Edgar Filing: PRUDENTIAL FINANCIAL INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended March 31, 2008

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

For the Transition Period from to

Commission File Number 001-16707

Prudential Financial, Inc.

(Exact Name of Registrant as Specified in its Charter)


New Jersey		22-3703799
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

751 Broad Street

Newark, New Jersey 07102

(973) 802-6000

(Address and Telephone Number of Registrant’s Principal Executive Offices)

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

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

Large accelerated filer x Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨

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

As of April 30, 2008, 434 million shares of the registrant’s Common Stock (par value $0.01) were outstanding. In addition, 2 million shares of the registrant’s Class B Stock, for which there is no established public trading market, were outstanding.

TABLE OF CONTENTS


			Page Number

PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements:
		Unaudited Interim Consolidated Statements of Financial Position as of March 31, 2008 and December 31, 2007	1
		Unaudited Interim Consolidated Statements of Operations for the three months ended March 31, 2008 and 2007	2
		Unaudited Interim Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2008	3
		Unaudited Interim Consolidated Statements of Cash Flows for the three months ended March 31, 2008 and 2007	4
		Notes to Unaudited Interim Consolidated Financial Statements	5
		Unaudited Interim Supplemental Combining Financial Information:
		Unaudited Interim Supplemental Combining Statements of Financial Position as of March 31, 2008 and December 31, 2007	34
		Unaudited Interim Supplemental Combining Statements of Operations for the three months ended March 31, 2008 and 2007	35
		Notes to Unaudited Interim Supplemental Combining Financial Information	36
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	139
	Item 4.	Controls and Procedures	139

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	139
	Item 1A.	Risk Factors	140
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	140
	Item 6.	Exhibits	141

SIGNATURES			142

FORWARD-LOOKING STATEMENTS

Certain of the statements included in this Quarterly Report on Form 10-Q, including but not limited to those in Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Words such as “expects,” “believes,” “anticipates,” “includes,” “plans,” “assumes,” “estimates,” “projects,” “intends,” “should,” “will,” “shall” or variations of such words are generally part of forward-looking statements. Forward-looking statements are made based on management’s current expectations and beliefs concerning future developments and their potential effects upon Prudential Financial, Inc. and its subsidiaries. There can be no assurance that future developments affecting Prudential Financial, Inc. and its subsidiaries will be those anticipated by management. These forward-looking statements are not a guarantee of future performance and involve risks and uncertainties, and there are certain important factors that could cause actual results to differ, possibly materially, from expectations or estimates reflected in such forward-looking statements, including, among others: (1) general economic, market and political conditions, including the performance and fluctuations of fixed income, equity, real estate and other financial markets; (2) interest rate fluctuations; (3) reestimates of our reserves for future policy benefits and claims; (4) differences between actual experience regarding mortality, morbidity, persistency, surrender experience, interest rates or market returns and the assumptions we use in pricing our products, establishing liabilities and reserves or for other purposes; (5) changes in our assumptions related to deferred policy acquisition costs, valuation of business acquired or goodwill; (6) changes in our claims-paying or credit ratings; (7) investment losses and defaults; (8) competition in our product lines and for personnel; (9) changes in tax law; (10) economic, political, currency and other risks relating to our international operations; (11) fluctuations in foreign currency exchange rates and foreign securities markets; (12) regulatory or legislative changes; (13) adverse determinations in litigation or regulatory matters and our exposure to contingent liabilities, including in connection with our divestiture or winding down of businesses; (14) domestic or international military actions, natural or man-made disasters including terrorist activities or pandemic disease, or other events resulting in catastrophic loss of life; (15) ineffectiveness of risk management policies and procedures in identifying, monitoring and managing risks; (16) effects of acquisitions, divestitures and restructurings, including possible difficulties in integrating and realizing the projected results of acquisitions; (17) changes in statutory or U.S. GAAP accounting principles, practices or policies; (18) changes in assumptions for retirement expense; (19) Prudential Financial, Inc.’s primary reliance, as a holding company, on dividends or distributions from its subsidiaries to meet debt payment obligations and continue share repurchases, and the applicable regulatory restrictions on the ability of the subsidiaries to pay such dividends or distributions; and (20) risks due to the lack of legal separation between our Financial Services Businesses and our Closed Block Business. Prudential Financial, Inc. does not intend, and is under no obligation, to update any particular forward-looking statement included in this document. See “Risk Factors” included in the Annual Report on Form 10-K for the year ended December 31, 2007 for discussion of certain risks relating to our businesses and investment in our securities.

Throughout this Quarterly Report on Form 10-Q, “Prudential Financial” and the “Registrant” refer to Prudential Financial, Inc., the ultimate holding company for all of our companies. “Prudential Insurance” refers to The Prudential Insurance Company of America, before and after its demutualization on December 18, 2001. “Prudential,” the “Company,” “we” and “our” refer to our consolidated operations before and after demutualization.

