500 $ 466,748 $ 1,147,665 $ 34,566 $ 1,651,479


B- 4

Pruco Life Insurance Company and Subsidiary Consolidated Statements of Cash Flows Years Ended December 31, 2001, 2000 and 1999 (In Thousands) 2001 2000 1999 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 67,582 $ 103,496 $ 55,595 Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Policy charges and fee income (54,970) (72,275) (83,961) Interest credited to policyholders’ account balances 195,966 171,010 136,852 Realized investment losses, net 60,476 20,679 32,545 Amortization and other non-cash items (49,594) (48,141) 75,037 Change in: Future policy benefits and other policyholders’ liabilities 105,368 73,340 100,743 Accrued investment income 4,864 (13,380) (7,803) Receivable from/Payable to affiliate 18,512 (24,907) (66,081) Policy loans (40,645) (63,022) (25,435) Deferred policy acquisition costs (100,281) (69,868) (201,072) Income taxes payable/receivable 38,839 90,195 (47,758) Other, net (38,114) 51,011 18,974 Cash Flows From (Used in) Operating Activities 208,003 218,138 (12,364) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from the sale/maturity of: Fixed maturities: Available for sale 2,653,798 2,273,789 3,076,848 Held to maturity - 64,245 45,841 Equity securities 482 1,198 5,209 Commercial loans on real estate 1,137 1,182 6,845 Other long-term investments - 15,039 385 Payments for the purchase of: Fixed maturities: Available for sale (2,961,861) (2,782,541) (3,452,289) Held to maturity - - (24,170) Equity securities (184) (11,134) (5,110) Other long-term investments (130) (6,917) (39,094) Cash collateral for loaned securities, net 4,174 98,513 14,000 Securities sold under agreement to repurchase, net (23,383) 82,947 (28,557) Short-term investments, net (12,766) (118,418) 92,199 Cash Flows Used In Investing Activities (338,733) (382,097) (307,893) CASH FLOWS FROM FINANCING ACTIVITIES: Policyholders’ account deposits 1,456,668 2,409,399 3,457,158 Policyholders’ account withdrawals (1,313,300) (1,991,363) (3,091,565) Cash dividend to Parent (26,048) - - Cash provided to affiliate (65,476) - - Cash Flows (Used in) From Financing Activities 51,844 418,036 365,593 Net increase in Cash and cash equivalents (78,886) 254,077 45,336 Cash and cash equivalents, beginning of year 453,071 198,994 153,658 CASH AND CASH EQUIVALENTS, END OF YEAR $ 374,185 $ 453,071 $ 198,994

SUPPLEMENTAL CASH FLOW INFORMATION Income taxes (received) paid $ (46,021) $ (14,832) $ 55,144 NON-CASH TRANSACTIONS DURING THE YEAR Dividend paid with fixed maturities $ 81,952 $ - $ - Taiwan branch dividend paid with net assets/liabilities $ 45,816 $ - $ - Policy credits issued to eligible policyholders $ 128,025 $ - $ - Contribution from Parent $ - $ 27,166 $ -


B- 5

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements

1. BUSINESS Pruco Life Insurance Company (“the Company”) is a stock life insurance company, organized in 1971 under the laws of the state of Arizona. The Company is licensed to sell individual life insurance, variable life insurance, term life insurance, variable and fixed annuities, and a non-participating guaranteed interest contract (“GIC”) called Prudential Credit Enhanced GIC (“PACE”) in the District of Columbia, Guam and in all states and territories except New York. The Company also had marketed individual life insurance through its branch office in Taiwan. The branch office was transferred to an affiliated Company on January 31, 2001, as described in Footnote 14. The Company has one wholly owned subsidiary, Pruco Life Insurance Company of New Jersey (“PLNJ”). PLNJ is a stock life insurance company organized in 1982 under the laws of the state of New Jersey. It is licensed to sell individual life insurance, variable life insurance, term life insurance, fixed and variable annuities only in the states of New Jersey and New York. Another wholly owned subsidiary, The Prudential Life Insurance Company of Arizona (“PLICA”) was dissolved on September 30, 2000. All assets and liabilities were transferred to the Company. PLICA had no new business sales in 2000 or 1999. The Company is a wholly owned subsidiary of The Prudential Insurance Company of America (“Prudential”), an insurance company founded in 1875 under the laws of the state of New Jersey. On December 18, 2001 (“the date of demutualization”) Prudential converted from a mutual life insurance company to a stock life insurance company and became an indirect wholly owned subsidiary of Prudential Financial, Inc. (the “Holding Company”). The demutualization was completed in accordance with Prudential’s Plan of Reorganization, which was approved by the Commissioner of the New Jersey Department of Banking and Insurance in October 2001. Prudential intends to make additional capital contributions to the Company, as needed, to enable it to comply with its reserve requirements and fund expenses in connection with its business. Generally, Prudential is under no obligation to make such contributions and its assets do not back the benefits payable under the Company’s policyholder contracts. During 2000, a capital contribution of $27.2 million resulted from the forgiveness of an intercompany receivable. The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities engaged in marketing insurance products, and individual and group annuities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company has extensive transactions and relationships with Prudential and other affiliates, as more fully described in Footnote 14. Due to these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, in particular deferred policy acquisition costs (“DAC”) and future policy benefits, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Investments Fixed maturities classified as “available for sale” are carried at estimated fair value. Fixed maturities that the Company has both the intent and ability to hold to maturity are stated at amortized cost and classified as “held to maturity”. The amortized cost of fixed maturities is written down to estimated fair value if a decline in value is considered to be other than temporary. 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 a separate component of equity, “Accumulated other comprehensive income (loss)”, net of income taxes. Equity securities, available for sale, comprised of common and non-redeemable preferred stock, are carried at estimated fair value. The associated unrealized gains and losses, the effects on deferred policy acquisition costs and on policyholders’ account balances that would result from the realization of unrealized gains and losses, are included in a separate component of equity, “Accumulated other comprehensive income (loss)”, net of income taxes.

B- 6

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Commercial loans on real estate are stated primarily at unpaid principal balances, net of unamortized discounts and an allowance for losses. The allowance for losses includes a loan specific reserve for impaired loans and a portfolio reserve for incurred but not specifically identified losses. Impaired loans include those loans for which it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected. Impaired loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate, or at the fair value of the collateral if the loan is collateral dependent. Interest received on impaired loans, including loans that were previously modified in a troubled debt restructuring, is either applied against the principal or reported as revenue, according to management's judgment as to the collectibility of principal. Management discontinues accruing interest on impaired loans after the loans are 90 days delinquent as to principal or interest, or earlier when management has serious doubts about collectibility. When a loan is recognized as impaired, any accrued but uncollectible interest is reversed against interest income of the current period. Generally, a loan is restored to accrual status only after all delinquent interest and principal are brought current and, in the case of loans where the payment of interest has been interrupted for a substantial period, a regular payment performance has been established. The portfolio reserve for incurred but not specifically identified losses considers the Company's past loan loss experience, the current credit composition of the portfolio, historical credit migration, property type diversification, default and loss severity statistics and other relevant factors. Policy loans are carried at unpaid principal balances. Short-term investments, consisting of highly liquid debt instruments other than those held in “Cash and cash equivalents,” with a maturity of twelve months or less when purchased, are carried at amortized cost, which approximates fair value. Other long-term investments represent the Company’s investments in joint ventures and partnerships in which the Company does not exercise control, derivatives held for purposes other than trading, and investments in the Company’s own Separate Accounts. Joint ventures and partnerships are recorded using the equity method of accounting, reduced for other than temporary declines in value. The Company’s investment in the Separate Accounts is carried at estimated fair value. The Company’s net income from investments in joint ventures and partnerships is generally included in “Net investment income.” Realized investment losses, net are computed using the specific identification method. Costs of fixed maturity and equity securities are adjusted for impairments considered to be other than temporary. Impairment adjustments are included in “Realized investment gains (losses), net.” Factors considered in evaluating whether a decline in value is other than temporary are: 1) whether the decline is substantial; 2) the Company’s ability and intent to retain the investment for a period of time sufficient to allow for an anticipated recovery in value; 3) the duration and extent to which the market value has been less than cost; and 4) the financial condition and near-term prospects of the issuer. Cash and cash equivalents include cash on hand, amounts due from banks, money market instruments, and other debt issues with a maturity of three months or less when purchased. Deferred policy acquisition costs The costs that vary with and that are related primarily to the production of new insurance and annuity business are deferred to the extent that they are deemed recoverable from future profits. Such costs include commissions, costs of policy issuance and underwriting, and variable field office expenses. Deferred policy acquisition costs are subject to recognition testing at the time of policy issue and recoverability and premium deficiency testing at the end of each accounting period. Deferred policy acquisition costs, for certain 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 deferred acquisition costs is reflected in “General and administrative expenses” in the period such estimated gross profits are revised.

B- 7

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Deferred policy acquisition costs related to non-participating term insurance are amortized over the expected life of the contracts in proportion to premium income. For guaranteed investment contracts, acquisition costs are expensed as incurred. Prudential and the Company have offered programs under which policyholders, for a selected product or group of products, can exchange an existing policy or contract issued by Prudential or the Company for another form of policy or contract. These transactions are known as internal replacements. 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. 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. Securities loaned Securities loaned are treated as financing arrangements and are recorded at the amount of cash received as collateral. The Company obtains collateral in an amount equal to 102% and 105% of the fair value of the domestic and foreign securities, respectively. The Company monitors the market value of securities loaned on a daily basis with additional collateral obtained as necessary. Non-cash collateral received is not reflected in the consolidated statements of financial position because the debtor typically has the right to redeem the collateral on short notice. Substantially all of the Company’s securities loaned are with large brokerage firms. Securities sold under agreements to repurchase Securities sold under agreements to repurchase are treated as financing arrangements and are carried at the amounts at which the securities will be subsequently reacquired, including accrued interest, as specified in the respective agreements. Assets to be repurchased are the same, or substantially the same, as the assets transferred and the transferor, through right of substitution, maintains the right and ability to redeem the collateral on short notice. The market value of securities to be repurchased is monitored and additional collateral is obtained, where appropriate, to protect against credit exposure. Securities lending and securities repurchase agreements are used to generate net investment income and facilitate trading activity. These instruments are short-term in nature (usually 30 days or less). Securities loaned are collateralized principally by U.S. Government and mortgage-backed securities. Securities sold under repurchase agreements are collateralized principally by cash. The carrying amounts of these instruments approximate fair value because of the relatively short period of time between the origination of the instruments and their expected realization. Separate Account Assets and Liabilities Separate Account assets and liabilities are reported at estimated fair value and represent segregated funds which are invested for certain policyholders and other customers. The assets consist of common stocks, fixed maturities, real estate related securities, and short-term investments. The assets of each account are legally segregated and are not subject to claims that arise out of any other business of the Company. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. The investment income and gains or losses for Separate Accounts generally accrue to the policyholders and are not included in the Consolidated Statements of Operations and Comprehensive Income. Mortality, policy administration and surrender charges on the accounts are included in “Policy charges and fee income”. Separate Accounts represent funds for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the policyholders, with the exception of the Pruco Life Modified Guaranteed Annuity Account. The Pruco Life Modified Guaranteed Annuity Account is a non-unitized Separate Account, which funds the Modified Guaranteed Annuity Contract and the Market Value Adjustment Annuity Contract. Owners of the Pruco Life Modified Guaranteed Annuity and the Market Value Adjustment Annuity Contracts do not participate in the investment gain or loss from assets relating to such accounts. Such gain or loss is borne, in total, by the Company. 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.

B- 8

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Insurance Revenue and Expense Recognition Premiums from insurance policies are generally recognized when due. Benefits are recorded as an expense when they are incurred. For traditional life insurance contracts, a liability for future policy benefits is recorded using the net level premium method. For individual annuities in payout status, a liability for future policy benefits is recorded for the present value of expected future payments based on historical experience. Amounts received as payment for interest-sensitive life, individual annuities and guaranteed investment contracts are reported as deposits to “Policyholders’ account balances”. Revenues from these contracts reflected as “Policy charges and fee income” consist primarily of fees assessed during the period against the policyholders’ account balances for mortality charges, policy administration charges and surrender charges. Benefits and expenses for these products include claims in excess of related account balances, expenses of contract administration, interest credited and amortization of deferred policy acquisition costs. 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. Foreign Currency Translation Adjustments Assets and liabilities of the Taiwan branch are translated to U.S. dollars at the exchange rate in effect at the end of the period. Revenues, benefits and other expenses are translated at the average rate prevailing during the period. Cumulative translation adjustments arising from the use of differing exchange rates from period to period are charged or credited directly to “Other comprehensive income (loss).” The cumulative effect of changes in foreign exchange rates are included in “Accumulated other comprehensive income (loss)”. Asset Management Fees Through December 31, 2000, the Company received asset management fee income from policyholder account balances invested in The Prudential Series Funds (“PSF”), which are a portfolio of mutual fund investments related to the Company’s Separate Account products (refer to Note 14). In addition, the Company receives fees from policyholder account balances invested in funds managed by companies other than Prudential. Asset management fees are recognized as income as 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, futures, forwards and option contracts and may be exchange-traded or contracted in the over-the-counter market. See Note 11 for a discussion of the Company’s use of derivative financial instruments and the related accounting and reporting treatment for such instruments. Income Taxes The Company and its subsidiary are members of the consolidated federal income tax return of Prudential and file separate company state and local tax returns. Pursuant to the tax allocation arrangement with Prudential, total federal income tax expense is determined on a separate company basis. Members with losses record tax benefits to the extent such losses are recognized in the consolidated federal tax provision. Deferred income taxes are generally recognized, based on enacted rates, when assets and liabilities have different values for financial statement and tax reporting purposes. A valuation allowance is recorded to reduce a deferred tax asset to that portion that is expected to be realized. New Accounting Pronouncements In September 2000, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities—a replacement of FASB Statement No. 125.” The Company has adopted the provisions of SFAS No. 140 relating to transfers and extinguishments of liabilities which are effective for periods occurring after March 31, 2001. The adoption did not have an effect on the results of operations of the Company.

B- 9

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In June 2001, the FASB issued SFAS No. 141, “Business Combinations” and SFAS No. 142, “Goodwill and Other Intangible Assets.” SFAS No. 141 requires that the Company account for all business combinations in the scope of the statement using the purchase method. SFAS No. 142 requires that an intangible asset acquired either individually or with a group of other assets shall initially be recognized and measured based on fair value. An intangible asset with a finite life is amortized over its useful life to the reporting entity; an intangible asset with an indefinite useful life, including goodwill, is not amortized. All intangible assets shall be tested for impairment in accordance with the statement. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001; however, goodwill and intangible assets acquired after June 30, 2001 are subject immediately to the nonamortization and amortization provisions of this statement. As of December 31, 2001, The Company does not have any goodwill or intangible assets. In August 2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS No. 144 eliminated the requirement that discontinued operations be measured at net realizable value or that entities include losses that have not yet occurred. SFAS No. 144 eliminated the exception to consolidation for a subsidiary for which control is likely to be temporary. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less cost to sell. An impairment for assets that are not considered to be disposed of is recognized only if the carrying amounts of long-lived assets are not recoverable and exceed their fair values. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations and cash flows that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001 and, generally, its provisions are to be applied prospectively. Reclassifications Certain amounts in the prior years have been reclassified to conform to the current year presentation.

B- 10


3. INVESTMENTS Fixed Maturities and Equity Securities: The following tables provide additional information relating to fixed maturities and equity securities as of December 31:

2001

Amortized Cost

Gross Unrealized

Gains

Gross Unrealized

Losses

Estimated Fair Value

(In Thousands) Fixed Maturities Available For Sale U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies

$ 303,606

$ 1,496

$ 1,648

$ 303,454

Foreign Government Bonds 27,332 2,122 - 29,454

Corporate Securities 3,594,386 116,186 28,834 3,681,738

Mortgage-backed Securities 10,148 160 61 10,247

Total Fixed Maturities Available For Sale $ 3,935,472 $ 119,964 $ 30,543 $ 4,024,893

Equity Securities Available For Sale $ 173 $ 220 $ 18 $ 375

2000

Amortized Cost

Gross Unrealized

Gains

Gross Unrealized

Losses


(In Thousands) Fixed Maturities Available For Sale U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies

$ 309,609

$ 7,888

$ 17

$ 317,480

Foreign Government Bonds 136,133 8,093 520 143,706

Corporate Securities 3,075,023 43,041 49,538 3,068,526

Mortgage-backed Securities 31,479 330 0 31,809

Total Fixed Maturities Available For Sale $ 3,552,244 $ 59,352 $ 50,075 $ 3,561,521

Fixed Maturities Held To Maturity Corporate Securities $ 324,546 $ 1,500 $ 5,412 $ 320,634

Total Fixed Maturities Held To Maturity $ 324,546 $ 1,500 $ 5,412 $ 320,634

Equity Securities Available For Sale

$ 13,446

$ 197

$ 2,839

$ 10,804

B- 11

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 3. INVESTMENTS (continued) The amortized cost and estimated fair value of fixed maturities, by contractual maturities at December 31, 2001 is shown below:

Available For Sale Amortized

Cost Estimated Fair

Value (In Thousands)

Due in one year or less $ 802,235 $ 821,790

Due after one year through five years 1,841,097 1,885,535

Due after five years through ten years 1,026,709 1,045,693

Due after ten years 255,283 261,628

Mortgage-backed securities 10,148 10,247

Total $ 3,935,472 $ 4,024,893

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 2001, 2000, and 1999, were $2,380.4 million, $2,103.6 million, and $2,950.4 million, respectively. Gross gains of $40.3 million, $15.3 million, $13.1 million, and gross losses of $47.7 million, $33.9 million, and $31.1 million, were realized on those sales during 2001, 2000, and 1999, respectively. Proceeds from the maturity of fixed maturities available for sale during 2001, 2000, and 1999, were $273.4 million, $170.2 million, and $126.5 million, respectively. Writedowns for impairments which were deemed to be other than temporary for fixed maturities were $53.5 million, $12.3 million, and $11.2 million, for the years 2001, 2000 and 1999, respectively. Due to the adoption of FAS 133, “Accounting for Derivative Instruments and Hedging Activities”, on January 1, 2001, the entire portfolio of fixed maturities classified as held to maturity were transferred to the available for sale category. The aggregate amortized cost of the securities was $324.5 million. Unrealized investment losses of $2.5 million, net of tax were recorded in “Accumulated Other Comprehensive income (loss)” at the time of transfer. During 2000, certain securities classified as held to maturity were transferred to the available for sale portfolio. These actions were taken as a result of a significant deterioration in credit worthiness. The aggregate amortized cost of the securities transferred was $6.6 million. Gross unrealized investment losses of $0.3 million were recorded in “Accumulated Other Comprehensive income (loss)” at the time of transfer. Prior to transfer, impairments related to these securities, if any, were included in “realized investment losses, net”. During the year ended December 31, 1999, there were no securities classified as held to maturity that were transferred. During the years ended December 31, 2001, 2000, and 1999, there were no securities classified as held to maturity that were sold. Commercial Loans on Real Estate The Company’s commercial loans on real estate were collateralized by the following property types at December 31:

2001 2000

(In Thousands)

Retail Stores $ 4,623 56.4% $ 5,615 60.2%

Industrial Buildings 3,567 43.6% 3,712 39.8%

Net Carrying Value $ 8,190 100.0% $ 9,327 100.0%

The concentration of commercial loans are in the states of Washington (47%), New Jersey (44%), and North Dakota (9%).

B- 12

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 3. INVESTMENTS (continued) Special Deposits and Restricted Assets Fixed maturities of $2.9 million and $8.0 million at December 31, 2001 and 2000, respectively, were on deposit with governmental authorities or trustees as required by certain insurance laws. Equity securities restricted as to sale were $.2 million at December 31, 2001 and 2000, respectively. Other Long-Term Investments The Company’s “Other long-term investments” of $84.3 million and $83.7 million as of December 31, 2001 and 2000, respectively, are comprised of joint ventures and limited partnerships, the Company’s investment in the Separate Accounts and certain derivatives for other than trading. Joint ventures and limited partnerships totaled $35.8 million and $34.3 million at December 31, 2001 and 2000, respectively. The Company’s share of net income from the joint ventures was $1.6 million, $.9 million, and $.3 million, for the years ended December 31, 2001, 2000 and 1999, respectively, and is reported in “Net investment income.” The Company’s investment in the Separate Accounts was $44.0 million and $46.9 million at December 31, 2001 and 2000, respectively. Investment Income and Investment Gains and Losses Net investment income arose from the following sources for the years ended December 31: 2001 2000 1999

(In Thousands) Fixed Maturities - Available For Sale $ 279,477 $ 237,042 $ 188,236 Fixed Maturities - Held To Maturity - 26,283 29,245 Equity Securities – Available For Sale 71 18 - Commercial Loans On Real Estate 905 1,010 2,825 Policy Loans 48,149 45,792 42,422 Short-Term Investments and Cash Equivalents 24,253 29,582 19,208 Other 6,021 16,539 4,432 Gross Investment Income 358,876 356,266 286,368 Less: Investment Expenses (15,238) (18,347) (9,547) Net Investment Income $ 343,638 $ 337,919 $ 276,821

Realized investment losses, net including charges for other than temporary reductions in value, for the years ended December 31, were from the following sources: 2001 2000 1999

(In Thousands) Fixed Maturities - Available For Sale $ (60,924) $ (34,600) $ (29,192) Fixed Maturities - Held To Maturity - (212) 102 Equity Securities – Available For Sale (56) 271 392 Derivatives (1,396) 15,039 (1,557) Other 1,900 (1,177) (2,290) Realized Investment Losses, Net $ (60,476) $ (20,679) $ (32,545)

Securities Pledged to Creditors 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, 2001 and 2000, the carrying value of fixed maturities available for sale pledged to third parties as reported in the Consolidated Statements of Financial Position were $265.2 million and $287.8 million, respectively.

B- 13


3. INVESTMENTS (continued)

Net Unrealized Investment Gains (Losses) Net unrealized investment gains (losses) on securities available for sale are included in the Consolidated Statements of Financial Position as a component of “Accumulated other comprehensive income (loss).” Changes in these amounts include reclassification 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:

Unrealized Gains(Losses)

On Investments

Deferred Policy

Acquisition Costs

Policyholders’ Account Balances

Deferred Income Tax (Liability)

Benefit

Accumulated Other

Comprehensive Income (Loss) Related To Net

Unrealized Investment

Gains(Losses) (In Thousands) Balance, January 1, 1999

$ 25,169

$ (13,115)

$ 2,680

$ (4,832)

$ 9,902

Net investment gains(losses) on investments arising during the period

(138,268)

-

-

47,785

(90,483)

Reclassification adjustment for gains(losses) included in net income

28,698

-

-

(9,970)

18,728

Impact of net unrealized investment gains(losses) on deferred policy acquisition costs

-

53,407

-

(16,283)

37,124

Impact of net unrealized investment gains(losses) on policyholders’ account balances

-

-

(5,712)

2,077

(3,635)

Balance, December 31, 1999 (84,401) 40,292 (3,032) 18,777 (28,364) Net investment gains(losses) on investments arising during the period

56,707

-

-

(21,539)

35,168


34,329

-

-

(13,039)

21,290


-

(39,382)

-

14,177

(25,205)


-

-

2,877

(1,036)

1,841

Balance, December 31, 2000 6,635 910 (155) (2,660) 4,730 Net investment gains(losses) on investments arising during the period

22,007

-

-

(7,922)

14,085


60,980

-

-

(21,953)

39,027


-

(41,223)

-

14,840

(26,383)


-

-

5,092

(1,833)

3,259

Balance, December 31, 2001 $ 89,622 $ (40,313) $ 4,937 $ (19,528) $ 34,718

B- 14


4. DEFERRED POLICY ACQUISITION COSTS The balances of and changes in deferred policy acquisition costs as of and for the years ended December 31, are as follows: 2001 2000 1999 (In Thousands) Balance, Beginning of Year $ 1,132,653 $ 1,062,785 $ 861,713 Capitalization of Commissions, Sales and Issue Expenses 295,823 242,322 242,373 Amortization (156,092) (129,049) (96,451) Change In Unrealized Investment (Gains) Losses (41,223) (39,382) 53,407 Foreign Currency Translation 1,773 (4,023) 1,743 Transfer of Taiwan branch balance to an affiliated company (73,104) - - Balance, End of Year $ 1,159,830 $ 1,132,653 $ 1,062,785 5. POLICYHOLDERS’ LIABILITIES Future policy benefits and other policyholder liabilities at December 31, are as follows:

2001 2000

(In Thousands) Life Insurance – Domestic $ 500,974 $ 429,825 Life Insurance – Taiwan 260,632 226,272 Individual Annuities 32,423 31,817 Group Annuities 14,201 14,948 $ 808,230 $ 702,862

Life insurance liabilities include reserves for death benefits. Annuity liabilities include reserves for annuities that are in payout status. The following table highlights the key assumptions generally utilized in calculating these reserves:

Product Mortality Interest Rate Estimation Method Life Insurance - Domestic Variable and Interest-Sensitive

Generally rates guaranteed in calculating cash surrender values

2.5% to 11.25% Net level premium based on non-forfeiture interest rate

Life Insurance - Domestic Term Insurance

Best estimate plus a provision for adverse deviation

6.5% to 6.75% Net level premium plus a provision for adverse deviation

Life Insurance - International Generally the Taiwan standard

table plus a provision for adverse deviation

6.25% to 7.5% Net level premium plus a provision for adverse deviation.

Individual Annuities Mortality table varies based on

the issue year of the contract. Current table (for 1998 & later issues) is the Annuity 2000 Mortality Table with certain modifications

6.25% to 11.0% Present value of expected future payments based on historical experience

Group Annuities 1950 & 1971 Group Annuity

Mortality Table with certain modifications

14.75% Present value of expected future payments based on historical experience

B- 15

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements Policyholders’ account balances at December 31, are as follows:

2001 2000

(In Thousands) Interest-Sensitive Life Contracts $ 1,976,710 $ 1,886,714 Individual Annuities 976,237 859,996 Guaranteed Investment Contracts 994,743 899,958 $ 3,947,690 $ 3,646,668

Policyholders’ account balances for interest-sensitive life, individual annuities, and guaranteed investment contracts are equal to policy account values plus unearned premiums. The policy account values represent an accumulation of gross premium payments plus credited interest less withdrawals, expenses and mortality charges. Certain contract provisions that determine the policyholder account balances are as follows:

Product Interest Rate Withdrawal / Surrender Charges Interest Sensitive Life Contracts 3.0% to 6.75 % Various up to 10 years Individual Annuities 3.0% to 16.0% 0% to 7% for up to 9 years Guaranteed Investment Contracts 4.32% to 8.03% Subject to market value withdrawal

provisions for any funds withdrawn other than for benefit responsive and contractual payments

B- 16

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 6. REINSURANCE The Company participates in reinsurance, with Prudential 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. Reinsurance ceded arrangements do not discharge the Company or the insurance subsidiary 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. The affiliated reinsurance agreements, including the Company’s reinsurance of all its Taiwanese business, are described further in Note 14. Reinsurance amounts included in the Consolidated Statements of Operations and Comprehensive Income for the year ended December 31, are as follows:

2001 2000 1999 (In Thousands)

Domestic: Reinsurance premiums ceded – affiliated $ (9,890) $ (7,641) $ (5,630) Reinsurance premiums ceded – unaffiliated (13,399) (2,475) - Policyholders’ benefits ceded 10,803 3,558 3,140 Taiwan after the transfer: Reinsurance premiums ceded -affiliated (82,433) - - Policyholders’ benefits ceded-affiliated 12,859 - - Taiwan before the transfer: Reinsurance premiums ceded – affiliated (107) (1,573) (1,252) Reinsurance premiums ceded -unaffiliated (167) (2,830) (1,745) Policyholders’ benefits ceded 71 1,914 1,088 Reinsurance premiums assumed 162 1,671 1,778

Reinsurance recoverables, included in the Company’s Consolidated Statements of Financial Position at December 31, were as follows:

2001 2000 (In Thousands)

Domestic Life Insurance - affiliated $ 11,014 $ 8,765 Domestic Life Insurance - unaffiliated 14,850 2,037 Other Reinsurance - affiliated 14,201 14,948 Taiwan Life Insurance-affiliated 260,632 - Taiwan Life Insurance-unaffiliated - 5,818 $ 300,697 $ 31,568

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

2001 2000 1999

(In Thousands) Life Insurance Face Amount In Force $ 84,317,628 $ 66,327,999 $ 54,954,680 Ceded To Other Companies (25,166,264) (7,544,363) (2,762,319) Net Amount of Life Insurance In Force $ 59,151,364 $ 58,783,636 $ 52,192,361

B- 17

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 7. EMPLOYEE BENEFIT PLANS Pension and Other Postretirement Plans The Company had a non-contributory defined benefit pension plan that covered substantially all of its Taiwanese employees. The pension plan was transferred to an affiliate on January 31, 2001 as described in Note 14. This plan was established as of September 30, 1998 and the projected benefit obligation and related expenses at December 31, 2000 were not material to the Consolidated Statements of Financial Position or results of operations for the years presented. All other employee benefit costs are allocated to the Company by Prudential in accordance with the service agreement described in Footnote 14. 8. INCOME TAXES The components of income taxes for the years ended December 31, are as follows: 2001 2000 1999

(In Thousands) Current Tax Expense (Benefit): U.S. $ (100,946) $ 8,588 $ (14,093) State and Local 1,866 38 378 Foreign 124 35 15 Total (98,956) 8,661 (13,700) Deferred Tax Expense (Benefit): U.S. 76,155 43,567 42,320 State and Local (2,454) 2,204 1,316 Total 73,701 45,771 43,636 Total Income Tax Expense $ (25,255) $ 54,432 $ 29,936

The income tax expense for the years ended December 31, differs from the amount computed by applying the expected federal income tax rate of 35% to income from operations before income taxes for the following reasons: 2001 2000 1999

(In Thousands)

Expected Federal Income Tax Expense $ 14,814 $ 55,275 $ 29,936 State and Local Income Taxes (382) 1,457 1,101 Non taxable investment income (38,693) (6,443) (1,010) Incorporation of Taiwan Branch (1,774) - - Other 780 4,143 (91) Total Income Tax Expense $ (25,255) $ 54,432 $ 29,936

B- 18

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 8. INCOME TAXES (continued) Deferred tax assets and liabilities at December 31, resulted from the items listed in the following table:

2001 2000 (In Thousands)

Deferred Tax Assets Insurance Reserves $ 43,317 $ 100,502 State Net Operating Losses 5,642 1,400 Other 9,309 8,610 Deferred Tax Assets 58,268 110,512 Deferred Tax Liabilities Deferred Acquisition Costs 324,082 324,023 Net Unrealized Gains on Securities 32,264 2,389 Investments 20,644 19,577 Deferred Tax Liabilities 376,990 345,989 Net Deferred Tax Liability $ 318,722 $ 235,477

Management believes that based on its historical pattern of taxable income, the Company and its subsidiary will produce sufficient income in the future to realize its deferred tax assets. 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, 2001 and 2000, the Company and its subsidiary had no federal operating loss carryforwards for tax purposes. At December 31, 2001 and December 31, 2000, the Company had state operating loss carryforwards for tax purposes of $369 million and $91 million, which expire by 2021 and 2020, respectively. The Internal Revenue Service (the “Service”) has completed all examinations of the consolidated federal income tax returns through 1992. The Service has examined the years 1993 through 1995. Discussions are being held with the Service with respect to proposed adjustments. Management, however, believes there are adequate defenses against, or sufficient reserves to provide for such adjustments. The Service has completed its examination of 1996 and has begun its examination of 1997 through 2000. 9. STATUTORY NET INCOME AND SURPLUS The Company is required to prepare statutory financial statements in accordance with accounting practices prescribed or permitted by the Arizona Department of Insurance and 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 $71.5 million, $(50.5) million, and $(82.3) million for the years ended December 31, 2001, 2000, and 1999, respectively. Statutory surplus of the Company amounted to $728.7 million and $849.6 million at December 31, 2001 and 2000, respectively. In March 1998, the NAIC adopted the Codification of Statutory Accounting Principles guidance (“Codification”), which replaces the current Accounting Practices and Procedures manual as the NAIC’s primary guidance on statutory accounting as of January 1, 2001. Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in certain areas. The Company has adopted the Codification guidance effective January 1, 2001. As a result of these changes, the Company reported an increase to statutory surplus of $88 million, primarily relating to the recognition of deferred tax assets.

B- 19

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 10. FAIR VALUE OF FINANCIAL INSTRUMENTS The estimated fair values presented below have been determined using available market information and by applying valuation methodologies. Considerable judgment is applied in interpreting data to develop the estimates of fair value. Estimated fair values may not be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on the estimated fair values. The following methods and assumptions were used in calculating the estimated fair values (for all other financial instruments presented in the table, the carrying value approximates estimated fair value). Fixed maturities and Equity securities Estimated fair values for fixed maturities and equity securities, other than private placement securities, are based on quoted market prices or estimates from independent pricing services. Generally, fair values for private placement securities are estimated using a discounted cash flow model which considers the current market spreads between the U.S. Treasury yield curve and corporate bond yield curve, adjusted for the type of issue, its current credit quality and its remaining average life. The estimated fair value of certain non-performing private placement securities is based on amounts estimated by management. Commercial loans on real estate The estimated fair value of the portfolio of commercial loans on real estate is primarily based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate, adjusted for the current market spread for a similar quality loan. Policy loans The estimated fair value of policy loans is calculated using a discounted cash flow model based upon current U.S. Treasury rates and historical loan repayment patterns. Investment contracts For guaranteed investment contracts, estimated fair values are derived using discounted projected cash flows, based on interest rates being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. For individual deferred annuities and other deposit liabilities, fair value approximates carrying value. Derivative financial instruments Refer to Note 11 for the disclosure of fair values on these instruments.

B- 20

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 10. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) The following table discloses the carrying amounts and estimated fair values of the Company’s financial instruments at December 31:

2001 2000 Carrying

Value Estimated

Fair Value Carrying

Value Estimated

Fair Value (In Thousands)

Financial Assets:

Fixed Maturities: Available For Sale $ 4,024,893 $ 4,024,893 $ 3,561,521 $ 3,561,521 Fixed Maturities: Held To Maturity - - 324,546 320,634 Equity Securities 375 375 10,804 10,804 Commercial Loans on Real Estate 8,190 10,272 9,327 10,863 Policy Loans 874,065 934,203 855,374 883,460 Short-Term Investments 215,610 215,610 202,815 202,815 Cash and Cash Equivalents 374,185 374,185 453,071 453,071 Separate Account Assets 14,920,584 14,920,584 16,230,264 16,230,264 Financial Liabilities: Investment Contracts 2,003,265 2,053,259 1,762,794 1,784,767 Cash Collateral for Loaned Securities 190,022 190,022 185,849 185,849 Securities Sold Under Repurchase Agreements 80,715 80,715 104,098 104,098 Separate Account Liabilities 14,920,584 14,920,584 16,230,264 16,230,264 11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS Adoption of Statement of Financial Accounting Standards No. 133 The Company adopted SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” as amended, on January 1, 2001. The adoption of this statement did not have a material impact on the results of operations of the Company. Accounting for Derivatives and Hedging Activities 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, futures, forwards and option contracts and may be exchange-traded or contracted in the over-the-counter market. Derivatives may be held for trading purposes or held for purposes other than trading. All of the Company’s derivatives are held for purposes other than trading. Derivatives held for purposes other than trading are used to seek to reduce exposure to interest rates and foreign currency risks associated with assets held or expected to be purchased or sold, and liabilities incurred or expected to be incurred. Other than trading derivatives are also used to manage the characteristics of the Company’s asset/liability mix, and to manage the interest rate and currency characteristics of invested assets. Derivatives held for purposes other than trading are recognized on the Consolidated Statements of Financial Position at their fair value. On the date the derivative contract is entered into, the Company designates the derivative as either (1) a hedge of the fair value of a recognized asset or liability or unrecognized firm commitment (“fair value” hedge), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge), (3) a foreign currency or cash flow hedge (“foreign currency” hedge), (4) a hedge of a net investment in a foreign operation, or (5) a derivative that does not qualify for hedge accounting. As of December 31, 2001, none of the Company’s derivatives qualify for hedge accounting treatment.

B- 21


11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued) If a derivative does not qualify for hedge accounting, it is recorded at fair value in “Other long-term investments” or “Other liabilities” in the Consolidated Statements of Financial Position, and changes in fair value are included in earnings without considering changes in fair value of the hedged assets or liabilities. See “Types of Derivative Instruments” for further discussion of the classification of derivative activity in current earnings. Types of Derivative Instruments Interest Rate Swaps The Company uses interest rate swaps to reduce market risk from changes in interest rates and to manage interest rate exposures arising from mismatches between assets and liabilities. 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 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. The fair value of swap agreements is estimated based on proprietary pricing models or market quotes. If the criteria for hedge accounting are not met, the swap agreements are accounted for at fair value with changes in fair value reported in “Realized investment losses, net” in the Consolidated Statement of Operations. During the period that interest rate swaps are outstanding, net receipts or payments are include in” Net investment income” in the Consolidated Statement of Operations. Futures and Options The Company uses exchange-traded Treasury futures and options to reduce market risk from changes in interest rates, and to manage the duration of assets and the duration of liabilities supported by those assets. In exchange-traded futures transactions, the Company agrees to purchase or sell a specified number of contracts, the value of which are determined by the value of designated classes of Treasury 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. The fair value of futures and options is based on market quotes. Treasury 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. If futures meet hedge accounting criteria, changes in their fair value are deferred and recognized as an adjustment to the carrying value of the hedged item. Deferred gains or losses from the hedges for interest-bearing financial instruments are amortized as a yield adjustment over the remaining lives of the hedged item. Futures that do not qualify as hedges are carried at fair value with changes in value reported in “Realized investment losses, net.” When the Company anticipates a significant decline in the stock market which will correspondingly affect its diversified portfolio, it may purchase put index options where the basket of securities in the index is appropriate to provide a hedge against a decrease in the value of the equity portfolio or a portion thereof. This strategy effects an orderly sale of hedged securities. When the Company has large cash flows which it has allocated for investment in equity securities, it may purchase call index options as a temporary hedge against an increase in the price of the securities it intends to purchase. This hedge permits such investment transactions to be executed with the least possible adverse market impact. Option premium paid or received is reported as an asset or liability and amortized into income over the life of the option. If options meet the criteria for hedge accounting, changes in their fair value are deferred and recognized as an adjustment to the hedged item. Deferred gains or losses from the hedges for interest-bearing financial instruments are recognized as an adjustment to interest income or expense of the hedged item. If the options do not meet the criteria for hedge accounting, they are fair valued, with changes in fair value reported in current period earnings.

B- 22

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued) Currency Derivatives The Company uses currency swaps to reduce market risk from changes in currency values of investments denominated in foreign currencies that the Company either holds or intends to acquire and to manage the currency exposures arising from mismatches between such foreign currencies and the US Dollar. Under currency swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between one currency and another at a forward exchange rate and calculated by reference to an agreed principal amount. Generally, the principal amount of each currency is exchanged at the beginning and termination of the currency swap by each party. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty for payments made in the same currency at each due date. If currency swaps are effective as hedges of foreign currency translation and transaction exposures, gains or losses are recorded in a manner similar to the hedged item. If currency swaps do not meet hedge accounting criteria, gains or losses from those derivatives are recognized in “Realized investment (losses) gains, net.” The table below summarizes the Company’s outstanding positions by derivative instrument types as of December 31, 2001 and 2000. All amounts presented have been classified as other than trading based on management’s intent at the time of contract and throughout the life of the contract.

Other than Trading Derivatives

December 31, 2001 and 2000 (In Thousands)

2001 2000

Notional Estimated Fair Value

Carrying Value

Notional


Carrying Value

Non-Hedge Accounting Swap Instruments

Interest Rate Asset $ 9,470 $ 638 $ 638 $ 9,470 $ 327 $ 327 Liability - - - - - - Currency Asset 24,785 3,858 3,858 - - - Liability - - - - - - Future Contracts US Treasury Futures Asset 76,800 394 394 139,800 3,530 3,530 Liability 64,500 238 238 61,900 1,067 1,067 Hedge Accounting Swap Instruments

Currency Asset - - - 28,326 1,633 2,155 Liability - - - - - -

B- 23

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 11. DERIVATIVE AND OFF-BALANCE SHEET CREDIT-RELATED INSTRUMENTS (continued) Credit Risk The current credit exposure of the Company’s derivative contracts is limited to the fair value at the reporting date. Credit risk is managed by entering into transactions with creditworthy counterparties and obtaining collateral where appropriate and customary. The Company also attempts to minimize its exposure to credit risk through the use of various credit monitoring techniques. All of the net credit exposure for the Company from derivative contracts are with investment grade counterparties. As of December 31, 2001, 86% of notional consisted of interest rate derivatives, and 14% of notional consisted of foreign currency derivatives. 12. CONTINGENCIES AND LITIGATION Prudential and the Company are subject to legal and regulatory actions in the ordinary course of their businesses, including class actions. Pending legal and regulatory actions include proceedings relating to aspects of the businesses and operations that are specific to the Company and Prudential and that are typical of the businesses in which the Company and Prudential operate. Some of these proceedings have been brought on behalf of various alleged classes of complainants. In certain of these matters, the plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages. Beginning in 1995, regulatory authorities and customers brought significant regulatory actions and civil litigation against the Company and Prudential involving individual life insurance sales practices. In 1996, Prudential, on behalf of itself and many of its life insurance subsidiaries including the Company entered into settlement agreements with relevant insurance regulatory authorities and plaintiffs in the principal life insurance sales practices class action lawsuit covering policyholders of individual permanent life insurance policies issued in the United States from 1982 to 1995. Pursuant to the settlements, the companies agreed to various changes to their sales and business practices controls, to a series of fines, and to provide specific forms of relief to eligible class members. Virtually all claims by class members filed in connection with the settlements have been resolved and virtually all aspects of the remediation program have been satisfied. While the approval of the class action settlement is now final, Prudential and the Company remain subject to oversight and review by insurance regulators and other regulatory authorities with respect to its sales practices and the conduct of the remediation program. The U.S. District Court has also retained jurisdiction as to all matters relating to the administration, consummation, enforcement and interpretation of the settlements. As of December 31, 2001, Prudential and/or the Company remained a party to approximately 44 individual sales practices actions filed by policyholders who “opted out” of the class action settlement relating to permanent life insurance policies issued in the United States between 1982 and 1995. In addition, there were 19 sales practices actions pending that were filed by policyholders who were members of the class and who failed to “opt out” of the class action settlement. Prudential and the Company believe that those actions are governed by the class settlement release and expects them to be enjoined and/or dismissed. Additional suits may be filed by class members who “opted out” of the class settlements or who failed to “opt out” but nevertheless seek to proceed against Prudential and/or the Company. A number of the plaintiffs in these cases seek large and/or indeterminate amounts, including punitive or exemplary damages. Some of these actions are brought on behalf of multiple plaintiffs. It is possible that substantial punitive damages might be awarded in any of these actions and particularly in an action involving multiple plaintiffs. Prudential has indemnified the Company for any liabilities incurred in connection with sales practices litigation covering policyholders of individual permanent life insurance policies issued in the United States from 1982 to 1995. 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.

B- 24


13. DIVIDENDS The Company is subject to Arizona law which limits the amount of dividends that insurance companies can pay to stockholders. The maximum dividend which may be paid in any twelve month period without notification or approval is limited to the lesser of 10% of statutory surplus as of December 31 of the preceding year or the net gain from operations of the preceding calendar year. Cash dividends may only be paid out of surplus derived from realized net profits. Based on these limitations, the Company would not be permitted a dividend distribution until December 29, 2002. During 2001, the Company received approval from the Arizona Department of Insurance to pay an extraordinary dividend to Prudential of $108 million. 14. RELATED PARTY TRANSACTIONS The Company has extensive transactions and relationships with Prudential and other affiliates. It is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties. Expense Charges and Allocations All of the Company’s expenses are allocations or charges from Prudential or other affiliates. These expenses can be grouped into the following categories: general and administrative expenses, retail distribution expenses and asset management fees. The Company’s general and administrative expenses are charged to the Company using allocation methodologies based on business processes. Management believes that the methodology is reasonable and reflects costs incurred by Prudential to process transactions on behalf of the Company. Prudential and the Company operate under service and lease agreements whereby services of officers and employees (except for those agents employed directly by the Company in Taiwan), supplies, use of equipment and office space are provided by Prudential. The Company is allocated estimated distribution expenses from Prudential’s retail agency network for both its domestic life and annuity products. The Company has capitalized the majority of these distribution expenses as deferred policy acquisition costs. Beginning April 1, 2000, Prudential and the Company agreed to revise the estimate of allocated distribution expenses to reflect a market based pricing arrangement. In accordance with a profit sharing agreement with Prudential that was in effect through December 31, 2000, the Company received fee income from policyholder account balances invested in the Prudential Series Funds (“PSF”). These revenues were recorded as “Asset management fees” in the Consolidated Statements of Operations and Comprehensive Income. The Company was charged an asset management fee by Prudential Global Asset Management (“PGAM”) and Jennison Associates LLC (“Jennison”) for managing the PSF portfolio. These fees are a component of “general, administrative and other expenses.” On September 29, 2000, the Board of Directors for the Prudential Series Fund, Inc. (“PSFI”) adopted resolutions to terminate the existing management agreement between PSFI and Prudential, and has appointed another subsidiary of Prudential as the fund manager for the PSF. The change was approved by the shareholders of PSF during early 2001 and effective January 1, 2001. The Company no longer receives fees associated with the PSF. In addition, the Company will no longer incur the asset management expense from PGAM and Jennison associated with the PSF. Corporate Owned Life Insurance The Company has sold three Corporate Owned Life Insurance (“COLI”) policies to Prudential. The cash surrender value included in Separate Accounts was $647.2 million and $685.9 million at December 31, 2001 and December 31, 2000, respectively. The fees received related to the COLI policies were $7.0 million and $9.6 million for the years ending December 31, 2001 and 2000.

B- 25

Pruco Life Insurance Company and Subsidiary Notes to Consolidated Financial Statements 14. RELATED PARTY TRANSACTIONS (continued) Reinsurance The Company currently has four reinsurance agreements in place with Prudential and affiliates. Specifically, the Company has a reinsurance Group Annuity Contract, whereby the reinsurer, in consideration for a single premium payment by the Company, provides reinsurance equal to 100% of all payments due under the contract. In addition, there are two yearly renewable term agreements in which the Company may offer and the reinsurer may accept reinsurance on any life in excess of the Company’s maximum limit of retention. The Company is not relieved of its primary obligation to the policyholder as a result of these reinsurance transactions. These agreements had no material effect on net income for the periods ended December 31, 2001 or 2000. The fourth agreement, which is new for 2001, is described in the following paragraphs. On January 31, 2001, the Company transferred all of its assets and liabilities associated with the Company’s Taiwan branch including Taiwan’s insurance book of business to an affiliated Company, Prudential Life Insurance Company of Taiwan Inc. (“Prudential of Taiwan”), a wholly owned subsidiary of the Holding Company. The mechanism used to transfer this block of business in Taiwan is referred to as a “full acquisition and assumption” transaction. Under this mechanism, the Company is jointly liable with Prudential of Taiwan for two years from the giving of notice to all obligees for all matured obligations and for two years after the maturity date of not-yet-matured obligations. Prudential of Taiwan is also contractually liable, under indemnification provisions of the transaction, for any liabilities that may be asserted against the Company. The transfer of the insurance related assets and liabilities was accounted for as a long-duration coinsurance transaction under accounting principles generally accepted in the United States. Under this accounting treatment, the insurance related liabilities remain on the books of the Company and an offsetting reinsurance recoverable is established. As part of this transaction, the Company made a capital contribution to Prudential of Taiwan in the amount of the net equity of the Company’s Taiwan branch as of the date of transfer. In July 2001, the Company dividended its interest in Prudential of Taiwan to Prudential. Premiums and benefits ceded for the period ending December 31, 2001 from the Taiwan coinsurance agreement were $82.4 million and $12.9 million, respectively. Debt Agreements In July 1998, the Company established a revolving line of credit facility of up to $500 million with Prudential Funding LLC, a wholly owned subsidiary of Prudential. There is no outstanding debt relating to this credit facility as of December 31, 2001 or December 31, 2000.

B- 26

Report of Independent Accountants To the Board of Directors and Stockholder of Pruco Life Insurance Company In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Pruco Life Insurance Company (a wholly-owned subsidiary of The Prudential Insurance Company of America) and its subsidiary at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York February 21, 2002

The Prudential Series Fund, Inc.Supplement dated December 13, 2002 to

Prospectus dated May 1, 2002

Value Portfolio

The following amends the sections of the prospectus entitled ‘‘How the Portfolios Invest—InvestmentObjectives and Policies, ’’How the Fund Is Managed—Investment Sub-Advisers,‘‘ and ’’How the Fund isManaged—Portfolio Managers:‘‘

Effective as of the close of business on December 12, 2002, Jennison Associates LLC is responsible formanaging 100% of the Portfolio’s assets. The portfolio managers for the Portfolio are Tom Kolefas andBradley Goldberg. Bradley Goldberg has announced his intention to retire effective December 31, 2002.Following Mr. Goldberg’s retirement, Mr. Kolefas will continue as the portfolio manager for the Portfolio.

Equity Portfolio

The following amends the section of the prospectus entitled ’’How the Fund is Managed—PortfolioManagers:‘‘

Bradley Goldberg has announced his intention to retire effective December 31, 2002. Following Mr.Goldberg’s retirement, the portion of the Portfolio managed by Jennison Associates LLC will continue to bemanaged by Tom Kolefas.

PSFSUP6

The Prudential Series Fund, Inc.Supplement dated August 29, 2002 to

Prospectus, dated May 1, 2002

SP Alliance Large Cap Growth Portfolio

The following supplements the section of the prospectus entitled ‘‘How the Portfolios Invest—InvestmentObjectives and Policies:’’

The Portfolio usually invests in about 40-60 companies, with the 25 most highly regarded of thesecompanies generally constituting approximately 70% of the Portfolio’s investable assets. Alliance seeks to gainpositive returns in good markets while providing some measure of protection in poor markets.

SP MFS Mid-Cap Growth Portfolio

The following supplements the section of the prospectus entitled ‘‘Portfolio Managers:’’

The Portfolio is managed by a team. MFS Senior Vice President Mark Regan, who had been a co-managerfor the Portfolio, retired effective June 30, 2002. David Sette-Ducati will continue as a member of themanagement team.

Eric Fischman joined the management team during April 2002. Mr. Fischman is a Senior Vice President ofMFS. Mr. Fischman joined MFS as a research analyst during 2000 and was named a portfolio manager inApril 2002. He earned an M.B.A. degree from Columbia Business School in 1998, a law degree from BostonUniversity School of Law, and a bachelor’s degree from Cornell University. From 1998 to 2000, Mr. Fischmanserved as an equity research analyst at State Street Research. Prior to that, he served as an equity researchanalyst at Dreyfus Corporation. Mr. Fischman also holds the Chartered Financial Analyst (CFA) designation.

SP INVESCO Small Company Growth Portfolio

The following supplements the section of the Prospectus entitled ‘‘Portfolio Managers:’’

The following individuals are primarily responsible for the day-to-day management of the Portfolio’sholdings:

Stacie L. Cowell, a senior vice president of INVESCO, is the lead portfolio manager of the Portfolio. Beforejoining INVESCO in 1997, Stacie was senior equity analyst with Founders Asset Management and a capitalmarkets and trading analyst with Chase Manhattan Bank in New York. She is a CFA charterholder. Stacieholds an M.S. in Finance from the University of Colorado and a B.A. in Economics from Colgate University.

Cameron Cooke is the co-portfolio manager of the Portfolio. Mr. Cooke joined the investment division ofINVESCO in 2000. Prior to joining INVESCO, Cameron was a senior equity analyst at Wells Capital Manage-ment. Mr. Cooke holds a B.A. in economics from the University of North Carolina at Chapel Hill.

PSFSUP1

SP PIMCO High Yield PortfolioSP PIMCO Total Return Portfolio

Diversified Conservative Growth Portfolio

The following supplements the section of the prospectus entitled ‘‘How the Portfolios Invest—InvestmentObjectives and Policies:’’

Each Portfolio may invest in swap agreements, including interest rate, credit default, currency exchangerate and total return swaps. Each Portfolio may also invest in preferred stock, and may invest in debt fromemerging markets. Each Portfolio may invest in event-linked bonds.

Jennison Portfolio

The following supplements the section of the Prospectus entitled ‘‘How the Portfolios Invest—InvestmentObjectives and Policies:’’

The Portfolio may invest in equity swap agreements.

Diversified Conservative Growth Portfolio

The following supplements the section of the Prospectus entitled ‘‘How the Portfolios Invest—InvestmentObjectives and Policies:’’

The Portfolio may enter into short sales of securities. No more than 25% of the Portfolio’s net assets maybe used as collateral or segregated for purposes of securing a short sale obligation.

The Prudential Series Fund, Inc.Prospectus

May 1, 2002

Conservative Balanced PortfolioDiversified Bond Portfolio

Equity PortfolioFlexible Managed Portfolio

Global PortfolioGovernment Income PortfolioHigh Yield Bond Portfolio

Jennison PortfolioMoney Market Portfolio

Natural Resources PortfolioSmall Capitalization Stock Portfolio

Stock Index PortfolioValue Portfolio

Zero Coupon Bond Portfolio 2005

As with all mutual funds, the Securities and Exchange Commissionhas not approved or disapproved the Fund’s shares nor has theSEC determined that this prospectus is complete or accurate. It isa criminal offense to state otherwise.

A particular Portfolio may not be available under the variable lifeinsurance or variable annuity contract which you have chosen. Theprospectus of the specific contract which you have chosen willindicate which Portfolios are available and should be read inconjunction with this prospectus.

Table of Contents

1 RISK/RETURN SUMMARY

1 Investment Objectives and Principal Strategies5 Principal Risks8 Evaluating Performance

22 HOW THE PORTFOLIOS INVEST

22 Investment Objectives and Policies

22 Conservative Balanced Portfolio23 Diversified Bond Portfolio24 Equity Portfolio25 Flexible Managed Portfolio27 Global Portfolio27 Government Income Portfolio28 High Yield Bond Portfolio29 Jennison Portfolio30 Money Market Portfolio31 Natural Resources Portfolio32 Small Capitalization Stock Portfolio33 Stock Index Portfolio33 Value Portfolio34 Zero Coupon Bond Portfolio 2005

35 OTHER INVESTMENTS AND STRATEGIES

35 ADRs35 Convertible Debt and Convertible Preferred Stock36 Derivatives36 Dollar Rolls36 Equity Swaps36 Forward Foreign Currency Exchange Contracts36 Futures Contracts36 Interest Rate Swaps36 Joint Repurchase Account36 Loans and Assignments37 Mortgage-related Securities37 Options37 Real Estate Investment Trusts37 Repurchase Agreements37 Reverse Repurchase Agreements38 Short Sales38 Short Sales Against-the-Box38 When-Issued and Delayed Delivery Securities

38 HOW THE FUND IS MANAGED

38 Board of Directors38 Investment Adviser39 Investment Sub-Advisers40 Portfolio Managers

44 HOW TO BUY AND SELL SHARES OF THE FUND

Table of Contents (continued)

44 Net Asset Value46 Distributor

46 OTHER INFORMATION

46 Federal Income Taxes46 Monitoring for Possible Conflicts

46 FINANCIAL HIGHLIGHTS

(For more information—see back cover)

2

RISK/RETURN SUMMARY

This prospectus provides information about The Prudential Series Fund, Inc. (the Fund), which consists of36 separate portfolios (each, a Portfolio).

The Fund offers two classes of shares in each Portfolio: Class I and Class II. Class I shares are sold only to separateaccounts of The Prudential Insurance Company of America and its affiliates (Prudential) as investment options undervariable life insurance and variable annuity contracts (the Contracts). (A separate account keeps the assets supportingcertain insurance contracts separate from the general assets and liabilities of the insurance company.) Class II sharesare offered only to separate accounts of non-Prudential insurance companies for the same types of Contracts. Notevery Portfolio is available under every Contract. The prospectus for each Contract lists the Portfolios currentlyavailable through that Contract.

This section highlights key information about each Portfolio available under your Contract. Additional informationfollows this summary and is also provided in the Fund’s Statement of Additional Information (SAI).

INVESTMENT OBJECTIVES AND PRINCIPAL STRATEGIES

The following summarizes the investment objectives, principal strategies and principal risks for each of the Portfolios.We describe the terms listed as principal risks on page 5. While we make every effort to achieve the investmentobjective for each Portfolio, we can’t guarantee success and it is possible that you could lose money.

Conservative Balanced Portfolio

The Portfolio’s investment objective is total investment return consistent with a conservatively manageddiversified portfolio. This Portfolio may be appropriate for an investor who wants diversification with a relatively lowerrisk of loss than that associated with the Flexible Managed Portfolio (see below). To achieve our objective, we invest ina mix of equity securities, debt obligations and money market instruments. Up to 30% of the Portfolio’s total assets maybe invested in foreign securities. We may invest a portion of the Portfolio’s assets in high-yield/high-risk debt securities,which are riskier than high-grade securities. While we make every effort to achieve our objective, we can’t guaranteesuccess and it is possible that you could lose money.

Principal Risks:‰ company risk‰ credit risk‰ foreign investment risk‰ high yield risk‰ interest rate risk‰ market risk‰ management risk

Diversified Bond Portfolio

The Portfolio’s investment objective is a high level of income over a longer term while providing reasonablesafety of capital. This means we look for investments that we think will provide a high level of current income, butwhich are not expected to involve a substantial risk of loss of capital through default. To achieve our objective, wenormally invest at least 80% of the Portfolio’s investable assets (net assets plus any borrowings made for investmentpurposes) in high-grade debt obligations and high-quality money market investments. We may purchase securities thatare issued outside the U.S. by foreign or U.S. issuers. In addition, we may invest a portion of the Portfolio’s assets inhigh-yield/high-risk debt securities, which are riskier than high-grade securities. While we make every effort to achieveour objective, we can’t guarantee success and it is possible that you could lose money.

Principal Risks:‰ credit risk‰ foreign investment risk‰ high yield risk‰ interest rate risk‰ management risk

Equity Portfolio

The Portfolio’s investment objective is long-term growth of capital. To achieve our objective, we normally invest atleast 80% of the Portfolio’s investable assets (net assets plus any borrowings made for investment purposes) incommon stocks of major established corporations as well as smaller companies that we believe offer attractiveprospects of appreciation. The Portfolio may invest up to 30% of its total assets in foreign securities. While we makeevery effort to achieve our objective, we can’t guarantee success and it is possible that you could lose money.

Principal Risks:‰ company risk‰ foreign investment risk‰ market risk‰ management risk

Flexible Managed Portfolio

The Portfolio’s investment objective is a high total return consistent with an aggressively managed diversifiedportfolio. This Portfolio may be appropriate for an investor who wants diversification and is willing to accept a relativelyhigh level of loss in an effort to achieve greater appreciation. To achieve our objective, we invest in a mix of equitysecurities, debt obligations and money market instruments. The Portfolio may invest in foreign securities. A portion ofthe debt portion of the Portfolio may be invested in high-yield/high-risk debt securities, which are riskier than high-gradesecurities. While we make every effort to achieve our objective, we can’t guarantee success and it is possible that youcould lose money.

Principal Risks:‰ company risk‰ credit risk‰ foreign investment risk‰ high yield risk‰ interest rate risk‰ market risk‰ management risk

Global Portfolio

The Portfolio’s investment objective is long-term growth of capital. To achieve this objective, we invest primarily incommon stocks (and their equivalents) of foreign and U.S. companies. Generally, we invest in at least three countries,including the U.S., but we may invest up to 35% of the Portfolio’s assets in companies located in any one country otherthan the U.S. While we make every effort to achieve our objective, we can’t guarantee success and it is possible thatyou could lose money.

Principal Risks:‰ company risk‰ foreign investment risk‰ market risk‰ management risk

Government Income Portfolio

The Portfolio’s investment objective is a high level of income over the long term consistent with the preservationof capital. To achieve our objective, we normally invest at least 80% of the Portfolio’s investable assets (net assetsplus any borrowings made for investment purposes) in U.S. government securities, including intermediate and long-term U.S. Treasury securities and debt obligations issued by agencies or instrumentalities established by the U.S.government, mortgage-related securities and collateralized mortgage obligations. The Portfolio may invest up to 20% ofinvestable assets in other securities, including corporate debt securities. While we make every effort to achieve ourobjective, we can’t guarantee success and it is possible that you could lose money.

2

Principal Risks:‰ credit risk‰ interest rate risk‰ management risk‰ market risk‰ mortgage risk

An investment in the Government Income Portfolio is not a bank deposit and is not insured or guaranteed by theFederal Deposit Insurance Corporation or any other government agency.

High Yield Bond Portfolio

The Portfolio’s investment objective is a high total return. In pursuing our objective, we normally invest at least 80% ofthe Portfolio’s investable assets (net assets plus any borrowings made for investment purposes) in high-yield/high-riskdebt securities. Such securities have speculative characteristics and are riskier than high-grade securities. The Portfoliomay invest up to 20% of its total assets in foreign debt obligations. While we make every effort to achieve our objective,we can’t guarantee success and it is possible that you could lose money.

Principal Risks:‰ credit risk‰ foreign investment risk‰ high yield risk‰ interest rate risk‰ market risk‰ management risk

Jennison Portfolio (formerly, Prudential Jennison Portfolio)

The Portfolio’s investment objective is to achieve long-term growth of capital. To achieve this objective, we investprimarily in equity securities of major, established corporations that we believe offer above-average growth prospects.The Portfolio may invest up to 30% of its total assets in foreign securities. While we make every effort to achieve ourobjective, we can’t guarantee success and it is possible that you could lose money.

Principal Risks:‰ company risk‰ foreign investment risk‰ management risk‰ market risk

Money Market Portfolio

The Portfolio’s investment objective is maximum current income consistent with the stability of capital and themaintenance of liquidity. To achieve our objective, we invest in high-quality short-term money market instrumentsissued by the U.S. government or its agencies, as well as by corporations and banks, both domestic and foreign. ThePortfolio will invest only in instruments that mature in thirteen months or less, and which are denominated in U.S.dollars. While we make every effort to achieve our objective, we can’t guarantee success.

Principal Risks:‰ credit risk‰ interest rate risk‰ management risk

An investment in the Money Market Portfolio is not a bank deposit and is not insured or guaranteed by the FederalDeposit Insurance Corporation or any other government agency. Although the Portfolio seeks to maintain a net assetvalue of $10 per share, it is possible to lose money by investing in the Portfolio.

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Natural Resources Portfolio

The Portfolio’s investment objective is long-term growth of capital. To achieve our objective, we normally invest atleast 80% of the Portfolio’s investable assets (net assets plus any borrowings made for investment purposes) incommon stocks and convertible securities of natural resource companies and securities that are related to the marketvalue of some natural resource. The Portfolio is non-diversified. As a non-diversified Portfolio, the Natural ResourcesPortfolio may hold larger positions in single issuers than a diversified Portfolio. As a result, the Portfolio’s performancemay be tied more closely to the success or failure of a smaller group of portfolio holdings. There are additional risksassociated with the Portfolio’s investment in the securities of natural resource companies. The market value of thesesecurities may be affected by numerous factors, including events occurring in nature, inflationary pressures, andinternational politics. Up to 30% of the Portfolio’s total assets may be invested in foreign securities. While we makeevery effort to achieve our objective, we can’t guarantee success and it is possible that you could lose money.

Principal Risks:‰ company risk‰ credit risk‰ derivatives risk‰ foreign investment risk‰ industry/sector risk‰ interest rate risk‰ management risk‰ market risk

Small Capitalization Stock Portfolio

The Portfolio’s investment objective is to achieve long-term growth of capital. To achieve our objective, we investprimarily in equity securities of publicly-traded companies with small market capitalizations. We attempt to duplicate theprice and yield performance of the Standard & Poor’s Small Capitalization 600 Stock Index (the S&P SmallCap 600Index) by investing at least 80% of the Portfolio’s investable assets (net assets plus any borrowings made for investmentpurposes) in all or a representative sample of the stocks in the S&P Small Cap 600 Index. The market capitalization ofthe companies that make up the S&P SmallCap 600 Index may change from time to time. As of January 31, 2002, theS&P SmallCap 600 Index stocks had market capitalizations of between $46 million and $3.3 billion.

The Portfolio is not “managed” in the traditional sense of using market and economic analyses to select stocks. Rather,the portfolio manager purchases stocks to duplicate the stocks and their weighting in the S&P SmallCap 600 Index. Whilewe make every effort to achieve our objective, we can’t guarantee success and it is possible that you could lose money.

Principal Risks:‰ company risk‰ market risk

Stock Index Portfolio

The Portfolio’s investment objective is investment results that generally correspond to the performance ofpublicly-traded common stocks. To achieve our objective, we attempt to duplicate the price and yield of theStandard & Poor’s 500 Composite Stock Price Index (S&P 500) by investing at least 80% of the Portfolio’s investableassets (net assets plus any borrowings made for investment purposes) in S&P 500 stocks. The S&P 500 representsmore than 70% of the total market value of all publicly-traded common stocks and is widely viewed as representative ofpublicly-traded common stocks as a whole. The Portfolio is not “managed” in the traditional sense of using market andeconomic analyses to select stocks. Rather, the portfolio manager purchases stocks in proportion to their weighting inthe S&P 500. While we make every effort to achieve our objective, we can’t guarantee success and it is possible thatyou could lose money.

Principal Risks:‰ company risk‰ market risk

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Value Portfolio

The Portfolio’s investment objective is capital appreciation. To achieve our objective, we invest primarily in commonstocks that are undervalued — those stocks that are trading below their underlying asset value, cash generating ability andoverall earnings and earnings growth. We normally invest at least 65% of the Portfolio’s total assets in the common stockand convertible securities of companies that we believe will provide investment returns above those of the Standard &Poor’s 500 Composite Stock Price Index (S&P 500) or the New York Stock Exchange (NYSE) Composite Index. Most ofour investments will be securities of large capitalization companies. The Portfolio may invest up to 25% of its total assets inreal estate investment trusts (REITs) and up to 30% of its total assets in foreign securities. There is a risk that “value”stocks can perform differently from the market as a whole and other types of stocks and can continue to be undervalued bythe markets for long periods of time. While we make every effort to achieve our objective, we can’t guarantee success andit is possible that you could lose money.

Principal Risks:‰ company risk‰ credit risk‰ foreign investment risk‰ interest rate risk‰ market risk


The Portfolio’s investment objective is the highest predictable compound investment for a specific period of time,consistent with safety of invested capital. We seek to achieve this objective by investing at least 80% of thePortfolio’s investable assets (net assets plus any borrowings made for investment purposes) in debt obligations of theUnited States Treasury and corporations that have been issued without interest coupons or have been stripped of theirinterest coupons, or have interest coupons that have been stripped from the debt obligations. On the Portfolio’sliquidation date, the Portfolio will redeem all investments. Please refer to your Contract prospectus for information onyour reallocation options and the Portfolio to which your investment will be transferred if you do not provide otherinstructions. While we make every effort to achieve our objective, we can’t guarantee success and it is possible thatyou could lose money.

Principal Risks:‰ credit risk‰ interest rate risk‰ management risk‰ market risk

PRINCIPAL RISKS

Although we try to invest wisely, all investments involve risk. Like any mutual fund, an investment in a Portfolio couldlose value, and you could lose money. The following summarizes the principal risks of investing in the Portfolios.

Company risk. The price of the stock of a particular company can vary based on a variety of factors, such as thecompany’s financial performance, changes in management and product trends, and the potential for takeover andacquisition. This is especially true with respect to equity securities of smaller companies, whose prices may go up anddown more than equity securities of larger, more established companies. Also, since equity securities of smallercompanies may not be traded as often as equity securities of larger, more established companies, it may be difficult orimpossible for a Portfolio to sell securities at a desirable price. Foreign securities have additional risks, includingexchange rate changes, political and economic upheaval, the relative lack of information about these companies,relatively low market liquidity and the potential lack of strict financial and accounting controls and standards.

Credit risk. Debt obligations are generally subject to the risk that the issuer may be unable to make principal andinterest payments when they are due. There is also the risk that the securities could lose value because of a loss ofconfidence in the ability of the borrower to pay back debt. Non-investment grade debt — also known as “high-yieldbonds” and “junk bonds” — have a higher risk of default and tend to be less liquid than higher-rated securities.

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Derivatives risk. Derivatives are financial contracts whose value depends on, or is derived from, the value of anunderlying asset, interest rate or index. The Portfolios typically use derivatives as a substitute for taking a position inthe underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as interest rate orcurrency risk. A Portfolio may also use derivatives for leverage, in which case their use would involve leveraging risk. APortfolio’s use of derivative instruments involves risks different from, or possibly greater than, the risks associated withinvesting directly in securities and other traditional investments. Derivatives are subject to a number of risks describedelsewhere, such as liquidity risk, interest rate risk, market risk, credit risk and management risk. They also involve therisk of mispricing or improper valuation and the risk that changes in the value of the derivative may not correlateperfectly with the underlying asset, rate or index. A Portfolio investing in a derivative instrument could lose more thanthe principal amount invested. Also, suitable derivative transactions may not be available in all circumstances.

Foreign investment risk. Investing in foreign securities generally involves more risk than investing in securities ofU.S. issuers. Foreign investment risk includes the specific risks described below.

Currency risk. Changes in currency exchange rates may affect the value of foreign securities held by a Portfolioand the amount of income available for distribution. If a foreign currency grows weaker relative to the U.S. dollar,the value of securities denominated in that foreign currency generally decreases in terms of U.S. dollars. If aPortfolio does not correctly anticipate changes in exchange rates, its share price could decline as a result. Inaddition, certain hedging activities may cause the Portfolio to lose money and could reduce the amount of incomeavailable for distribution.

Emerging market risk. To the extent that a Portfolio invests in emerging markets to enhance overall returns, itmay face higher political, information, and stock market risks. In addition, profound social changes and businesspractices that depart from norms in developed countries’ economies have sometimes hindered the orderly growthof emerging economies and their stock markets in the past. High levels of debt may make emerging economiesheavily reliant on foreign capital and vulnerable to capital flight.

Foreign market risk. Foreign markets, especially those in developing countries, tend to be more volatile than U.S.markets and are generally not subject to regulatory requirements comparable to those in the U.S. Because ofdifferences in accounting standards and custody and settlement practices, investing in foreign securities generallyinvolves more risk than investing in securities of U.S. issuers.

Information risk. Financial reporting standards for companies based in foreign markets usually differ from those inthe United States. Since the “numbers” themselves sometimes mean different things, the sub-advisers devotemuch of their research effort to understanding and assessing the impact of these differences upon a company’sfinancial conditions and prospects.

Liquidity risk. Stocks that trade less can be more difficult or more costly to buy, or to sell, than more liquid oractive stocks. This liquidity risk is a factor of the trading volume of a particular stock, as well as the size andliquidity of the entire local market. On the whole, foreign exchanges are smaller and less liquid than the U.S.market. This can make buying and selling certain shares more difficult and costly. Relatively small transactions insome instances can have a disproportionately large effect on the price and supply of shares. In certain situations, itmay become virtually impossible to sell a stock in an orderly fashion at a price that approaches an estimate of itsvalue.

Political developments. Political developments may adversely affect the value of a Portfolio’s foreign securities.

Political risk. Some foreign governments have limited the outflow of profits to investors abroad, extendeddiplomatic disputes to include trade and financial relations, and imposed high taxes on corporate profits.

Regulatory risk. Some foreign governments regulate their exchanges less stringently, and the rights ofshareholders may not be as firmly established.

High yield risk. Portfolios that invest in high yield securities and unrated securities of similar credit quality (commonlyknown as “junk bonds”) may be subject to greater levels of interest rate, credit and liquidity risk than Portfolios that donot invest in such securities. High yield securities are considered predominantly speculative with respect to the issuer’scontinuing ability to make principal and interest payments. An economic downturn or period of rising interest rates couldadversely affect the market for high yield securities and reduce a Portfolio’s ability to sell its high yield securities(liquidity risk).

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Industry/sector risk. Portfolios that invest in a single market sector or industry can accumulate larger positions insingle issuers or an industry sector. As a result, the Portfolio’s performance may be tied more directly to the success orfailure of a smaller group of portfolio holdings.

Interest rate risk. Fixed income securities are subject to the risk that the securities could lose value because ofinterest rate changes. For example, bonds tend to decrease in value if interest rates rise. Debt obligations with longermaturities sometimes offer higher yields, but are subject to greater price shifts as a result of interest rate changes thandebt obligations with shorter maturities.

Management risk. Actively managed investment portfolios are subject to management risk. Each sub-adviser willapply investment techniques and risk analyses in making investment decisions for the Portfolios, but there can be noguarantee that these will produce the desired results.

Market risk. Common stocks are subject to market risk stemming from factors independent of any particular security.Investment markets fluctuate. All markets go through cycles and market risk involves being on the wrong side of acycle. Factors affecting market risk include political events, broad economic and social changes, and the mood of theinvesting public. You can see market risk in action during large drops in the stock market. If investor sentiment turnsgloomy, the price of all stocks may decline. It may not matter that a particular company has great profits and its stock isselling at a relatively low price. If the overall market is dropping, the values of all stocks are likely to drop. Generally, thestock prices of large companies are more stable than the stock prices of smaller companies, but this is not always thecase. Smaller companies often offer a smaller range of products and services than large companies. They may alsohave limited financial resources and may lack management depth. As a result, stocks issued by smaller companiesmay fluctuate in value more than the stocks of larger, more established companies.

Mortgage risk. A Portfolio that purchases mortgage related securities is subject to certain additional risks. Risinginterest rates tend to extend the duration of mortgage-related securities, making them more sensitive to changes ininterest rates. As a result, in a period of rising interest rates, a Portfolio that holds mortgage-related securities mayexhibit additional volatility. This is known as extension risk. In addition, mortgage-related securities are subject toprepayment risk. When interest rates decline, borrowers may pay off their mortgages sooner than expected. This canreduce the returns of a Portfolio because the Portfolio will have to reinvest that money at the lower prevailing interestrates.

* * *

For more information about the risks associated with the Portfolios, see “How the Portfolios Invest — InvestmentRisks.”

* * *

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EVALUATING PERFORMANCE


A number of factors — including risk — can affect how the Portfolio performs. The bar chart and table belowdemonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showinghow the Portfolio’s average annual returns compare with a stock index and a group of similar mutual funds. Pastperformance does not mean that the Portfolio will achieve similar results in the future.

* These annual returns do not include Contract charges. If Contract charges were included, the annual returns wouldhave been lower than those shown. See the accompanying Contract prospectus.

Average Annual Returns* (as of 12/31/01)

1 YEAR 5 YEARS 10 YEARS

Class I shares �2.02% 5.69% 7.55%S&P 500** �11.88% 10.70% 12.93%Conservative Balanced Custom Blended Index*** �2.22% 8.81% 9.81%Lipper Average**** �2.87% 8.04% 9.19%

* The Portfolio’s returns are after deduction of expenses and do not include Contract charges.** The Standard & Poor’s 500 Composite Stock Price Index (S&P 500) — an unmanaged index of 500 stocks of largeU.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effectof any investment management expenses. These returns would have been lower if they included the effect ofthese expenses. Source: Lipper, Inc.

*** The Conservative Balanced Custom Blended Index consists of the Standard & Poor’s 500 Composite Stock PriceIndex (50%), the Lehman Aggregate Bond Index (40%) and the T-Bill 3 Month Blend (10%). These returns do notinclude the effect of investment management expenses. These returns would have been lower if they included theeffect of these expenses. Source: Prudential Investments LLC.

**** The Lipper/Variable Insurance Products (VIP) Balanced Average is calculated by Lipper Analytical Services, Inc.and reflects the investment return of certain portfolios underlying variable life and annuity products. The returns arenet of investment fees and fund expenses but not product charges. These returns would have been lower if theyincluded the effect of product charges. Source: Lipper, Inc.

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A number of factors — including risk — can affect how the Portfolio performs. The bar chart and table belowdemonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showinghow the Portfolio’s average annual returns compare with a market index and a group of similar mutual funds. Pastperformance does not mean that the Portfolio will achieve similar results in the future.




Class I shares 6.98% 6.27% 6.92%Lehman Aggregate Bond Index** 8.44% 7.43% 7.23%Lipper Average*** 7.57% 6.44% 7.07%

* The Portfolio’s returns are after deduction of expenses and do not include Contract charges.** The Lehman Aggregate Bond Index is comprised of more than 5,000 government and corporate bonds. These

returns do not include the effect of any investment management expenses. These returns would have been lowerif they included the effect of these expenses. Source: Lipper, Inc.

*** The Lipper Variable Insurance Products (VIP) Corporate Debt BBB Average is calculated by Lipper AnalyticalServices, Inc. and reflects the investment return of certain portfolios underlying variable life and annuity products.The returns are net of investment fees and fund expenses but not product charges. These returns would havebeen lower if they included the effect of product charges. Source: Lipper, Inc.

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Equity Portfolio





SINCECLASS IIINCEPTION(5/3/99)

Class I shares �11.18% 7.06% 12.09% —Class II shares �11.57% — — �3.75%S&P 500** �11.88% 10.70% 12.93% �4.31%Russell 1000® Index*** �20.42% 8.27% 10.79% —Lipper Average**** �13.03% 7.94% 11.14% —


*** The Russell 1000® Index consists of the 1000 largest securities in the Russell 3000 Index. The Russell 3000 Indexconsists of the 3000 largest companies, as determined by market capitalization. These returns do not include theeffect of any investment management expenses. These returns would have been lower if they included the effectof these expenses. Source: Lipper, Inc.

**** The Lipper Variable Insurance Products (VIP) Large Cap Core Funds Average is calculated by Lipper AnalyticalServices, Inc. and reflects the investment return of certain portfolios underlying variable life and annuity products.The returns are net of investment fees and fund expenses but not product charges. These returns would havebeen lower if they included the effect of these charges. Source: Lipper, Inc.

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Class I shares �5.68% 5.43% 8.27%S&P 500** �11.88% 10.70% 12.93%Flexible ManagedCustom Blended Index*** �4.00% 9.26% 10.52%

Lipper Average**** �5.27% 7.95% 9.62%


*** The Flexible Managed Custom Blended Index consists of the S&P 500 (60%), the Lehman Aggregate Bond Index(35%) and the T-Bill 3-month Blend (5%). The returns do not include the effect of any investment managementexpenses. These returns would have been lower if they included the effect of these expenses. Source PrudentialInvestments LLC.

**** The Lipper Variable Insurance Products (VIP) Flexible Portfolio Funds Average is calculated by Lipper AnalyticalServices, Inc. and reflects the investment return of certain portfolios underlying variable life and annuity products.The returns are net of investment fees and fund expenses but not product charges. These returns would havebeen lower if they included the effect of these charges. Source: Lipper, Inc.

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Global Portfolio





Class I shares �17.64% 6.11% 9.39%MSCI World Index** �16.82% 5.37% 8.06%Lipper Average*** �15.28% 6.38% 9.57%

* The Portfolio’s returns are after deduction of expenses and do not include Contract charges.** The Morgan Stanley Capital International World Index (MSCI World Index) is a weighted index comprised of

approximately 1,500 companies listed on the stock exchanges of the U.S.A., Europe, Canada, Australia, NewZealand and the Far East. These returns do not include the effect of any investment management expenses.These returns would have been lower if they included the effect of these expenses. Source: Lipper, Inc.

*** The Lipper Variable Insurance Products (VIP) Global Funds Average is calculated by Lipper Analytical Services,Inc. and reflects the investment return of certain portfolios underlying variable life and annuity products. Thereturns are net of investment fees and fund expenses but not product charges. These returns would have beenlower if they included the effect of these charges. Source: Lipper, Inc.

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Class I shares 8.06% 7.24% 6.95%Lehman Govt. Bond Index** 7.23% 7.40% 7.14%Lipper Average*** 6.68% 6.70% 6.55%

* The Portfolio’s returns are after deduction of expenses and do not include Contract charges.** The Lehman Government Bond Index is a weighted index comprised of securities issued or backed by the U.S.

government, its agencies and instrumentalities with a remaining maturity of one to 30 years. These returns do notinclude the effect of any investment management expenses. These returns would have been lower if they includedthe effect of these expenses. Source: Lipper, Inc.

*** The Lipper Variable Insurance Products (VIP) General U.S. Government Funds Average is calculated by LipperAnalytical Services, Inc. and reflects the investment return of certain portfolios underlying variable life and annuityproducts. The returns are net of investment fees and fund expenses but not product charges. These returns wouldhave been lower if they included the effect of these charges. Source: Lipper, Inc.

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Class I shares �0.44% 1.28% 6.64%Lehman High Yield Index** 5.28% 3.11% 7.58%Lipper Average*** 1.13% 1.60% 6.59%

* The Portfolio’s returns are after deduction of expenses and do not include Contract charges.** The Lehman High Yield Index is made up of over 700 noninvestment grade bonds. The index is an unmanaged

index that includes the reinvestment of all interest but does not reflect the payment of transaction costs andadvisory fees associated with an investment in the Portfolio. These returns would have been lower if they includedthe effect of these expenses. Source: Lipper, Inc.

*** The Lipper Variable Insurance Products (VIP) High Current Yield Funds Average is calculated by Lipper AnalyticalServices, Inc. and reflects the investment return of certain portfolios underlying variable life and annuity products.The returns are net of investment fees and fund expenses but not product charges. These returns would havebeen lower if they included the effect of these charges. Source: Lipper, Inc.

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1 YEAR 5 YEARS

SINCE CLASS IINCEPTION(4/25/95)

SINCE CLASS IIINCEPTION(2/10/00)

Class I shares �18.25% 11.70% 14.66% —Class II shares �18.60% — — �21.45%S&P 500** �11.88% 10.70% 14.66% �8.50%Russell 1000® Growth Index*** �20.42% 8.27% 12.90% —Lipper Average**** �21.88% 8.75% 12.70% —

* The Portfolio’s returns are after deduction of expenses and do not include Contract charges.** The Standard & Poor’s 500 Composite Stock Price Index (S&P 500) — an unmanaged index of 500 stocks of large

U.S. Companies — gives a broad look at how stock prices have performed. These returns do not include the effectof any investment management expenses. These returns would have been lower if they included the effect ofthese expenses. The “Since Inception” return reflects the closest calendar month-end return. Source: Lipper, Inc.

*** The Russell 1000® Growth Index consists of those securities included in the Russell 1000 Index that have agreater-than-average growth orientation. These returns do not include the effect of any investment managementexpenses. These returns would have been lower if they included the effect of these expenses. The “SinceInception” return reflects the closest calendar month-end return. Source: Lipper, Inc.

**** The Lipper Variable Insurance Products (VIP) Large Cap Growth Funds Average is calculated by Lipper AnalyticalServices, Inc. and reflects the investment return of certain portfolios underlying variable life and annuity products.The returns are net of investment fees and fund expenses but not product charges. These returns would havebeen lower if they included the effect of these charges. The “Since Inception” return reflects the closest calendarmonth-end return. Source: Lipper, Inc.

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A number of factors — including risk — can affect how the Portfolio performs. The bar chart and table belowdemonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showinghow the Portfolio’s average annual returns compare with a group of similar mutual funds. Past performance does notassure that the Portfolio will achieve similar results in the future.




Class I shares 4.22% 5.24% 4.80%Lipper Average** 3.73% 4.96% 4.54%

* The Portfolio’s returns are after deduction of expenses and do not include Contract charges.** The Lipper Variable Insurance Products (VIP) Money Market Average is calculated by Lipper Analytical Services,

Inc., and reflects the investment return of certain portfolios underlying variable life and annuity products. Thesereturns are net of investment fees and fund expenses but not product charges. These returns would have beenlower if they included the effect of these charges. Source: Lipper, Inc.