PART I—FINANCIAL INFORMATION

ITEM 1.

Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Financial Position

March 31, 2008 and December 31, 2007 (in millions, except share amounts)


	March 31, 2008			December 31, 2007
ASSETS
Fixed maturities:
Available for sale, at fair value (amortized cost: 2008—$164,676; 2007—$160,137)	$	164,472		$	162,162
Held to maturity, at amortized cost (fair value: 2008—$3,741; 2007—$3,543)		3,735			3,548
Trading account assets supporting insurance liabilities, at fair value		14,644			14,473
Other trading account assets, at fair value		2,833			3,613
Equity securities, available for sale, at fair value (cost: 2008—$8,115; 2007—$7,895)		8,129			8,580
Commercial loans (includes $657 measured at fair value at March 31, 2008)		31,938			30,047
Policy loans		9,538			9,337
Securities purchased under agreements to resell		178			129
Other long-term investments		6,405			6,431
Short-term investments		5,731			5,237

Total investments		247,603			243,557
Cash and cash equivalents		9,760			11,060
Accrued investment income		2,266			2,174
Reinsurance recoverables		1,975			2,119
Deferred policy acquisition costs		12,828			12,339
Other assets		21,986			18,982
Separate account assets		181,902			195,583

TOTAL ASSETS	$	478,320		$	485,814

LIABILITIES AND STOCKHOLDERS’ EQUITY
LIABILITIES
Future policy benefits	$	114,863		$	111,468
Policyholders’ account balances		90,380			84,154
Policyholders’ dividends		2,458			3,661
Reinsurance payables		1,396			1,552
Securities sold under agreements to repurchase		8,799			11,441
Cash collateral for loaned securities		4,958			6,312
Income taxes		3,575			3,553
Short-term debt		16,224			15,657
Long-term debt		15,052			14,101
Other liabilities		16,016			14,875
Separate account liabilities		181,902			195,583

Total liabilities		455,623			462,357

COMMITMENTS AND CONTINGENT LIABILITIES (See Note 11)
STOCKHOLDERS’ EQUITY
Preferred Stock ($.01 par value; 10,000,000 shares authorized; none issued)		—			—
Common Stock ($.01 par value; 1,500,000,000 shares authorized; 604,901,800 and 604,901,479 shares issued as of March 31, 2008 and December 31, 2007, respectively)		6			6
Class B Stock ($.01 par value; 10,000,000 shares authorized; 2,000,000 shares issued and outstanding as of March 31, 2008 and December 31, 2007, respectively)		—			—
Additional paid-in capital		21,802			20,856
Common Stock held in treasury, at cost (167,455,593 and 157,534,628 shares as of March 31, 2008 and December 31, 2007, respectively)		(10,476	)		(9,693	)
Accumulated other comprehensive income (loss)		(539	)		447
Retained earnings		11,904			11,841

Total stockholders’ equity		22,697			23,457

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	478,320		$	485,814

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Operations

Three Months Ended March 31, 2008 and 2007 (in millions, except per share amounts)


	Three Months Ended March 31,
	2008			2007
REVENUES
Premiums	$	3,958		$	3,559
Policy charges and fee income		825			785
Net investment income		3,027			2,935
Realized investment gains (losses), net		(912	)		420
Asset management fees and other income		666			1,076

Total revenues		7,564			8,775

BENEFITS AND EXPENSES
Policyholders’ benefits		4,035			3,685
Interest credited to policyholders’ account balances		637			843
Dividends to policyholders		559			711
General and administrative expenses		2,279			2,109

Total benefits and expenses		7,510			7,348

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES		54			1,427

Income tax expense		29			423

INCOME FROM CONTINUING OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES		25			1,004
Equity in earnings of operating joint ventures, net of taxes		43			77

INCOME FROM CONTINUING OPERATIONS		68			1,081
Income from discontinued operations, net of taxes		1			39

NET INCOME	$	69		$	1,120

EARNINGS PER SHARE (See Note 6)
Financial Services Businesses
Basic:
Income from continuing operations per share of Common Stock	$	0.20		$	2.14
Income from discontinued operations, net of taxes		—			0.08

Net income per share of Common Stock	$	0.20		$	2.22

Diluted:
Income from continuing operations per share of Common Stock	$	0.20		$	2.10
Income from discontinued operations, net of taxes		—			0.08

Net income per share of Common Stock	$	0.20		$	2.18

Closed Block Business
Basic and Diluted:
Income (loss) from continuing operations per share of Class B Stock	$	(10.00	)	$	39.00
Income from discontinued operations, net of taxes		—			1.00