7-Day Yield* (as of 12/31/01)

Money Market Portfolio 1.89%Average Money Market Fund** 1.45%

* The Portfolio’s yield is after deduction of expenses and does not include Contract charges.** Source: iMoneyNet, Inc. As of 12/31/01, based on the iMoneyNet First and Second Tier General Purpose Retail

Universe.

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Class I shares �10.08% 5.78% 10.95%S&P 500** �11.88% 10.70% 12.93%Lipper Average*** �11.50% 0.28% 5.10%


U.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effectof any investment management expenses. These returns would have been lower if they included the effect ofthese expenses. Source: Lipper, Inc.

*** The Lipper Variable Insurance Products (VIP) Natural Resources Funds Average is calculated by Lipper AnalyticalServices, Inc. and reflects the investment return of certain portfolios underlying variable life and annuity products.The returns are net of investment fees and fund expenses but not product charges. These returns would havebeen lower if they included the effect of these charges. Source: Lipper, Inc.

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1 YEAR 5 YEARS

SINCEINCEPTION(4/25/95)

Class I shares 5.53% 10.75% 13.94%S&P SmallCap 600 Index** 6.51% 10.65% 14.34%Lipper Average*** 2.85% 9.81% 13.00%

* The Portfolio’s returns are after deduction of expenses and do not include Contract charges.** The Standard & Poor’s SmallCap 600 Index (S&P SmallCap 600) is a capital-weighted index representing the

aggregate market value of the common equity of 600 small company stocks. The S&P SmallCap 600 Index is anunmanaged index that includes the reinvestment of all dividends but does not reflect the payment of transactioncosts and advisory fees associated with an investment in the portfolio. These returns would have been lower if theyincluded the effect of these expenses. The “Since Inception” return reflects the closest month-end return. Source:Lipper, Inc.

*** The Lipper Variable Insurance Products (VIP) Small Cap Core Funds Average is calculated by Lipper AnalyticalServices, Inc. and reflects the investment return of certain portfolios underlying variable life and annuity products.The returns are net of investment fees and fund expenses but not product charges. These returns would havebeen lower if they included the effect of these charges. The “Since Inception” return reflects the closest month-endreturn. Source: Lipper, Inc.

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Class I shares �12.05% 10.47% 12.61%S&P 500** �11.88% 10.70% 12.93%Lipper Average*** �12.22% 10.37% 12.53%


U.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effectof any investment management expenses. These returns would have been lower if they included the effect ofthese expenses. Source: Lipper, Inc.

*** The Lipper Variable Insurance Products (VIP) S&P 500 Index Funds Average is calculated by Lipper AnalyticalServices, Inc. and reflects the investment return of certain portfolios underlying variable life and annuity products.The returns are net of investment fees and fund expenses but not product charges. These returns would havebeen lower if they included the effect of these charges. Source: Lipper, Inc.

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Value Portfolio





Class I Shares �2.08% 11.18% 13.14%S&P 500** �11.88% 10.70% 12.93%Russell® 1000 Value Index*** �5.59% 11.13% 14.13%Lipper Large Cap Value FundsAverage**** �5.98% 8.68% 12.38%

Lipper Multi Cap Value Funds Average**** �0.22% 9.81% 11.17%

* The Portfolio’s returns are after deduction of expenses and do not include Contract charges. Returns shown arefor Class I shares only. Returns are not shown for Class II shares, because Class II shares have not yet been inexistence for a full calendar year (Class II inception date: 5/14/01). Returns for Class II shares would have beenlower than for Class I due to higher expenses.

** The Standard & Poor’s 500 Composite Stock Price Index (S&P 500) — an unmanaged index of 500 stocks of largeU.S. companies — gives a broad look at how stock prices have performed. These returns do not include the effectof investment management expenses. These returns would have been lower if they included the effect of theseexpenses. Source: Lipper, Inc.

*** The Russell® 1000 Value Index consists of those securities included in the Russell 1000 Index that have a less-than-average growth orientation. These returns do not include the effect of investment management expenses.These returns would have been lower if they included the effect of these expenses. Source: Lipper, Inc.

**** The Lipper Variable Insurance Products (VIP) Large Cap Value Funds Average and Multi Cap Value FundsAverage are calculated by Lipper Analytical Services, Inc. and reflect the return of certain portfolios underlyingvariable life and annuity products. The returns are net of investment fees and fund expenses but not productcharges. These returns would have been lower if they included the effect of these charges. Although Lipperclassifies the Portfolio within the Multi Cap Value Funds Average, the returns for the Large Cap Value FundsAverage is also shown, because the management of the portfolios included in the Large Cap Value Funds Averageare more consistent with the management of the Portfolio.

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Zero Coupon Bond Portfolio — 2005

A number of factors — including risk — can affect how the Portfolio performs. The bar chart and table belowdemonstrate the risk of investing in the Portfolio by showing how returns can change from year to year and by showinghow the Portfolio’s average annual returns compare with a market index and a group of similar mutual funds. Pastperformance does not mean that the Portfolios will achieve similar results in the future.




Class I shares 8.11% 7.70% 8.62%Lehman Govt. Bond Index** 7.23% 7.40% 7.14%Lipper Average*** 6.33% 7.92% 9.16%

* The Portfolio’s returns are after deduction of expenses and do not include Contract charges.** The Lehman Brothers Government Bond Index (LGI) is a weighted index made up of securities issued or backed

by the U.S. government, its agencies and instrumentalities with a remaining maturity of one to 30 years. The LGI isan unmanaged index and includes the reinvestment of all interest but does not reflect the payment of transactioncosts and advisory fees associated with an investment in the Portfolio. These returns would have been lower ifthey included the effect of these expenses. Source: Lipper, Inc.

*** The Lipper Variable Insurance Products (VIP) Target Maturity Funds Average is calculated by Lipper AnalyticalServices, Inc. and reflects the investment return of certain portfolios underlying variable life and annuity products.The returns are net of investment fees and fund expenses but not product charges. These returns would havebeen lower if they included the effect of these charges. Source: Lipper, Inc.

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HOW THE PORTFOLIOS INVEST

Investment Objectives and Policies

We describe each Portfolio’s investment objective and policies below. We describe certain investment instruments thatappear in bold lettering below in the section entitled Other Investments and Strategies. Although we make every effortto achieve each Portfolio’s objective, we can’t guarantee success and it is possible that you could lose money. Unlessotherwise stated, each Portfolio’s investment objective is a fundamental policy that cannot be changed withoutshareholder approval. The Board of Directors can change investment policies that are not fundamental.

An investment in a Portfolio is not a bank deposit and is not insured or guaranteed by the Federal Deposit InsuranceCorporation or any other government agency.


The investment objective of this Portfolio is to seek a total investment return consistent with a conservativelymanaged diversified portfolio.

Balanced PortfolioWe invest in equity, debt and money market securities inorder to achieve diversification. We seek to maintain aconservative blend of investments that will have strongperformance in a down market and solid, but notnecessarily outstanding, performance in up markets.This Portfolio may be appropriate for an investor lookingfor diversification with less risk than that of the FlexibleManaged Portfolio, while recognizing that this reducesthe chances of greater appreciation.

To achieve our objective, we invest in a mix of equity andequity-related securities, debt obligations and moneymarket instruments. We adjust the percentage of Portfolioassets in each category depending on our expectationsregarding the different markets. While we make everyeffort to achieve our objective, we can’t guaranteesuccess and it is possible that you could lose money.

We will vary how much of the Portfolio’s assets areinvested in a particular type of security depending onhow we think the different markets will perform.

Under normal conditions, we will invest within the ranges shown below:

Asset Type Minimum Normal Maximum

Stocks 15% 50% 75%Debt obligations and money

market securities25% 50% 85%

The equity portion of the Portfolio is generally managed as an index fund, designed to mirror the holdings of theStandard & Poor’s 500 Composite Stock Price Index. For more information about the index and index investing, see theinvestment summary for Stock Index Portfolio included in this prospectus.

Debt securities in general are basically written promises to repay a debt. There are numerous types of debt securitieswhich vary as to the terms of repayment and the commitment of other parties to honor the obligations of the issuer.Most of the securities in the debt portion of this Portfolio will be rated “investment grade.” This means major ratingservices, like Standard & Poor’s Ratings Group (S&P) or Moody’s Investors Service, Inc. (Moody’s), have rated thesecurities within one of their four highest rating categories. The Portfolio also invests in high quality money marketinstruments.

The Portfolio may also invest in lower-rated securities, which are riskier and are considered speculative. Thesesecurities are sometimes referred to as “junk bonds.” We may also invest in instruments that are not rated, but whichwe believe are of comparable quality to the instruments described above. The Portfolio’s investment in debt securitiesmay include investments in mortgage-related securities.

The Portfolio may invest up to 30% of its total assets in foreign equity and debt securities that are not denominated inthe U.S. dollar. Up to 20% of the Portfolio’s total assets may be invested in debt securities that are issued outside the

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U.S. by foreign or U.S. issuers, provided the securities are denominated in U.S. dollars. For these purposes, we do notconsider American Depositary Receipts (ADRs) as foreign securities.

In response to adverse market conditions or when restructuring the Portfolio, we may temporarily invest up to 100% ofthe Portfolio’s total assets in money market instruments. Investing heavily in these securities limits our ability to achieveour investment objective, but can help to preserve the value of the Portfolio’s assets when the markets are unstable.

We may also invest in fixed and floating rate loans (secured or unsecured) arranged through private negotiationsbetween a corporation which is the borrower and one or more financial institutions that are the lenders. Generally,these types of investments are in the form of loans or assignments.

We may also use alternative investment strategies — including derivatives— to try to improve the Portfolio’s returns,protect its assets or for short-term cash management.

We may: purchase and sell options on equity securities, debt securities, stock indexes and foreign currencies;purchase and sell exchange-traded fund shares; purchase and sell stock index, interest rate, interest rate swap andforeign currency futures contracts and options on those contracts; enter into forward foreign currency exchangecontracts; and purchase securities on a when-issued or delayed delivery basis.

The Portfolio may also enter into short sales. No more than 25% of the Portfolio’s net assets may be used as collateralor segregated for purposes of securing a short sale obligation. The Portfolio may also enter into short sales against-the-box.

We may also use interest rate swaps in the management of the fixed-income portion of the Portfolio.

The Portfolio may also enter into repurchase agreements. The Portfolio may participate with certain other Portfolios ofthe Fund and other affiliated funds in a joint repurchase account under an order obtained from the SEC. The Portfoliomay invest in equity and/or debt securities issued by Real Estate Investment Trusts (REITs).

We may also invest in reverse repurchase agreements and dollar rolls in the management of the fixed-incomeportion of the Portfolio. The Portfolio will not use more than 30% of its net assets in connection with reverse repurchasetransactions and dollar rolls.


The investment objective of this Portfolio is a high level of income over a longer term while providing reasonablesafety of capital. This means we look for investments that we think will provide a high level of current income, butwhich are not expected to involve a substantial risk of loss of capital through default. To achieve our objective, wenormally invest at least 80% of the Portfolio’s investable assets in intermediate and long term debt obligations that arerated investment grade and high-quality money market investments. While we make every effort to achieve ourobjective, we can’t guarantee success and it is possible that you could lose money.

Our StrategyIn general, the value of debt obligations moves in theopposite direction as interest rates — if a bond ispurchased and then interest rates go up, newer bondswill be worth more relative to existing bonds becausethey will have a higher rate of interest. We will adjust themix of the Portfolio’s short-term, intermediate and longterm debt obligations in an attempt to benefit from priceappreciation when interest rates go down and to incursmaller declines when rates go up.

Debt obligations, in general, are basically writtenpromises to repay a debt. The terms of repayment varyamong the different types of debt obligations, as do thecommitments of other parties to honor the obligations ofthe issuer of the security. The types of debt obligationsin which we can invest include U.S. governmentsecurities, mortgage-related securities and corporatebonds.

Usually, at least 80% of the Portfolio’s investable assets will be invested in debt securities that are investment grade.This means major rating services, like Standard and Poor’s Ratings Group (S&P) or Moody’s Investor Service, Inc.-

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(Moody’s), have rated the securities within one of their four highest rating categories. The Portfolio may continue tohold a debt obligation if it is downgraded below investment grade after it is purchased or if it is no longer rated by amajor rating service. We may also invest up to 20% of the Portfolio’s investable assets in lower rated securities whichare riskier and considered speculative. These securities are sometimes referred to as “junk bonds.” We may also investin instruments that are not rated, but which we believe are of comparable quality to the instruments described above.

The Portfolio may invest without limit in debt obligations issued or guaranteed by the U.S. government andgovernment-related entities. An example of a debt security that is backed by the full faith and credit of the U.S.government is an obligation of the Government National Mortgage Association (Ginnie Mae). In addition, we may investin U.S. government securities issued by other government entities, like the Federal National Mortgage Association(Fannie Mae) and the Student Loan Marketing Association (Sallie Mae) which are not backed by the full faith and creditof the U.S. government. Instead, these issuers have the right to borrow from the U.S. Treasury to meet theirobligations. The Portfolio may also invest in the debt securities of other government-related entities, like the FarmCredit System, which depend entirely upon their own resources to repay their debt.

We may invest up to 20% of the Portfolio’s total assets in debt securities issued outside the U.S. by U.S. or foreignissuers whether or not such securities are denominated in the U.S. dollar.

The Portfolio may also invest in convertible debt and convertible and preferred stocks and non-convertiblepreferred stock of any rating. The Portfolio will not acquire any common stock except by converting a convertiblesecurity or exercising a warrant. No more than 10% of the Portfolio’s total assets will be held in common stocks, andthose will usually be sold as soon as a favorable opportunity arises. The Portfolio may lend its portfolio securities tobrokers, dealers and other financial institutions to earn income.

We may also invest in loans or assignments arranged through private negotiations between a corporation which is theborrower and one or more financial institutions that are the lenders.

Under normal conditions, the Portfolio may invest a portion of its assets in high-quality money market instruments. Inresponse to adverse market conditions or when restructuring the Portfolio, we may temporarily invest up to 100% of thePortfolio’s assets in money market instruments. Investing heavily in these securities limits our ability to achieve ourinvestment objective, but can help to preserve the value of the Portfolio’s assets when the markets are unstable.


We may: purchase and sell options on debt securities; purchase and sell interest rate and interest rate swap futurescontracts and options on those contracts; invest in forward foreign currency exchange contracts; and purchasesecurities on a when-issued or delayed delivery basis.

The Portfolio may also enter into short sales. No more than 25% of the Portfolio’s net assets may be used as collateral orsegregated for purposes of securing a short sale obligation. The Portfolio may also enter into short sales against-the-box.

We may also use interest rate swaps in the management of the Portfolio.

The Portfolio may also enter into repurchase agreements. The Portfolio may participate with certain other Portfolios ofthe Fund in a joint repurchase account under an order obtained from the SEC.

The Portfolio may also invest up to 30% of its net assets in reverse repurchase agreements and dollar rolls. ThePortfolio will not use more than 30% of its net assets in connection with reverse repurchase transactions and dollar rolls.

Equity Portfolio

The investment objective of this Portfolio is capital appreciation. This means we seek investments that we believe willprovide investment returns above broadly based market indexes. While we make every effort to achieve our objective,we can’t guarantee success and it is possible that you could lose money.

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Blend ApproachIn deciding which stocks to buy, our portfolio managersuse a blend of investment styles. That is, we invest instocks that may be undervalued given the company’searnings, assets, cash flow and dividends and alsoinvest in companies experiencing some or all of thefollowing: a price/earnings ratio lower than earnings pershare growth, strong market position, improvingprofitability and distinctive attributes such as uniquemarketing ability, strong research and development, newproduct flow, and financial strength.

To achieve our investment objective, we normally investat least 80% of the Portfolio’s investable assets incommon stocks of major established corporations aswell as smaller companies.

20% of the Portfolio’s investable assets may be investedin short, intermediate or long-term debt obligations,convertible and nonconvertible preferred stock and otherequity-related securities. Up to 5% of these investableassets may be rated below investment grade. Thesesecurities are considered speculative and are sometimesreferred to as “junk bonds.”

Up to 30% of the Portfolio’s total assets may be invested in foreign securities, including money market instruments,equity securities and debt obligations. For these purposes, we do not consider American Depositary Receipts (ADRs)as foreign securities.

Under normal circumstances, the Portfolio may invest a portion of its assets in money market instruments. In addition,we may temporarily invest up to 100% of the Portfolio’s assets in money market instruments in response to adversemarket conditions or when we are restructuring the portfolio. Investing heavily in these securities limits our ability toachieve our investment objective, but can help to preserve the Portfolio’s assets when the markets are unstable.


We may: purchase and sell options on equity securities, stock indexes and foreign currencies; purchase and sell stockindex and foreign currency futures contracts and options on these futures contracts; enter into forward foreigncurrency exchange contracts; and purchase securities on a when-issued or delayed delivery basis.

The Portfolio may also enter into short sales against-the-box.

The Portfolio may also enter into repurchase agreements. The Portfolio may participate with certain other Portfolios ofthe Fund in a joint repurchase account under an order obtained from the SEC. The Portfolio may invest in equity and/or debt securities of Real Estate Investment Trusts (REITs).

Jennison Associates LLC is responsible for managing approximately 50% of the Portfolio’s assets. GE AssetManagement Inc. and Salomon Brothers Asset Management Inc. are each responsible for managing approximately25% of the Portfolio’s assets.


The investment objective of this Portfolio is to seek a high total return consistent with an aggressively manageddiversified portfolio.

Balanced PortfolioWe invest in equity, debt and money marketsecurities — in order to achieve diversification in a singlePortfolio. We seek to maintain a more aggressive mix ofinvestments than the Conservative Balanced Portfolio.This Portfolio may be appropriate for an investor lookingfor diversification who is willing to accept a relatively highlevel of loss in an effort to achieve greater appreciation.

To achieve our objective, we invest in a mix of equityand equity-related securities, debt obligations andmoney market instruments. We adjust the percentage ofPortfolio assets in each category depending on ourexpectations regarding the different markets. While wemake every effort to achieve our objective, we can’tguarantee success and it is possible that you could losemoney.

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Generally, we will invest within the ranges shown below:

Asset Type Minimum Normal Maximum

Stocks 25% 60% 100%Fixed income securities 0% 40% 75%

The equity portion of the Fund is generally managed under an “enhanced index style.” Under this style, the portfoliomanagers utilize a quantitative approach in seeking to out-perform the Standard & Poor’s 500 Composite Stock PriceIndex and to limit the possibility of significantly under-performing that index.

The stock portion of the Portfolio will be invested in a broadly diversified portfolio of stocks generally consisting of largeand mid-size companies, although it may also hold stocks of smaller companies. We will invest in companies andindustries that, in our judgment, will provide either attractive long-term returns, or are desirable to hold in the Portfolio tomanage risk.

Most of the securities in the fixed income portion of this Portfolio will be investment grade. However, we may alsoinvest up to 25% of this portion of the Portfolio in debt securities rated as low as BB, Ba or lower by a major ratingservice at the time they are purchased. These high-yield or “junk bonds” are riskier and considered speculative. Wemay also invest in instruments that are not rated, but which we believe are of comparable quality to the instrumentsdescribed above. The fixed income portion of the Portfolio may also include loans or assignments in the form of loanparticipations and mortgage-related securities.

The Portfolio may also invest up to 30% of its total assets in foreign equity and debt securities that are not denominatedin the U.S. dollar. In addition, up to 20% of the Portfolio’s total assets may be invested in debt securities that are issuedoutside of the U.S. by foreign or U.S. issuers provided the securities are denominated in U.S. dollars. For thesepurposes, we do not consider American Depositary Receipts (ADRs) as foreign securities.

In response to adverse market conditions or when we are restructuring the Portfolio, we may temporarily invest up to100% of the Portfolio’s assets in money market instruments. Investing heavily in these securities limits our ability toachieve our investment objective, but can help to preserve the Portfolio’s assets when the markets are unstable.

The Portfolio may also invest in Real Estate Investment Trusts (REITs).


We may: purchase and sell options on equity securities, debt securities, stock indexes, and foreign currencies;purchase and sell exchange-traded fund shares; purchase and sell stock index, interest rate, interest rate swap andforeign currency futures contracts and options on those contracts; enter into forward foreign currency exchangecontracts; and purchase securities on a when-issued or delayed delivery basis.


The Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions to earn income.

We may also use interest rate swaps in the management of the fixed income portion of the Portfolio.


We may also invest in reverse repurchase agreements and dollar rolls in the management of the fixed-incomeportion of the Portfolio. The Portfolio will not use more than 30% of its net assets in connection with reverse repurchasetransactions and dollar rolls.

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Global Portfolio

The investment objective of this Portfolio is long-term growth of capital. To achieve this objective, we invest primarilyin equity and equity-related securities of foreign and U.S. companies. While we make every effort to achieve ourobjective, we can’t guarantee success and it is possible that you could lose money.

Global InvestingThis Portfolio is intended to provide investors with theopportunity to invest in companies located throughoutthe world. Although we are not required to invest in aminimum number of countries, we intend generally toinvest in at least three countries, including the U.S.However, in response to market conditions, we caninvest up to 35% of the Portfolio’s total assets in any onecountry other than the U.S. (The 35% limitation does notapply to U.S. investments).

When selecting stocks, we use a growth approach whichmeans we look for companies that have above-averagegrowth prospects. In making our stock picks, we look forcompanies that have had growth in earnings and sales,high returns on equity and assets or other strongfinancial characteristics. Often, the companies wechoose have superior management, a unique marketniche or a strong new product.

The Portfolio may invest up to 100% of its assets in money market instruments in response to adverse marketconditions or when we are restructuring the Portfolio. Investing heavily in these securities limits our ability to achieveour investment objective, but can help to preserve the Portfolio’s assets when the markets are unstable.


We may: purchase and sell options on equity securities, stock indexes and foreign currencies; purchase and sellfutures contracts on stock indexes, debt securities, interest rate indexes and foreign currencies and options on thesefutures contracts; enter into forward foreign currency exchange contracts; and purchase securities on a when-issued or delayed delivery basis.

The Portfolio may invest in equity swaps. The Portfolio may also lend its portfolio securities to brokers, dealers andother financial institutions to earn income.


The Portfolio may also enter into repurchase agreements. The Portfolio may participate with certain other Portfolios ofthe Fund in a joint repurchase account under an order obtained from the SEC. The portfolio may invest in equity and/or debt securities issued by Real Estate Investment Trusts (REITs).


The investment objective of this Portfolio is a high level of income over the longer term consistent with thepreservation of capital. In pursuing our objective, we invest primarily in intermediate and long-term U.S. Treasurysecurities and debt obligations issued by agencies or instrumentalities established, sponsored or guaranteed by theU.S. government, including mortgage-backed securities issued by government agencies. While we make every effort toachieve our objective, we can’t guarantee success and it is possible that you could lose money.

U.S. Government SecuritiesU.S. government securities are considered among themost creditworthy of debt securities. Because they aregenerally considered less risky, their yields tend to belower than the yields from corporate debt. Like all debtsecurities, the values of U.S. government securities willchange as interest rates change.

Normally, we will invest at least 80% of the Portfolio’sinvestable assets in U.S. government securities, whichinclude Treasury securities, obligations issued orguaranteed by U.S. government agencies andinstrumentalities and mortgage-related securitiesissued by U.S. government instrumentalities or non-governmental corporations.

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The Portfolio may normally invest up to 20% of its investable assets in money market instruments, foreign governmentsecurities (including those issued by supranational organizations) denominated in U.S. dollars, asset-backed securitiesrated at least single A by Moody’s or S&P (or if unrated, of comparable quality in our judgment) and securities ofissuers (including foreign governments and non-governmental foreign issuers) other than the U.S. government andrelated entities rated at least single A by Moody’s or S&P (or if unrated, of comparable quality in our judgment.) ThePortfolio may invest up to 15% of its net assets in zero coupon bonds.

The Portfolio may invest up to 100% of its assets in money market instruments in response to adverse marketconditions or when restructuring the Portfolio. Investing heavily in these securities limits our ability to achieve capitalappreciation, but can help to preserve the Portfolio’s assets when the markets are unstable. The Portfolio may lend itsportfolio securities to brokers, dealers and other financial institutions to earn income.


We may: purchase and sell options on debt securities; purchase and sell interest rate and interest rate swap futurescontracts and options on these futures contracts; and purchase securities on a when-issued or delayed deliverybasis.



The Portfolio may enter into repurchase agreements. The Portfolio may participate with certain other Portfolios of theFund in a joint repurchase account under an order obtained from the SEC.

The Portfolio may use up to 30% of its net assets in connection with reverse repurchase agreements and dollarrolls.


The investment objective of this Portfolio is a high total return. In pursuing our objective, we invest in high yield/highrisk debt securities. While we make every effort to achieve our objective, we can’t guarantee success and it is possiblethat you could lose money.

High Yield/High RiskLower rated and comparable unrated securities tend tooffer better yields than higher rated securities with thesame maturities because the issuer’s financial conditionmay not have been as strong as that of higher ratedissuers. Changes in the perception of thecreditworthiness of the issuers of lower rated securitiestend to occur more frequently and in a more pronouncedmanner than for issuers of higher rated securities.

Normally, we will invest at least 80% of the Portfolio’sinvestable assets in medium to lower rated debtsecurities. These high-yield or “junk bonds” are riskierthan higher rated bonds and are considered speculative.

The Portfolio may invest up to 20% of its total assets inU.S. dollar denominated debt securities issued outsidethe U.S. by foreign and U.S. issuers.

The Portfolio may also acquire common and preferred stock, debt securities and convertible debt and preferredstock.

We may also invest in loans or assignments arranged through private negotiations between a corporation which is theborrower and one or more financial institutions that are the lenders.

Under normal circumstances, the Portfolio may invest in money market instruments. In response to adverse marketconditions or when we are restructuring the Portfolio, we may temporarily invest up to 100% of the Portfolio’s assets inmoney market instruments. Investing heavily in these securities limits our ability to achieve our investment objective,but can help to preserve the Portfolio’s assets when the markets are unstable.

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We may: purchase and sell options on debt securities; purchase and sell interest rate and interest rate swap futurescontracts and options on these futures contracts; and purchase securities on a when-issued or delayed deliverybasis. The Portfolio may invest in PIK bonds.




The Portfolio may use up to 30% of its net assets in connection with reverse repurchase agreements and dollarrolls.


The investment objective of this Portfolio is to achieve long-term growth of capital. This means we seek investmentswhose price will increase over several years. While we make every effort to achieve our objective, we can’t guaranteesuccess and it is possible that you could lose money.

Investment StrategyWe seek to invest in equity securities of establishedcompanies with above-average growth prospects. Weselect stocks on a company-by-company basis usingfundamental analysis. In making our stock picks, we lookfor companies that have had growth in earnings andsales, high returns on equity and assets or other strongfinancial characteristics. Often, the companies wechoose have superior management, a unique marketniche or a strong new product.

In pursuing our objective, we normally invest 65% of thePortfolio’s total assets in common stocks and preferredstocks of companies with capitalization in excess of $1billion.

For the balance of the Portfolio, we may invest incommon stocks, preferred stocks and other equity-related securities of companies that are undergoingchanges in management, product and/or marketingdynamics which we believe have not yet been reflectedin reported earnings or recognized by investors.

In addition, we may invest in debt securities and mortgage-related securities. These securities may be rated as lowas Baa by Moody’s or BBB by S&P (or if unrated, of comparable quality in our judgment).

The Portfolio may also invest in obligations issued or guaranteed by the U.S. government, its agencies andinstrumentalities. Up to 30% of the Portfolio’s assets may be invested in foreign equity and equity-related securities.For these purposes, we do not consider American Depositary Receipts (ADRs) as foreign securities.

In response to adverse market conditions or when restructuring the Portfolio, we may invest up to 100% of thePortfolio’s assets in money market instruments. Investing heavily in these securities limits our ability to achieve ourinvestment objective, but can help to preserve the Portfolio’s assets when the markets are unstable.


We may: purchase and sell options on equity securities, stock indexes and foreign currencies; purchase and sell stockindex and foreign currency futures contracts and options on those futures contracts; enter into forward foreigncurrency exchange contracts; and purchase securities on a when-issued or delayed delivery basis.

The Portfolio may also lend its portfolio securities to brokers, dealers and other financial institutions to earn income.

29


The Portfolio may also enter into repurchase agreements. The Portfolio may participate with certain other Portfolios ofthe Fund in a joint repurchase account under an order obtained from the SEC. The Portfolio may invest in equity and/or debt securities issued by Real Estate Investment Trusts (REITs).


The investment objective of this Portfolio is to seek the maximum current income that is consistent with stabilityof capital and maintenance of liquidity. This means we seek investments that we think will provide a high level ofcurrent income. While we make every effort to achieve our objective, we can’t guarantee success.

Steady Net Asset ValueThe net asset value for the Portfolio will ordinarily remainissued at $10 per share because dividends are declaredand reinvested daily. The price of each share remainsthe same, but when dividends are declared the value ofyour investment grows.

We invest in a diversified portfolio of short-term debtobligations of the U.S. government, its agencies andinstrumentalities, as well as commercial paper, assetbacked securities, funding agreements, certificates ofdeposit, floating and variable rate demand notes, notesand other obligations issued by banks, corporations andother companies (including trust structures), andobligations issued by foreign banks, companies orforeign governments.

We make investments that meet the requirements of specific rules for money market mutual funds, such as InvestmentCompany Act Rule 2a-7. As such, we will not acquire any security with a remaining maturity exceeding thirteen months,and we will maintain a dollar-weighted average portfolio maturity of 90 days or less. In addition, we will comply with thediversification, quality and other requirements of Rule 2a-7. This means, generally, that the instruments that wepurchase present “minimal credit risk” and are of “eligible quality.” “Eligible quality” for this purpose means a security is:(i) rated in one of the two highest short-term rating categories by at least two major rating services (or if only one majorrating service has rated the security, as rated by that service); or (ii) if unrated, of comparable quality in our judgment.All securities that we purchase will be denominated in U.S. dollars.

Commercial paper is short-term debt obligations of banks, corporations and other borrowers. The obligations areusually issued by financially strong businesses and often include a line of credit to protect purchasers of the obligations.An asset-backed security is a loan or note that pays interest based upon the cash flow of a pool of assets, such asmortgages, loans and credit card receivables. Funding agreements are contracts issued by insurance companies thatguarantee a return of principal, plus some amount of interest. When purchased by money market funds, fundingagreements will typically be short-term and will provide an adjustable rate of interest.

Certificates of deposit, time deposits and bankers’ acceptances are obligations issued by or through a bank. Theseinstruments depend upon the strength of the bank involved in the borrowing to give investors comfort that theborrowing will be repaid when promised.

We may purchase debt securities that include demand features, which allow us to demand repayment of a debtobligation before the obligation is due or “matures.” This means that longer term securities can be purchased becauseof our expectation that we can demand repayment of the obligation at a set price within a relatively short period of time,in compliance with the rules applicable to money market mutual funds.

The Portfolio may also purchase floating rate and variable rate securities. These securities pay interest at rates thatchange periodically to reflect changes in market interest rates. Because these securities adjust the interest they pay,they may be beneficial when interest rates are rising because of the additional return the Portfolio will receive, and theymay be detrimental when interest rates are falling because of the reduction in interest payments to the Portfolio.

The securities that we may purchase may change over time as new types of money market instruments are developed.We will purchase these new instruments, however, only if their characteristics and features follow the rules governingmoney market mutual funds.

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We may also use alternative investment strategies to try to improve the Portfolio’s returns, protect its assets or forshort-term cash management. There is no guarantee that these strategies will work, that the instruments necessary toimplement these strategies will be available or that the Portfolio will not lose money.

We may purchase securities on a when-issued or delayed delivery basis.


The Portfolio may use up to 10% of its net assets in connection with reverse repurchase agreements.

An investment in the Portfolio is not a bank deposit and is not insured or guaranteed by the Federal DepositInsurance Corporation or any other government agency. Although the Portfolio seeks to preserve the value of aninvestment at $10 per share, it is possible to lose money by investing in the Portfolio.


The investment objective of this Portfolio is long-term growth of capital. This means we seek investments whoseprice will increase over several years. While we make every effort to achieve our objective, we can’t guarantee successand it is possible that you could lose money.

Natural Resource Companies are companies thatprimarily own, explore, mine, process or otherwisedevelop natural resources, or supply goods and servicesto such companies. Natural resources generally includeprecious metals, such as gold, silver and platinum,ferrous and nonferrous metals, such as iron, aluminumand copper, strategic metals such as uranium andtitanium, hydrocarbons such as coal and oil, timberland,undeveloped real property and agricultural commodities.

In pursuing our objective, we normally invest at least80% of the Portfolio’s investable assets in commonstocks and convertible securities of natural resourcecompanies and in securities which are related to themarket value of some natural resource (asset-indexedsecurities).

We seek securities that are attractively priced ascompared to the intrinsic value of the underlying naturalresource or securities of companies in a position tobenefit from current or expected economic conditions.

Depending on prevailing trends, we may shift the Portfolio’s focus from one natural resource to another, however, wewill not invest more than 25% of the Portfolio’s total assets in a single natural resource industry.

The Portfolio is a non-diversified mutual fund portfolio. This means that the Portfolio may invest a relatively highpercentage of its assets in a small number of issuers. As a result, the Portfolio’s performance may be more clearly tiedto the success or failure of a smaller group of Portfolio holdings. There are additional risks associated with thePortfolio’s investment in the securities of natural resource companies. The market value of the securities may beaffected by numerous factors, including events occurring in nature, inflationary pressures, and international politics.

When acquiring asset-indexed securities, we usually will invest in obligations rated at least BBB by Moody’s or Baa byS&P (or, if unrated, of comparable quality in our judgment). However, we may invest in asset-indexed securities ratedas low as CC by Moody’s or Ca by S&P or in unrated securities of comparable quality. These high-risk or “junk bonds”are considered speculative.

The Portfolio may also acquire asset-indexed securities issued in the form of commercial paper provided they are ratedat least A-2 by S&P or P-2 by Moody’s (or, if unrated, of comparable quality in our judgment).

The Portfolio may invest up to 20% of its investable assets in securities that are not asset-indexed or natural resourcerelated. These holdings may include common stocks, convertible stock, debt securities and money market instruments.When acquiring debt securities, we usually will invest in obligations rated A or better by S&P or Moody’s (or, if unrated,of comparable quality in our judgment). However, we may invest in debt securities rated as low as CC by Moody’s orCa by S&P or in unrated securities of comparable quality.

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Under normal circumstances, the Portfolio may invest up to 20% of its investable assets in money market instruments.In response to adverse market conditions or when restructuring the Portfolio, we may invest up to 100% of thePortfolio’s assets in money market instruments. Investing heavily in these securities limits our ability to achieve ourinvestment objective, but can help to preserve the Portfolio’s assets when the markets are unstable.

Up to 30% of the Portfolio’s total assets may be invested in foreign equity and equity-related securities. For thesepurposes, we do not consider American Depositary Receipts (ADRs) as foreign securities.






The investment objective of this Portfolio is long-term growth of capital. This means we seek investments whoseprice will increase over several years. While we make every effort to achieve our objective, we can’t guarantee successand it is possible that you could lose money.

S&P SmallCap indexWe attempt to duplicate the performance of the Standard& Poor’s Small Capitalization 600 Stock Index (S&PSmallCap 600 Index), a market-weighted index whichconsists of 600 smaller capitalization U.S. stocks. Themarket capitalization of the companies that make up theS&P SmallCap 600 Index may change from time totime — as of January 31, 2002, the S&P SmallCap 600Index stocks had market capitalizations of between$46 million and $3.3 billion. They are selected formarket size, liquidity and industry group. The S&PSmallCap 600 Index has above-average risk and mayfluctuate more than the S&P 500.

To achieve this objective, we attempt to duplicate theperformance of the S&P SmallCap 600 Index. Normallywe do this by investing at least 80% of the Portfolio’sinvestable assets in all or a representative sample of thestocks in the S&P SmallCap 600 Index. Thus, thePortfolio is not “managed” in the traditional sense ofusing market and economic analyses to select stocks.

The Portfolio may also hold cash or cash equivalents, inwhich case its performance will differ from that of theIndex.

We attempt to minimize these differences by using stock index futures contracts, options on stock indexes andoptions on stock index futures contracts. The Portfolio will not use these derivative securities for speculative purposesor to hedge against a decline in the value of the Portfolio’s holdings.

We may also use alternative investment strategies to try to improve the Portfolio’s returns or for short-term cashmanagement. The Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions to earnincome. There is no guarantee that these strategies will work, that the instruments necessary to implement thesestrategies will be available or that the Portfolio will not lose money.

We may: purchase and sell options on equity securities and stock indexes; purchase and sell stock index futurescontracts and options on those futures contracts; purchase and sell exchange-traded fund shares; and purchasesecurities on a when-issued or delayed delivery basis.

The Portfolio may also enter into short sales and short sales against-the-box. No more than 5% of the Portfolio’stotal assets may be used as collateral or segregated for purposes of securing a short sale obligation.

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A stock’s inclusion in the S&P SmallCap 600 Index in no way implies S&P’s opinion as to the stock’s attractivenessas an investment. The Portfolio is not sponsored, endorsed, sold or promoted by S&P. S&P makes norepresentations regarding the advisability of investing in the Portfolio. “Standard & Poor’s,” “Standard & Poor’s SmallCapitalization Stock Index” and “Standard & Poor’s SmallCap 600” are trademarks of McGraw Hill.


The investment objective of this Portfolio is to achieve investment results that generally correspond to theperformance of publicly-traded common stocks. To achieve this goal, we attempt to duplicate the performance ofthe Standard & Poor’s 500 Composite Stock Price Index (S&P 500 Index). While we make every effort to achieve ourobjective, we can’t guarantee success and it is possible that you could lose money.

S&P 500 IndexWe attempt to duplicate the performance of the S&P 500Index, a market-weighted index which represents morethan 70% of the market value of all publicly-tradedcommon stocks.

Under normal conditions, we attempt to invest in all 500stocks represented in the S&P 500 Index in proportion totheir weighting in the S&P 500 Index. We will normallyinvest at least 80% of the Portfolio’s investable assets inS&P 500 Index stocks, but we will attempt to remain asfully invested in the S&P 500 Index stocks as possible inlight of cash flow into and out of the Portfolio.

To manage investments and redemptions in the Portfolio, we may temporarily hold cash or invest in high-quality moneymarket instruments. To the extent we do so, the Portfolio’s performance will differ from that of the S&P 500 Index. Weattempt to minimize differences in the performance of the Portfolio and the S&P 500 Index by using stock index futurescontracts, options on stock indexes and options on stock index futures contracts. The Portfolio will not use thesederivative securities for speculative purposes or to hedge against a decline in the value of the Portfolio’s holdings.

We may also use alternative investment strategies to try to improve the Portfolio’s returns or for short-term cashmanagement. The Portfolio may lend its portfolio securities to brokers, dealers and other financial institutions to earnincome. There is no guarantee that these strategies will work, that the instruments necessary to implement thesestrategies will be available or that the Portfolio will not lose money.

We may: purchase and sell options on stock indexes; purchase and sell stock futures contracts and options on thosefutures contracts; and purchase and sell exchange-traded fund shares.

The Portfolio may also enter into short sales and short sales against-the-box. No more than 5% of the Portfolio’stotal assets may be used as collateral or segregated for purposes of securing a short sale obligation.


A stock’s inclusion in the S&P 500 Index in no way implies S&P’s opinion as to the stock’s attractiveness as aninvestment. The portfolio is not sponsored, endorsed, sold or promoted by S&P. S&P makes no representationsregarding the advisability of investing in the portfolio. “Standard & Poor’s,” “Standard & Poor’s 500” and “500” aretrademarks of McGraw Hill.

Value Portfolio

The investment objective of this Portfolio is to seek capital appreciation. This means we focus on stocks that areundervalued — those stocks that are trading below their underlying asset value, cash generating ability, and overallearnings and earnings growth. While we make every effort to achieve our objective, we can’t guarantee success and itis possible that you could lose money.

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Contrarian ApproachTo achieve our value investment strategy, we generallytake a strong contrarian approach to investing. In otherwords, we usually buy stocks that are out of favor andthat many other investors are selling, and we attempt toinvest in companies and industries before otherinvestors recognize their true value. Using theseguidelines, we focus on long-term performance, notshort-term gain.

We will normally invest at least 65% of the Portfolio’stotal assets in equity and equity-related securities. Mostof our investments will be securities of largecapitalization companies. When deciding which stocks tobuy, we look at a company’s earnings, balance sheetand cash flow and then at how these factors impact thestock’s price and return. We also buy equity-relatedsecurities — like bonds, corporate notes and preferredstock — that can be converted into a company’scommon stock or other equity security.

Up to 35% of the Portfolio’s total assets may be invested in other debt obligations including non-convertible preferredstock. When acquiring these types of securities, we usually invest in obligations rated A or better by Moody’s or S&P.We may also invest in obligations rated as low as CC by Moody’s or Ca by S&P. These securities are consideredspeculative and are sometimes referred to as “junk bonds.” We may also invest in instruments that are not rated, butwhich we believe are of comparable quality to the instruments described above.

Up to 30% of the Portfolio’s total assets may be invested in foreign securities, including money market instruments,equity securities and debt obligations. For these purposes, we do not consider American Depositary Receipts (ADRs)as foreign securities.

Under normal circumstances, the Portfolio may invest up to 35% of its total assets in high-quality money marketinstruments. In response to adverse market conditions or when we are restructuring the Portfolio, we may temporarilyinvest up to 100% of the Portfolio’s assets in money market instruments. Investing heavily in these securities limits ourability to achieve our investment objective, but can help to preserve the Portfolio’s assets when the markets areunstable.

We may also use alternative investment strategies — including derivatives— to try to improve the Portfolio’s returns,protect its assets or for short-term cash management. The Portfolio may lend its portfolio securities to brokers, dealersand other financial institutions to earn income.