Net income (loss) per share of Class B Stock	$	(10.00	)	$	40.00

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statement of Stockholders’ Equity

Three Months Ended March 31, 2008 (in millions)


	Common Stock		Class B Stock		Additional Paid-in Capital			Retained Earnings			Common Stock Held In Treasury			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance, December 31, 2007	$	6	$	—	$	20,856		$	11,841		$	(9,693	)	$	447		$	23,457
Common Stock acquired		—		—		—			—			(869	)		—			(869	)
Stock-based compensation programs		—		—		(31	)		(9	)		86			—			46
Impact on Company’s investment in Wachovia Securities due to addition of A.G. Edwards business, net of tax		—		—		977			—			—			—			977
Cumulative effect of changes in accounting principles, net of taxes		—		—		—			3			—			—			3
Comprehensive income:		—		—		—			—			—			—
Net income		—		—		—			69			—			—			69
Other comprehensive loss, net of taxes		—		—		—			—			—			(986	)		(986	)

Total comprehensive income (loss)		—		—		—			—			—			—			(917	)

Balance, March 31, 2008	$	6	$	—	$	21,802		$	11,904		$	(10,476	)	$	(539	)	$	22,697

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Consolidated Statements of Cash Flows

Three Months Ended March 31, 2008 and 2007 (in millions)


	2008			2007
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	69		$	1,120
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment (gains) losses, net		912			(420	)
Policy charges and fee income		(277	)		(248	)
Interest credited to policyholders’ account balances		637			843
Depreciation and amortization		91			62
Change in:
Deferred policy acquisition costs		(254	)		(247	)
Future policy benefits and other insurance liabilities		1,057			712
Trading account assets supporting insurance liabilities and other trading account assets		(87	)		(52	)
Income taxes		(402	)		(22	)
Other, net		(392	)		(1,057	)

Cash flows from operating activities		1,354			691

CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available for sale		23,856			22,802
Fixed maturities, held to maturity		49			76
Trading account assets supporting insurance liabilities and other trading account assets		5,813			—
Equity securities, available for sale		869			1,650
Commercial loans		535			1,372
Policy loans		380			324
Other long-term investments		302			293
Short-term investments		9,569			2,451
Payments for the purchase/origination of:
Fixed maturities, available for sale		(25,643	)		(23,184	)
Fixed maturities, held to maturity		(9	)		(59	)
Trading account assets supporting insurance liabilities and other trading account assets		(5,982	)		—
Equity securities, available for sale		(1,036	)		(1,620	)
Commercial loans		(1,927	)		(1,213	)
Policy loans		(361	)		(318	)
Other long-term investments		(795	)		(582	)
Short-term investments		(10,272	)		(2,619	)
Other, net		32			201

Cash flows used in investing activities		(4,620	)		(426	)

CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders’ account deposits		9,501			5,265
Policyholders’ account withdrawals		(4,963	)		(5,646	)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities		(3,867	)		(2,812	)
Cash dividends paid on Common Stock		(75	)		(72	)
Net change in financing arrangements (maturities 90 days or less)		760			990
Common Stock acquired		(869	)		(712	)
Common Stock reissued for exercise of stock options		29			83
Proceeds from the issuance of debt (maturities longer than 90 days)		2,110			1,111
Repayments of debt (maturities longer than 90 days)		(1,010	)		(387	)
Excess tax benefits from share-based payment arrangements		12			60
Other, net		(41	)		73

Cash flows from (used in) financing activities		1,587			(2,047	)

Effect of foreign exchange rate changes on cash balances		379			1
NET DECREASE IN CASH AND CASH EQUIVALENTS		(1,300	)		(1,781	)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		11,060			8,589

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	9,760		$	6,808

NON-CASH TRANSACTIONS DURING THE PERIOD
Impact on Company’s investment in Wachovia Securities due to addition of A.G. Edwards business, net of tax	$	977		$	—
Treasury Stock shares issued for stock-based compensation programs	$	84		$	87

See Notes to Unaudited Interim Consolidated Financial Statements

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

Prudential Financial, Inc. (“Prudential Financial”) and its subsidiaries (collectively, “Prudential” or the “Company”) provide a wide range of insurance, investment management, and other financial products and services to both individual and institutional customers throughout the United States and in many other countries. Principal products and services provided include life insurance, annuities, mutual funds, pension and retirement-related services and administration, and investment management. In addition, the Company provides retail securities brokerage services indirectly through a minority ownership in a joint venture. The Company has organized its principal operations into the Financial Services Businesses and the Closed Block Business. The Financial Services Businesses operate through three operating divisions: Insurance, Investment, and International Insurance and Investments. The Company’s real estate and relocation services business as well as businesses that are not sufficiently material to warrant separate disclosure and businesses to be divested are included in Corporate and Other operations within the Financial Services Businesses. The Closed Block Business, which includes the Closed Block (see Note 4), is managed separately from the Financial Services Businesses. The Closed Block Business was established on the date of demutualization and includes the Company’s in force participating insurance and annuity products and assets that are used for the payment of benefits and policyholders’ dividends on these products, as well as other assets and equity that support these products and related liabilities. In connection with the demutualization, the Company ceased offering these participating products.