Jennison Associates LLC is responsible for managing approximately 50% of the Portfolio’s assets. Victory CapitalManagement Inc. (formerly, Key Asset Management Inc.) and Deutsche Asset Management, Inc. (DAMI) are eachresponsible for managing approximately 25% of the Portfolio’s assets.


The investment objective of this Portfolio is the highest predictable compound investment for a specific period oftime, consistent with the safety of invested capital. We seek to achieve this objective by investing at least 80% ofthe Portfolio’s investable assets in debt securities of the U.S. Treasury and corporations that have been issued withoutinterest coupons or that have been stripped of their interest coupons, or have interest coupons that have been strippedfrom the debt obligation (stripped securities). On the liquidation date all of the securities held by the Portfolio will besold and all outstanding shares of the Portfolio will be redeemed. Please refer to your variable contract prospectus forinformation on your reallocation options and the Portfolio to which your investment will be transferred if you do notprovide other instructions. While we make every effort to achieve our objective, we can’t guarantee success and it ispossible that you could lose money.

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Active ManagementThe Portfolio seeks a higher yield than would be realizedby just holding the Portfolio’s initial investments. Weactively manage the Portfolio to take advantage oftrading opportunities that may arise from supply anddemand dynamics or perceived differences in the qualityor liquidity of securities.

Of course, by pursuing this strategy, the Portfolio has therisk that it will not realize the yield of its initialinvestments.

In pursuing its objective, the Portfolio invests only in debtsecurities that do not involve substantial risk of loss ofcapital through default and that can be readily sold.Although these securities are not high-risk, their valuedoes vary because of changes in interest rates.

In order to lessen the impact of interest rate changes, wewill keep the duration of the Portfolio within one year ofthe Portfolio’s liquidation date. (Duration is a measure ofa “length” of a bond, or in this case, a portfolio of bonds.It is a mathematical calculation that takes into accountthe maturities of the bonds, coupon rates and prevailinginterest rates.)

Generally, we invest at least 70% of the Portfolio’s total assets in stripped securities that are obligations of the U.S.government and which mature within two years of the Portfolio’s liquidation date. Up to 30% of the Portfolio’s totalassets may be invested in either stripped securities of corporations or interest bearing corporate debt securities ratedno lower than Baa by a major rating service (or, if unrated, of comparable quality in our judgment).

Under normal conditions, no more than 20% of the Portfolio’s investable assets may be invested in interest-bearingsecurities. However, as the liquidation date of the Portfolio draws near, we may invest more than 20% in interestbearing securities as a defensive measure.

Under normal circumstances, the Portfolio may invest in money market instruments for cash management purposes.As the Portfolio’s liquidation date nears, we may increase our investment in money market instruments. In addition, inresponse to adverse market conditions, we may temporarily invest up to 100% of the Portfolio’s assets in moneymarket instruments. Investing heavily in these securities limits our ability to achieve our investment objective, but canhelp to preserve the Portfolio’s assets when the markets are unstable.


* * *

The Statement of Additional Information — which we refer to as the SAI — contains additional information about thePortfolios. To obtain a copy, see the back cover page of this prospectus.

* * *

OTHER INVESTMENTS AND STRATEGIES

As indicated in the description of the Portfolios above, we may use the following investment strategies to increase aPortfolio’s return or protect its assets if market conditions warrant.

ADRs are certificates representing the right to receive foreign securities that have been deposited with a U.S. bank or aforeign branch of a U.S. bank.

Convertible Debt and Convertible Preferred Stock—A convertible security is a security — for example, a bond orpreferred stock — that may be converted into common stock of the same or different issuer. The convertible securitysets the price, quantity of shares and time period in which it may be so converted. Convertible stock is senior to acompany’s common stock but is usually subordinated to debt obligations of the company. Convertible securities providea steady stream of income which is generally at a higher rate than the income on the company’s common stock butlower than the rate on the company’s debt obligations. At the same time, they offer — through their conversionmechanism — the chance to participate in the capital appreciation of the underlying common stock. The price of aconvertible security tends to increase and decrease with the market value of the underlying common stock.

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Derivatives—A derivative is an investment instrument that derives its price, performance, value, or cash flow fromone or more underlying securities or other interests. Derivatives involve costs and can be volatile. With derivatives, theinvestment adviser tries to predict whether the underlying investment — a security, market index, currency, interest rateor some other benchmark — will go up or down at some future date. We may use derivatives to try to reduce risk or toincrease return consistent with a Portfolio’s overall investment objective. The investment adviser will consider otherfactors (such as cost) in deciding whether to employ any particular strategy, or use any particular instrument. Anyderivatives we use may not fully offset a Portfolio’s underlying positions and this could result in losses to the Portfoliothat would not otherwise have occurred.

Dollar Rolls—Dollar rolls involve the sale by the Portfolio of a security for delivery in the current month with a promiseto repurchase from the buyer a substantially similar — but not necessarily the same — security at a set price and datein the future. During the “roll period,” the Portfolio does not receive any principal or interest on the security. Instead, it iscompensated by the difference between the current sales price and the price of the future purchase, as well as anyinterest earned on the cash proceeds from the original sale.

Equity Swaps— In an equity swap, the Portfolio and another party agree to exchange cash flow payments that arebased on the performance of equities or an equity index.

Forward Foreign Currency Exchange Contracts—A foreign currency forward contract is an obligation to buy or sella given currency on a future date at a set price. When a Portfolio enters into a contract for the purchase or sale of asecurity denominated in a foreign currency, or when a Portfolio anticipates the receipt in a foreign currency of dividendsor interest payments on a security which it holds, the Portfolio may desire to “lock-in” the U.S. dollar price of thesecurity or the U.S. dollar equivalent of such dividend or interest payment, as the case may be. By entering into aforward contract for a fixed amount of dollars, for the purchase or sale of the amount of foreign currency involved in theunderlying transactions, the Portfolio will be able to protect itself against a possible loss resulting from an adversechange in the relationship between the U.S. dollar and the foreign currency during the period between the date onwhich the security is purchased or sold, or on which the dividend or interest payment is declared, and the date on whichsuch payments are made or received. At the maturity of a forward contract, a Portfolio may either sell the security andmake delivery of the foreign currency or it may retain the security and terminate its contractual obligation to deliver theforeign currency by purchasing an “offsetting” contract with the same currency trader obligating it to purchase, on thesame maturity date, the same amount of the foreign currency.

Futures Contracts—A futures contract is an agreement to buy or sell a set quantity of an underlying product at afuture date, or to make or receive a cash payment based on the value of a securities index. When a futures contract isentered into, each party deposits with a futures commission merchant (or in a segregated account) approximately 5%of the contract amount. This is known as the “initial margin.” Every day during the futures contract, either the buyer orthe futures commission merchant will make payments of “variation margin.” In other words, if the value of theunderlying security, index or interest rate increases, then the buyer will have to add to the margin account so that theaccount balance equals approximately 5% of the value of the contract on that day. The next day, the value of theunderlying security, index or interest rate may decrease, in which case the borrower would receive money from theaccount equal to the amount by which the account balance exceeds 5% of the value of the contract on that day. Astock index futures contract is an agreement between the buyer and the seller of the contract to transfer an amount ofcash equal to the daily variation margin of the contract. No physical delivery of the underlying stocks in the index ismade.

Interest Rate Swaps— In an interest rate swap, the Portfolio and another party agree to exchange interest payments.For example, the Portfolio may wish to exchange a floating rate of interest for a fixed rate. We would enter into thattype of a swap if we think interest rates are going down.

Joint Repurchase Account— In a joint repurchase transaction, uninvested cash balances of various Portfolios areadded together and invested in one or more repurchase agreements. Each of the participating Portfolios receives aportion of the income earned in the joint account based on the percentage of its investment.

Loans and Assignments— Loans are privately negotiated between a corporate borrower and one or more financialinstitutions. The Portfolio acquires interests in loans directly (by way of assignment from the selling institution) orindirectly (by way of the purchase of a participation interest from the selling institution. Purchasers of loans depend

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primarily upon the creditworthiness of the borrower for payment of interest and repayment of principal. If scheduledinterest or principal payments are not made, the value of the instrument may be adversely affected. Interests in loansare also subject to additional liquidity risks. Loans are not generally traded in organized exchange markets but aretraded by banks and other institutional investors engaged in loan syndications. Consequently, the liquidity of a loan willdepend on the liquidity of these trading markets at the time that the Portfolio sells the loan.

In assignments, the Portfolio will have no recourse against the selling institution, and the selling institution generallymakes no representations about the underlying loan, the borrowers, the documentation or the collateral. In addition, therights against the borrower that are acquired by the Portfolio may be more limited than those held by the assigninglender.

Mortgage-related Securities are usually pass-through instruments that pay investors a share of all interest andprincipal payments from an underlying pool of fixed or adjustable rate mortgages. We may invest in mortgage-relatedsecurities issued and guaranteed by the U.S. government or its agencies like the Federal National MortgageAssociation (Fannie Maes) and the Government National Mortgage Association (Ginnie Maes) and debt securitiesissued (but not guaranteed) by the Federal Home Loan Mortgage Company (Freddie Macs). Private mortgage-relatedsecurities that are not guaranteed by U.S. governmental entities generally have one or more types of creditenhancement to ensure timely receipt of payments and to protect against default.

Mortgage-related securities include collateralized mortgage obligations, multi-class pass through securities andstripped mortgage-backed securities. A collateralized mortgage-backed obligation (CMO) is a security backed by anunderlying portfolio of mortgages or mortgage-backed securities that may be issued or guaranteed by entities such asbanks, U.S. governmental entities or broker-dealers. A multi-class pass-through security is an equity interest in a trustcomposed of underlying mortgage assets. Payments of principal and interest on the mortgage assets and anyreinvestment income provide the money to pay debt service on the CMO or to make scheduled distributions on themulti-class pass-through security. A stripped mortgage-backed security (MBS strip) may be issued by U.S.governmental entities or by private institutions. MBS strips take the pieces of a debt security (principal and interest) andbreak them apart. The resulting securities may be sold separately and may perform differently. MBS strips are highlysensitive to changes in prepayment and interest rates.

Options—A call option on stock is a short-term contract that gives the option purchaser or “holder” the right to acquirea particular equity security for a specified price at any time during a specified period. For this right, the option purchaserpays the option seller a certain amount of money or “premium” which is set before the option contract is entered into.The seller or “writer” of the option is obligated to deliver the particular security if the option purchaser exercises theoption. A put option on stock is a similar contract. In a put option, the option purchaser has the right to sell a particularsecurity to the option seller for a specified price at any time during a specified period. In exchange for this right, theoption purchaser pays the option seller a premium. Options on debt securities are similar to stock options except thatthe option holder has the right to acquire or sell a debt security rather than an equity security. Options on stock indexesare similar to options on stocks, except that instead of giving the option holder the right to receive or sell a stock, itgives the holder the right to receive an amount of cash if the closing level of the stock index is greater than (in the caseof a call) or less than (in the case of a put) the exercise price of the option. The amount of cash the holder will receiveis determined by multiplying the difference between the index’s closing price and the option’s exercise price, expressedin dollars, by a specified “multiplier”. Unlike stock options, stock index options are always settled in cash, and gain orloss depends on price movements in the stock market generally (or a particular market segment, depending on theindex) rather than the price movement of an individual stock.

Real Estate Investment Trusts (REITs)—A REIT is a company that manages a portfolio of real estate to earn profitsfor its shareholders. Some REITs acquire equity interests in real estate and then receive income from rents and capitalgains when the buildings are sold. Other REITs lend money to real estate developers and receive interest income fromthe mortgages. Some REITs invest in both types of interests.

Repurchase Agreements— In a repurchase transaction, the Portfolio agrees to purchase certain securities and theseller agrees to repurchase the same securities at an agreed upon price on a specified date. This creates a fixed returnfor the Portfolio.

Reverse Repurchase Agreements— In a reverse repurchase transaction, the Portfolio sells a security it owns andagrees to buy it back at a set price and date. During the period the security is held by the other party, the Portfolio maycontinue to receive principal and interest payments on the security.

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Short Sales— In a short sale, we sell a security we do not own to take advantage of an anticipated decline in thestock’s price. The Portfolio borrows the stock for delivery and if it can buy the stock later at a lower price, a profitresults.

Short Sales Against-the-Box—A short sale against-the-box means the Portfolio owns securities identical to thosesold short.

When-Issued and Delayed Delivery Securities—With when-issued or delayed delivery securities, the delivery andpayment can take place a month or more after the date of the transaction. A Portfolio will make commitments for when-98 issued transactions only with the intention of actually acquiring the securities. A Portfolio’s custodian will maintain ina segregated account, liquid assets having a value equal to or greater than such commitments. If the Portfolio choosesto dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of anyother security, incur a gain or loss.

* * *

Except for the Money Market Portfolio and the Zero Coupon Bond Portfolio 2005, each Portfolio also follows certainpolicies when it borrows money (each Portfolio may borrow up to 5% of the value of its total assets); lends itssecurities; and holds illiquid securities (a Portfolio may hold up to 15% of its net assets in illiquid securities, includingsecurities with legal or contractual restrictions on resale, those without a readily available market and repurchaseagreements with maturities longer than seven days). If the Portfolio were to exceed this limit, the investment adviserwould take prompt action to reduce a Portfolio’s holdings in illiquid securities to no more than 15% of its net assets, asrequired by applicable law. A Portfolio is subject to certain investment restrictions that are fundamental policies, whichmeans they cannot be changed without shareholder approval. For more information about these restrictions, see theSAI.

The Money Market Portfolio also follows certain policies when it borrows money (the Portfolio may borrow up to 5% ofthe value of its total assets) and holds illiquid securities (the Portfolio may hold up to 10% of its net assets in illiquidsecurities, including securities with legal or contractual restrictions on resale, those without a readily available marketand repurchase agreements with maturities longer than seven days). If the Portfolio were to exceed this limit, theinvestment adviser would take prompt action to reduce the Portfolio’s holdings in illiquid securities to no more than 10%of its net assets, as required by applicable law. The Portfolio is subject to certain investment restrictions that arefundamental policies, which means they cannot be changed without shareholder approval. For more information aboutthese restrictions, see the SAI.

We will consider other factors (such as cost) in deciding whether to employ any particular strategy or use any particularinstrument. For more information about these strategies, see the SAI, “Investment Objectives and Policies of thePortfolios.”

HOW THE FUND IS MANAGED

Board Of Directors

The Board of Directors oversees the actions of the Investment Adviser, the sub-advisers and the Distributor anddecides on general policies. The Board also oversees the Fund’s officers who conduct and supervise the daily businessoperations of the Fund.

Investment Adviser

Prudential Investments LLC (“PI”), a wholly-owned subsidiary of Prudential Financial, Inc., serves as the overallinvestment adviser for the Fund. PI is located at Gateway Center Three, 100 Mulberry Street, Newark, New Jersey07102-4077. PI and its predecessors have served as manager and administrator to investment companies since 1987.As of December 31, 2001, PI served as the investment manager to all of the Prudential U.S. and offshore investmentcompanies, and as manager or administrator to closed-end investment companies, with aggregate assets ofapproximately $100.8 billion.

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The Fund uses a “manager-of-managers” structure. Under this structure, PI is authorized to select (with approval of theFund’s independent directors) one or more sub-advisers to handle the actual day-to-day investment management ofeach Portfolio. PI monitors each sub-adviser’s performance through quantitative and qualitative analysis, andperiodically reports to the Fund’s board of directors as to whether each sub-adviser’s agreement should be renewed,terminated or modified. PI also is responsible for allocating assets among the sub-advisers if a Portfolio has more thanone sub-adviser. In those circumstances, the allocation for each sub-adviser can range from 0% to 100% of aPortfolio’s assets, and PI can change the allocations without board or shareholder approval. The Fund will notifyshareholders of any new sub-adviser or any material changes to any existing sub-advisory agreement.

The following chart lists the total annualized investment advisory fees paid in 2001 with respect to each of the Fund’sPortfolios.

PortfolioTotal advisory fees as %of average net assets

Conservative Balanced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.55Diversified Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.45Flexible Managed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60Global . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.75Government Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40High Yield Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.55Jennison (formerly, Prudential Jennison) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60Money Market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40Natural Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.45Small Capitalization Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40Stock Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.35Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40Zero Coupon Bond 2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.40

Investment Sub-Advisers

Each Portfolio has one or more sub-advisers providing the day-to-day investment management. PI pays each sub-adviser out of the fee that PI receives from the Fund.

Jennison Associates LLC (Jennison) serves as the sole sub-adviser for the Global Portfolio, the Natural ResourcesPortfolio and the Jennison Portfolio. Jennison serves as a sub-adviser for a portion of the assets of the Equity Portfolioand the Value Portfolio. Jennison’s address is 466 Lexington Avenue, New York, New York 10017. Jennison is a whollyowned subsidiary of Prudential Financial, Inc. As of December 31, 2001, Jennison had over $62 billion in assets undermanagement for institutional and mutual fund clients.

Prudential Investment Management, Inc. (PIM) serves as the sub-adviser for the Conservative Balanced Portfolio,the Diversified Bond Portfolio, the Flexible Managed Portfolio, the Government Income Portfolio, the High Yield BondPortfolio, the Money Market Portfolio, the Small Capitalization Stock Portfolio, the Stock Index Portfolio and the ZeroCoupon Bond Portfolio 2005. PIM is a wholly owned subsidiary of Prudential Financial, Inc. PIM’s address is GatewayCenter Two, 100 Mulberry Street, Newark, New Jersey 07102.

Deutsche Asset Management, Inc. (DAMI) serves as subadviser for approximately 25% of the assets of the ValuePortfolio. DAMI is a wholly-owned subsidiary of Deutsche Bank AG. As of December 31, 2001 DAMI’s total assetsunder management exceeded $96.1 billion. DAMI’s address is 280 Park Avenue, New York, New York 10017.

GE Asset Management, Incorporated (GEAM) serves as a sub-adviser to approximately 25% of the Equity Portfolio.GEAM’s ultimate parent is General Electric Company. Its address is 3003 Summer Street, Stamford, Connecticut06904. As of December 31, 2001, GEAM oversees in excess of $112.2 billion under management.

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Salomon Brothers Asset Management Inc. (Salomon) serves as sub-adviser for a portion of the assets of the EquityPortfolio. Salomon is part of the global asset management arm of Citigroup Inc., which was formed in 1998 as a resultof the merger of Travelers Group and Citicorp Inc. As of December 31, 2001, Salomon managed more than $30 billionin total assets. Salomon’s address is 125 Broad Street, New York, New York 10004.

Victory Capital Management Inc. (Victory) (formerly, Key Asset Management Inc.) serves as a sub-adviser for aportion of the assets of the Value Portfolio. Victory is a wholly-owned subsidiary of KeyCorp, Inc. As of December 31,2001, Victory’s total assets under management exceeded $72 billion. Victory’s address is 127 Public Square,Cleveland, Ohio 44114.

Portfolio Managers

An Introductory Note About Prudential Investment Management’s Fixed Income Group

PIM’s Fixed Income Group, which provides portfolio management services to the Conservative Balanced, DiversifiedBond, Flexible Managed, Government Income, High Yield Bond, Money Market, and Zero Coupon Bond 2005Portfolios, manages more than $135 billion for Prudential’s retail investors, institutional investors, and policyholders.Senior Managing Director James J. Sullivan heads the Group, which is organized into teams specializing in differentmarket sectors. Top-down, broad investment decisions are made by the Fixed Income Policy Committee, whereasbottom-up security selection is made by the sector teams.

Prior to joining PIM in 1998, Mr. Sullivan was a Managing Director in Prudential’s Capital Management Group, wherehe oversaw portfolio management and credit research for Prudential’s General Account and subsidiary fixed-incomeportfolios. He has more than 18 years of experience in risk management, arbitrage trading and corporate bondinvesting.

The Fixed Income Investment Policy Committee is comprised of key senior investment managers, including FixedIncome’s Chief Investment Officer and the head of risk management. The Committee uses a top-down approach toinvestment strategy, asset allocation and general risk management, identifying sectors in which to invest.

Conservative Balanced Portfolio and Flexible Managed Portfolio

These Portfolios are managed by a team of portfolio managers. M. Stumpp, Ph.D., Senior Managing Director of PIM,has been the lead portfolio manager of the Portfolios since 1994 and is responsible for the overall asset allocationdecisions.

The Fixed Income segments are managed by the Fixed Income Group of PIM. This Group uses a bottom-up approach,which focuses on individual securities, while staying within the guidelines of the Investment Policy Committee and thePortfolios’ investment restrictions and policies. In addition, the Credit Research team of analysts supports the sectorteams using bottom-up fundamentals, as well as economic and industry trends. Other sector teams may contribute tosecurities selection when appropriate.

The equity portion of the Conservative Balanced Portfolio is managed by M. Stumpp, John Moschberger, and MichaelLenarcic. M. Stumpp’s background is discussed above. Mr. Lenarcic is a Managing Director within PIM’s QuantitativeManagement team. Prior to joining the Quantitative Management team in 1985, Mr. Lenarcic was a Vice President atWilshire Associates, where he was head of the Asset Allocation Division. Mr. Lenarcic holds a B.A. degree from KentState University and A.M. and Ph.D. degrees in Business Economics from Harvard University. John Moschberger,CFA, is a Vice President of Prudential Investments. Mr. Moschberger joined Prudential in 1980 and has been a portfoliomanager since 1986.

The equity portion of the Flexible Managed Portfolio is managed by M. Stumpp, and James Scott. The background ofM. Stumpp is discussed above. James Scott is a Senior Managing Director of PIM’s Quantitative Management Group.Mr. Scott has managed balanced and equity portfolios for Prudential’s pension plans and several institutional clientssince 1987. Mr. Scott received a B.A. from Rice University and an M.S. and a Ph.D. from Carnegie Mellon University.

40

Government Income Portfolio and Zero Coupon Bond Portfolio 2005

The U.S. Liquidity Team of PIM, headed by Peter Cordrey, is primarily responsible for overseeing the day-to-daymanagement of the Portfolios. This Team uses a bottom-up approach, which focuses on individual securities, whilestaying within the guidelines of the Investment Policy Committee and the Portfolios’ investment restrictions and policies.In addition, the Credit Research team of analysts supports the sector teams using bottom-up fundamentals, as well aseconomic and industry trends. Other sector teams may contribute to securities selection when appropriate.

U.S. Liquidity Team

Assets Under Management (as of December 31, 2001): $27 billion.

Team Leader: Peter Cordrey. General Investment Experience: 20 years.

Portfolio Managers: 7. Average General Investment Experience: 12 years, which includes team members withsignificant mutual fund experience.

Sector: U.S. Treasuries, agencies and mortgages.

Investment Strategy: Focus is on high quality, liquidity and controlled risk.


The Corporate Team of PIM, headed by Steven Kellner, is primarily responsible for overseeing the day-to-daymanagement of the Portfolio. This team uses a bottom-up approach, which focuses on individual securities, whilestaying within the guidelines of the Investment Policy Committee and the Portfolios’ investment restrictions and policies.In addition, the Credit Research team of analysts supports the sector teams using bottom-up fundamentals, as well aseconomic and industry trends. Other sector teams may contribute to securities selection when appropriate.

Corporate Team


Team Leader: Steven Kellner, CFA. General Investment Experience: 16 years.


Sector: U.S. investment-grade corporate securities.

Investment Strategy: Focus is on identifying spread, credit quality and liquidity trends to capitalize on changingopportunities in the market. Ultimately, they seek the highest expected return with the least risk.

Equity Portfolio

Jeffrey Siegel, Bradley Goldberg and David Kiefer are co-managers of the portion of the Portfolio assigned to Jennison.Mr. Siegel has been an Executive Vice President of Jennison since June 1999. Previously he was at TIAA-CREF from1988-1999, where he held positions as a portfolio manager and analyst. Prior to joining TIAA-CREF, Mr. Siegel was ananalyst for Equitable Capital Management and held positions at Chase Manhattan Bank and First Fidelity Bank. Mr.Siegel earned a B.A. from Rutgers University. Mr. Goldberg is an Executive Vice President of Jennison, where he alsoserves as Chairman of the Asset Allocation Committee. Prior to joining Jennison in 1974 he served as Vice Presidentand Group Head in the Investment Research Division of Bankers Trust Company. He earned a B.S. from the Universityof Illinois and an M.B.A. from New York University. Mr. Goldberg holds a Chartered Financial Analyst (C.F.A.)designation. Mr. Kiefer has been a Senior Vice President of Jennison since September 2000. Previously, he was a

41

Managing Director of Prudential Global Asset Management and has been with Prudential since 1986. Mr. Kiefer earneda B.S. from Princeton University and an M.B.A. from Harvard Business School. He holds a Chartered Financial Analyst(C.F.A.) designation.

Richard Sanderson, Senior Vice President and Director of Investment Research, Domestic Equities, for GEAM,manages the portion of the Equity Portfolio assigned to GEAM. Mr. Sanderson, a Chartered Financial Analyst, has 29years of asset management experience and has been employed with GEAM for over 5 years, and holds B.A. andM.B.A. degrees from the University of Michigan.

Michael Kagan, a Director of Salomon, manages the portion of the Equity Portfolio assigned to Salomon. Mr. Kaganhas over 15 years of asset management experience, including experience as an analyst covering the consumerproducts, aerospace, chemicals, and housing industries. Mr. Kagan received his B.A. from Harvard College andattended the MIT Sloan School of Management.

Global Portfolio

Daniel Duane and Michelle Picker manage this Portfolio. Mr. Duane has been an Executive Vice President of Jennisonsince October 2000 and was previously a Managing Director of Prudential Global Asset Management. He has beenmanaging the Portfolio since 1991. Prior to joining Prudential, he was with First Investors Asset Management where hewas in charge of all global equity investments. He earned a B.A. from Boston College, a Ph.D. from Yale University andan M.B.A. from New York University. He holds a Chartered Financial Analyst (C.F.A.) designation. Michelle Picker hasbeen a Vice President of Jennison since October 2000 and was previously a Vice President of Prudential InvestmentManagement, Inc. Ms. Picker joined Prudential in 1992 and has co-managed the Portfolio since October 1997.Ms. Picker earned a B.A. from the University of Pennsylvania and an M.B.A. from New York University. She holds aChartered Financial Analyst (C.F.A.) designation.


The High Yield Team of PIM, headed by Paul Appleby, is primarily responsible for overseeing the day-to-daymanagement of the fixed income portfolio of the Portfolio. This Team uses a bottom-up approach, which focuses onindividual securities, while staying within the guidelines of the Investment Policy Committee and the Portfolio’sinvestment restrictions and policies. In addition, the Credit Research team of analysts supports the sector teams usingbottom-up fundamentals, as well as economic and industry trends. Other sector teams may contribute to securitiesselection when appropriate.

High Yield Team


Team Leader: Paul Appleby. General Investment Experience: 15 years.


Sector: Below-investment-grade corporate securities.

Investment Strategy: The High Yield Team of PIM, headed by Paul Appleby, is primarily responsible foroverseeing the day-to-day management of the fixed income portion of the Portfolio assigned to PrudentialInvestment Management. Focus is generally on bonds with high total return potential, given existing riskparameters. They also seek securities with high current income, as appropriate. The Team uses a relative valueapproach while staying within the guidelines of the Investment Policy Committee and the Portfolio’s investmentrestrictions and policies. In addition, the Credit Research team of analysts supports the sector teams using bottom-up fundamentals, as well as economic and industry trends. Other sector trends may contribute to securitiesselection when appropriate.

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Jennison Portfolio

This Portfolio has been managed by Spiros Segalas, Michael Del Balso and Kathleen McCarragher of Jennison since1999. Mr. Segalas is a founding member and a Director, President and Chief Investment Officer of Jennison. He hasbeen in the investment business for over 41 years. Mr. Del Balso, a Director and Executive Vice President of Jennison,is also Jennison’s Director of Equity Research. He has been part of the Jennison team since 1972 when he joined thefirm from White, Weld & Company. Mr. Del Balso is a member of the New York Society of Security Analysts. Ms.McCarragher, Director and Executive Vice President of Jennison, is also Jennison’s Domestic Equity InvestmentStrategist. Prior to joining Jennison in 1998, she was a Managing Director and Director of Large Cap Growth Equities atWeiss, Peck & Greer L.L.C. Prior to 1992, Ms. McCarragher served as an analyst, portfolio manager and member ofthe Investment Committee for State Street Research & Management Company.


The Money Market Team of PIM, headed by Joseph Tully, is primarily responsible for overseeing the day-to-daymanagement of the Portfolio. This team uses a bottom-up approach, which focuses on individual securities, whilestaying within the guidelines of the Investment Policy Committee and the Portfolio’s investment restrictions and policies.

Money Market Team


Team Leader: Joseph Tully. General Investment Experience: 18 years.


Sector: High-quality short-term debt securities, including both taxable and tax-exempt instruments.

Investment Strategy: Focus is on safety of principal, liquidity and controlled risk.


Leigh Goehring and Mark DeFranco manage this Portfolio. Mr. Goehring, a Vice President of Jennison sinceSeptember 2000, has been managing this Portfolio since 1991. Prior to joining Jennison, he was a Vice President ofPrudential Investment Management, Inc. Prior to joining Prudential in 1986, Mr. Goehring managed general equityaccounts in the Trust Department at The Bank of New York. He earned a B.A. from Hamilton College. Mr. DeFranco, aVice President of Jennison, joined Jennison in 1998 with over 12 years of experience in the investment industry. Priorto joining Jennison he was a precious metals equity analyst and portfolio manager at Pomboy Capital and an equityanalyst at Comstock Partners. Mr. DeFranco received a B.A. from Bates College and an M.B.A. from ColumbiaUniversity Graduate School of Business.


Wai Chiang, Vice President of PIM, has managed this Portfolio since its inception in 1995. Mr. Chiang has beenemployed by Prudential as a portfolio manager since 1986.


John Moschberger, CFA, Vice President of PIM, has managed this Portfolio since 1990. Mr. Moschberger joinedPrudential in 1980 and has been a portfolio manager since 1986.

Value Portfolio

Tom Kolefas and Bradley Goldberg are the co-portfolio managers of the portion of the Portfolio assigned to Jennison.Mr. Kolefas has been a Senior Vice President of Jennison since September 2000. Previously, he was a Managing

43

Director and Senior Portfolio Manager of Prudential Global Asset Management. He joined Prudential in May 2000 fromLoomis Sayles and Company, L.P., where he headed the Large/Mid-Cap Value Team. Prior to 1996, Mr. Kolefas wasemployed by Mackay Shields Financial as a portfolio manager for five years. Mr. Kolefas earned a B.S. from theCooper Union School of Engineering and an M.B.A. from New York University and holds the Chartered FinancialAnalyst (C.F.A.) designation. Mr. Goldberg is an Executive Vice President of Jennison, and also serves as Chairman ofthe Asset Allocation Committee. He joined Jennison in 1974. Prior to joining Jennison, he served as Vice President andGroup Head in the Investment Research Division of Bankers Trust Company. He earned a B.S. from the University ofIllinois and an M.B.A from the New York University. Mr. Goldberg holds the Chartered Financial Analyst (C.F.A.)designation.

James Giblin, a Chartered Financial Analyst, manages the portion of the Portfolio assigned to DAMI. Mr. Giblin joinedDAMI in 1995 with 22 years of investment experience, including 15 years as a portfolio manager for Cigna EquityAdvisors. He received his B.S. from Pennsylvania State University and an M.B.A. from the Wharton School, Universityof Pennsylvania.

Neil A. Kilbane manages the portion of the Portfolio assigned to Victory. Mr. Kilbane is a Senior Portfolio and ManagingDirector for Victory, and is a Chartered Financial Analyst. Mr. Kilbane began his investment career with Victory in 1995,and prior to that was employed by Duff & Phelps Investment Management Company and National City Bank. Mr.Kilbane holds a B.S. from Cleveland State University, an M.S. from Kansas State University, and an M.B.A. from TulsaUniversity.

HOW TO BUY AND SELL SHARES OF THE FUND

The Fund offers two classes of shares in each Portfolio — Class I and Class II. Each Class participates in the sameinvestments within a given Portfolio, but the Classes differ as far as their charges. Class I shares are sold only toseparate accounts of Prudential Insurance Company of America and its affiliates as investment options under certainContracts. Class II is offered only to separate accounts of non-Prudential insurance companies as investment optionsunder certain of their Contracts. Please refer to the accompanying Contract prospectus to see which Portfolios areavailable through your Contract.

The Fund sells its shares to separate accounts issuing variable annuity contracts and variable life insurance policies.To the extent dictated by its agreement with a separate account, the Fund will cooperate with the separate account inmonitoring for transactions that are indicative of market timing. In addition, to the extent permitted by applicable laws andagreements, the Fund may cease selling its shares to a separate account to prevent market timing transactions.

The way to invest in the Portfolios is through certain variable life insurance and variable annuity contracts. Togetherwith this prospectus, you should have received a prospectus for such a Contract. You should refer to that prospectusfor further information on investing in the Portfolios.

Both Class I and Class II shares of a Portfolio are sold without any sales charge at the net asset value of the Portfolio.Class II shares, however, are subject to an annual distribution or “12b-1” fee of 0.25% and an administration fee of0.15% of the average daily net assets of Class II. Class I shares do not have a distribution or administration fee.

Shares are redeemed for cash within seven days of receipt of a proper notice of redemption or sooner if required bylaw. There is no redemption charge. We may suspend the right to redeem shares or receive payment when the NewYork Stock Exchange is closed (other than weekends or holidays), when trading on the New York Stock Exchange isrestricted, or as permitted by the SEC.

Net Asset Value

Any purchase or sale of Portfolio shares is made at the net asset value, or NAV, of such shares. The price at which apurchase or redemption is made is based on the next calculation of the NAV after the order is received in good order.The NAV of each share class of each Portfolio is determined on each day the New York Stock Exchange is open fortrading as of the close of the exchange’s regular trading session (which is generally 4:00 p.m. New York time). TheNYSE is closed on most national holidays and Good Friday. The Fund does not price, and shareholders will not be able

44

to purchase or redeem, the Fund’s shares on days when the NYSE is closed but the primary markets for the Fund’sforeign securities are open, even though the value of these securities may have changed. Conversely, the Fund willordinarily price its shares, and shareholders may purchase and redeem shares, on days that the NYSE is open butforeign securities markets are closed.

The NAV for each of the Portfolios other than the Money Market Portfolio is determined by a simple calculation. It’s thetotal value of a Portfolio (assets minus liabilities) divided by the total number of shares outstanding. The NAV for theMoney Market Portfolio will ordinarily remain at $10 per share. (The price of each share remains the same but you willhave more shares when dividends are declared.)

To determine a Portfolio’s NAV, its holdings are valued as follows:

Equity Securities are generally valued at the last sale price on an exchange or NASDAQ, or if there is not a sale onthat day, at the mean between the most recent bid and asked prices on that day. If there is no asked price, the securitywill be valued at the bid price. Equity securities that are not sold on an exchange or NASDAQ are generally valued byan independent pricing agent or principal market maker.

A Portfolio may own securities that are primarily listed on foreign exchanges that trade on weekends or other dayswhen the Portfolios do not price their shares. Therefore, the value of a Portfolio’s assets may change on days whenshareholders cannot purchase or redeem Portfolio shares.

All Short-term Debt Securities held by the Money Market Portfolio are valued at amortized cost. Short-term debtsecurities with remaining maturities of 12 months or less held by the Conservative Balanced and Flexible ManagedPortfolios are valued on an amortized cost basis. The amortized cost valuation method is widely used by mutual funds.It means that the security is valued initially at its purchase price and then decreases in value by equal amounts eachday until the security matures. It almost always results in a value that is extremely close to the actual market value. TheFund’s Board of Directors has established procedures to monitor whether any material deviation between valuation andmarket value occurs and if so, will promptly consider what action, if any, should be taken to prevent unfair results toContract owners.

For each Portfolio other than the Money Market Portfolio, and except as discussed above for the ConservativeBalanced and Flexible Managed Portfolios, short-term debt securities, including bonds, notes, debentures and otherdebt securities, and money market instruments such as certificates of deposit, commercial paper, bankers’acceptances and obligations of domestic and foreign banks, with remaining maturities of more than 60 days, for whichmarket quotations are readily available, are valued by an independent pricing agent or principal market maker (ifavailable, otherwise a primary market dealer).

Short-term Debt Securities with remaining maturities of 60 days or less are valued at cost with interest accrued ordiscount amortized to the date of maturity, unless such valuation, in the judgment of Prudential or a sub-adviser, doesnot represent fair value.

Convertible debt securities that are traded in the over-the-counter market, including listed convertible debt securitiesfor which the primary market is believed by PI or a sub-adviser to be over-the-counter, are valued at the mean betweenthe last bid and asked prices provided by a principal market maker (if available, otherwise a primary market dealer).

Other debt securities— those that are not valued on an amortized cost basis — are valued using an independentpricing service.

Options on stock and stock indexes that are traded on a national securities exchange are valued at the last saleprice on such exchange on the day of valuation or, if there was no such sale on such day, at the mean between themost recently quoted bid and asked prices on such exchange.

Futures contracts and options on futures contracts are valued at the last sale price at the close of the commoditiesexchange or board of trade on which they are traded. If there has been no sale that day, the securities will be valued atthe mean between the most recently quoted bid and asked prices on that exchange or board of trade.

45

Forward currency exchange contracts are valued at the cost of covering or offsetting such contracts calculated onthe day of valuation. Securities which are valued in accordance herewith in a currency other than U.S. dollars shall beconverted to U.S. dollar equivalents at a rate obtained from a recognized bank, dealer or independent service on theday of valuation.

Over-the-counter (OTC) options are valued at the mean between bid and asked prices provided by a dealer (whichmay be the counterparty). A sub-adviser will monitor the market prices of the securities underlying the OTC optionswith a view to determining the necessity of obtaining additional bid and ask quotations from other dealers to assess thevalidity of the prices received from the primary pricing dealer.

Securities for which no market quotations are available will be valued at fair value by PI under the direction of theFund’s Board of Directors. The Fund also may use fair value pricing if it determines that a market quotation is notreliable based among other things, on events that occur after the quotation is derived or after the close of the primarymarket on which the security is traded, but before the time that the Fund’s NAV is determined. This use of fair valuepricing most commonly occurs with securities that are primarily traded outside the U.S., but also may occur with U.S.-traded securities. The fair value of a portfolio security that the Fund uses to determine its NAV may differ from thesecurity’s quoted or published price. For purposes of computing the Fund’s NAV, we will value the Fund’s futurescontracts 15 minutes after the close of regular trading on the New York Stock Exchange (NYSE). Except when we fairvalue securities, we normally value each foreign security held by the Fund as of the close of the security’s primarymarket.

Distributor

Prudential Investment Management Services LLC (PIMS) distributes the Fund’s shares under a Distribution Agreementwith the Fund. PIMS’ principal business address is Gateway Center Three, 100 Mulberry Street, Newark, New Jersey07102-3777. The Fund has adopted a distribution plan under Rule 12b-1 of the Investment Company Act of 1940covering Class II shares. Under that plan, Class II of each Portfolio pays to PIMS a distribution or “12b-1” fee at theannual rate of 0.25% of the average daily net assets of Class II. This fee pays for distribution services for Class IIshares. Because these fees are paid out of the Portfolio’s assets on an on-going basis, over time these fees willincrease the cost of your investment in Class II shares and may cost you more than paying other types of salescharges. These 12b-1 fees do not apply to Class I.

OTHER INFORMATION

Federal Income Taxes

If you own or are considering purchasing a variable contract, you should consult the prospectus for the variablecontract for tax information about that variable contract. You should also consult with a qualified tax adviser forinformation and advice.

The SAI provides information about certain tax laws applicable to the Fund.

Monitoring For Possible Conflicts

The Fund sells its shares to fund variable life insurance contracts and variable annuity contracts and is authorized tooffer its shares to qualified retirement plans. Because of differences in tax treatment and other considerations, it ispossible that the interest of variable life insurance contract owners, variable annuity contract owners and participants inqualified retirement plans could conflict. The Fund will monitor the situation and in the event that a material conflict diddevelop, the Fund would determine what action, if any, to take in response.

Financial Highlights

The financial highlights which follow will help you evaluate the financial performance of each Portfolio available underyour Contract. The total return in each chart represents the rate that a shareholder earned on an investment in thatshare class of the Portfolio, assuming reinvestment of all dividends and other distributions. The charts do not reflectany charges under any variable contract. The information is for Class I shares for the periods indicated, unlessotherwise indicated.

The information has been audited by PricewaterhouseCoopers LLP, whose unqualified report, along with thefinancial statements, appears in the annual report, which is available upon request.

46

Financial HighlightsConservative Balanced Portfolio

Year EndedDecember 31,

2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14.63 $ 15.36 $ 15.08 $ 14.97 $ 15.52

Income From Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.44 0.59 0.62 0.66 0.76Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . . . . . . . . . . . . . . (0.75) (0.65) 0.37 1.05 1.26

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.31) (0.06) 0.99 1.71 2.02

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.48) (0.56) (0.62) (0.66) (0.76)Distributions from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.15) (0.11) (0.06) (0.94) (1.81)Distributions in excess of net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (0.03) — —

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.63) (0.67) (0.71) (1.60) (2.57)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13.69 $ 14.63 $ 15.36 $ 15.08 $ 14.97

Total Investment Return:(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.02)% (0.48)% 6.69% 11.74% 13.45%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,259.7 $3,714.3 $4,387.1 $4,796.0 $4,744.2Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.58% 0.60% 0.57% 0.57% 0.56%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.05% 3.79% 4.02% 4.19% 4.48%

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239% 85% 109% 167% 295%

(a) Total investment return is calculated assuming a purchase of shares on the first day and a sale on the last day of each year reported andincludes reinvestment of dividends and distributions.



2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.28 $ 10.95 $ 11.06 $ 11.02 $11.07

Income From Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.67 0.77 0.67 0.69 0.80Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . . . . . . . . . . . . . . 0.12 0.26 (0.75) 0.08 0.11

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.79 1.03 (0.08) 0.77 0.91

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.71) (0.70) — (0.69) (0.83)Distributions from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — —(b) (0.03) (0.04) (0.13)

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.71) (0.70) (0.03) (0.73) (0.96)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11.36 $ 11.28 $ 10.95 $ 11.06 $11.02

Total Investment Return(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.98% 9.72% (0.74)% 7.15% 8.57%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,400.7 $1,269.8 $1,253.8 $1,122.6 $816.7Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.44% 0.45% 0.43% 0.42% 0.43%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.35% 6.83% 6.25% 6.40% 7.18%

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257% 139% 171% 199% 224%

(a) Total investment return is calculated assuming a purchase of shares on the first day and a sale on the last day of each year reported includesreinvestment of dividends and distributions.

(b) Less than $0.005 per share.

F1

Financial Highlights

Equity Portfolio

Class I Class II



May 3, 1999(c)through

December 31,19992001 2000 1999 1998 1997 2001 2000

Per Share Operating Performance:Net Asset Value, beginning of period . . . . . . . . . . . $ 24.50 $ 28.90 $ 29.64 $ 31.07 $ 26.96 $24.51 $28.92 $32.79

Income from Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . 0.18 0.51 0.54 0.60 0.69 0.09 0.39 0.28Net realized and unrealized gains (losses) oninvestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.83) 0.26 3.02 2.21 5.88 (2.83) 0.26 (0.60)

Total from investment operations . . . . . . . . . . . (2.65) 0.77 3.56 2.81 6.57 (2.74) 0.65 (0.32)

Less Distributions:Dividends from net investment income . . . . . . . . . . (0.18) (0.51) (0.53) (0.60) (0.70) (0.10) (0.40) (0.34)Distributions in excess of net investmentincome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (0.02) — — — — (0.02) —

Distributions from net realized gains . . . . . . . . . . . . (1.18) (4.64) (3.77) (3.64) (1.76) (1.18) (4.64) (3.21)

Total distributions . . . . . . . . . . . . . . . . . . . . . . . (1.36) (5.17) (4.30) (4.24) (2.46) (1.28) (5.06) (3.55)

Net Asset Value, end of period . . . . . . . . . . . . . . . . $ 20.49 $ 24.50 $ 28.90 $ 29.64 $ 31.07 $20.49 $24.51 $28.92

Total Investment Return(a) . . . . . . . . . . . . . . . . . . (11.18)% 3.28% 12.49% 9.34% 24.66% (11.57)% 2.83% (0.68)%Ratios/Supplemental Data:Net assets, end of period (in millions) . . . . . . . . . . . $4,615.9 $5,652.7 $6,235.0 $6,247.0 $6,024.0 $ 1.1 $ 1.8 $ 0.3Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.49% 0.49% 0.47% 0.47% 0.46% 0.89% 0.91% 0.87%(b)Net investment income . . . . . . . . . . . . . . . . . . . . . 0.84% 1.75% 1.72% 1.81% 2.27% 0.45% 1.26% 1.33%(b)

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . 153% 78% 9% 25% 13% 153% 78% 9%

(a) Total investment return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported andincludes reinvestment of dividends and distributions. Total investment returns for less than a full year are not annualized.

(b) Annualized.

(c) Commencement of offering of Class II shares.



2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 16.53 $ 17.64 $ 16.56 $ 17.28 $ 17.79

Income From Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.42 0.61 0.58 0.58 0.59Net realized and unrealized gains (losses) on investments . . . . . . . . . . (1.35) (0.86) 0.69 1.14 2.52

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.93) (0.25) 1.27 1.72 3.11

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.58) (0.62) — (0.59) (0.58)Distributions from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.23) (0.24) (0.19) (1.85) (3.04)

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.81) (0.86) (0.19) (2.44) (3.62)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14.79 $ 16.53 $ 17.64 $ 16.56 $ 17.28

Total Investment Return(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.68)% (1.44)% 7.78% 10.24% 17.96%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,896.6 $4,463.8 $5,125.3 $5,410.0 $5,490.1Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.64% 0.64% 0.62% 0.61% 0.62%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.61% 3.22% 3.20% 3.21% 3.02%

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236% 132% 76% 138% 227%


F2

Financial HighlightsGlobal Portfolio


2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23.61 $ 30.98 $ 21.16 $17.92 $17.85

Income from Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.09 0.07 0.06 0.07 0.09Net realized and unrealized gains (losses) on investments . . . . . . . . . . . (3.58) (5.30) 10.04 4.38 1.11

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3.49) (5.23) 10.10 4.45 1.20

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.06) (0.07) — (0.16) (0.13)Distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . — (0.13) (0.10) (0.12) (0.10)Distributions from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.77) (1.94) (0.18) (0.93) (0.90)

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.83) (2.14) (0.28) (1.21) (1.13)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15.29 $ 23.61 $ 30.98 $21.16 $17.92

Total Investment Return(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (17.64)% (17.68)% 48.27% 25.08% 6.98%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 885.0 $1,182.1 $1,298.3 $844.5 $638.4Ratios to average net assets: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.84% 0.85% 0.84% 0.86% 0.85%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.58% 0.25% 0.21% 0.29% 0.47%

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67% 95% 76% 73% 70%




2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.02 $11.55 $11.87 $11.52 $11.22

Income From Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.65 0.89 0.76 0.67 0.75Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . 0.31 0.52 (1.08) 0.36 0.30

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.96 1.41 (0.32) 1.03 1.05

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.72) (0.91) — (0.68) (0.75)Distribution from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (0.03) — — —

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.72) (0.94) — (0.68) (0.75)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12.26 $12.02 $11.55 $11.87 $11.52

Total Investment Return(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.06% 12.78% (2.70)% 9.09% 9.67%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $311.0 $291.5 $335.5 $443.2 $429.6Ratios to average net assets: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.47% 0.47% 0.44% 0.43% 0.44%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.53% 6.03% 5.72% 5.71% 6.40%



F3

Financial HighlightsHigh Yield Bond Portfolio


2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6.14 $ 7.52 $ 7.21 $ 8.14 $ 7.87

Income From Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.58 0.74 0.79 0.77 0.78Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . (0.62) (1.30) (0.46) (0.94) 0.26

Total from Investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.04) (0.56) 0.33 (0.17) 1.04

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.70) (0.82) (0.02) (0.76) (0.77)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.40 $ 6.14 $ 7.52 $ 7.21 $ 8.14

Total Investment Return(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.44)% (7.91)% 4.61% (2.36)% 13.78%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $655.8 $661.3 $802.2 $789.3 $568.7Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.60% 0.60% 0.60% 0.58% 0.57%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.93% 10.47% 10.48% 10.31% 9.78%




Class I Class II

Year EndedDecember 31, 2001 Year Ended

December 31,2001

February 10, 2000(a)through

December 31, 20002001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of period . . . . . . . . . . . $ 22.97 $ 32.39 $ 23.91 $ 17.73 $14.32 $22.88 $34.25

Income From Investment Operations:Net investment income (loss) . . . . . . . . . . . . . . . . . . 0.04 0.01 0.05 0.04 0.04 0.01 (0.03)Net realized and unrealized gains (losses) oninvestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.22) (5.61) 9.88 6.56 4.48 (4.25) (7.54)

Total from investment operations . . . . . . . . . . . (4.18) (5.60) 9.93 6.60 4.52 (4.24) (7.57)

Less Distributions:Dividends from net investment income . . . . . . . . . . (0.03) —(d) (0.05) (0.04) (0.04) —(d) —(d)Distributions from net realized gains . . . . . . . . . . . . (0.19) (3.82) (1.40) (0.38) (1.07) (0.19) (3.80)

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . (0.22) (3.82) (1.45) (0.42) (1.11) (0.19) (3.80)

Net Asset Value, end of period . . . . . . . . . . . . . . . . . $ 18.57 $ 22.97 $ 32.39 $ 23.91 $17.73 $18.45 $22.88

Total Investment Return(b) . . . . . . . . . . . . . . . . . . (18.25)% (17.38)% 41.76% 37.46% 31.71% (18.60)% (22.19)%Ratios/Supplemental Data:Net assets, end of period (in millions) . . . . . . . . . . . $2,186.9 $2,892.7 $2,770.7 $1,198.7 $495.9 $ 59.6 $ 13.3Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.64% 0.64% 0.63% 0.63% 0.64% 1.04% 1.04%(c)Net investment income (loss) . . . . . . . . . . . . . . . . 0.18% 0.02% 0.17% 0.20% 0.25% (0.19)% (0.39)%(c)

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . 86% 89% 58% 54% 60% 86% 89%(e)

(a) Commencement of offering of Class II shares.

(b) Total investment return is calculated assuming a purchase of shares on the first day and a sale on the last day of each period reported andincludes reinvestment of dividends and distributions. Total investment returns for less than a full year are not annualized.

(c) Annualized.

(d) Less than $0.01 per share.

(e) Not annualized.

F4

Financial HighlightsMoney Market Portfolio


2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.00 $ 10.00 $ 10.00 $10.00 $10.00

Income From Investment Operations:Net investment income and realized and unrealized gains . . . . . . . . . . 0.41 0.60 0.49 0.52 0.54Dividend and distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.41) (0.60) (0.49) (0.52) (0.54)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 10.00 $ 10.00 $ 10.00 $10.00 $10.00

Total Investment Return(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.22% 6.20% 4.97% 5.39% 5.41%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,501.9 $1,238.2 $1,335.5 $920.2 $657.5Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.43% 0.44% 0.42% 0.41% 0.43%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.86% 6.03% 4.90% 5.20% 5.28%

(a) Total investment return is calculated assuming a purchase on the first day and a sale on the last day of each year reported and includesreinvestment of dividends and distributions.



2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 23.59 $17.38 $11.98 $ 15.24 $ 19.77

Income From Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.43 0.13 0.10 0.09 0.12Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . (2.89) 6.36 5.40 (2.48) (2.43)

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.46) 6.49 5.50 (2.39) (2.31)

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.55) (0.16) (0.10) (0.11) (0.10)Distributions in excess of net investment income . . . . . . . . . . . . . . . . . . . . — (0.09) — — —Distributions from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.47) (0.03) — (0.75) (2.12)Tax return of capital distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — (0.01) —

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.02) (0.28) (0.10) (0.87) (2.22)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.11 $23.59 $17.38 $ 11.98 $ 15.24

Total Investment Return(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10.08)% 37.66% 45.99% (17.10)% (11.59)%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 336.1 $393.2 $289.5 $ 236.9 $ 358.0Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.52% 0.58% 0.57% 0.61% 0.54%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.94% 0.67% 0.70% 0.63% 0.60%

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23% 30% 26% 12% 32%


F5

Financial HighlightsSmall Capitalization Stock Portfolio


2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17.11 $16.25 $14.71 $15.93 $13.79

Income From Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.06 0.07 0.10 0.09 0.10Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . . . . . 0.67 1.81 1.71 (0.25) 3.32

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.73 1.88 1.81 (0.16) 3.42

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.08) (0.08) — (0.09) (0.10)Distributions from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.28) (0.94) (0.27) (0.97) (1.18)

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.36) (1.02) (0.27) (1.06) (1.28)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15.48 $17.11 $16.25 $14.71 $15.93

Total Investment Return(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.53% 12.81% 12.68% (0.76)% 25.17%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $611.1 $568.3 $437.5 $360.4 $290.3Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.48% 0.48% 0.45% 0.47% 0.50%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.52% 0.59% 0.70% 0.57% 0.69%

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23% 29% 31% 26% 31%




2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 38.66 $ 44.45 $ 37.74 $ 30.22 $ 23.74

Income from Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.36 0.36 0.44 0.42 0.43Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . . . . . . . . . (5.05) (4.37) 7.23 8.11 7.34

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4.69) (4.01) 7.67 8.53 7.77

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.35) (0.37) (0.43) (0.42) (0.42)Distributions from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.98) (1.41) (0.53) (0.59) (0.87)

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.33) (1.78) (0.96) (1.01) (1.29)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 31.64 $ 38.66 $ 44.45 $ 37.74 $ 30.22

Total Investment Return(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (12.05)% (9.03)% 20.54% 28.42% 32.83%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,394.1 $4,186.0 $4,655.0 $3,548.1 $2,448.2Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.39% 0.39% 0.39% 0.37% 0.37%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.02% 0.83% 1.09% 1.25% 1.55%

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3% 7% 2% 3% 5%


F6

Financial HighlightsValue Portfolio

Class I Class II


May 14, 2001(a)through

December 31,20012001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20.46 $ 19.52 $ 20.03 $ 22.39 $ 18.51 $19.79

Income From Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.25 0.46 0.51 0.56 0.61 0.12Net realized and unrealized gains (losses) on investments . . . . . . . . . . . (0.69) 2.45 1.89 (1.03) 6.06 (1.01)

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.44) 2.91 2.40 (0.47) 6.67 (0.89)

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.30) (0.44) (0.50) (0.59) (0.57) (0.14)Distributions from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.81) (1.53) (2.41) (1.30) (2.22) (0.85)

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.11) (1.97) (2.91) (1.89) (2.79) (0.99)

Net Asset Value, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17.91 $ 20.46 $ 19.52 $ 20.03 $ 22.39 $17.91

Total Investment Return(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2.08)% 15.59% 2.52% (2.38)% 36.61% (4.34)%Ratios/Supplemental Data:Net assets, end of period (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,801.4 $1,975.3 $2,024.0 $2,142.3 $2,029.8 $ 1.1Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.44% 0.45% 0.42% 0.42% 0.41% 0.84%(c)Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.32% 2.31% 2.34% 2.54% 2.90% 0.94%(c)

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175% 85% 16% 20% 38% 175%

(a) Commencement of offering of Class II shares.

(b) Total investment return is calculated assuming a purchase of shares on the first day and a sale on the last day of each year reported andincludes reinvestment of dividends and distributions. Total investment returns for periods of less than one full year are not annualized.

(c) Annualized.



2001 2000 1999 1998 1997

Per Share Operating Performance:Net Asset Value, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.38 $12.68 $13.44 $12.60 $12.25

Income From Investment Operations:Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.65 0.65 0.67 0.66 0.68Net realized and unrealized gains (losses) on investments . . . . . . . . . . . . . . 0.42 1.02 (1.43) 0.87 0.66

Total from investment operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.07 1.67 (0.76) 1.53 1.34

Less Distributions:Dividends from net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.64) (0.67) — (0.67) (0.71)Distributions from net realized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.04) (0.30) — (0.02) (0.28)

Total distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.68) (0.97) — (0.69) (0.99)

Net Asset Value, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $13.77 $13.38 $12.68 $13.44 $12.60

Total Investment Return(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.11% 13.76% (5.66)% 12.35% 11.18%Ratios/Supplemental Data:Net assets, end of year (in millions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55.0 $ 49.8 $ 45.4 $ 45.5 $ 30.8Ratios to average net assets:Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.63% 0.65% 0.59% 0.61% 0.74%Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.05% 5.26% 5.31% 5.35% 5.71%

Portfolio turnover rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10% 67% 15% —% 35%


F7

For more information

Additional information about the Fund and each Portfolio can be obtained upon request without charge and can befound in the following documents:

Statement of Additional Information (SAI)

(incorporated by reference into this prospectus)

Annual Report

(including a discussion of market conditions and strategies that significantly affected the Portfolios’ performance duringthe previous year)

Semi-Annual Report

To obtain these documents or to ask any questions about the Fund:

Call toll-free (800) 778-2255

Write to The Prudential Series Fund, Inc., Gateway Center Three, 100 Mulberry Street, Newark, NJ 07102

You can also obtain copies of Fund documents from the Securities and Exchange Commission as follows:

By Mail:

Securities and Exchange CommissionPublic Reference SectionWashington, DC 20549-0102

By Electronic Request:

[email protected](The SEC charges a fee to copy documents.)

In Person:

Public Reference Roomin Washington, DC(For hours of operation, call 1-202-942-8090)

Via the Internet:on the EDGAR Database athttp://www.sec.gov

SEC File No. 811-03623

PSF1

PROSPECTUS

May 1, 2002

��

This prospectus is attached to two other prospectuses. The first describes either a variable annuity contract or avariable life insurance contract (the "Contract") issued by Pruco Life Insurance Company of New Jersey ("Pruco Life ofNew Jersey," "us," "we," or "our"), a stock life insurance company that is an indirect, wholly-owned subsidiary of ThePrudential Insurance Company of America ("Prudential"). The second prospectus describes several investmentoptions available under that variable contract through The Prudential Series Fund, Inc. (the "Series Fund"). The SeriesFund is registered under the Investment Company Act of 1940 as an open-end, diversified management investmentcompany. The Series Fund consists of separate investment portfolios that are mutual funds, each with a differentinvestment policy and objective.

This prospectus describes the Pruco Life of New Jersey Variable Contract Real Property Account (the "Real PropertyAccount"), an additional available investment option. Although it is not a mutual fund, in many ways it is like a mutualfund. Instead of holding a diversified portfolio of securities, such as stocks or bonds, it consists mainly of a portfolio ofcommercial and residential real properties.

Pruco Life of New Jersey determines the price of a "share" or, as we call it, a "participating interest" in this portfolio ofproperties, just as it does for the other investment options. It is based upon our best estimate of the fair market valueof the properties and other assets held in this portfolio. The portion of your "Contract Fund" (the total amount investedunder the Contract) that you allocate to this investment option will change daily in value, up or down, as the fair marketvalue of these real properties and other assets change.

The risks of investing in real property are different from the risks of investing in mutual funds. See RISK FACTORS,page 2. Also, your ability to withdraw or transfer your investment in this option is not as freely available as it is for theother investment options. See RESTRICTIONS ON WITHDRAWALS, page 17.

Please read this prospectus and keep it for future reference.

The Securities and Exchange Commission ("SEC") maintains a Web site (http://www.sec.gov) that containsmaterial incorporated by reference and other information regarding registrants that file electronically with theSEC.

Neither the Securities and Exchange Commission nor any state securities commission has approved ordisapproved of these securities or determined if this prospectus is accurate or complete. Any representationto the contrary is a criminal offense.

Pruco Life Insurance Company of New Jersey213 Washington Street

Newark, New Jersey 07102-2992Telephone: (800) 778-2255

PRPA-2 Ed 5-2002

��Page

PER SHARE INVESTMENT INCOME, CAPITAL CHANGES AND SELECTED RATIOS............................................. 1

SUMMARY ....................................................................................................................................................................... 2Investment of The Real Property Account Assets................................................................................................... 2Investment Objectives ................................................................................................................................................ 2Risk Factors................................................................................................................................................................. 2Charges ........................................................................................................................................................................ 3Availability to Pruco Life of New Jersey Contracts ................................................................................................. 3

GENERAL INFORMATION ABOUT PRUCO LIFE INSURANCE COMPANY OF NEW JERSEY, PRUCO LIFE OFNEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT, THE PRUDENTIAL VARIABLECONTRACT REAL PROPERTY PARTNERSHIP, AND THE INVESTMENT MANAGER ............................................. 3

Pruco Life Insurance Company of New Jersey ........................................................................................................ 3Pruco Life of New Jersey Variable Contract Real Property Account..................................................................... 4The Prudential Variable Contract Real Property Partnership................................................................................. 4The Investment Manager ............................................................................................................................................ 5

INVESTMENT POLICIES................................................................................................................................................. 5Overview ...................................................................................................................................................................... 5Investment in Direct Ownership Interests in Real Estate ....................................................................................... 6Investments in Mortgage Loans ................................................................................................................................ 7Investments in Sale-Leasebacks ............................................................................................................................... 8General Investment and Operating Policies............................................................................................................. 8

CURRENT REAL ESTATE-RELATED INVESTMENTS ............................................................................................... 10Properties .................................................................................................................................................................. 10

RISK FACTORS............................................................................................................................................................. 10Liquidity of Investments........................................................................................................................................... 10General Risks of Real Property Investments ......................................................................................................... 11Reliance on The Partners and The Investment Manager ...................................................................................... 12

INVESTMENT RESTRICTIONS..................................................................................................................................... 12

CONFLICTS OF INTEREST .......................................................................................................................................... 13

THE REAL PROPERTY ACCOUNT’S UNAVAILABILITY TO CERTAIN CONTRACTS............................................. 15

VALUATION OF CONTRACT OWNERS’ PARTICIPATING INTERESTS ................................................................... 15

BORROWING BY THE PARTNERSHIP........................................................................................................................ 17

CHARGES ...................................................................................................................................................................... 17

RESTRICTIONS ON WITHDRAWALS .......................................................................................................................... 17

RESTRICTIONS ON CONTRACT OWNERS’ INVESTMENT IN THE REAL PROPERTY ACCOUNT ....................... 18

FEDERAL INCOME TAX CONSIDERATIONS ............................................................................................................. 18

DISTRIBUTION OF THE CONTRACTS ........................................................................................................................ 19

STATE REGULATION ................................................................................................................................................... 19

ADDITIONAL INFORMATION ....................................................................................................................................... 19

EXPERTS ....................................................................................................................................................................... 19

LITIGATION ................................................................................................................................................................... 20

REPORTS TO CONTRACT OWNERS .......................................................................................................................... 20

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION ANDRESULTS OF OPERATIONS ........................................................................................................................................ 20

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ........................................................ 30

FINANCIAL STATEMENTS ........................................................................................................................................... 30

FINANCIAL STATEMENTS OF PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACTREAL PROPERTY ACCOUNT ......................................................................................................................................A1

FINANCIAL STATEMENTS OF THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTYPARTNERSHIP ..............................................................................................................................................................B1

1 - Real Property

��

(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)

The following information on per share investment income, capital changes and selected ratios has been provided for your information.This page should be read in conjunction with the financial statements and notes thereto of The Prudential Variable Contract Real PropertyPartnership included in this prospectus.

01/01/2001 01/01/2000 01/01/1999 01/01/1998 01/01/1997to to to to to

12/31/2001 12/31/2000 12/31/1999 12/31/1998 12/31/1997

Revenue from real estate and improvements $ 2.71 $ 2.32 $ 2.08 $ 2.07 $ 1.82Equity in income of real estate partnership $ 0.08 $ 0.08 $ 0.01 $ 0.00 * $ 0.04Dividend income from real estate investment trusts $ 0.24 $ 0.18 $ 0.12 $ 0.06 $ 0.01Interest on short-term investments $ 0.03 $ 0.13 $ 0.16 $ 0.16 $ 0.20

TOTAL INVESTMENT INCOME $ 3.06 $ 2.71 $ 2.37 $ 2.29 $ 2.07

Investment Management fee $ 0.30 $ 0.28 $ 0.26 $ 0.25 $ 0.22Real Estate Taxes $ 0.30 $ 0.25 $ 0.25 $ 0.20 $ 0.19Administrative expense $ 0.28 $ 0.25 $ 0.21 $ 0.17 $ 0.20Operation expense $ 0.60 $ 0.44 $ 0.37 $ 0.34 $ 0.28Interest expense $ 0.20 $ 0.07 $ 0.01 $ 0.00 $ 0.02Minority interest in consolidated partnership $ 0.02 $ 0.00 * $ 0.00 * $ 0.00 $ 0.00

TOTAL INVESTMENT EXPENSES $ 1.70 $ 1.29 $ 1.10 $ 0.96 $ 0.91

NET INVESTMENT INCOME $ 1.36 $ 1.42 $ 1.27 $ 1.33 $ 1.16

Net realized gain (loss) on real estate investments sold or converted ($ 0.02) $ 0.27 ($ 0.00) * $ 0.26 $ 0.03

Change in unrealized gain (loss) on real estate investments ($ 0.26) $ 0.23 ($ 0.68) $ 0.15 $ 0.69Minority interest in unrealized gain (loss) on investments $ 0.00 * ($ 0.04) ($ 0.00) * $ 0.00 $ 0.00

Net unrealized gain (loss) on real estate investments ($ 0.26) $ 0.19 ($ 0.68) $ 0.15 $ 0.69

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS ($ 0.28) $ 0.46 ($ 0.68) $ 0.41 $ 0.72

Net change in share value $ 1.08 $ 1.88 $ 0.59 $ 1.74 $ 1.88

Share value at beginning of period $ 22.74 $ 20.86 $ 20.27 $ 8.53 $ 16.65Share value at end of period $ 23.82 $ 22.74 $ 20.86 $ 20.27 $ 18.53

Ratio of expenses to average net assets (1) 7.26% 6.07% 5.33% 4.99% 5.16%

Ratio of net investment income to average net assets (1) 5.93% 6.49% 6.12% 6.97% 6.66%

Number of shares outstanding at end of period (000’s) 8,922 9,831 10,472 11,848 11,848

All calculations are based on average month-end shares outstanding where applicable.Per share information presented herein is shown on a basis consistent with the financial statements as discussed in Note 2J on page B10.(1) Average net assets are calculated based on an average of ending monthly new assets.* Per Share amount less than $0.01 (rounded)

2 - Real Property

��

This Summary provides a brief overview of the more significant aspects of the Real Property Account. We providefurther detail in the subsequent sections of this prospectus.

The Real Property Account is a separate account of Pruco Life Insurance Company of New Jersey (“Pruco Life of NewJersey”) created pursuant to New Jersey insurance law. Under that law, the assets of the Real Property Account arenot chargeable with liabilities arising out of any other business of Pruco Life of New Jersey. Owners of certain variablelife insurance and variable annuity contracts issued by Pruco Life of New Jersey may allocate a portion of their netpremiums or purchase payments, or transfer a portion of their Contract Fund, to the Real Property Account. Valuesand benefits under the Contracts will thereafter reflect the investment experience of the Real Property Account.Contract owners, not Pruco Life of New Jersey, bear the risks and rewards of the investment performance of the RealProperty Account to the extent of the Contract owner's Contract Fund invested in the Real Property Account. Thisprospectus is attached to and should be read in conjunction with the prospectus for the Contract you selected.

�� !� �"�##�$��

The Real Property Account assets are invested primarily in income-producing real estate through The PrudentialVariable Contract Real Property Partnership (the "Partnership") which is a general partnership that was established byPrudential and two of its wholly-owned subsidiaries, Pruco Life Insurance Company ("Pruco Life") and Pruco LifeInsurance Company of New Jersey (“Pruco Life of New Jersey”). See The Prudential Variable Contract RealProperty Partnership, page 4. Currently Prudential serves as the investment manager of the Partnership. Prudentialacts through Prudential Investment Management, Inc. See The Investment Manager, page 5. The Partnershipinvests at least 65% of its assets in direct ownership interests in:

1. income-producing real estate;2. participating mortgage loans (mortgages providing for participation in the revenues generated by, or the

appreciation of, the underlying property, or both) originated for the Partnership; and3. real property sale-leasebacks negotiated on behalf of the Partnership.

The large majority of these real estate investments will be in direct ownership interests in income producing real estate,such as office buildings, shopping centers, apartments, industrial properties or hotels. The Partnership may also investup to 5% of its assets in direct ownership interests in agricultural land. Approximately 10% of the Partnership's assetswill be held in cash or invested in liquid instruments and securities. The remainder of the Partnership's assets may beinvested in other types of real estate related investments, including non-participating mortgage loans and real estateinvestment trusts.

��%&�#�'��

The investment objectives of the Partnership are to:

1. preserve and protect the Partnership's capital;2. compound income by reinvesting investment cash flow; and3. over time, increase the income amount through appreciation in the value of permitted investments and, to

a lesser extent, through mortgage loans and sale-leaseback transactions.

There is no assurance that the Partnership's objectives will be attained. See INVESTMENT POLICIES, page 5.

�'�()�#��

Investment in the Real Property Account, and thereby, participation in the investment experience of the Partnership,involves significant risks. See RISK FACTORS, page 2. These include the risk of fluctuating real estate values andthe risk that the appraised or estimated values of the Partnership's real property investments will not be realized upontheir disposition. Many of the Partnership's real estate investments will not be quickly convertible into cash. Therefore,the Real Property Account should be viewed as a long-term investment. See RESTRICTIONS ON WITHDRAWALS,page 17.

Pruco Life of New Jersey and the investment manager have taken steps to ensure that the Real Property Account andPartnership will be sufficiently liquid to satisfy all withdrawal or loan requests promptly (within seven days), see

3 - Real Property

Liquidity of Investments, page 10. Prudential’s management of the Partnership is subject to certain conflicts ofinterest, including the possible acquisition of properties from Prudential Financial affiliates. See CONFLICTS OFINTEREST, page 13.

�� *��

The Partnership pays a daily investment management fee which amounts to 1.25% per year of the average daily grossassets of the Partnership. The Partnership also compensates the investment manager for providing certainaccounting and administrative services. See CHARGES, page 17. The portion of your Contract Fund allocated to theReal Property Account is subject to the same Contract charges as the portion of your Contract Fund allocated to ThePrudential Series Fund, Inc. (the "Series Fund"). The Series Fund is the underlying funding vehicle for the othervariable investment options available to Contract owners. You should read the Contract prospectus for a description ofthose charges.

��'��%'�'�"�� $#��'��+,� ��"�� #��

The Real Property Account is currently available to purchasers of Pruco Life of New Jersey's Variable AppreciableLife Insurance Contracts, Variable Life Insurance Contracts, Discovery Life Plus Contracts and Discovery PlusContracts. It is not available on Contracts that are purchased in connection with IRAs, Section 403(b) annuities, andother tax-qualified plans, that are subject to the Employee Retirement Income Security Act of 1974 ("ERISA") or to theprohibited transaction excise tax provisions of the Internal Revenue Code. See THE REAL PROPERTY ACCOUNT’SUNAVAILABILITY TO CERTAIN CONTRACTS, page 15. For example, a Variable Appreciable Life Contract ownerwho elects to invest part of his or her net premiums in the Pruco Life of New Jersey Variable Appreciable Account, aseparate account of Pruco Life of New Jersey registered as a unit investment trust under the Investment Company Actof 1940, and part in the Real Property Account, will be subject to the same: (1) monthly sales charges; (2) riskcharges; (3) administrative charges; (4) insurance charges; and (5) contingent deferred sales charges without regardto what portion is invested in the Pruco Life of New Jersey Variable Appreciable Account and what portion is investedin the Real Property Account. The Real Property Account has established different subaccounts, relating to thedifferent types of variable Contracts that may participate in the Real Property Account. These subaccounts provide themechanism and maintain the records whereby these different Contract charges are made.

This prospectus may only be offered in jurisdictions in which the offering is lawful. No person is authorizedto make any representations in connection with this offering other than those contained in this prospectus.

�� )�� -�� )� ��)�.,�� )��)�.,�� -�� -��

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Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey") is a stock life insurance company,organized in 1982 under the laws of the State of New Jersey. It is licensed to sell life insurance and annuities only inthe States of New Jersey and New York. These Contracts are not offered in any state in which the necessaryapprovals have not yet been obtained.

Pruco Life of New Jersey is an indirect, wholly-owned subsidiary of The Prudential Insurance Company of America(“Prudential”), a New Jersey stock life insurance company that has been doing business since 1875. Prudential is anindirect wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”), a New Jersey insurance holdingcompany. As Pruco Life of New Jersey’s ultimate parent, Prudential Financial exercises significant influence over theoperations and capital structure of Pruco Life of New Jersey and Prudential. However, neither Prudential Financial,Prudential, nor any other related company has any legal responsibility to pay amounts that Pruco Life of New Jerseymay owe under the contract or policy.

Pruco Life of New Jersey’s financial statements appear in either the attached Contract prospectus or in thestatement of additional information for the Contract prospectus, which is available upon request.

4 - Real Property

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The Pruco Life of New Jersey Variable Contract Real Property Account (the "Real Property Account") was establishedon October 30, 1987 under New Jersey law as a separate investment account. The Real Property Account meets thedefinition of a "separate account" under the federal securities laws. The Real Property Account holds assets that areseparated from all of Pruco Life of New Jersey’s other assets. The Real Property Account is used only to support thevariable benefits payable under the Contracts that are funded by the real estate investment option.

The Contract obligations to Contract owners and beneficiaries are general corporate obligations of Pruco Life of NewJersey. Pruco Life of New Jersey is also the legal owner of the Real Property Account assets. Pruco Life of NewJersey will maintain assets in the Real Property Account with a total market value at least equal to the amountscredited under the real estate option to all the Contracts participating in the Real Property Account. These assets maynot be charged with liabilities which arise from any other business that Pruco Life of New Jersey conducts. In additionto these assets, the Real Property Account’s assets may include funds contributed by Pruco Life of New Jersey, andreflect any accumulations of the charges Pruco Life of New Jersey makes against the Real Property Account. SeeVALUATION OF CONTRACT OWNER’S PARTICIPATING INTERESTS, page 15.

Pruco Life of New Jersey will bear the risks and rewards of the Real Property Account’s investment experience to theextent of its investment in the Real Property Account. Pruco Life of New Jersey may withdraw or redeem itsinvestment in the Real Property Account at any time. We will not make any such redemption if it will have a materiallyadverse impact on the Real Property Account. Accumulations of charges will be withdrawn on a regular basis.

Unlike the other separate accounts funding the Contracts, the Real Property Account is not registered with theSecurities and Exchange Commission ("SEC") under the Investment Company Act of 1940 as an investment company.For state law purposes, the Real Property Account is treated as a part or division of Pruco Life of New Jersey.Contract owners have no voting rights with respect to the Real Property Account. The Real Property Account is underthe control and management of Pruco Life of New Jersey. The Board of Directors and officers of Pruco Life of NewJersey are responsible for the management of the Real Property Account. No salaries of Pruco Life of New Jerseypersonnel are paid by the Real Property Account. Information regarding the directors and officers of Pruco Life of NewJersey is contained in the attached prospectus for the Contract. The financial statements of the Real PropertyAccount begin on page A1.

�� $/��'�� '�%�� #�� !� �"�� '!

All amounts allocated to the Real Property Account are invested through The Prudential Variable Contract RealProperty Partnership (the "Partnership"), a general partnership organized under New Jersey law on April 29, 1988.The only partners in the Partnership (collectively, the "Partners") are Prudential and two of its wholly-ownedsubsidiaries, Pruco Life and Pruco Life of New Jersey. The Partnership was established so the assets allocated to thereal estate investment options under certain variable life insurance and variable annuity contracts issued by thesethree companies could be invested in a commingled pool. This was done to provide greater diversification ofinvestments and lower transaction costs than would be possible if the assets were separately invested by eachcompany. All amounts allocated to the Real Property Account are contributed by Pruco Life of New Jersey to thePartnership. Pruco Life of New Jersey’s general partnership interest in the Partnership is held in the Real PropertyAccount.

The initial contributions to the Partnership were made on April 29, 1988. Prudential contributed $100,000 in cash tothe Partnership; Pruco Life of New Jersey contributed $100,000 in cash to the Partnership; and Pruco Life contributedthe real estate and other assets held in its real estate separate account, which had been actively investing in realestate for more than a year. Those assets had an estimated market value of $91,538,737 on that date. Each Partneris entitled to its respective proportionate share of all income, gains, and losses of the Partnership.

The Partnership assets are valued on each business day. The value of each Partner’s interest will fluctuate with theinvestment performance of the Partnership. In addition, the Partners’ interests are proportionately readjusted, at thecurrent value, on each day when a Partner makes a contribution to, or withdrawal from, the Partnership. When youchoose to allocate a portion of your net premiums or purchase payments, or transfer a portion of your Contract Fund,to the Real Property Account, Pruco Life of New Jersey will contribute that amount to the Partnership as a capitalcontribution. It will correspondingly increase the Real Property Account's interest in the Partnership. Values andbenefits under the Contract will thereafter vary with the performance of the Partnership's investments. For more

5 - Real Property

information on how the value of your interest in the Real Property Account and the value of the Partnership’sinvestments are calculated, see VALUATION OF CONTRACT OWNERS’ PARTICIPATING INTERESTS, page 15.

Contract owners have no voting rights with respect to the Partnership operations. The financial statements of thePartnership begin on page B1.

�� *�

Currently, Prudential acts as investment manager of the Partnership. Prudential acts through Prudential InvestmentManagement, Inc. (“PIM”), which invests in and manages real estate equities and mortgages for the general accountand separate accounts of Prudential Financial affiliates, and other third party accounts.

PIM, on behalf of the general account, and separate accounts of Prudential Financial affiliates, and other third partyaccounts, is one of the largest real estate investors in North America. PIM and Prudential Financial affiliates participatein real estate ventures through public and private partnerships. As of December 31, 2001, PIM managed $31.2 billionof net domestic real estate mortgages and equities of which $17.0 billion is in Prudential’s general account and $14.2billion is in separate accounts and other third party accounts. Statement value for general account assets is recordedat depreciated cost and for assets in separate accounts and other third party accounts at market value. For adiscussion of how the Partnership's real estate-related investments are valued, see VALUATION OF CONTRACTOWNERS’ PARTICIPATING INTERESTS, page 15.

Pending regulatory approval, the Partnership will terminate its investment management agreement with Prudential andenter into a new agreement with PIM. The terms of the new agreement are substantially identical to those in theexisting agreement with Prudential.

PIM has organized its real estate activities into separate business units within Prudential's Global Asset ManagementGroup. Prudential Real Estate Investors (PREI), a former division of Prudential, is the unit responsible for theinvestments of the Real Property Partnership. PREI's investment staff is responsible for both general account and thirdparty account real estate investment management activities.

PREI provides investment management services on a domestic basis and also acts as part of a global team providingthese services to institutional investors worldwide. PREI is headquartered in Parsippany, New Jersey and has 4 fieldoffices across the United States. As of December 31, 2001, PREI had under management approximately 29.7 millionnet rentable square feet of office real estate, 24.5 million net rentable square feet of industrial real estate, 15.0 millionnet rentable square feet of retail real estate, 4,856 hotel rooms, and 31,673 multifamily residential units.

Various divisions of Prudential Financial may provide PREI with services that may be required in connection with thePartnership’s investment management agreement. The mortgage operation currently manages and administers aportfolio of mortgage loans totaling approximately $34.2 billion.

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The Partnership has an investment policy of investing at least 65% of its assets in direct ownership interests inincome-producing real estate, participating mortgage loans originated for the Partnership, and real propertysale-leasebacks negotiated on behalf of the Partnership. It is expected that the largest portion of these real estateinvestments will be in direct ownership interests (including fee interests, leasehold interests, and interests in entitiesholding such interests) in income-producing real estate. The Partnership may also invest up to 5% of its assets indirect ownership interests in agricultural land. Approximately 10% of the Partnership's assets will ordinarily be held incash or invested in liquid instruments and securities, although the Partners reserve discretion to increase this amountto meet partnership liquidity requirements, for example. The remainder of the partnership assets may be invested inother types of real estate-related investments, including non-participating mortgage loans, real estate limitedpartnerships, limited liability companies, real estate investment trusts, and other vehicles whose underlying investmentis in real estate.

6 - Real Property

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Acquisition. The Partnership’s principal investment policy involves acquiring direct ownership interests in existing(including newly constructed) income-producing real estate, including office buildings, shopping centers, apartmentbuildings, industrial properties, and hotels. The Partnership may also invest up to 5% of its assets in direct ownershipinterests in agricultural land. Property acquisitions will generally be carried out by the real estate acquisition offices inPREI’s network of field offices located in Parsippany, New Jersey, Atlanta, Georgia, Chicago, Illinois and Los Angeles,California. A field office or an affiliate of Prudential Financial supervises the management of properties in all of PIM’saccounts.

Proposals to acquire properties for the Partnership are usually originated by a field office. They are reviewed andapproved by the Investment Management Committee of PREI. Depending upon the size of the acquisition and otherfactors, a proposed real estate investment may also be submitted for review to the Investment Committee of the Boardof Directors of Prudential.

Although percentage limitations on the type and location of properties that may be acquired by the Partnership havenot been established, the Partnership plans to diversify its investments through the type of property acquired and itsgeographic location. The Partnership’s investments will be maintained to meet the Internal Revenue Codediversification requirements. See General Investment and Operating Policies, page 8.

In order for the Partnership to meet its stated objectives, it will have to acquire properties that generate more cash thanneeded to pay its gross operating expenses. To do this, a substantial portion of the Partnership’s assets will beinvested in properties with operating histories that include established rent and expense schedules. However, thePartnership may also acquire recently constructed properties that may be subject to agreements with sellers providingfor certain minimum levels of income. Upon the expiration of or default under these agreements, there is no assurancethat the Partnership will maintain the level of operating income necessary to produce the return it was previouslyexperiencing. The Partnership may purchase real property from Prudential Financial or its affiliates under certainconditions. See CONFLICTS OF INTEREST, page 13.

The property acquired by the Partnership is usually real estate which is ready for use. Accordingly, the Partnership isnot usually subject to the development or construction risks inherent in the purchase of unimproved real estate. Fromtime to time, however, the Partnership may invest in a developmental real estate project that is consistent with thePartnership’s objectives. The Partnership will then be subject to those risks.

The Partnership will often own the entire fee interest in an acquired property, but it may also hold other directownership interests. These include, but are not limited to, partnership interests, limited liability company interests,leaseholds, and tenancies in common.

Property Management and Leasing Services. The Partnership usually retains a management company operating inthe area of a property to perform local property management services. A field office or other affiliate of PrudentialFinancial will usually: (1) supervise and monitor the performance of the local management company; (2) determineand establish the required accounting information to be supplied; (3) periodically inspect the property; (4) review andapprove property operating budgets; and (5) review actual operations to ensure compliance with budgets. In additionto day-to-day management of the property, the local management company will have responsibility for: (1) supervisionof any on-site personnel; (2) negotiation of maintenance and service contracts; (3) major repair advice; (4)replacements and capital improvements; (5) the review of market conditions to recommend rent schedule changes;and (6) creation of marketing and advertising programs to obtain and maintain good occupancy rates by responsibletenants. The local management company fees will reduce the cash flow from the property to the Partnership.

The Partnership usually retains a leasing company to perform leasing services on any property with actual or projectedvacancies. The leasing company will coordinate with the property management company to provide marketing andleasing services for the property. When the property management company is qualified to handle leasing, it may alsobe hired to provide leasing services. Leasing commissions and expenses will reduce the cash flow from the propertyto the Partnership.

PREI may, on behalf of the Partnership, hire a Prudential Financial affiliate to perform property management orleasing services. The affiliate’s services must be provided on terms competitive with unaffiliated entities performingsimilar services in the same geographic area. See CONFLICTS OF INTEREST, page 13.

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Annually, the field office which oversees the management of each property owned by the Partnership will, togetherwith the local property management firm, develop a business plan and budget for each property. It will consider,among other things, the projected rollover of individual leases, necessary capital expenditures and any expansion ormodification of the use of the property. The approval of an officer of PREI is required. The field office will alsoperiodically report the operating performance of the property to PREI.

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Types of Mortgage Loans

The Partnership is authorized to invest in mortgage loans, including conventional mortgage loans that may pay fixedor variable rates of interest and mortgage loans that have a "participation" (as defined below). The Partnership will notmake mortgage loans to Prudential Financial affiliates.

The Partnership intends to give mortgage loans on: (1) commercial properties (such as office buildings, shoppingcenters, hotels, industrial properties, and office showrooms); (2) agricultural properties; and (3) residential properties(such as garden apartment complexes and high-rise apartment buildings). These loans are usually secured byproperties with income-producing potential based on historical or projected data. Usually, they are not personalobligations of the borrower and are not insured or guaranteed.

1. First Mortgage Loans. The Partnership will primarily make first mortgage loans secured by mortgages on existingincome-producing property. These loans may provide for interest-only payments and a balloon payment at maturity.

2. Wraparound Mortgage Loans. The Partnership also may make wraparound mortgage loans on income-producingproperties which are already mortgaged to unaffiliated entities. A wraparound mortgage loan is a mortgage with aprincipal amount equal to the outstanding balance of the prior existing mortgage plus the amount to be advanced bythe lender under the wraparound mortgage loan, thereby providing the property owner with additional funds withoutdisturbing the existing loan. The terms of wraparound mortgage loans made by the Partnership require the borrowerto make all principal and interest payments on the underlying loan to the Partnership, which will then pay the holder ofthe prior loan. Because the existing first mortgage loan is preserved, the lien of the wraparound mortgage loan isjunior to it. The Partnership will make wraparound mortgage loans only in states where local applicable foreclosurelaws permit a lender, in the event of the borrower’s default, to obtain possession of the property which secures theloan.

3. Junior Mortgage Loans. The Partnership may also invest in other junior mortgage loans. Junior mortgage loanswill be secured by mortgages which are subordinate to one or more prior liens on the real property. They willgenerally, but not in all cases, provide for repayment in full prior to the end of the amortization period of the seniormortgages. Recourse on such loans will include the real property encumbered by the Partnership’s mortgage and mayalso include other collateral or personal guarantees by the borrower.

The Partnership will generally make junior or wraparound mortgage loans only if the senior mortgage, when combinedwith the amount of the Partnership’s mortgage loan, would not exceed the maximum amount which the Partnershipwould be willing to commit to a first mortgage loan and only under such circumstances and on such property as towhich the Partnership would otherwise make a first mortgage loan.

4. Participations. The Partnership may make mortgage loans which, in addition to charging a base rate of interest,will include provisions permitting the Partnership to participate (a "participation") in the economic benefits of theunderlying property. The Partnership would receive a percentage of: (1) the gross or net revenues from the propertyoperations; and/or (2) the increase in the property value realized by the borrower, such as through sale or refinancingof the property. These arrangements may also grant the Partnership an option to acquire the property or an undividedinterest in the property securing the loan. When the Partnership negotiates the right to receive additional interest in theform of a percentage of the gross revenues or otherwise, the fixed cash return to the Partnership from that investmentwill generally be less than would otherwise be the case. It is expected that the Partnership will be entitled topercentage participations when the gross or net revenues from the property operations exceed a certain base amount.This base amount may be adjusted if real estate taxes or similar charges are increased. The form and extent of theadditional interest that the Partnership receives will vary with each transaction depending on: (1) the equity investmentof the owner or developer of the property; (2) other financing or credit obtained by the owner or developer; (3) the fixedbase interest rate on the mortgage loan by the Partnership; (4) any other security arrangement; (5) the cash flow andpro forma cash flow from the property; and (6) market conditions.

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The Partnership intends to use this additional interest as a hedge against inflation. It assumes that as prices increasein the economy, the rental prices on properties, such as shopping centers or office buildings, will increase and thereshould be a corresponding increase in the property value. There is no assurance that additional interest or increasedproperty values will be received. In that event, the Partnership will be entitled to receive only the fixed portion of itsreturn.

Standards for Mortgage Loan Investments

In making mortgage loans, the investment manager will consider relevant real property and financial factors, including:(1) the location, condition, and use of the underlying property; (2) its operating history; (3) its future income-producingcapacity; and (4) the quality, experience, and creditworthiness of the unaffiliated borrower.

Before the Partnership makes a mortgage loan, the investment manager analyzes the fair market value of theunderlying real estate. In general, the amount of each mortgage loan made by the Partnership will not exceed, whenadded to the amount of any existing indebtedness, 80% of the estimated or appraised value of the propertymortgaged.

Dealing With Outstanding Loans

The Partnership may sell its mortgage loans prior to maturity if it is deemed advisable by the investment manager andconsistent with the Partnership’s investment objectives. The investment manager may also: (1) extend the maturity ofany mortgage loan made by the Partnership; (2) consent to a sale of the property subject to a mortgage loan orfinance the purchase of a property by making a new mortgage loan in connection with the sale of a property (eitherwith or without requiring the repayment of the mortgage loan); (3) renegotiate the terms of a mortgage loan; and (4)otherwise deal with the mortgage loans of the Partnership.

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A portion of the Partnership’s investments may consist of real property sale-leaseback transactions ("leasebacks"). Inthis type of transaction, the Partnership will purchase land and income-producing improvements on the land andsimultaneously lease the land and improvements, generally to the seller, under a long-term lease. Leasebacks may befor very long periods and may provide for increasing payments from the lessee.

Under the terms of the leaseback, the tenant will operate, or provide for the operation of, the property and generally beresponsible for the payment of all costs, including: (1) taxes; (2) mortgage debt service; (3) maintenance and repair ofthe improvements; and (4) insurance. In some cases, the Partnership may also grant the lessee an option to acquirethe land and improvements from the Partnership after a period of years. The option exercise price would be based onthe fair market value of the property, as encumbered by the lease, the increase in the gross revenues from theproperty or other objective criteria reflecting the increased value of the property.

In some leaseback transactions, the Partnership may only purchase the land under an income-producing building andlease the land to the building owner. In such cases, the Partnership may seek, in addition to base rents in itsleasebacks, participations in the gross revenues from the building in a form such as a percentage of the grossrevenues of the lessee above a base amount (which may be adjusted if real property taxes increase or for otherevents). The Partnership may invest in leasebacks which are subordinate to other interests in the land, buildings, andimprovements, such as a first mortgage, other mortgage, or lien. In those situations, the Partnership’s leasebackinterest will be subject to greater risks.

The Partnership will only acquire a property for a leaseback transaction if the purchase price is equal to not more than100% of the estimated or appraised property value. The Partnership may dispose of its leasebacks when deemedadvisable by the investment manager and consistent with the Partnership’s investment objectives.

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The Partnership does not intend to invest in any direct ownership interests in properties, mortgage loans or leasebacksin order to make short-term profits from their sale, although in exceptional cases, the investment manager may decideto do so in the best interests of the Partnership. The Partnership may dispose of its investments whenever necessary

9 - Real Property

to meet its cash requirements or when it is deemed to be desirable by the investment manager because of marketconditions or otherwise. The Partnership will reinvest any proceeds from the disposition of assets (and any cash flowfrom operations) which are not necessary for the Partnership’s operations and which are not withdrawn by the Partnersin order to make distributions to investors pursuant to the variable contracts issued by the Partners, or to Prudential toreturn its equity interests pursuant to this prospectus. The proceeds will be reinvested in investments consistent withthe Partnership’s investment objectives and policies.

In making investments in properties, mortgage loans, leasebacks or other real estate investments, the Partnership willrely on the investment manager’s analysis of the investment and will not receive an independent appraisal prior toacquisition. The Partnership expects, however, that all the properties it owns, and most mortgage loans it holds, willbe appraised or valued annually by an independent appraiser who is a member of a nationally recognized society ofappraisers. Each appraisal will be maintained in the Partnership records for at least five years. It should be noted thatappraised values are opinions and, as such, may not represent the true worth or realizable value of the property beingappraised.

The Partnership usually purchases properties on an unleveraged basis. The properties acquired will typically be freeand clear of mortgage debt immediately after their acquisition. The Partnership may, however, acquire propertiessubject to existing mortgage loans. In addition, the Partnership may mortgage or acquire properties partly with theproceeds of purchase money mortgage loans, up to 80% of the property value. Although this is not usually done, thePartnership may do so if the investment manager decides that it is consistent with its investment objectives. When thePartnership mortgages its properties, it bears the expense of mortgage payments. See BORROWING BY THEPARTNERSHIP, page 17.

The Partnership may also invest a portion of its assets in non-participating mortgage loans, real estate limitedpartnerships, limited liability companies, real estate investment trusts, and other vehicles whose underlying investmentis in real estate.

The Partnership’s investments will be maintained in order to meet the diversification requirements set forth inregulations under the Internal Revenue Code (the "Code") relating to the investments of variable life insurance andvariable annuity separate accounts. In order to meet the diversification requirements under the regulations, thePartnership will meet the following test: (1) no more than 55% of the assets will be invested in any one investment; (2)no more than 70% of the assets will be invested in any two investments; (3) no more than 80% of the assets will beinvested in any three investments; and (4) no more than 90% of the assets will be invested in any four investments. Allinterests in the same real property project are treated as a single investment. The Partnership must meet the abovetest within 30 days of the end of each calendar quarter. To comply with the diversification requirements of the State ofArizona, the Partnership will limit additional investments in any one parcel or related parcels to an amount notexceeding 10% of Partnership’s gross assets, as of the prior fiscal year end.

In managing the assets of the Partnership, the investment manager will use its discretion in determining whether toforeclose on defaulting borrowers or to evict defaulting tenants. The investment manager will decide which course ofaction is in the best interests of the Partnership in maintaining the value of the investment.

Property management services are usually required for the Partnership’s investments in properties which are ownedand operated by the Partnership, but usually will not be needed for mortgage loans owned by the Partnership, exceptfor mortgage servicing. It is possible, however, that these services will be necessary or desirable in exercising defaultremedies under a foreclosure on a mortgage loan. The investment manager may engage, on behalf of thePartnership, Prudential Financial affiliated or unaffiliated entities to provide these additional services to the Partnership.The investment manager may engage Prudential Financial affiliates to provide property management, propertydevelopment services, loan servicing or other services if and only if the fees paid to an affiliate do not exceed theamount that would be paid to an independent party for similar services rendered in the same geographic area. SeeCONFLICTS OF INTEREST, page 13.

The investment manager will manage the Partnership so that the Real Property Account will not be subject toregistration under the Investment Company Act of 1940. This requires monitoring the proportion of the Partnership’sassets to be placed in various investments.

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The current principal real estate-related investments held by the Partnership are described below. Many of theseinvestments were originated by, and previously held in, The Prudential Real Property Account of Pruco Life InsuranceCompany (the “Pruco Life Account”), a separate account established to fund the real estate investment option undervariable contracts issued by Pruco Life. Prior to the formation of the Partnership, the Pruco Life Account followed thesame investment policies as those followed by the Partnership. Pruco Life contributed the assets held in the PrucoLife Account to the Partnership as its initial capital contribution to the Partnership.

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The Partnership owns the following properties as of December 31, 2001.

1. Office PropertiesThe Partnership owns office properties in Lisle and Oakbrook Terrace, Illinois; Brentwood, Tennessee; andBeaverton, Oregon. Total square footage owned is approximately 482,000 of which 89% or 431,000 square feetare leased between 1 and 10 years. The Partnership’s Morristown, New Jersey property, which hadapproximately 85,000 square feet, was sold on October 26, 2000.

2. Apartment ComplexesThe Partnership owns apartment complexes in Atlanta, Georgia and Raleigh, North Carolina. There are a total of490 apartment units available of which 82% or 403 units are leased. Leases range from month-to-month to oneyear. In addition, on September 17, 1999, the Partnership invested in an apartment complex located inJacksonville, FL. This joint venture investment has a total of 458 units available of which 402 units or 88% areoccupied. Leases range from month-to-month to one year. Also, on February 15, 2001, the Partnership investedin four apartment complexes located in Gresham/Salem, OR. This joint venture investment has a total of 492 unitsavailable of which 458 units or 93% are occupied. Leases range from month-to-month to one year.

3. Retail PropertyThe Partnership owns a shopping center in Roswell, Georgia. The property is located approximately 22 milesnorth of downtown Atlanta on a 30 acre site. The square footage is approximately 316,000 of which 92% or293,000 square feet is leased between 1 and 10 years. On September 30, 1999 the Partnership invested in aretail portfolio located in the Kansas City, MO and KS areas. This joint venture investment has approximately488,000 of net rentable square feet of which 90% or 440,000 square feet is leased between 1 and 20 years. Inaddition, on May 17, 2001, the Partnership invested in a retail center located in the Hampton, VA. This jointventure investment has approximately 155,000 of net rentable square feet of which 100% or 155,000 square feetis leased between 1 and 20 years.

4. Industrial PropertiesThe Partnership owns warehouses and distribution centers in Bolingbrook, Illinois; Aurora, Colorado; and SaltLake City, Utah. Total square footage owned is approximately 685,000 of which 83% or 569,000 square feet areleased between 1 and 10 years.

5. Investment in Real Estate TrustThe Partnership liquidated its entire investment in REIT shares during December 2001.

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There are certain risk factors that you should consider before allocating a portion of your net premiums or purchasepayments, or transferring a portion of your Contract Fund, to the Real Property Account. These include valuation risks,(see VALUATION OF CONTRACT OWNERS’ PARTICIPATING INTERESTS, page 15), certain conflicts of interest,(see CONFLICTS OF INTEREST, page 13), as well as the following risks:

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Because the Real Property Account will, through the Partnership, invest primarily in real estate, its assets will not be asliquid as the investments generally made by separate accounts of life insurance companies funding variable life

11 - Real Property

insurance and variable annuity contracts. The Partnership will, however, hold approximately 10% of its assets in cashand invested in liquid securities. The primary purposes for such investments are to meet the expenses involved in theoperation of the Partnership and to allow it to have sufficient liquid assets to meet any requests for withdrawals fromthe Real Property Account. Such withdrawals would be made in order to meet requested or required payments underthe Contracts. The Partnership may also borrow funds to meet liquidity needs. See BORROWING BY THEPARTNERSHIP, page 17.

We have taken steps to ensure that the Partnership will be liquid enough to meet all anticipated withdrawals by thePartners to meet the separate accounts’ liquidity requirements. It is possible that the Partnership may need to disposeof a real property or mortgage loan investment promptly in order to meet such withdrawal requests.

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By participating in the Real Property Account and thereby in the investment performance of the Partnership, you will besubject to many of the risks of real property investments. These include:

1. Risks of Ownership of Real Properties. The Partnership will be subject to the risks inherent in the ownership ofreal property such as fluctuations in occupancy rates and operating expenses and variations in rental schedules. Itmay be adversely affected by general and local economic conditions, the supply of and demand for properties of thetype in which the Partnership invests, zoning laws, and real property tax rates. Operation of property in which thePartnership invests will primarily involve rental of that property to tenants. The financial failure of a tenant resulting inthe termination of their lease might cause a reduction in the cash flow to the Partnership. If a lease is terminated,there is no assurance that the Partnership will be able to find a new tenant for the property on terms as favorable to thePartnership as those from the prior tenant. Investments in hotels are subject to additional risk from the daily turnoverand fluctuating occupancy rates of hotel rooms and the absence of long-term tenants.

The Partnership’s properties will also be subject to the risk of loss due to certain types of property damage (such asfrom nuclear power plant accidents and wars) which are either uninsurable or not economically insurable.

2. Risks of Mortgage Loan Investments. The Partnership’s mortgage loan investments will be subject to the risk ofdefault by the borrowers. In this event the Partnership would have the added responsibility of foreclosing on orpursuing other remedies on the underlying properties to protect the value of its mortgage loans. A borrower’s ability tomeet its mortgage loan payments will be dependent upon the risks generally inherent to the ownership of real property.Mortgage loans made by the Partnership will generally not be personal obligations of the borrowers. The Partnershipwill only rely on the value of the underlying property for its security. Mechanics’, materialmen’s, government, and otherliens may have or obtain priority over the Partnership’s security interest in the property.

In addition, the Partnership’s mortgage loan investments will be subject to prepayment risks. If the terms of themortgage loans permit, mortgagors may prepay the loans, thus possibly changing the Partnership’s return.

Junior mortgage loans (including wraparound mortgage loans) will be subject to greater risk than first mortgage loans,since they will be subordinate to liens of senior mortgagees. In the event a default occurs on a senior mortgage, thePartnership may be required to make payments or take other actions to cure the default (if it has the right to do so) inorder to prevent foreclosure on the senior mortgage and possible loss of all or portions of the Partnership’s investment."Due on sale" clauses included in some senior mortgages, accelerating the amount due under the senior mortgage inthe case of sale of the property, may be applied to the sale of the property upon foreclosure by the Partnership of itsjunior mortgage loan.

The risk of lending on real estate increases as the proportion which the amount of the mortgage loan bears to the fairmarket value of the real estate increases. The Partnership usually does not make mortgage loans of over 80% of theestimated or appraised value of the property that secures the loan. There can be no assurance, that in the event of adefault, the Partnership will realize an amount equal to the estimated or appraised value of the property on which amortgage loan was made.

Mortgage loans made by the Partnership may be subject to state usury laws . These laws impose limits on interestcharges and possible penalties for violation of those limits, including restitution of excess interest, unenforceability ofdebt, and treble damages. The Partnership does not intend to make mortgage loans at usurious rates of interest.Uncertainties in determining the legality of interest rates and other borrowing charges under some statutes couldresult in inadvertent violations, in which case the Partnership could incur the penalties mentioned above.

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3. Risks with Participations. The Partnership may seek to invest in mortgage loans and leasebacks withparticipations, which will provide the Partnership with both fixed interest and additional interest based upon grossrevenues, sale proceeds, and/or other variable amounts. If the interest income received by the Partnership is based,in part, on a percentage of the gross revenues or sale proceeds of the underlying property, the Partnership’s incomewill depend on the success in the leasing of the underlying property, the management and operation of such propertyby the borrower or lessee and upon the market value of the property upon ultimate disposition. If the Partnershipnegotiates a mortgage loan with a lower fixed interest rate and an additional percentage of the gross revenues oreventual sale proceeds of the underlying property, and the underlying property fails to generate increased revenues orto appreciate, the Partnership will have foregone a potentially greater fixed return without receiving the benefit ofappreciation. State laws may limit participations. In the event of the borrower’s bankruptcy, it is possible that as aresult of the Partnership's interest in the gross revenues or sale proceeds, a court could treat the Partnership as apartner or joint venturer with the borrower, and the Partnership could lose the priority its security interest would havebeen given, or be liable for the borrower’s debts. The Partnership will structure its participations to avoid beingcharacterized as a partner or joint venturer with the borrower.

4. Risks with Sale-Leaseback Transactions. Leaseback transactions typically involve the acquisition of land andimprovements thereon and the leaseback of such land and improvements to the seller or another party. The value ofthe land and improvements will depend, in large part, on the performance and financial stability of the lessee and itstenants, if any. The tenants’ leases may have shorter terms than the leaseback. Therefore, the lessee's future abilityto meet payment obligations to the Partnership will depend on its ability to obtain renewals of such leases or newleases upon satisfactory terms and the ability of the tenants to meet their rental payments to the lessee.

PREI investigates the stability and creditworthiness of lessees in all commercial properties it may acquire, includingleaseback transactions. However, a lessee in a leaseback transaction may have few, if any, assets. The Partnershipwill therefore rely for its security on the value of the land and improvements. When the Partnership's leasebackinterest is subordinate to other interests in the land or improvements, such as a first mortgage or other lien, thePartnership's leaseback will be subject to greater risk. A default by a lessee or other premature termination of theleaseback may result in the Partnership being unable to recover its investment unless the property is sold or leased onfavorable terms. The ability of the lessee to meet its obligations under the leaseback, and the value of a property, maybe affected by a number of factors inherent in the ownership of real property which are described above. Furthermore,the long-term nature of a leaseback may, in the future, result in the Partnership receiving lower average annual rentals. However, this risk may be lessened if the Partnership obtains participations in connection with its leasebacks.

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You do not have a vote in determining the policies of the Partnership or the Real Property Account. You also have noright or power to take part in the management of the Partnership or the Real Property Account. The investmentmanager alone, subject to the supervision of the Partners, will make all decisions with respect to the management ofthe Partnership, including the determination as to what properties to acquire, subject to the investment policies andrestrictions. Although the Partners have the right to replace the investment manager, it should be noted thatPrudential, Pruco Life, Pruco Life of New Jersey, and the investment manager are wholly-owned subsidiaries ofPrudential Financial.

The Partnership will compete in the acquisition of its investments with many other individuals and entities engaged inreal estate activities, including the investment manager and its affiliates. See CONFLICTS OF INTEREST, page 13.There may be intense competition in obtaining properties or mortgages in which the Partnership intends to invest.Competition may result in increased costs of suitable investments.

Since the Partnership will continuously look for new investments, you will not be able to evaluate the economic merit ofmany of the investments which may be acquired by the Partnership. You must depend upon the ability of theinvestment manager to select investments.

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The Partnership has adopted certain restrictions relating to its investment activities. These restrictions may bechanged, if the law permits, by the Partners. Pursuant to these restrictions, the Partnership will not:

13 - Real Property

1. Make any investments not related to real estate, other than liquid instruments and securities.

2. Engage in underwriting of securities issued by others.

3. Invest in securities issued by any investment company.

4. Sell securities short.

5. Purchase or sell oil, gas, or other mineral exploration or development programs.

6. Make loans to the Partners, any of their affiliates, or any investment program sponsored by such parties.

7. Enter into leaseback transactions in which the lessee is Prudential, Pruco Life, Pruco Life of New Jersey, their affiliates, or any investment program sponsored by such parties.

8. Borrow more than 33�% (pursuant to California state requirements) of the value of the assets of thePartnership (based upon periodic valuations and appraisals). See VALUATION OF CONTRACT OWNERS’PARTICIPATING INTERESTS, page 15.

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The investment manager, will be subject to various conflicts of interest in managing the Partnership. PIM invests inreal estate equities and mortgages for the general account of Prudential Financial affiliates and for third parties,including through separate accounts established for the benefit of qualified pension and profit-sharing plans. PIM alsomanages, or advises in the management of, real estate equities and mortgages owned by other persons. In addition,affiliates of Prudential Financial are general partners in publicly offered limited partnerships that invest in real estateequities and mortgage loans. Prudential Financial and its affiliates may engage in business activities which will becompetitive with the Partnership. Moreover, the Partnership may purchase properties from Prudential Financial or itsaffiliates.

The conflicts involved in managing the Partnership include:

1. Lack of Independent Negotiations between the Partnership and The Investment Manager. All agreementsand arrangements relating to compensation between the Partnership and the investment manager, PIM or any affiliateof Prudential Financial will not be the result of arm’s-length negotiations.

2. Competition by the Partnership with Prudential Financial’s Affiliates for Acquisition and Disposition ofInvestments. Prudential Financial affiliates are involved in numerous real estate investment activities for their generalaccount, their separate accounts, and other entities. They may involve investment policies comparable to thePartnership’s and may compete with the Partnership for the acquisition and disposition of investments. Moreover,additional accounts or affiliated entities may be formed in the future with investment objectives similar to those of thePartnership. In short, existing or future real estate investment accounts or entities managed or advised by PrudentialFinancial affiliates may have the same management as the Partnership and may be in competition with the Partnershipregarding real property investments, mortgage loan investments, leasebacks, and the management and sale of suchinvestments. Prudential Financial affiliates are not obligated to present to the Partnership any particular investmentopportunity, regardless of whether the opportunity would be suitable for investment by the Partnership.

Prudential Financial affiliates have, however, adopted procedures to distinguish between equity investments availablefor the Partnership as opposed to the other programs and entities described above. If investment accounts or entitiesmanaged by Prudential Financial affiliates have investment objectives and policies similar to the Partnership and are inthe market to acquire properties or make investments at the same time as the Partnership, the following procedureswill be followed to resolve any conflict of interest. The Investment Allocation Procedure (“IAP”) has been established toprovide a reasonable and fair procedure for allocating real estate investments among the several accounts managedby Prudential Real Estate Investors (“PREI”). The IAP is administered by an Allocation Committee composed of theManaging Directors, Portfolio Management. Allocation decisions are made by vote of the Allocation Committee, andare approved by the Chief Executive Officer of PREI (“CEO”). Sufficient information on each investment opportunity isdistributed to all portfolio managers, who each indicate to the Allocation Committee their account’s interest in theopportunity. Based on such expressions of interest, the Allocation Committee allocates the investment opportunity to

14 - Real Property

an account (and may also determine a back-up account or accounts to receive the allocation in the event the account,which is first allocated the opportunity, fails to pursue the investment for any reason) after giving appropriateconsideration to the following factors and with the goal of providing each account a fair allotment of investmentopportunities: (1) the investment opportunity’s conformity with an account’s investment criteria and objectives(including property type, size and location, diversification, anticipated returns, investment structure, etc.); (2) theamount of funds available for investment (in total and by property type) by an account; (3) the length of time suchfunds (in total and by property type) have been available for investment; (4) any limitations or restrictions upon theavailability of funds for investment; (5) the absolute and relative (to amount of funds available) amount of fundsinvested and committed for the account; (6) whether funds available for investment are discretionary or non-discretionary, particularly in relation to the timing of the investment opportunity; (7) an account’s prior dealings orinvestments with the seller, developer, lender or other counterparty; and (8) other factors which the AllocationCommittee feel should be considered in fairness to all accounts participating in the IAP.

If an account which has been allocated an investment opportunity does not proceed with the acquisition, and either (i)no back-up account has been determined by the Allocation Committee, or (ii) all accounts which were deemed back-upaccounts do not proceed with the acquisition, the opportunity may be reallocated to another account by the AllocationCommittee. If an investment opportunity is appropriate for more than one account, the Allocation Committee may(subject to the CEO’s approval) permit the sharing of the investment among accounts which permit such sharing.Such division of the investment opportunity may be accomplished by separating properties (in a multi-propertyinvestment), by co-investment, or otherwise.

3. Competition with the Partnership from Affiliates for the Time and Services of Common Officers, Directors,and Management Personnel. As noted above, PIM and Prudential Financial affiliates are involved in numerous realestate investment activities. Accordingly, many of the personnel of PIM and Prudential Financial affiliates who will beinvolved in performing services for the Partnership have competing demands on their time. Conflicts of interest mayarise with respect to allocating time among such entities and the Partnership. The directors and officers of PrudentialFinancial and affiliates will determine how much time will be devoted to the Partnership affairs. Prudential Financialbelieves it has sufficient personnel to meet its responsibilities to all entities to which it is affiliated.

4. Competitive Properties. Some properties of affiliates may be competitive with Partnership properties. Amongother things, the properties could be in competition with the Partnership's properties for prospective tenants.

5. Lessee Position. It is possible that Prudential Financial or its affiliates may be a lessee in one or more of theproperties owned by the Partnership. The terms of such a lease will be competitive with leases with non-affiliated thirdparties. The Partnership limits the amount of space that an affiliate of Prudential may rent in a property owned by thePartnership.

6. Use of Affiliates to Perform Additional Services for the Partnership. The Partnership may engage PrudentialFinancial affiliates to provide additional services to the Partnership, such as real estate brokerage, mortgage servicing,property management, leasing, property development, and other real estate-related services. The Partnership mayutilize the services of such affiliates and pay their fees, as long as the fees paid to an affiliate do not exceed theamount that would be paid to an independent party for similar services rendered in the same geographic area.

7. Joint Ventures with Affiliates. The Partnership may enter into investments through joint ventures with PrudentialFinancial, its affiliates, or investment programs they sponsor. The Partnership may enter into such a joint ventureinvestment with an affiliate only if the following conditions are met: (1) the affiliate must have investment objectivessubstantially identical to those of the Partnership; (2) there must be no duplicative property management fee, mortgageservicing fee or other fees; (3) the compensation payable to the sponsor of the affiliate must be no greater than thatpayable to the Partnership's investment manager; (4) the Partnership must have a right of first refusal to buy if suchaffiliate wishes to sell the property held in the joint venture; and (5) the investment of the Partnership and the affiliate inthe joint venture must be made on the same terms and conditions (although not the same percentage). In connectionwith such an investment, both affiliated parties would be required to approve any decision concerning the investment.Thus, an impasse may result in the event the affiliated joint venture partners disagree. However, in the event of adisagreement regarding a proposed sale or other disposition of the investment, the party not desiring to sell wouldhave a right of first refusal to purchase the affiliated joint venture partner's interest in the investment. If this happens, itis possible that in the future the joint venture partners would no longer be affiliated. In the event of a proposed saleinitiated by the joint venture partner, the Partnership would also have a right of first refusal to purchase the jointventure partner's interest in the investment. The exercise of a right of first refusal would be subject to the Partnership'shaving the financial resources to effectuate such a purchase.

15 - Real Property

If the Partnership invests in joint venture partnerships which own properties, instead of investing directly in theproperties themselves, they may be subject to risks not otherwise present. These risks include risks associated withthe possible bankruptcy of the Partnership’s co-venturer or such co-venturer at any time having economic or businessinterests or goals which are inconsistent with those of the Partnership.

8. Purchase of Real Property From Prudential Financial or Affiliates. The Partnership may acquire propertiesowned by Prudential Financial or its affiliates, subject to compliance with special conditions designed to minimize theconflicts of interests. The Partnership may purchase property satisfying the Partnership’s investment objectives andpolicies from an affiliate only if: (1) the applicable insurance regulators approve the Partnership’s acquisition of realproperty from Prudential Financial or affiliates to the extent such approval is required under applicable insuranceregulations; (2) the Partnership acquires the property at a price not greater than the appraised value, with the appraisalbeing conducted by a qualified, unaffiliated appraiser; (3) a qualified and independent real estate adviser (other thanthe appraiser) reviews the proposed acquisition and provides a letter of opinion that the transaction is fair to thePartnership; and (4) the affiliate has owned the property at least two years, the cost paid by the affiliate is established,and any increase in the proposed purchase price over the cost to the affiliate is, in the opinion of the independent realestate adviser, explicable by material factors (including the passage of time) that have increased the value of theproperty.

��3�� - � ��

Pruco Life of New Jersey has determined that it is in the best interest of Contract owners participating in the RealProperty Account to provide the Real Property Account with the flexibility to engage in transactions that may beprohibited if the Real Property Account accepts funds under Contracts subject to ERISA or the prohibited transactionexcise tax provisions of the Internal Revenue Code. Accordingly, owners of Pruco Life of New Jersey Contracts thatare purchased in connection with: (1) IRAs; (2) tax deferred annuities subject to Section 403(b) of the Code; (3) otheremployee benefit plans which are subject to ERISA; or (4) prohibited transaction excise tax provisions of the Code,may not select the Real Property Account as one of the investment options under their Contract. By not offering theReal Property Account as an investment option under such contracts, Pruco Life of New Jersey is able to comply withstate insurance law requirements that policy loans be made available to Contract owners.

�� )��.��3��

A Contract owner's interest in the Real Property Account will initially be the amount they allocated to the Real PropertyAccount. Thereafter, that value will change daily. The value of a Contract owner's interest in the Real PropertyAccount at the close of any day is equal to its amount at the close of the preceding day, multiplied by the "netinvestment factor" for that day arising from the Real Property Account's participation in the Partnership, plus anyadditional amounts allocated to the Real Property Account by the Contract owner, and reduced by any withdrawals bythe Contract owner from the Real Property Account and by the applicable Contract charges recorded in that Contract'ssubaccount. Some of the charges will be made: (1) daily; (2) on the Contract's monthly anniversary date; (3) at theend of each Contract year; and (4) upon withdrawal or annuitization. Periodically Pruco Life of New Jersey willwithdraw from the Real Property Account an amount equal to the aggregate charges recorded in the subaccounts.

The "net investment factor" is calculated on each business day by dividing the value of the net assets of thePartnership at the end of that day (ignoring, for this purpose, changes resulting from new contributions to orwithdrawals from the Partnership) by the value of the net assets of the Partnership at the end of the precedingbusiness day. The value of the net assets of the Partnership at the end of any business day is equal to the sum of allcash held by the Partnership plus the aggregate value of the Partnership’s liquid securities and instruments, theindividual real properties and the other real estate-related investments owned by the Partnership, determined in themanner described below, and an estimate of the accrued net operating income earned by the Partnership fromproperties and other real estate-related investments, reduced by the liabilities of the Partnership, including the dailyinvestment management fee and certain other expenses attributable to the operation of the Partnership. SeeCHARGES, page 17.

16 - Real Property

The Partnership may invest in various liquid securities and instruments. These investments will generally be carried attheir market value as determine by a valuation method which the Partners deem appropriate for the particular type ofliquid security or instrument.

The value of the individual real properties and other real estate-related investments, including mortgages, acquired bythe Partnership will be determined as follows. Each property or other real estate-related investment acquired by thePartnership will initially be valued at its purchase price. In acquiring a property or other real estate-related investment,PIM will not obtain an independent appraisal but will instead rely on its own analysis of the investment’s fair marketvalue. Thereafter, all properties and most real estate-related investments will ordinarily be appraised by anindependent appraiser at least annually. At least every three months, PIM will review each property or other realestate-related investments and adjust its valuation if it concludes there has been a change in the value of the propertyor other real estate-related investment since the last valuation. The revised value will remain in effect and will be usedin each day’s calculation of the value of the Partnership’s assets until the next review or appraisal. It should be notedthat appraisals are only estimates and do not necessarily reflect the realizable value of an investment.

The estimated amount of the net operating income of the Partnership from properties and other real estate-relatedinvestments will be based on estimates of revenues and expenses for each property and other real estate-relatedinvestments. Annually, PIM will prepare a month-by-month estimate of the revenues and expenses ("estimated netoperating income") for each property and other real estate-related investments owned by the Partnership. Each dayPIM will add to the value of the assets, as determined above, a proportionate part of the estimated net operatingincome for the month. In effect, PIM will establish a daily accrued receivable of the estimated net operating incomefrom each property and other real estate-related investments owned by the Partnership (the "daily accruedreceivable"). On a monthly basis, the Partnership will receive a report of actual operating results for each property andother real estate-related investments ("actual net operating income"). Such actual net operating income will berecognized on the books of the Partnership and the amount of the then-outstanding daily accrued receivable will becorrespondingly adjusted. In addition, as cash from a property or other real estate-related investment is actuallyreceived by the Partnership, receivables and other accounts will be appropriately adjusted. Periodically, but at leastevery three months, PIM will review its prospective estimates of net operating income in light of actual experience andmake an adjustment to such estimates if circumstances indicate that such an adjustment is warranted. PIM followsthis practice of accruing estimated net operating income from properties and other real estate-related investmentsbecause net operating income from such investments is generally received on an intermittent rather than daily basis,and the Partners believe it is more equitable to participating Contract owners if such net operating income is estimatedand a proportionate amount is recognized daily. Because the daily accrual of estimated net operating income is basedon estimates that may not turn out to reflect actual revenue and expenses, Contract owners will bear the risk that thispractice will result in the undervaluing or overvaluing of the Partnership’s assets.

PIM may adjust the value of any asset held by the Partnership based on events that have increased or decreased therealizable value of a property or other real estate-related investment. For example, adjustments may be made forevents indicating an impairment of a borrower’s or a lessee’s ability to pay any amounts due or events which affect theproperty values of the surrounding area. There can be no assurance that the factors for which an adjustment may bemade will immediately come to the attention of PIM. Additionally, because the evaluation of such factors may besubjective, there can be no assurance that such adjustments will be timely made in all cases where the value of thePartnership’s investments may be affected. All adjustments made to the valuation of the Partnership’s investments,including adjustments to estimated net operating income, the daily accrued receivable, and adjustments to thevaluation of properties and other real estate-related investments, will be on a prospective basis only.

The above method of valuation of the Partnership’s assets may be changed, without the consent of Contract owners,should the Partners determine that another method would more accurately reflect the value of the Partnership’sinvestments. Changes in the method of valuation could result in a change in the Contract Fund values which mayhave either an adverse or beneficial effect on Contract owners. Information concerning any material change in thevaluation method will be given to all Contract owners in the annual report of the operations of the Real PropertyAccount.

Although the above-described valuation methods have been adopted because the Partners believe they will provide areasonable way to determine the fair market value of the Partnership's investments, there may well be variationsbetween the amount realizable upon disposition and the Partnership's valuation of such assets. Contract owners maybe either favorably or adversely affected if the valuation method results in either overvaluing or undervaluing thePartnership's investments. If a Contract owner invests in the Real Property Account at a time in which thePartnership's investments are overvalued, the Contract owner will be credited with less of an interest than if the value

17 - Real Property

had been correctly stated. A Contract owner withdrawing from the Real Property Account during such time will receivemore than he or she would if the value had been correctly stated, to the detriment of other Contract owners. Theconverse situation will exist if the Partnership’s assets are undervalued.

-��. �-��

The Partnership may borrow for Partnership purposes, including to meet its liquidity requirements and the leveragingof currently-owned property to buy new property, subject to a maximum debt to value ratio of 33�% (pursuant toCalifornia state requirements) based on the aggregate value of all Partnership assets. The Partnership will bear thecost of all such borrowings. The Real Property Account, and Contract owners participating in it, will bear a portion ofany borrowing costs equal to their percentage interest in the Partnership. Moreover, although the Partnership willgenerally make unleveraged investments, it reserves the right to borrow up to 80% of the value of a property (with thevalue of a property determined as explained under VALUATION OF CONTRACT OWNERS’ PARTICIPATINGINTERESTS, page 15). Increasing the Partnership’s assets through leveraged investments would increase thecompensation paid to PIM since its investment management fee is a percentage of the Partnership’s gross assets.Any borrowing by the Partnership would increase the Partnership’s risk of loss. It could also inhibit the Partnershipfrom achieving its investment objectives because the Partnership’s payments on any loans would have to be maderegardless of the profitability of its investments.

��

Pursuant to the investment management agreement, the Partnership pays a daily investment management fee whichis equal to an effective annual rate of 1.25% of the average daily gross assets of the Partnership. Certain otherexpenses and charges attributable to the operation of the Partnership are also charged against the Partnership. Inacquiring an investment, the Partnership may incur various types of expenses paid to third parties, including but notlimited to, brokerage fees, attorneys’ fees, architects’ fees, engineers’ fees, and accounting fees. After acquisition ofan investment, the Partnership will incur recurring expenses for the preparation of annual reports, periodic appraisalcosts, mortgage servicing fees, annual audit charges, accounting and legal fees, and various administrative expenses.These expenses will be charged against the Partnership’s assets. Some of these operating expenses representreimbursement of the manager for the cost of providing certain services necessary to the operation of the Partnership,such as daily accounting services, preparation of annual reports, and various administrative services. The investmentmanager charges the Partnership mortgage loan servicing fees pursuant to the standards outlined in item 6 underCONFLICTS OF INTEREST, page 13. In addition to the various expenses charged against the Partnership’s assets,other expenses such as insurance costs, taxes, and property management fees will ordinarily be deducted from rentalincome, thereby reducing the gross income of the Partnership.

As explained earlier, charges to the Contracts will be recorded in the corresponding subaccounts of the Real PropertyAccount. From time to time, Pruco Life of New Jersey will withdraw from the Real Property Account an amount equalto the aggregate amount of these charges. Aside from the charges to the Contracts, Pruco Life of New Jersey doesnot charge the Real Property Account for the expenses involved in the Real Property Account’s operation. The RealProperty Account will, however, bear its proportionate share of the charges made to the Partnership as describedabove.

The Partnership is not a taxable entity under the provisions of the Internal Revenue Code. The income, gains, andlosses of the Partnership are attributed, for federal income tax purposes, to the Partners in the Partnership. Theearnings of the Real Property Account are, in turn, taxed as part of the operations of Pruco Life of New Jersey. PrucoLife of New Jersey is currently not charging the Real Property Account for company federal income taxes. Pruco Lifeof New Jersey may make such a charge in the future.

Under current laws Pruco Life of New Jersey may incur state and local taxes (in addition to premium taxes) in severalstates. At present, Pruco Life of New Jersey does not charge these taxes against the Contracts or the Real PropertyAccount, but Pruco Life of New Jersey may decide to charge the Real Property Account for such taxes in the future.

�� . ��.��

Before allocating any portion of your net premium or purchase payments, or transferring any portion of your ContractFund, to the Real Property Account, you should be aware that withdrawals from the Real Property Account may have

18 - Real Property

greater restrictions than the other variable investment options available under the Contracts. Pruco Life of New Jerseyreserves the right to restrict transfers into or out of the Real Property Account. Apart from the limitations on transfersout of the Real Property Account described below, Pruco Life of New Jersey will only restrict transfers out of the RealProperty Account if there is insufficient cash available to meet Contract owners’ requests and prompt disposition of thePartnership’s investments to meet such requests could not be made on commercially reasonable terms.

Pruco Life of New Jersey will pay any death benefit, cash surrender value, withdrawal or loan proceeds within sevendays after receipt at a Pruco Life of New Jersey Service Office of all the documents required for such a payment.Other than the death benefit, which is determined as of the date of death for life insurance products, the amount will bedetermined as of the date of receipt of the request.

The funds necessary to pay any death benefit, cash surrender value, withdrawal or loan proceeds funded by the RealProperty Account will normally be obtained, first, from any cash flows into the Real Property Account on the day thefunds are required. If, on the day the funds are required, cash flows into the Real Property Account are less than theamount of funds required, Pruco Life of New Jersey will seek to obtain such funds by withdrawing a portion of itsinterest in the Partnership. The Partnership will normally obtain funds to meet such a withdrawal request from its netoperating income and from the liquid securities and instruments it holds. If the Partners determine that these sourcesare insufficient to meet anticipated withdrawals from the Partnership, the Partnership may use a line of credit orotherwise borrow up to 33�% (pursuant to California state requirements) of the value of the Partnership’s assets. SeeBORROWING BY THE PARTNERSHIP, page 17. If the Partners determine that such a borrowing by the Partnershipwould not serve the best interests of Contract owners, Pruco Life of New Jersey may, in the event of a Contract loan orwithdrawal, rather than take the amount of any loan or withdrawal request proportionately from all investment optionsunder the Contract (including the Real Property Account), take any such loan or withdrawal first from the otherinvestment options under the Contract.

Transfers from the Real Property Account to the other investment options available under the Contract are currentlypermitted only during the 30-day period beginning on the Contract anniversary. The maximum amount that may betransferred out of the Real Property Account each year is the greater of: (a) 50% of the amount invested in the RealProperty Account or (b) $10,000. Such transfer requests received prior to the Contract anniversary will be effected onthe Contract anniversary. Transfer requests received within the 30-day period beginning on the Contract anniversarywill be effected as of the end of the valuation period in which a proper written request or authorized telephone requestis received. The "valuation period" means the period of time from one determination of the value of the amountinvested in the Real Property Account to the next. Such determinations are made when the value of the assets andliabilities of the Partnership is calculated, which is generally at 4:00 p.m. Eastern time on each day during which theNew York Stock Exchange is open. Transfers into or out of the Real Property Account are also subject to the generallimits under the Contracts.

�� .��3 ��

As explained earlier, identification and acquisition of real estate investments meeting the Partnership’s investmentobjectives is a time-consuming process. Because the Real Property Account and the Partnership are managed sothey will not become investment companies subject to the Investment Company Act of 1940, the portion of thePartnership’s assets that may be invested in securities, as opposed to non-securities real estate investments, is strictlylimited. For these reasons, Pruco Life of New Jersey reserves the right to restrict or limit Contract owners’ allocation offunds to the Real Property Account. Any such restrictions are likely to take the form of restricting the timing, amountand/or frequency of transfers into the Real Property Account and/or precluding Contract owners who have notpreviously selected the Real Property Account from allocating a portion of their net premiums or purchase payments tothe Real Property Account.

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The federal income tax treatment of Contract benefits is described briefly in the attached prospectus for the particularContract you selected. Pruco Life of New Jersey believes that the same principles will apply with respect to Contractsfunded in whole or part by the Real Property Account. The Partnership’s conformity with the diversification standardsfor the investments of variable life insurance and variable annuity separate accounts is essential to ensure thattreatment. See GENERAL INVESTMENT AND OPERATING POLICIES, page 8. Pruco Life of New Jersey urgesyou to consult a qualified tax adviser.

19 - Real Property

Under the Internal Revenue Code, the Partnership is not a taxable entity and any income, gains or losses of thePartnership are passed through to the Partners, including Pruco Life of New Jersey, with respect to the Real PropertyAccount. The Real Property Account is not a separate taxpayer for purposes of the Internal Revenue Code. Theearnings of the Real Property Account are taxed as part of the operations of Pruco Life of New Jersey. No charge iscurrently being made to the Real Property Account for company federal income taxes. We may make such a charge inthe future, see CHARGES, page 17.

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As explained in the attached prospectus for the Contracts, Pruco Securities Corporation, a wholly-owned subsidiary ofPrudential Financial, acts as the principal underwriter of the Contracts. Consult that prospectus for information aboutcommission scales and other facts relating to sale of the Contracts.

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Pruco Life of New Jersey is subject to regulation and supervision by the Department of Insurance of the State of NewJersey, which periodically examines its operations and financial condition. It is also subject to the insurance laws andregulations of all jurisdictions in which it is authorized to do business.

Pruco Life of New Jersey is required to submit annual statements of its operations, including financial statements, tothe insurance departments of the various jurisdictions in which it does business to determine solvency and compliancewith local insurance laws and regulations.

In addition to the annual statements referred to above, Pruco Life of New Jersey is required to file with New Jersey andother jurisdictions a separate statement with respect to the operations of all its variable contract accounts, in a formpromulgated by the National Association of Insurance Commissioners.

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Pruco Life of New Jersey has filed a registration statement with the Securities and Exchange Commission ("SEC")under the Securities Act of 1933, relating to the offering described in this prospectus. This prospectus does not includeall of the information set forth in the registration statement. Certain portions have been omitted pursuant to the rulesand regulations of the SEC. All reports and information filed by Pruco Life of New Jersey can be inspected and copiedat the Public Reference Section of the Commission at 450 Fifth Street, Room 1024, N.W., Washington, D.C. 20549,and at certain of its regional offices: Midwestern Regional Office, 175 West Jackson Boulevard, Suite 900, Chicago, IL60604; Northeastern Regional Office SEC, 233 Broadway, New York, NY 10279, or by telephoning (800) SEC-0330.

The SEC maintains a Web site (http://www.sec.gov) that contains material incorporated by reference and otherinformation regarding registrants that file electronically with the SEC.

Further information may also be obtained from Pruco Life of New Jersey. The address and telephone number are onthe cover of this prospectus.

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The financial statements of the Partnership as of December 31, 2001 and 2000 and for each of the three years in theperiod ended December 31, 2001, the financial statement schedules of the Partnership as of December 31, 2001 andthe financial statements of the Real Property Account as of December 31, 2001 and 2000 and for each of the threeyears in the period ended December 31, 2001 included in this prospectus have been so included in reliance on thereports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts inauditing and accounting. PricewaterhouseCoopers LLP’s principal business address is 1177 Avenue of the Americas,New York, New York 10036.

20 - Real Property

� � ��

No litigation is pending, and no litigation is known to be contemplated by governmental authorities, that would have anadverse material effect upon the Real Property Account or the Partnership.

��.��

If you allocate a portion of your Contract Fund to the Real Property Account, Pruco Life of New Jersey will mail you anannual report containing audited financial statements for the Partnership and an annual statement showing the statusof your Contract Fund and any other information that may be required by applicable regulation or law.

��3�� )) �� )��

All of the assets of the Real Property Account (the “Account”) are invested in the Prudential Variable Contract RealProperty Partnership (the “Partnership”). Correspondingly, the liquidity, capital resources and results of operations forthe Real Property Account are contingent upon the Partnership. Therefore, all of management’s discussion of theseitems is at the Partnership level. The partners in the Partnership are The Prudential Insurance Company of America,Pruco Life Insurance Company, and Pruco Life Insurance Company of New Jersey (collectively, the “Partners”).

The following analysis of the liquidity and capital resources and results of operations of the Partnership should be readin conjunction with the Financial Statements and the related Notes to the Financial Statements included elsewhereherein.

Liquidity and Capital Resources

As of December 31, 2001, the Partnership’s liquid assets consisting of cash, cash equivalents, and marketablesecurities were $26.6 million, an increase of $11.2 million from December 31, 2000. This increase was due primarilyto the liquidation of the VAL REIT Fund during the fourth quarter, offset by distributions to partners and the acquisitionof real estate investments as described below. Sources of liquidity include net cash flow from property operations,interest from short-term investments, and dividends from REIT shares.

The Partnership’s investment policy allows up to 30% investment in cash and short-term obligations, although thePartnership generally holds approximately 10% of its assets in cash and short-term obligations. At December 31,2001, 11.3% of the Partnership’s assets consisted of cash and cash equivalents.

In 1986, Prudential committed to fund up to $100 million to enable the Partnership to acquire real estate investments.Contributions to the Partnership under this commitment have been utilized for property acquisitions, and returned toPrudential on an ongoing basis from contract owners’ net contributions and other available cash. The amount of thecommitment is reduced by $10 million for every $100 million in current value net assets of the Partnership. Thus with$198 million in net assets, the commitment has been automatically reduced to $90 million. As of December 31, 2001,Prudential’s equity interest in the Partnership, on a cost basis, under this commitment (held through the Real PropertyAccounts) was $44 million. Prudential did not make any contributions during the 2001 fiscal year, and will terminatethis commitment at the end of the 2002 fiscal year.

The Partnership made $22 million in distributions to the Partners during 2000, and on October 22, 2001, thePartnership made an $18 million distribution to the partners. Distributions made to the Partners during 2001 werebased upon the percentage of assets invested in short-term obligations, taking into consideration anticipated cashneeds of the Partnership including potential property acquisitions, property dispositions and capital expenditures.Management anticipates that its current liquid assets and ongoing cash flow from operations will satisfy thePartnership’s needs over the next twelve months and the foreseeable future.

The Partnership has completed two real estate acquisitions during the year. A controlling interest in a portfolio of fourapartment complexes based in Gresham and Salem, OR, was acquired in February 2001. This portfolio consists of492 units containing a total of 419,487 rentable square feet. The acquisition was financed by contributions of $8.6million from the Partnership, $0.5 million from the joint venture partner, and the assumption of a $9.0 million mortgageloan by the joint venture partnership. Also, in May, the Partnership acquired a controlling interest in a 154,540 square

21 - Real Property

foot retail center based in Hampton, VA. The acquisition was financed by contributions of $4.0 million from thePartnership, $0.4 million from the joint venture partner, and the assumption of a $10.3 million mortgage loan. Duringthe twelve months of 2001, the Partnership also spent approximately $4.4 million in capital expenditures.Approximately $0.6 million was associated with renovation costs pertaining to the apartment complex located inJacksonville, FL. The balance was associated with leasing activity at the office properties located in OakbrookTerrace, IL; Beaverton, OR; Brentwood, TN; Lisle, IL; and the industrial property located in Salt Lake City, UT. Inaddition, improvements were done to the retail center located in Roswell, GA.

Results of Operations

The following is a brief year-to-date comparison of the Partnership’s results of operations for the years endedDecember 31, 2001, 2000, and 1999.

2001 vs. 2000

The following table presents a year-to-date comparison of the Partnership’s sources of net investment income andrealized and unrealized gains or losses by investment type.

Twelve Months EndedDecember 31,

2001 2000

Net Investment Income:

Office properties $4,766,035 $ 5,356,934 Apartment complexes 3,735,912 3,446,245 Retail property 2,950,333 2,772,438 Industrial properties 545,003 1,257,146 Equity in income of real estatepartnership

686,801 791,596

Dividend income from real estate investment trust 2,157,647 1,744,611 Other (including interest income, Investment management fee, etc.) (2,491,425) (1,730,853)

Total Net Investment Income $12,350,306 $ 13,638,117

Net Unrealized (Loss) Gain onReal Estate Investments:

Office properties ($777,380)

($2,434,245)Apartment complexes 415,417 2,717,915 Retail property (94,504) (264,300)Industrial properties (2,105,641) (935,721)Interest in real estate properties 226,024 140,614 Real estate investment trust - 2,618,815

(2,336,084) 1,843,078

22 - Real Property

Net Realized (Loss) Gain onReal Estate Investments:

Office properties -

$186,920Apartment complexes - - Industrial properties - - Interest in real estate properties - - Real estate investment trust (211,665) 2,457,024

(211,665) 2,643,944

Net Realized and Unrealized (Loss)Gain on Real Estate Investments ($2,547,749) $4,487,022

The Partnership’s net investment income for the twelve months ended December 31, 2001 was $12.4 million, adecrease of $1.3 million from the corresponding period in the prior year. This decrease was primarily due to the saleof an office property located in Morristown, NJ in the fourth quarter of 2000.

Equity in income of real estate partnership was $0.7 million for the twelve months of 2001, a decrease of $0.1 million,or 13.2%, from $0.8 million in the corresponding period in 2000. The decrease is primarily due to a temporarydecrease in rental rates at the retail portfolio located in Kansas City, KS and MO when compared to the prior year.

Dividend income from real estate investment trusts amounted to approximately $2.2 million for the twelve monthsended December 31, 2001, an increase of approximately $0.5 million, or 23.7%, from approximately $1.7 million in thecorresponding period in 2000. This increase was primarily due to an increase in the amount invested in REIT stockssubsequent to the 3rd quarter 2000.

Interest on short-term investments decreased approximately $1.0 million or 76.9% for the twelve months endedDecember 31, 2001 due primarily to a significantly lower average cash balance compared to the corresponding periodin 2000. Cash, cash equivalents, and marketable securities maintained during the twelve months ended December31, 2001 averaged approximately $13.0 million when compared to the twelve months ended December 31, 2000 whenthe average was approximately $19.1 million.

Operating expenses increased $0.9 million, or 21.4%, in the twelve months of 2001 compared to the correspondingperiod in 2000. These increases were primarily due to the Partnership’s acquisition of a controlling interest in the twoinvestments discussed previously.

Interest expense increased $1.0 million, or 142.4%, in the twelve months of 2001 compared to the correspondingperiod in 2000. These increases were primarily due to the Partnership’s assumption of a $9.0 million and a $10.3million mortgage loan in conjunction with the acquisition of a controlling interest in the two investments discussedpreviously.

Minority interest in consolidated partnerships increased $0.1 million, or 1,256.4%, for the twelve months endedDecember 31, 2001. These increases were due to the Partnership’s acquisition of a controlling interest in the twoinvestments discussed previously.

Office Properties

Net investment income from property operations for the office sector decreased approximately $0.6 million, or 11.0%,for the twelve months ended December 31, 2001 when compared to the corresponding period in 2000. This wasprimarily due to the sale of the Morristown, NJ office center in October 2000.

The five office properties owned by the Partnership experienced a net unrealized loss of approximately $0.8 millionduring the twelve months of 2001. One of the Brentwood, TN properties experienced a net unrealized loss ofapproximately $0.7 million primarily due to the near-term expiration and expected move-out of the single tenant at theproperty in July 2002. The Beaverton, OR and the Lisle, IL office properties experienced a net unrealized loss ofapproximately $0.4 million and $0.2 million, respectively, primarily due to softening market conditions. Offsetting theseunrealized losses was an unrealized gain of approximately $0.6 million at the office property located in Oakbrook

23 - Real Property

Terrace, IL. This unrealized gain was attributable to the signing of two new leases, which brought the leased areafrom 55% to 79%.

The office properties owned by the Partnership experienced a net unrealized loss of approximately $2.4 million during2000. During 2000, the Oakbrook Terrace, IL property decreased $1.6 million in value due to a lease terminationassociated with 45% of the space and weaker market conditions. One of the Brentwood, TN office properties alsoexperienced a net unrealized loss of approximately $0.8 million primarily due to capital expenditures on the propertythat were not reflected as an increase in market value.

Occupancy at one of the Brentwood, TN office properties decreased from 95% at December 31, 2000 to 74% atDecember 31, 2001, while occupancy at the other Brentwood, TN location remained unchanged at 100%. Occupancyat the Lisle, IL office property increased from 88% at December 31, 2000 to 100% at December 31, 2001. Occupancyat the Beaverton, OR property remained unchanged at 100%. Occupancy at the Oakbrook Terrace, IL propertydecreased from 100% at December 31, 2000 to 79% at December 31, 2001. As of December 31, 2001 all vacantspaces were being marketed.

Apartment Complexes

Net investment income from property operations for the apartment sector was $3.7 million for the twelve months endedDecember 31, 2001, an increase of $0.3 million, or 8.4%, when compared to the corresponding period in 2000. Thisincrease was primarily due to the acquisition of the controlling interest in the apartment complex portfolio located inGresham and Salem, OR.

The apartment complexes owned by the Partnership experienced a net unrealized gain of $0.4 million for the twelvemonths ended December 31, 2001 compared to a net unrealized gain of $2.7 million for the twelve months endedDecember 31, 2000. The majority of the unrealized gain experienced in 2001 was primarily due to the Atlanta, GAapartment complex that experienced an increase in value of $0.9 million due to sub-metering of the apartments forwater usage and lower real estate taxes than previously estimated. The apartment complex portfolio located inGresham and Salem, OR also experienced an increase in value of $0.4 million due to the completion of capitalimprovements and the reduction of administrative expense estimates. Offsetting these unrealized gains was theapartment complex located in Raleigh, NC, which experienced a net unrealized loss of $0.5 million due to a decreasein occupancy. The apartment complex in Jacksonville, FL also experienced a decrease in value of $0.4 million due tohigher replacement reserve expenses, higher operating expense projections, and slightly lower market rent estimates.

The apartment complexes owned by the Partnership experienced a net unrealized gain of $2.7 million in 2000. Thelargest share of the unrealized gain for 2000 or $1.7 million was experienced by the apartment complex located inAtlanta, GA primarily due to increases in rental rates, stabilized occupancy, and lower operating expense estimates.The apartment complex located in Raleigh, NC also experienced a net unrealized gain of $0.2 million due to increasesin rental rates.

The occupancy at the Raleigh, NC complex decreased from 92% at December 31, 2000 to 82% at December 31,2001. Occupancy at the Atlanta, GA complex decreased from 98% at December 31, 2000 to 83% at December 31,2001. Occupancy at the apartment complex in Jacksonville, FL decreased from 91% at December 31, 2000 to 88% atDecember 31, 2001. Occupancy at the Gresham and Salem, OR apartment complexes averaged approximately 93%at December 31, 2001. As of December 31, 2001, all available vacant spaces were being marketed.

Retail Properties

Net investment income for the Partnership’s retail properties located in Roswell, GA and Hampton, VA wasapproximately $3.0 million for the twelve months ended December 31, 2001 and approximately $2.8 million for thetwelve months ended December 31, 2000. The increase is primarily due to the acquisition of the controlling interest inthe 154,540 square foot retail center based in Hampton, VA.

The retail properties experienced a net unrealized loss of $0.1 million and a net unrealized loss of $0.3 million for thetwelve months ended December 31, 2001 and 2000, respectively. The retail center located in Roswell, GAexperienced a loss of $0.6 million for 2001 due to increased capital expenditures and a slight drop in occupancy.Offsetting this unrealized loss was an unrealized gain of $0.5 million resulting from the market value appraisal receivedon the newly acquired retail center located in Hampton, VA.

24 - Real Property

The unrealized loss experienced in 2000 was due to the Roswell, GA property due to lower income projections,coupled with capital expenditures that did not increase the market value of the property.

Occupancy at the shopping center located in Roswell, GA decreased from 97% at December 31, 2000 to 92% atDecember 31, 2001. The newly acquired retail center in Hampton, VA had an occupancy of 99% at December 31,2001. As of December 31, 2001, all vacant spaces were being marketed.

Industrial Properties

Net investment income from property operations for the industrial properties decreased from $1.3 million for the twelvemonths ended December 31, 2000 to $0.5 million for the corresponding period ended December 31, 2001. Themajority of these decreases were due to decreased occupancy at the properties located in Bolingbrook, IL and SaltLake City, UT. Even though the Salt Lake City, UT location increased occupancy for the year, the new tenants did notmove in until the end of the third quarter and there was significant vacancy at the Bolingbrook, IL facility for a portion of2001.

The three industrial properties owned by the Partnership experienced a net unrealized loss of approximately $2.1million for the twelve months ended December 31, 2001 compared to a net unrealized loss of approximately $0.9million in 2000. The majority of the unrealized loss in 2001 was attributable to the Salt Lake City, UT industrialproperty. This loss of approximately $1.3 million was due to a decrease in market rents. The Bolingbrook, IL facilityexperienced a loss of $0.9 million due to a decrease in rental rates and softening market conditions.

The three industrial properties owned by the Partnership experienced a net unrealized loss of approximately $0.9million in 2000. The majority of the decrease for 2000 was attributable to the Aurora, CO industrial property, which hada loss of approximately $0.7 million due to more conservative assumptions regarding rental rates, lease-up time andterminal capitalization rates used by the appraiser. In addition, capital expenditures were incurred at the property thatwere not reflected as an increase in market value. The industrial property located in Bolingbrook, IL experienced anunrealized loss of $0.4 million in 2000. This loss was due to the expiration of the single tenant lease with noreplacement tenant being signed as of yet. The space was leased during the fourth quarter of 2000 on a temporarybasis, and partially leased at the end of 2001 to a different temporary tenant.

The occupancy at the Bolingbrook, IL property decreased from 100% at December 31, 2000 to 98% at December 31,2001. The occupancy at the Salt Lake City, Utah property increased from 34% at December 31, 2000 to 77% atDecember 30, 2001. The Aurora, CO property’s occupancy rate remained unchanged at 75% at December 31, 2000and 2001. As of December 31, 2001, all vacant spaces were being marketed.

Equity in Income of Real Estate Partnership

During the twelve months ended December 31, 2001, income from the investment located in Kansas City, KS and MOamounted to $0.7 million, a decrease of 13.2% from $0.8 million at December 31, 2000. The decrease is primarily dueto a temporary decrease in rental rates.

The equity investment experienced a net unrealized gain of $0.2 million and $0.1 million for the twelve months endedDecember 31, 2001 and 2000, respectively. The unrealized gain of $0.2 million for the twelve months endedDecember 31, 2001 was primarily due to the addition of a tenant that will provide a substantial amount of income to thecenter in rent and the addition of new space to house this tenant.

The retail portfolio located in Kansas City, KS and MO had an average occupancy of 90% at December 31, 2001,which remained unchanged from December 31, 2000. As of December 31, 2001, all vacant spaces were beingmarketed.

Real Estate Investment Trusts

During the twelve months ended December 31, 2001, the Partnership’s remaining investment in REITS recognized arealized loss of $0.2 million due to the sale of the Partnership’s remaining investment in REITs. The Partnershiprecognized a net realized gain of $2.5 million in 2000 primarily due to the sale of the Partnership’s remaininginvestment in Prologis REIT shares and sales of other REIT investments.

25 - Real Property

The Partnership recognized an unrealized gain of $2.6 million on investments in REITs for the twelve months endedDecember 31, 2000, which reflects changes in the market value of REIT shares held by the Partnership.

Other

Other net investment income decreased approximately $0.8 million during the twelve months ended December 31,2001 when compared to the corresponding period in 2000. Other net investment income includes interest income fromshort-term investments, investment management fees, and expenses not related to property activities. The decreasesdiscussed above were primarily due to interest income on short-term investments, which decreased primarily as aresult of the Partnership maintaining a significantly lower cash balance when compared to the corresponding periodslast year coupled with a decrease in interest rates.

2000 vs. 1999

The following table presents a comparison of the Partnership’s sources of net investment income, and realized andunrealized gains or losses by investment type, for the twelve months ended December 31, 2000 and December 31,1999.

Twelve Months EndedDecember 31,

2000 1999

Net Investment Income:

Office properties $ 5,356,934 $ 7,133,356Apartment complexes 3,446,245 2,556,743Retail property 2,772,438 2,676,387Industrial properties 1,257,146 894,258Equity in income of real estatepartnership

791,596 98,375

Dividend income from real estate investment trust 1,744,611 1,221,843Other (including interest income, Investment management fee, etc.) (1,730,853) (1,301,373)

Total Net Investment Income $ 13,638,117 $ 13,279,589

Unrealized Gain (Loss) onReal Estate Investments:

Office properties

($2,434,245)

($3,267,264)Apartment complexes 2,717,915 607,234 Retail property (264,300) (1,770,462)Industrial properties (935,721) 209,503 Interest in real estate properties 140,614 (680,870)Real estate investment trust 2,618,815 (2,282,044)

1,843,078 (7,183,903)

26 - Real Property

Realized Gain (Loss) onReal Estate Investments:

Office properties

$186,920

- Apartment complexes - - Industrial properties - (1,485)Interest in real estate properties - 45,126 Real estate investment trust 2,457,024 (76,784)

2,643,944 (33,143)

Total Realized and Unrealized Gain (Loss) on Real Estate Investments $4,487,022 ($7,217,046)

The Partnership’s net investment income for 2000 was $13.6 million, an increase of $0.3 million from net investmentincome of $13.3 million in 1999.

Equity in income of real estate partnership increased $0.7 million, or 704.7%, in 2000 due to the acquisition of anequity investment interest in the retail portfolio located in the Kansas City, MO area. This interest was not acquireduntil September 30, 1999. Therefore, equity in income of real estate partnerships for the period ended December 31,1999 represents only three months of activity, while activity for the period ended December 31, 2000 represents a fullyear of activity.

Dividend income from real estate investment trusts was $1.7 million for the year ended December 31, 2000, anincrease of $0.5 million or 42.8% from the corresponding period in 1999. This increase was primarily due to higheramounts invested in real estate investment trusts. Amounts invested in REIT shares averaged approximately $28.6million during 2000 compared to approximately $22.4 million during 1999.

Interest on short-term investments decreased approximately $0.4 million or 25.0% for the twelve months endedDecember 31, 2000 due primarily to a significantly lower average cash balance. Cash and cash equivalents during2000 averaged approximately $16.6 million compared to approximately $32.0 million during 1999.

Operating expenses increased $0.6 million or 15.7% to $4.4 million during the period ended December 31, 2000 whencompared to the corresponding period in 1999. This increase was primarily a result of the Partnership’s acquisition ofa controlling interest in the apartment complex located in Jacksonville, FL.

Interest expense increased $0.6 million, or 404.1%, in 2000 when compared to the corresponding periods in 1999.This increase was due to the Partnership’s acquisition on September 30, 1999 of a controlling interest in the apartmentcomplex located in Jacksonville, FL, which was acquired subject to $10.2 million in debt.

Office Properties

Net investment income from property operations for the office sector decreased approximately $1.8 million, or 24.9%,in 2000 when compared to 1999. This decrease was primarily due to lower revenue levels experienced by theOakbrook Terrace, IL office complex during 2000 as a result of the lease termination fee received during 1999 coupledwith a corresponding decrease in occupancy. A 36% decrease in occupancy at one of the Brentwood, TN officeproperties also contributed to the decrease.

The office properties owned by the Partnership experienced a net unrealized loss of approximately $2.4 million during2000 compared to a net unrealized loss of $3.3 million in 1999.

During 2000, the Oakbrook Terrace, IL property decreased $1.6 million in value due to a lease termination associatedwith 45% of the space and weaker market conditions. One of the Brentwood, TN office properties also experienced anet unrealized loss of approximately $0.8 million primarily due to capital expenditures on the property that were notreflected as an increase in market value.

27 - Real Property

Approximately half of the $3.3 million net unrealized loss in 1999 was attributable to the office building located inOakbrook Terrace, IL, which experienced costs associated with re-leasing and expected vacancy resulting from thelease termination exercised by a tenant. The Beaverton, OR office property also experienced a net unrealized loss ofapproximately $0.8 million. This decline in value was partially attributable to an anticipated reduction in investordemand for suburban office properties. The Lisle, IL office property also experienced a net unrealized loss ofapproximately $0.7 million primarily due to capital expenditures on the property that were not reflected as an increasein market value.

The Morristown, NJ office property was sold on October 26, 2000 and resulted in a realized gain of approximately $0.2million.

Occupancy at the Lisle, IL office property increased from 88% at December 31, 1999 to 94% at December 31, 2000.Occupancy at one of the Brentwood, TN office complexes decreased from 95% to 59% from December 31, 1999 toDecember 31, 2000, while occupancy at the other Brentwood, TN office property remained unchanged at 100%.Occupancy at the Oakbrook Terrace, IL office complex decreased from 100% at December 31, 1999 to 52% atDecember 31, 2000, while occupancy at the Beaverton, OR office complex decreased from 100% at December 31,1999 to 95% at December 31, 2000. As of December 31, 2000 all vacant spaces were being marketed.

Apartment Complexes

Net investment income from property operations for the apartment sector was $3.4 million in 2000, an increase of $0.9million or 34.8% compared with 1999. This increase was primarily due to the acquisition of the controlling interest inthe apartment complex located in Jacksonville, FL.

The apartment complexes owned by the Partnership experienced a net unrealized gain of $2.7 million and $0.6 millionin 2000 and 1999, respectively. The largest share of the unrealized gain for 2000 or $1.7 million was experienced bythe apartment complex located in Atlanta, GA primarily due to increases in rental rates, stabilized occupancy, andlower operating expense estimates. The apartment complex located in Raleigh, NC also experienced a net unrealizedgain of $0.2 million due to increases in rental rates.

The net unrealized gain of $0.6 million during 1999 was primarily experienced by the Atlanta, GA apartment complexwhich increased in value due to improved market conditions which resulted in higher rent levels.

The occupancy at the Atlanta, GA complex remained unchanged at 98% as of December 31, 1999 and December 31,2000. Occupancy at the apartment complex in Raleigh, NC also remained unchanged at 92% as of December 31,1999 and December 31, 2000. Occupancy at the Jacksonville, FL apartment complex increased from 89% as ofDecember 31, 1999 to 91% as of December 31, 2000. This increase is largely a result of renovations completed at theproject. As of December 31, 2000, all available vacant units were being marketed.

Retail Property

Net investment income for the twelve months ended December 31, 2000 and 1999 for the Partnership’s retail propertylocated in Roswell, GA was approximately $2.7 million for both periods.

The retail property experienced a net unrealized loss of $0.3 million and $1.8 million in 2000 and 1999, respectively.The unrealized loss experienced by the property in 2000 was due to lower projected income growth, coupled withcapital expenditures which did not increase the market value of the property. The decrease in value in 1999 wasattributable to a declining position of the property in the market.

Occupancy at the shopping center located in Roswell, GA decreased from 97% as of December 31, 1999 to 96% asof December 31, 2000. As of December 31, 2000, all vacant space was being marketed.

Industrial Properties

Net investment income from property operations for the industrial properties increased from $0.9 million in 1999 to$1.3 million in 2000. The majority of the increase was a result of increased occupancy throughout 2000 at the propertylocated in Aurora, CO.

28 - Real Property

The three industrial properties owned by the Partnership experienced a net unrealized loss of approximately $0.9million and a net unrealized gain of $0.2 million in 2000 and 1999, respectively. The majority of the decrease for 2000was attributable to the Aurora, CO industrial property, which had a loss of approximately $0.7 million due to moreconservative assumptions regarding rental rates, lease-up time and terminal capitalization rates used by the appraiser. In addition, capital expenditures were incurred at the property which were not reflected as an increase in marketvalue. The industrial property located in Bolingbrook, IL experienced an unrealized loss of $0.4 million in 2000. Thisloss was due to the expiration of the single tenant lease with no replacement tenant being signed as of yet. A portion ofthe space was temporarily leased during the fourth quarter of 2000.

The occupancy at the Bolingbrook, IL property decreased from 100% at December 31, 1999 to 45% at December 31,2000. As of December 31, 2000, the Salt Lake City, Utah property was 50% leased with two tenants. However, onetenant for approximately 33% of the space was bankrupt and had moved out of the space by year-end. The Salt LakeCity, Utah property had an occupancy rate of 34% at December 31, 1999. The Aurora, CO property’s occupancy rateremained unchanged at 75% from December 31, 1999 to December 31, 2000. As of December 31, 2000, all vacantspaces were being marketed.

Equity in Income of Real Estate Partnership

On September 30, 1999, the Partnership invested in an equity joint venture of retail centers located in the Kansas City,MO area. During the twelve months ended December 31, 2000, income from this investment amounted to $0.8 millioncompared to $0.1 million for the corresponding period in 1999. The increase in income was attributable to thePartnership holding the investment for a full year during 2000 as opposed to only three months during 1999. Thisinvestment experienced a net unrealized gain in 2000 of $0.1 million. During 1999, the investment experienced a netunrealized loss of $0.7 million, primarily due to capital expenditures on the properties that were not reflected as anincrease in market value.

The retail portfolio located in the Kansas City, MO area had an average occupancy of 91% as of December 31, 2000compared to an average occupancy of 90% as of December 31, 1999. As of December 31, 2000, all vacant spaceswere being marketed.

Real Estate Investment Trust

The Partnership recognized a net realized gain from real estate investment trusts of $2.5 million in 2000 primarily dueto the sale of the Partnership’s remaining investment in ProLogis REIT shares and sales of other REIT investments.

The Partnership’s investment in REIT shares experienced an unrealized gain of $2.6 million and an unrealized loss of$2.3 million for the twelve months ended December 31, 2000 and 1999, respectively. These changes in unrealizedgain and loss reflect changes in the market value of REIT shares held by the Partnership.

Other

Other net investment income decreased $0.5 million during 2000 compared to the corresponding period last year.Other net investment income includes interest income from short-term investments, investment management fees, andexpenses not related to property activities. The decrease in 2000 was primarily due to lower interest income on short-term investments primarily as a result of the Partnership maintaining a significantly lower cash balance as notedpreviously.

Information Concerning Forward-Looking Statements

Certain statements contained in Management’s Discussion and Analysis may be considered forward-lookingstatements. Words such as “expects,” “believes,” “anticipates,” “intends,” “plans,” or variations of such words aregenerally part of forward-looking statements. Forward-looking statements are made based upon management’scurrent expectations and beliefs concerning future developments and their potential effects upon the Partnership.There can be no assurance that future developments affecting the Partnership will be those anticipated bymanagement. There are certain important factors that could cause actual results to differ materially from estimates orexpectations reflected in such forward-looking statements including without limitation, changes in general economicconditions, including the performance of financial markets and interest rates; market acceptance of new products anddistribution channels; competitive, regulatory or tax changes that affect the cost or demand for the Partnership’sproducts; and adverse litigation results. While the Partnership reassesses material trends and uncertainties affecting

29 - Real Property

its financial position and results of operations, it does not intend to review or revise any particular forward-lookingstatement referenced in this Management’s Discussion and Analysis in light of future events. Readers should considerthe information referred to above when reviewing any forward-looking statements contained in this Management’sDiscussion and Analysis.

Inflation

The Partnership’s leases with a majority of its commercial tenants provide for recoveries of expenses based upon thetenant’s proportionate share of, and/or increases in, real estate taxes and certain operation costs, which may reducethe Partnership’s exposure to increases in operation costs resulting from inflation.

Critical Accounting Policies

The preparation of financial statements in conformity with Generally Accepted Accounting Principles (“GAAP”)requires the application of accounting policies that often involve a significant degree of judgment. Management, on anongoing basis, reviews critical estimates and assumptions. If management determines, as a result of its considerationof facts and circumstances that modifications in assumptions and estimates are appropriate, results of operations andfinancial position as reported in the Consolidated Financial Statements may change significantly.

The following sections discuss critical accounting policies applied in preparing our financial statements that are mostdependent on the application of estimates and assumptions.

Valuation of Investments

Real Estate Investments - The Partnership's investments in real estate are initially valued at their purchase price.Thereafter, real estate investments are reported at their estimated market values based upon appraisal reportsprepared by independent real estate appraisers (members of the Appraisal Institute or an equivalent organization)within a reasonable amount of time following acquisition of the real estate and no less frequently than annuallythereafter. The Chief Real Estate Appraiser of PIM’s Risk Management Unit is responsible to assure that the valuationprocess provides objective and accurate market value estimates.

The purpose of an appraisal is to estimate the market value of real estate as of a specific date. Market value has beendefined as the most probable price for which the appraised real estate will sell in a competitive market under allconditions requisite for a fair sale, with the buyer and seller each acting prudently, knowledgeably, and for self interest,and assuming that neither is under undue duress.

Real estate partnerships are valued at the Partnership’s equity in net assets as reflected in the partnership’s financialstatements with properties valued as described above.

As described above, the estimated market value of real estate and real estate related assets is determined through anappraisal process. These estimated market values may vary significantly from the prices at which the real estateinvestments would sell since market prices of real estate investments can only be determined by negotiation betweena willing buyer and seller. Although the estimated market values represent subjective estimates, managementbelieves these estimated market values are reasonable approximations of market prices and the aggregate value ofinvestments in real estate is fairly presented as of December 31, 2001 and 2000. Further discussion surrounding ourpolicies and procedures for valuing Real Estate Investments can be found in Footnote 2 to the Consolidated FinancialStatements.

Investment in Real Estate Investment Trusts - Shares of real estate investment trusts (REITs) are generally valued attheir quoted market price. These values may be adjusted for discounts relating to restrictions, if any, on the futuresale of these shares, such as lockout periods or limitations on the number of shares which may be sold in a given timeperiod. Any such discounts are determined by the Chief Real Estate Appraiser.

Other Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the UnitedStates of America requires management to make estimates and assumptions that affect the reported amounts ofassets and liabilities at the date of the financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.

30 - Real Property

5�� 5�� -��1�� 1

Interest Rate Risk. The Partnership’s exposure to market rate risk for changes in interest rates relates to about28.06% of its investment portfolio consisting primarily of short-term fixed rate commercial paper and fixed and variableinterest rate debt. The Partnership does not use derivative financial instruments. By policy, the Partnership places itsinvestments with high quality debt security issuers, limits the amount of credit exposure to any one issuer, limitsduration by restricting the term, and holds investments to maturity except under rare circumstances.

The table below presents the amounts and related weighted interest rates of the Partnership’s cash equivalents andshort-term investments at December 31, 2001:

MaturityEstimated Market

Value(in $ millions)

AverageInterest Rate

Cash equivalents 0-3 months $25.3 1.51%

Short-terminvestments

3-12 months $0 0%

The table below discloses the Partnership’s fixed and variable rate debt as of December 31, 2001. Approximately$19.0 million of the Partnership’s long-term debt bears interest at fixed rates and therefore the fair value of theseinstruments are affected by changes in market interest rates. The following table presents principal cash flows (inthousands) based upon maturity dates of the debt obligations and the related weighted-average interest rates byexpected maturity dates for the fixed rate debt. The interest rate on the variable rate debt is equal to the 6-monthTreasury rate plus 1.565%. It is subject to a maximum of 11.345% and a minimum of 2.345%. The interest rate on thevariable rate debt as of December 31, 2001 was 5.735%.

Debt (in $ thousands),including current portion 2002 2003 2004 2005 2006 Thereafter Total

EstimatedFair Value

Fixed Rate $536 $577 $619 $665 $8,361 $8,240 $18,998 $18,583Average Fixed Interest Rate 7.437% 7.449% 7.471% 7.491% 7.491% 6.750% 6.950%Variable Rate $142 $159 $168 $178 $9,350 $0 $9,997 $10,038

The Partnership is exposed to market risk from tenants. While the Partnership has not experienced any significantcredit losses, in the event of a significant rising interest rate environment and/or economic downturn, defaults couldincrease and result in losses to the Partnership, which would adversely affect its operating results and liquidity.

) ��

Following are financial statements and independent accountant's reports of the Real Property Account, as well asfinancial statements and independent accountant's reports of the Partnership.

FINANCIAL STATEMENTS OFPRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

STATEMENTS OF NET ASSETSDecember 31, 2001 and 2000

2001 2000ASSETS Investment in The Prudential Variable Contract

Real Property Partnership (Note 3) $ 8,747,935 $ 9,188,844 Net Assets $ 8,747,935 $ 9,188,844

NET ASSETS, representing:

Equity of contract owners (Note 4) $ 5,921,597 $ 5,911,297

Equity of Pruco Life Insurance Company of New Jersey (Note 2D) 2,826,338 3,277,547$ 8,747,935 $ 9,188,844

Units outstanding 4,017,093 4,397,653


2001 2000 1999INVESTMENT INCOMENet investment income from Partnership operations $ 545,240 $ 599,966 $ 579,075

EXPENSESCharges to contract owners for assuming mortality risk and

expense risk and for administration (Note 5) 34,149 33,868 35,718

NET INVESTMENT INCOME 511,091 566,098 543,357

NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTSNet change in unrealized gain (loss) on investments in Partnership (99,669) 84,525 (308,127)

Realized gain (loss) on sale of investments in Partnership (9,345) 116,312 (1,445)

NET GAIN (LOSS) ON INVESTMENTS (109,014) 200,837 (309,572)

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 402,077 $ 766,935 $ 233,785


2001 2000 1999OPERATIONSNet investment income $ 511,091 $ 566,098 $ 543,357

Net change in unrealized gain (loss) on investments in Partnership (99,669) 84,525 (308,127)

Net realized gain (loss) on sale of investments in Partnership (9,345) 116,312 (1,445)

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 402,077 766,935 233,785

CAPITAL TRANSACTIONSNet withdrawals by contract owners (Note 7) (233,080) (483,241) (642,611)

Net contributions (withdrawals) by Pruco Life Insurance Company of New Jersey (609,906) (169,001) 222,727

NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS (842,986) (652,242) (419,884)

TOTAL INCREASE (DECREASE) IN NET ASSETS (440,909) 114,693 (186,099)

NET ASSETS Beginning of year 9,188,844 9,074,151 9,260,250

End of year $ 8,747,935 $ 9,188,844 $ 9,074,151


A1 - Real Property

A2 – Real Property

NOTES TO THE FINANCIAL STATEMENTS OF PRUCO LIFE OF NEW JERSEY VARIABLE CONTRACT REAL PROPERTY ACCOUNT

December 31, 2001

Note 1: General Pruco Life of New Jersey Variable Contract Real Property Account (“Real Property Account”) was established on October 30, 1987 by resolution of the Board of Directors of Pruco Life Insurance Company of New Jersey (“Pruco Life of New Jersey”), an indirect wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential”), as a separate investment account pursuant to New Jersey law. The assets of the Real Property Account are segregated from Pruco Life of New Jersey’s other assets. The Real Property account is used to fund benefits under certain variable life insurance and variable annuity contracts issued by Pruco Life of New Jersey. These products are Appreciable Life (“VAL”), Variable Life (“VLI”), Discovery Plus (“SPVA”), and Discovery Life Plus (“SPVL”). The assets of the Real Property Account are invested in The Prudential Variable Contract Real Property Partnership (the “Partnership”). The Partnership is organized under New Jersey law and is registered under the Securities Act of 1933. The Partnership is the investment vehicle for assets allocated to the real estate investment option under certain variable life insurance and annuity contracts. The Real Property Account, along with the Pruco Life Variable Contract Real Property Account and The Prudential Variable Contract Real Property Account, are the sole investors in the Partnership. These financial statements should be read in conjunction with the financial statements of the Partnership. The Partnership has a policy of investing at least 65% of its assets in direct ownership interests in income-producing real estate and participating mortgage loans. Note 2: Summary of Significant Accounting Policies A. Basis of Accounting The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. B. Investment in Partnership Interest The investment in the Partnership is based on the Real Property Account’s proportionate interest of the Partnership’s market value. At December 31, 2001 and 2000 the Real Property Account’s interest in the Partnership was 4.4% or 367,199 shares and 4.5% or 404,158 shares respectively. C. Income Recognition Net investment income and realized and unrealized gains and losses are recognized daily. Amounts are based upon the Real Property Account’s proportionate interest in the Partnership. D. Equity of Pruco Life Insurance Company of New Jersey Pruco Life of New Jersey maintains a position in the Real Property Account for property acquisitions and capital expenditure funding needs. The position is also utilized for liquidity purposes including unit purchases and redemptions, Partnership share transactions, and expense processing. The position does not have an effect on the contract owner’s account or the related unit value.


Note 3: Investment Information for The Prudential Variable Contract Real Property Partnership The number of shares (rounded) held by the Real Property Account in the Partnership and the Partnership net asset value per share (rounded) at December 31, 2001 and December 31, 2000 were as follows:

December 31, 2001

December 31, 2000

Number of Shares (rounded: 367,199 404,158 Net Asset Value per Share (rounded): $23.82 $22.74 Note 4: Contract Owner Unit Information Outstanding contract owner units, unit values and total value of contract owner equity at December 31, 2001 and December 31, 2000 by product, were as follows: 2001: VAL VLI SPVA SPVL TOTAL Contract Owner Units Outstanding: 2,198,266 426,764 32,194 55,205 Unit Value: $ 2.17654 $ 2.26011 $ 1.97316 $ 1.97316 Total Contract Owner Equity: $4,784,613 $ 964,533 $ 63,523 $ 108,928 $5,921,597 2000: VAL VLI SPVA SPVL TOTAL Contract Owner Units Outstanding: 2,289,094 431,958 32,194 69,345 Unit Value: $ 2.08939 $ 2.16437 $ 1.90636 $ 1.90636 Total Contract Owner Equity: $4,782,811 $ 934,917 $ 61,373 $ 132,196 $5,911,297 Note 5: Charges and Expenses A. Mortality Risk and Expense Risk Charges Mortality risk and expense risk charges are determined daily using an effective annual rate of 0.6%, 0.35%, 0.9% and 0.9% for VAL, VLI, SPVA, SPVL, respectively. Mortality risk is that life insurance contract owners may not live as long as estimated or annuitants may live longer than estimated and expense risk is that the cost of issuing and administering the policies may exceed related charges by Pruco Life of New Jersey. B. Administrative Charges Administrative charges are determined daily using an effective annual rate of 0.35% applied daily against the net assets representing equity of contract owners held in each subaccount for SPVA and SPVL. Administrative charges include costs associated with issuing the contract, establishing and maintaining records, and providing reports to contract owners. C. Cost of Insurance and Other Related Charges Contract owner contributions are subject to certain deductions prior to being invested in the Real Property Account. The deductions for VAL and VLI are (1) state premium taxes; (2) sales charges which are deducted in order to compensate Pruco Life of New Jersey for the cost of selling the contract and (3) transaction costs, applicable to VAL, are deducted from each premium payment to cover premium collection and processing costs. Contracts are also subject to monthly charges for the costs of administering the contract to compensate Pruco Life of New Jersey for the guaranteed minimum death benefit risk.


D. Deferred Sales Charge Subsequent to a contract owner redemption, a deferred sales charge is imposed upon surrenders of certain variable life insurance contracts to compensate Pruco Life of New Jersey for sales and other marketing expenses. The amount of any sales charge will depend on the number of years that have elapsed since the contract was issued. No sales charge will be imposed after the sixth and tenth year of the contract for SPVL and VAL, respectively. No sales charge will be imposed on death benefits. E. Partial Withdrawal Charge A charge is imposed by Pruco Life of New Jersey on partial withdrawals of the cash surrender value for VAL. A charge equal to the lesser of $15 or 2% will be made in connection with each partial withdrawal of the cash surrender value of a contract. Note 6: Taxes Pruco Life of New Jersey is taxed as a “life insurance company” as defined by the Internal Revenue Code. The results of operations of the Real Property Account form a part of Prudential’s consolidated federal tax return. Under current federal law, no federal income taxes are payable by the Real Property Account. As such, no provision for the tax liability has been recorded in these financial statements. Note 7: Net Withdrawals by Contract Owners Contract owner activity for the real estate investment option in Pruco Life of New Jersey’s variable insurance and variable annuity products for the years ended December 31, 2001, 2000 and 1999 were as follows: 2001: VAL VLI SPVA SPVL TOTAL Contract Owner Net Payments: $ 336,090 $ 66,216 $ 0 $ (91) $ 402,215 Policy Loans: (134,830) (10,374) 0 (3,283) (148,487) Policy Loan Repayments and Interest: 133,164 11,187 0 1,484 145,835 Surrenders, Withdrawals, and Death Benefits: (241,766) (46,572) 0 (24,418) (312,756) Net Transfers To Other Subaccounts or Fixed Rate Option: (69,664) 157 0 0 (69,507) Administrative and Other Charges: (217,519) (32,032) 0 (829) (250,380) Net Withdrawals by Contract Owners $(194,525) $ (11,418) $ 0 $ (27,137) $ (233,080) 2000: VAL VLI SPVA SPVL TOTAL Contract Owner Net Payments: $ 319,329 $ 68,139 $ 0 $ (61) $ 387,407 Policy Loans: (180,080) (9,363) 0 (954) (190,397) Policy Loan Repayments and Interest: 127,498 8,381 0 18,138 154,017 Surrenders, Withdrawals, and Death Benefits: (208,054) (55,549) (46,248) 0 (309,851) Net Transfers To Other Subaccounts or Fixed Rate Option: (258,262) (13,477) 0 (11,479) (283,218) Administrative and Other Charges: (212,166) (28,176) (15) (842) (241,199) Net Withdrawals by Contract Owners $(411,735) $ (30,045) $ (46,263) $ 4,802 $ (483,241)


1999: VAL VLI SPVA SPVL TOTAL Contract Owner Net Payments: $ 133,235 $ 44,778 $ 0 $ (9) $ 178,004 Policy Loans: (206,458) (11,382) 0 (1,005) (218,845) Policy Loan Repayments and Interest: 295,414 10,661 0 2,140 308,215 Surrenders, Withdrawals, and Death Benefits: (278,883) (57,044) (7,957) 0 (343,884) Net Transfers To Other Subaccounts or Fixed Rate Option: (288,687) (14,518) 0 0 (303,205) Administrative and Other Charges: (232,010 ) (29,982) 43 (947) (262,896) Net Withdrawals by Contract Owners $(577,389) $ (57,487) $ (7,914) $ 179 $ (642,611) Note 8: Contract Owner Unit Activity Transactions in units for the years ended December 31, 2001, 2000 and 1999 were as follows: 2001: VAL VLI SPVA SPVL Contract Owner Contributions: 216,764 35,917 0 755 Contract Owner Redemptions: (307,592) (41,111) 0 (14,895) 2000: VAL VLI SPVA SPVL Contract Owner Contributions: 208,532 34,992 7 9,433 Contract Owner Redemptions: (416,718) (49,516) (25,342) (7,015) 1999: VAL VLI SPVA SPVL Contract Owner Contributions: 223,951 29,238 26 1,215 Contract Owner Redemptions: (527,135) (58,445) (4,583) (1,112) Note 9: Purchases and Sales of Investments The aggregate costs of purchases and proceeds from sales of investments in the Partnership for the year ended December 31, 2001 were as follows: Purchases: $ 0 Sales: $ (877,136)


Note 11: Related Party Footnote Prudential and its affiliates perform various services on behalf of the Partnership in which the Account invests and may receive fees for the services performed. These services include, among other things, shareholder communications, preparation, postage, fund transfer agency and various other record keeping and customer service functions.

Note 10: Financial Highlights

Pruco Life Insurance Company of New Jersey (the "Company") sells a number of variable annuity and variable life

insurance products, both of which have unique combinations of features and fees that are charged against the

contract owner’s account balance. Differences in the fee structures result in a variety of unit values, expense ratios

and total returns.

The following table was developed by determining which products offered by the Company have the lowest and

highest total return. Only product designs within the Account that had units outstanding during December 31, 2001,

were considered when determining the lowest and highest total return. The summary may not reflect the minimum

and maximum contract charges offered by the Company as contract owners may not have selected all available and

applicable contract options as discussed in note 1.

Contract Holder Contract Holder Expense Total Units Unit Fair Value Net Assets Investment Ratio** Return***

(000’s) Lowest - Highest (000’s) Income Ratio* Lowest - Highest Lowest - Highest

2,712 $1.97316 to $2.26011 $5,922 5.89% 0.35% to 1.25% 3.50% to 4.42%

*This amount represents the proportionate share of the net investment income from the underlying Partnership

divided by the total average assets of the Account. This ratio excludes those expenses, such as mortality and

expense charges, that result in direct reductions in the unit values.

** These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality

and expense charges, for each period indicated. The ratios include only those expenses that result in a direct

reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and

expenses of the underlying Partnership are excluded.

*** These amounts represent the total return for the periods indicated, including changes in the value of the underlying

Partnership, and reflect deductions for all items included in the expense ratio. The total return does not include

any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result

in a reduction in the total return presented.

At December 31, 2001 For the year ended December 31, 2001

Report of Independent Accountants

To the Contract Owners of thePruco Life of New Jersey Variable Contract Real Property Accountand the Board of Directors ofPruco Life Insurance Company of New Jersey

In our opinion, the accompanying statements of net assets and the relatedstatements of operations and changes in net assets present fairly, in all materialrespects, the financial position of Pruco Life of New Jersey Variable Contract RealProperty Account at December 31, 2001and 2000, and the results of its operationsand the changes in its net assets for the three years in the period ended December31, 2001, in conformity with accounting principles generally accepted in theUnited States of America. These financial statements are the responsibility of themanagement of Pruco Life Insurance Company of New Jersey; our responsibility isto express an opinion on these financial statements based on our audits. Weconducted our audits of these financial statements in accordance with auditingstandards generally accepted in the United States of America, which require thatwe plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles used and significantestimates made by management, and evaluating the overall financial statementpresentation. We believe that our audits, which included confirmation of shares atDecember 31, 2001 with The Prudential Variable Contract Real PropertyPartnership, provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLPNew York, New YorkMarch 29, 2002

A7 - Real Property

INDEX - Real Property

INDEX

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIPFINANCIAL STATEMENTS

Consolidated Statements of Assets and Liabilities - December 31, 2001 and 2000 B1

Consolidated Statements of Operations - Years Ended December 31, 2001, 2000 and 1999 B2

Consolidated Statements of Changes in Net Assets - Years Ended December 31, 2001, 2000 and 1999 B3

Consolidated Statements of Cash Flows - Years Ended December 31, 2001, 2000 and 1999 B4

Schedule of Investments - December 31, 2001 and 2000 B5

Notes to Financial Statements B9

Report of Independent Accountants B17

THE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

December 31, 2001 December 31, 2000ASSETS

REAL ESTATE INVESTMENTS - At estimated market value: Real estate and improvements (cost: 12/31/2001 -- $212,044,159; 12/31/2000 -- $173,748,950) $197,970,877 $162,213,095 Real estate partnership (cost: 12/31/2001 -- $7,026,540; 12/31/2000 -- $5,985,783) 6,712,308 5,445,528 Real estate investment trusts (cost: 12/31/2001 -- $0; 12/31/2000 -- $31,896,908) - 35,224,737

Total real estate investments 204,683,185 202,883,360

MARKETABLE SECURITIES - At estimated market value (cost: 12/31/2001 -- $0; 12/31/2000 -- $4,916,327) - 4,916,494

CASH AND CASH EQUIVALENTS 26,615,645 10,543,821

DIVIDEND RECEIVABLE 28,455 242,341

OTHER ASSETS (net of allowance for uncollectible accounts: 12/31/2001 -- $107,000; 12/31/2000 -- $91,000) 3,267,367 2,926,280

Total assets $234,594,652 $221,512,296

LIABILITIES

MORTGAGE LOANS PAYABLE 28,994,521 10,092,355

ACCOUNTS PAYABLE AND ACCRUED EXPENSES 3,469,242 2,517,818

DUE TO AFFILIATES 896,134 887,434

OTHER LIABILITIES 972,410 669,209

MINORITY INTEREST 2,111,709 997,401

Total liabilities 36,444,016 15,164,217

COMMITMENTS AND CONTINGENCIES

PARTNERS’ EQUITY 198,150,636 206,348,079

Total liabilities and partners’ equity $234,594,652 $221,512,296

NUMBER OF SHARES OUTSTANDING AT END OF PERIOD 8,317,470 9,075,913

SHARE VALUE AT END OF PERIOD $23.82 $22.74

The accompanying notes are an integral part of these consolidated financial statements.

B1 - Real Property


CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended December 31,2001 2000 1999

INVESTMENT INCOME: Revenue from real estate and improvements $24,339,631 $22,570,851 $21,807,346 Equity in income of real estate partnership 686,801 791,596 98,375 Dividend income 2,157,647 1,744,611 1,221,843 Interest on short-term investments 296,514 1,280,880 1,707,485

Total investment income 27,480,593 26,387,938 24,835,049

INVESTMENT EXPENSES: Operating 5,328,004 4,390,001 3,794,081 Investment management fee 2,694,130 2,705,589 2,730,713 Real estate taxes 2,652,956 2,498,065 2,616,553 Administrative 2,518,644 2,411,390 2,234,949 Interest expense 1,776,701 732,991 145,418 Minority interest 159,852 11,785 33,746

Total investment expenses 15,130,287 12,749,821 11,555,460

NET INVESTMENT INCOME 12,350,306 13,638,117 13,279,589

REALIZED AND UNREALIZED (LOSS) GAIN ON REAL ESTATE INVESTMENTS: Net proceeds from real estate investments sold or converted 53,417,000 46,617,017 21,649,562 Less: Cost of real estate investments sold or converted 50,300,836 55,269,357 19,602,032 Realization of prior years’ unrealized gain (loss) on real estate investments sold or converted 3,327,829 (11,296,284) 2,080,673

Net (loss) gain realized on real estate investments sold or converted (211,665) 2,643,944 (33,143)

Change in unrealized (loss) gain on real estate investments (2,311,404) 2,297,429 (7,145,372) Less: Minority interest in unrealized gain on real estate investments 24,680 454,351 38,531

Net unrealized (loss) gain on real estate investments (2,336,084) 1,843,078 (7,183,903)

NET REALIZED AND UNREALIZED (LOSS) GAIN ON REAL ESTATE INVESTMENTS (2,547,749) 4,487,022 (7,217,046)

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $9,802,557 $18,125,139 $6,062,543


B2 - Real Property


CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS


NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS: Net investment income $12,350,306 $13,638,117 $13,279,589 Net (loss) gain realized on real estate investments sold (211,665) 2,643,944 (33,143) Net unrealized (loss) gain from real estate investments (2,336,084) 1,843,078 (7,183,903)

Net increase in net assets resulting from operations 9,802,557 18,125,139 6,062,543

NET DECREASE IN NET ASSETS RESULTING FROM CAPITAL TRANSACTIONS:Withdrawals by partners (2001 -- 758,443; 2000 -- 1,003,008; and 1999 -- 1,769,354 shares, respectively) (18,000,000) (22,000,000) (36,000,000)

Net decrease in net assets resulting from capital transactions (18,000,000) (22,000,000) (36,000,000)

NET DECREASE IN NET ASSETS (8,197,443) (3,874,861) (29,937,457)

NET ASSETS - Beginning of year 206,348,079 210,222,940 240,160,397

NET ASSETS - End of year $198,150,636 $206,348,079 $210,222,940


B3 - Real Property


CONSOLIDATED STATEMENTS OF CASH FLOWS


CASH FLOWS FROM OPERATING ACTIVITIES:Net increase in net assets resulting from operations $9,802,557 $18,125,139 $6,062,543Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities: Net realized and unrealized loss (gain) on real estate investments 2,547,749 (4,487,022) 7,217,046 Equity in income of real estate partnership’s operations in excess of distributions (686,801) (791,596) (98,376) Minority interest in operating activities 159,852 11,785 33,746 Bad debt expense 108,358 96,785 124,059 Decrease (increase) in: Dividend receivable 213,886 (110,799) 35,733 Other assets (449,444) (169,489) 645,878 Increase (decrease) in: Accounts payable and accrued expenses 951,424 (449,796) 982,214 Due to affiliates 8,700 17,957 (729,058) Other liabilities 303,201 143,316 20,952

Net cash flows from operating activities 12,959,482 12,386,280 14,294,737

CASH FLOWS FROM INVESTING ACTIVITIES: Net proceeds from real estate investments sold 53,417,000 46,617,017 10,706,996 Acquisition of real estate (14,582,383) - (7,200,743) Acquisition of real estate partnership - - (5,088,750) Acquisition of real estate investment trust (18,403,928) (34,157,332) (31,239,744) Improvements and additional costs on prior purchases: Additions to real estate (4,373,073) (4,215,157) (2,516,645) Additions to real estate partnership (353,956) (7,060) - Sale (purchase) of marketable securities, net 4,916,494 (2,119,486) 12,153,517

Net cash flows from investing activities 20,620,154 6,117,982 (23,185,369)

CASH FLOWS FROM FINANCING ACTIVITIES: Withdrawals by partners (18,000,000) (22,000,000) (36,000,000) Principal payments on mortgage loans payable (437,588) (92,307) (15,338) Distributions to minority interest partners - - (93,425) Contributions from minority interest partners 929,776 159,197 393,216

Net cash flows from financing activities (17,507,812) (21,933,110) (35,715,547)

NET CHANGE IN CASH AND CASH EQUIVALENTS 16,071,824 (3,428,848) (44,606,179)

CASH AND CASH EQUIVALENTS - Beginning of year 10,543,821 13,972,669 58,578,848

CASH AND CASH EQUIVALENTS - End of year $26,615,645 $10,543,821 $13,972,669


B4 - Real Property


SCHEDULE OF INVESTMENTS

December 31, 2001 December 31, 2000Estimated Estimated

Market MarketCost Value Cost Value

REAL ESTATE AND IMPROVEMENTS - Percent of Net Assets 99.9% 78.6%Location DescriptionLisle, IL Office Building $22,561,428 $14,193,539 $22,267,422 $14,134,722Atlanta, GA Garden Apartments 15,696,606 18,752,139 15,667,354 17,800,002Roswell, GA Retail Shopping Center 32,878,304 26,625,833 32,533,052 26,874,838Bolingbrook, IL Warehouse 9,039,620 5,826,782 9,012,838 6,664,810Raleigh, NC Garden Apartments 15,940,839 16,808,160 15,847,460 17,200,000Nashville, TN Office Building 9,977,669 10,629,012 9,657,787 10,396,565Oakbrook Terrace, IL Office Complex 14,015,481 14,359,009 13,021,251 12,716,910Beaverton, OR Office Complex 11,989,204 10,988,123 11,225,040 10,623,809Salt Lake City, UT Industrial Building 6,568,107 5,487,490 5,640,709 5,900,050Aurora, CO Industrial Building 10,131,517 9,900,000 10,131,358 9,800,714Brentwood, TN Office Complex 9,612,024 8,900,790 9,609,133 9,600,675

* Jacksonville, FL Garden Apartments 19,711,225 20,400,000 19,135,546 20,500,000* Gresham/Salem, OR Garden Apartments 18,815,082 19,100,000 - - * Hampton, VA Retail Shopping Center 15,107,053 16,000,000 - -

$212,044,159 $197,970,877 $173,748,950 $162,213,095

REAL ESTATE PARTNERSHIP - Percent of Net Assets 3.4% 2.6%Location Description

Kansas City, KS; MO Retail Shopping Center $7,026,540 $6,712,308 $5,985,783 $5,445,528

* Real estate partnerships accounted for by the consolidation method.


B5 - Real Property



December 31, 2000Estimated

MarketCost Value

REAL ESTATE INVESTMENT TRUSTS (Percent of Net Assets) 17.1%

Alexandria Real Est Equities (5,000 shares) $181,188 $185,938AMB Property Corporation (30,000 shares) 706,770 774,375AMLI Residential Properties (30,000 shares) 706,800 740,625Apartment Inv & Mgmt Co, Class A (28,900 shares) 1,218,828 1,443,194Archstone Communities Trust (25,000 shares) 592,188 643,750Avalonbay Communities Inc (15,000 shares) 683,900 751,875Boston Properties Inc (25,000 shares) 995,339 1,087,500Brandywine Realty Trust (15,000 shares) 321,338 310,313CBL & Associates Prop (30,800 shares) 741,988 779,625Cabot Industrial Trust (40,000 shares) 820,726 767,500Centerpoint Properties Corp. (18,600 shares) 632,302 878,850Cousins Properties (20,000 shares) 551,200 558,750Crescent Real Estate Eqt Co (25,000 Shares) 565,563 556,250Duke - Weeks Realty Corporation (47,000 shares) 1,070,320 1,157,375Equity Office Properties Trust (77,400 shares) 2,215,533 2,525,175Equity Residential Property Trust (30,000 shares) 1,450,732 1,659,375Essex Property Trust, Inc (15,000 shares) 593,700 821,250First Industrial Realty Trust (25,000 shares) 781,100 850,000Franchise Finance Cp Amer (51,300 shares) 1,228,281 1,195,931Gables Residential Trust (25,000 shares) 632,750 700,000General Growth Properties (22,000 shares) 714,894 796,125Highwoods Properties Inc (30,000 shares) 758,832 746,250Host Marriot Corp (105,000 shares) 1,114,575 1,358,438Innkeepers USA Trust (50,000 shares) 512,375 553,125IRT Property (45,000 shares) 406,395 365,625Kilroy Realty Corp. (30,000 shares) 746,886 856,875Kimco Realty (15,000 shares) 612,612 662,813Liberty Property LP (35,000 shares) 899,563 999,688Macerich Co (30,000 shares) 670,490 575,625MeriStar Hospitality Corp (37,500 shares) 636,151 738,281Mission West Properties (88,200 shares) 697,122 1,223,775Parkway Properties Inc (25,000 shares) 782,750 742,188Public Storage Inc (5,000 shares) 113,763 121,563Reckson Assoc Realty Corp. (32,500 shares) 805,150 814,531Regency Realty Corp (25,000 shares) 576,600 592,188Saul Centers Inc (1,700 shares) 29,085 31,663Shurgard Storage Centers (20,000 shares) 478,500 488,750Simon Property Group Inc (45,000 shares) 1,032,357 1,080,000Spieker Properties (27,000 shares) 1,197,078 1,353,375Summit Properties Inc (12,000 shares) 292,832 312,000Vornado Realty Trust (29,800 shares) 1,028,569 1,141,713Washington Reit (40,000 shares) 759,220 945,000Public Storage Inc, Preferred Stock (15,000 shares) 340,569 337,500Total Real Estate Investment Trusts $31,896,908 $35,224,737


B6 - Real Property




Face Amount Cost Market ValueCASH AND CASH EQUIVALENTS (Percent of Net Assets) 13.4%

Federal Home Loan Mortgage 1.51%, January 2, 2002 $25,334,000 $25,331,875 $25,331,875

Total Cash Equivalents 25,334,000 25,331,875 25,331,875

Cash 1,283,770 1,283,770 1,283,770

Total Cash and Cash Equivalents $26,617,770 $26,615,645 $26,615,645


B7 - Real Property




Face Amount Cost Market ValueMARKETABLE SECURITIES (Percent of Net Assets) 2.4%

Associates First Capital B.V., 6.55%, January 29, 2001 699,000 687,681 687,681 New Center Asset Trust, 6.52%, January 30, 2001 1,614,000 1,587,692 1,587,692 Lasalle National Bank, 6.71%, February 1, 2001 969,000 968,792 968,959 B-One Australia Ltd., 6.55%, February 13, 2001 1,700,000 1,672,162 1,672,162

Total Marketable Securities 4,982,000$ 4,916,327$ 4,916,494$

CASH AND CASH EQUIVALENTS (Percent of Net Assets) 5.1%

J.P. Morgan & Co, 6.55%, January 2, 2001 546,000$ 545,603$ 545,603$ Alcoa Inc., 6.55%, January 4, 2001 634,000 633,193 633,193 Merrill Lynch & Co., 6.53%, Inc., January 10, 2001 300,000 299,347 299,347 Bankamerica Corp., 6.55%, January 11, 2001 680,000 678,020 678,020 General Motors Acceptance Corp., Inc., 6.60%, January 17, 2001 600,000 597,910 597,910 Paccar Financial Corp., 6.67%, January 18, 2001 661,000 657,693 657,693 General Electric Capital Corp., 6.55%, January 22, 2001 700,000 691,085 691,085 Countrywide Home Loans, 6.60%, January 25, 2001 560,000 556,201 556,201 Duke Energy Corp., 6.50%, January 25, 2001 682,000 678,552 678,552 Caterpillar Financial Svcs Corp., 6.50%, January 26, 2001 625,000 621,727 621,727 Verizon Global Funding Corp., 6.55%, January 26, 2001 500,000 496,179 496,179 Ciesco L.P., 6.54%, January 30, 2001 1,675,000 1,652,178 1,652,178 Eastman Kodak Co., 6.53%, February 9, 2001 800,000 787,230 787,230

Total Cash Equivalents 8,963,000 8,894,919 8,894,919

Cash 1,648,902 1,648,902 1,648,902

Total Cash and Cash Equivalents $10,611,902 $10,543,821 $10,543,821


B8 - Real Property

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OFTHE PRUDENTIAL VARIABLE CONTRACT REAL PROPERTY PARTNERSHIP

For Years Ended December 31, 2001, 2000, and 1999

B9 - Real Property

Note 1: Organization

On April 29, 1988, The Prudential Variable Contract Real Property Partnership (the "Partnership"), a generalpartnership organized under New Jersey law, was formed through an agreement among The Prudential InsuranceCompany of America ("Prudential"), Pruco Life Insurance Company ("Pruco Life"), and Pruco Life InsuranceCompany of New Jersey ("Pruco Life of New Jersey"). The Partnership was established as a means by which assetsallocated to the real estate investment option under certain variable life insurance and variable annuity contractsissued by the respective companies could be invested in a commingled pool. The Partners in the Partnership arePrudential, Pruco Life and Pruco Life of New Jersey.

The Partnership’s policy is to invest at least 65% of its assets in direct ownership interests in income-producing realestate and participating mortgage loans.

The estimated market value of the Partnership's shares is determined daily, consistent with the PartnershipAgreement. On each day during which the New York Stock Exchange is open for business, the net asset value ofthe Partnership is estimated using the estimated market value of its assets, principally as described in Notes 2A and2B below, reduced by any liabilities of the Partnership. The periodic adjustments to property values described inNotes 2A and 2B below and other adjustments to previous estimates are made on a prospective basis. There can beno assurance that all such adjustments to estimates will be made timely.

Shares of the Partnership are held by The Prudential Variable Contract Real Property Account, Pruco Life VariableContract Real Property Account and Pruco Life of New Jersey Variable Contract Real Property Account (the "RealProperty Accounts") and may be purchased and sold at the then current share value of the Partnership's net assets.Share value is calculated by dividing the estimated market value of net assets of the Partnership as determined aboveby the number of shares outstanding. A contract owner participates in the Partnership through interests in the RealProperty Accounts.

Prudential Real Estate Investors (“PREI”) is part of the Prudential Investment Management unit (“PIM”) and is adivision of Prudential Investment Management, Inc., a subsidiary of Prudential. PREI provides investment advisoryservices to the Partnership’s Partners pursuant to the terms of the Advisory Agreement as described in Note 9.

Note 2: Summary Of Significant Accounting Policies

A: Basis of Presentation – The accompanying consolidated financial statements are presented on theaccrual basis of accounting. It is the Partnership’s policy to consolidate those real estatepartnerships in which it has a controlling financial interest. All significant intercompany balancesand transactions have been eliminated in the consolidation.

B: Real Estate Investments - The Partnership's investments in real estate are initially valued at theirpurchase price. Thereafter, real estate investments are reported at their estimated market valuesbased upon appraisal reports prepared by independent real estate appraisers (members of theAppraisal Institute or an equivalent organization) within a reasonable amount of time followingacquisition of the real estate and no less frequently than annually thereafter. The Chief Real EstateAppraiser of PIM’s Risk Management Unit is responsible to assure that the valuation process



B10 - Real Property

provides objective and accurate market value estimates. American Appraisal Associates (the“Appraisal Management Firm”), an entity not affiliated with Prudential, has been appointed byPIM to assist the Chief Real Estate Appraiser in maintaining and monitoring the objectivity andaccuracy of the appraisal process. The Appraisal Management Firm, under the supervision of theChief Real Estate Appraiser, approves the selection and scheduling of external appraisals; engagesall external appraisers; reviews and provides comments on all external appraisals; prepares allquarterly update appraisals; assists in developing policies and procedures; and assists in theevaluation of the performance and competency of external appraisers, among other responsibilities.

The purpose of an appraisal is to estimate the market value of real estate as of a specific date.Market value has been defined as the most probable price for which the appraised real estate willsell in a competitive market under all conditions requisite for a fair sale, with the buyer and sellereach acting prudently, knowledgeably, and for self interest, and assuming that neither is underundue duress.

The estimate of market value generally is a correlation of three approaches, all of which require theexercise of subjective judgment. The three approaches are: (1) current cost of reproducing the realestate less deterioration and functional and economic obsolescence; (2) discounting of a series ofincome streams and reversion at a specified yield or by directly capitalizing a single year incomeestimate by an appropriate factor; and (3) value indicated by recent sales of comparableproperties in the market. In the reconciliation of these three approaches, the one most heavilyrelied upon is the one then recognized as the most appropriate by the independent appraiser for thetype of real estate in the market.

Real estate partnerships are valued at the Partnership’s equity in net assets as reflected in thepartnership’s financial statements with properties valued as described above.

As described above, the estimated market value of real estate and real estate related assets isdetermined through an appraisal process. These estimated market values may vary significantlyfrom the prices at which the real estate investments would sell since market prices of real estateinvestments can only be determined by negotiation between a willing buyer and seller. Althoughthe estimated market values represent subjective estimates, management believes these estimatedmarket values are reasonable approximations of market prices and the aggregate value ofinvestments in real estate is fairly presented as of December 31, 2001 and 2000.

C: Investment in Real Estate Investment Trusts - Shares of real estate investment trusts (REITs) are

generally valued at their quoted market price. These values may be adjusted for discounts relatingto restrictions, if any, on the future sale of these shares, such as lockout periods or limitations onthe number of shares which may be sold in a given time period. Any such discounts aredetermined by the Chief Real Estate Appraiser. On March 30, 1999, the Partnership converted506,894 shares of Meridian REIT to 557,583 shares of ProLogis REIT, with a fair value of $10.9million, and cash of $1.0 million (or total fair value of $11.9 million) as a result of ProLogis’acquisition of Meridian Industrial Trust. Management continued applying a 3% discount to themarket value of the ProLogis REIT shares through June 29, 1999 because of the restriction whichlimits the number of shares that can be publicly traded during any six month period to 30% of the



B11 - Real Property

total shares originally acquired. The application of the 3% discount was discontinued on June 30,1999 because this restriction no longer applied.

D: Revenue Recognition - Revenue from real estate is earned in accordance with the terms of therespective leases. Revenue from certain real estate investments is net of all or a portion of relatedreal estate expenses and taxes, as lease arrangements vary as to responsibility for payment of theseexpenses between tenants and the Partnership. Since real estate is stated at estimated market value,net income is not reduced by depreciation or amortization expense. Dividend income is accrued atthe ex-dividend date.

E: Equity in Income of Real Estate Partnership - Equity in income from real estate partnershipoperations represents the Partnership’s share of the current year’s partnership income as providedfor under the terms of the partnership agreements. As is the case with wholly-owned real estate,partnership net income is not reduced by depreciation or amortization expense. Frequency ofdistribution of income is determined by formal agreements or by the executive committee of thepartnership.

F: Mortgage Loans Payable - Mortgage loans payable are stated at the principal amount of theobligation outstanding.

G: Cash and Cash Equivalents - For purposes of the Consolidated Statements of Cash Flows, allshort-term investments with an original maturity of three months or less are considered to be cashequivalents. Cash equivalents consist of investments in the Prudential Investment Liquidity Pooloffered and managed by an affiliate of Prudential and are accounted for at market value.

Cash of $160,635 and $79,300 at December 31, 2001 and 2000, respectively, was maintained bythe properties for tenant security deposits and is included in Other Assets on the ConsolidatedStatements of Assets and Liabilities.

H: Marketable Securities - Marketable securities are highly liquid investments with maturities of morethan three months when purchased and are carried at estimated market value.

I: Federal Income Taxes - The Partnership is not a taxable entity under the provisions of the InternalRevenue Code. The income and capital gains and losses of the Partnership are attributed, forfederal income tax purposes, to the Partners in the Partnership. The Partnership may be subject tostate and local taxes in jurisdictions in which it operates.

J: Management’s Use of Estimates in the Financial Statements - The preparation of financialstatements in conformity with accounting principles generally accepted in the United States ofAmerica requires management to make estimates and assumptions that affect the reported amountsof assets and liabilities at the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ from those estimates.



B12 - Real Property

Note 3: Disclosure of Supplemental Cash Flow Information and Non-Cash Investing and Financing Activity

Cash paid for interest during the years ended December 31, 2001, 2000, and 1999 was $1,776,701, $732,991, and$145,418, respectively.

During the first and second quarters of 2001, in conjunction with the acquisition of two real estate investments, theconsolidated partnerships assumed mortgage loan financing of $9.0 million and $10.3 million, respectively.

During 1999, in conjunction with the acquisition of a real estate investment of one property, a consolidatedpartnership assumed mortgage loan financing of approximately $10.2 million.

Note 4: Real Estate Partnership

Real estate partnership is valued at the Partnership’s equity in net assets as reflected by the partnership’s financialstatements with properties valued as indicated in Note 2B above. The partnership’s combined financial position atDecember 31, 2001 and 2000, and results of operations for the years ended December 31, 2001, 2000, and 1999 aresummarized as follows:

2001 2000Partnership Assets and Liabilities Real Estate at estimated market value $28,300,000 $27,080,000 Other Assets 1,877,122 1,470,801 Total Assets 30,177,122 28,550,801

Mortgage loans payable 20,648,892 20,669,422 Other Liabilities 918,664 665,365 Total Liabilities 21,567,556 21,334,787

Net Assets $8,609,566 $7,216,014

Partnership’s Share of Net Assets $6,712,308 $5,445,528


Partnership Operations Rental Revenue $4,497,459 $4,223,801 $926,283 Real Estate Expenses and Taxes 3,536,948 3,292,500 795,115 Net Investment Income $960,511 $931,301 $131,168

Partnership’s Share of Net Investment Income $686,801 $791,596 $98,375

December 31,



B13 - Real Property

Note 5: Mortgage Loans Payable:

Debt includes mortgage loans payable as summarized below:

The interest rate on the variable rate debt is adjusted annually. The rate is equal to the 6-month Treasury rate plus1.565%. It is subject to a maximum of 11.345% and a minimum of 2.345%. The change from year to year may notbe more than 2%. At December 31, 2001 and 2000, the rate was 5.735% and 7.735%, respectively.

Partnership Debt as of 12/31/01 Partnership Debt as of 12/31/00 As of 12/31/01

Partnership’s Partnership’s

100% Loan Share of 100% Loan Share of Interest Maturity

Balance Loan Balance * Balance Loan Balance * Rate** Date

Mortgages of Wholly Ow ned Properties & Consolidated Partnerships

Riverbend Apartments 9,996,863 9,293,084 10,092,355 9,208,265 5.74% *** 2006

SIMA Apartment Portfolio 8,863,334 8,493,733 - - 7.97% 2006

Hampton Tow ne Center 10,134,324 8,709,438 - - 6.75% 2018

- - -

Total 28,994,521 26,496,255 10,092,355 9,208,265

Mortgage Loans on Equity Partnership

KCP - Ten Quiviria 6,946,631 5,121,057 6,953,113 5,246,819 8.16% 2007

KCP - Ten Quiviria Parcel 999,306 736,688 1,000,238 754,780 8.16% 2007

KCP - Cherokee Hill 3,212,174 2,368,015 3,215,341 2,426,296 7.79% 2007

KCP - Devonshire 2,226,609 1,641,456 2,228,686 1,681,767 8.16% 2007

KCP - Willow Creek 1,336,251 985,084 1,338,590 1,010,100 8.63% 2005

KCP - Bryw ood Center 5,927,921 4,370,064 5,933,453 4,477,383 8.16% 2007

Total 20,648,892 15,222,363 20,669,422 15,597,146

Total Mortgage Loans Payable $41,718,618 $24,805,410 7.28%

* R epres ents the P artners hip’s interes t in the loan bas ed upon the es timated percentage of net as s ets which would be dis tributed to

the P artners hip if the partners hip were liquidated at December 31, 2001 or 2000. It does not repres ent the P artners hip’s legal obligation.

** T he P artners hip’s weighted average interes t rate at December 31, 2001 and 2000 were 7.28% and 8.05%, res pectively.

T he weighted average interes t rates were calculated us ing the P artners hip’s annualized interes t expens e for each loan

(derived us ing the s ame percentage as that in (*) above) divided by the P artners hip’s s hare of total debt.

***Variable R ate Debt.



B14 - Real Property

As of December 31, 2001, the mortgage loans payable were payable as follows:

The mortgages payable are secured by real estate investments with an estimated market value of $55,500,000.

Based on borrowing rates available to the Partnership at December 31, 2001 for loans with similar terms and averagematurities, the carrying value of the Partnership’s mortgages on the consolidated partnerships approximates itsestimated fair value. Different assumptions or changes in future market conditions could significantly affectestimated market value.

NOTE 6: Concentration Risk of Real Estate Investments

At December 31, 2001, the Partnership had real estate investments located throughout the United States. Thediversification of the account’s holdings based on the estimated market values and established NCREIF regions is asfollows:

Year Ending December 31, (000’s)2002 $6782003 7362004 7872005 8432006 17,711

Thereafter 8,240

Total $28,995

EstimatedMarket Value

Region Region % (000’s)

Southeast 42% $85,308East North Central 17% 34,379Mideast 16% 32,808Pacific 15% 30,088Mountain 7% 15,388West North Central 3% $6,712

Total $204,683



B15 - Real Property

Note 7: Leasing Activity

The Partnership leases space to tenants under various operating lease agreements. These agreements, without givingeffect to renewal options, have expiration dates ranging from 2002 to 2018. At December 31, 2001, the aggregatefuture minimum base rental payments under non-cancelable operating leases by year and in the aggregate are asfollows:

The above future minimum base rental payments exclude residential lease agreements, which accounted for 24% ofthe Partnership’s 2001 annual rental income.

Note 8: Commitments and Contingencies

In 1986, Prudential committed to fund up to $100 million to enable the Partnership to acquire real estate investments.Contributions to the Partnership under this commitment are utilized for property acquisitions, and returned toPrudential on an ongoing basis from contract owners’ net contributions and other available cash. The amount of thecommitment is reduced by $10 million for every $100 million in current value net assets of the Partnership. Thus,with $198 million in net assets, the commitment has been automatically reduced to $90 million. As of December 31,2001, the cost basis of Prudential’s equity interest in the Partnership under this commitment (held through the RealProperty Accounts) was $44 million. Prudential intends to terminate this commitment at the end of the 2002 fiscalyear.

The Partnership is subject to various legal proceedings and claims arising in the ordinary course of business. Thesematters are generally covered by insurance. In the opinion of Prudential's management, the outcome of such matterswill not have a significant effect on the Partnership.

Note 9: Related Party Transactions

Pursuant to an investment management agreement, Prudential charges the Partnership a daily investmentmanagement fee at an annual rate of 1.25% of the average daily gross asset valuation of the Partnership. For theyears ended December 31, 2001, 2000 and 1999 management fees incurred by the Partnership were $2.7 million foreach of the three years.

Year Ending December 31, (000’s)2002 $11,7252003 9,1492004 7,2082005 6,7162006 5,990

Thereafter 21,295

Total $62,083



B16 - Real Property

The Partnership also reimburses Prudential for certain administrative services rendered by Prudential. The amountsincurred for the years ended December 31, 2001, 2000 and 1999 were $118,972; $116,630; and $116,463,respectively, and are classified as administrative expenses in the Consolidated Statements of Operations.

During the years ended December 31, 2001, 2000 and 1999, the Partnership made the following distributions to thePartners:

Year Ending December 31, (000’s)2001 $18,0002000 22,0001999 36,000

B17 - Real Property

Report of Independent Accountants

To the Partners of The PrudentialVariable Contract Real Property Partnership:

In our opinion, the accompanying consolidated statements of assets and liabilities, including theschedule of investments, and the related consolidated statements of operations, of changes in netassets and of cash flows present fairly, in all material respects, the financial position of ThePrudential Variable Contract Real Property Partnership (the "Partnership") at December 31, 2001and 2000, and the results of its operations and its cash flows for each of the three years in theperiod ended December 31, 2001, in conformity with accounting principles generally accepted inthe United States of America. These financial statements are the responsibility of themanagement of The Prudential Insurance Company of America; our responsibility is to expressan opinion on these financial statements based on our audits. We conducted our audits of thesestatements in accordance with auditing standards generally accepted in the United States ofAmerica, which require that we plan and perform the audits to obtain reasonable assurance aboutwhether 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, andevaluating the overall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

PricewaterhouseCoopers LLPNew York, New YorkFebruary 15, 2002

Variable Appreciable LIFE®

Insurance

Variable Appreciable Life was issued by Pruco Life InsuranceCompany in all states except New Jersey and New York, where it was issued by Pruco Life Insurance Company of New Jersey, 213 Washington Street, Newark, NJ 07102-2992, and offered throughPruco Securities Corporation, 751 Broad Street Newark, NJ 07102-3777. All are Prudential companies.

Appreciable Life is a registered trademark of Prudential.

Prudential Financial is a service mark of The Prudential InsuranceCompany of America, Newark, NJ, and its affiliates.

For online access to your policy information, visitwww.prudential.com

Pruco Life Insurance Company of New Jersey213 Washington Street, Newark, NJ 07102-2992Telephone: 800 778-2255

VAL2 ED 5/2002

pruco life of new jersey’s insurance prospectus val · appreciable life insurance. pruco life of...

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