Basis of Presentation

The Unaudited Interim Consolidated Financial Statements include the accounts of Prudential Financial, entities over which the Company exercises control, including majority-owned subsidiaries and minority-owned entities such as limited partnerships in which the Company is the general partner, and variable interest entities in which the Company is considered the primary beneficiary. The Unaudited Interim Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) on a basis consistent with reporting interim financial information in accordance with instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). Intercompany balances and transactions have been eliminated.

In the opinion of management, all adjustments necessary for a fair statement of the financial position and results of operations have been made. All such adjustments are of a normal, recurring nature. Interim results are not necessarily indicative of the results that may be expected for the full year. These financial statements should be read in conjunction with the Company’s audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Use of Estimates

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

The most significant estimates include those used in determining deferred policy acquisition costs, goodwill, valuation of business acquired, valuation of investments including derivatives, future policy benefits including guarantees, pension and other postretirement benefits, provision for income taxes, reserves for contingent liabilities and reserves for losses in connection with unresolved legal matters.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current period presentation.

2. ACCOUNTING POLICIES AND PRONOUNCEMENTS

Share-Based Payments

The Company issues employee share-based compensation awards, under a plan authorized by the Board of Directors, that are subject to specific vesting conditions; generally the awards vest ratably over a three-year period, “the nominal vesting period,” or at the date the employee retires (as defined by the plan), if earlier. For awards granted between January 1, 2003 and January 1, 2006 that specify an employee vests in the award upon retirement, the Company accounts for those awards using the nominal vesting period approach. Under this approach, the Company records compensation expense over the nominal vesting period. If the employee retires before the end of the nominal vesting period, any remaining unrecognized compensation cost is recognized at the date of retirement.

Upon the adoption of Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based Payment” on January 1, 2006, the Company revised its approach to the recognition of compensation costs for awards granted to retirement-eligible employees and awards that vest when an employee becomes retirement-eligible to apply the non-substantive vesting period approach to all new share-based compensation awards granted on or after January 1, 2006. Under this approach, all compensation cost is recognized on the date of grant for awards issued to retirement-eligible employees, or over the period from the grant date to the date retirement eligibility is achieved, if that is expected to occur during the nominal vesting period.

If the Company had accounted for all share-based compensation awards granted after January 1, 2003 under the non-substantive vesting period approach, net income of the Financial Services Businesses for the three months ended March 31, 2008 would have been increased by $0.8 million, with no reportable impact to the earnings per share of Common Stock, on both a basic and diluted basis, and $2.4 million, or $0.01 per share of Common Stock, on both a basic and diluted basis for the three months ended March 31, 2007.

Accounting Pronouncements Adopted

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement provides companies with an option to report selected financial assets and liabilities at fair value, with the associated changes in fair value reflected in the Consolidated Statements of Operations. The Company adopted this guidance effective January 1, 2008.

Upon the adoption of SFAS No. 159, the Company elected the fair value option for certain investments held within the commercial mortgage operations of the Asset Management segment. Specifically, the fair value option was elected for funded commercial loans held for sale originated beginning January 1, 2008. In addition, the Company elected the fair value option for fixed rate commercial loans held for investment that were held at December 31, 2007 and for such loans originated beginning January 1, 2008. The Company elected the fair value option for the loan programs mentioned above primarily to eliminate the need for hedge accounting under SFAS No. 133, while still achieving an offset in earnings from the associated interest rate derivative hedges.

Due to recent volatility in the credit markets, the Company experienced unexpected volatility in the fair value of the aforementioned fixed rate commercial loans held for investment that was not substantially offset by the associated interest rate derivative hedges during the quarter ended March 31, 2008. Therefore, the Company

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

will no longer elect the fair value option on loans held for investment that are originated after March 31, 2008, and will be pursuing hedge accounting under SFAS No. 133. See Note 9 for more information on SFAS No. 159.

The Company does not have material commercial loans held for sale outside of the commercial mortgage operations. The fair value option has not been elected for the Company’s other fixed rate commercial loans held for investment (primarily held by the general account), as the underlying business drivers and economics are different for these loans in that they are part of a diverse portfolio backing insurance liabilities.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement does not change which assets and liabilities are required to be recorded at fair value, but the application of this statement could change practices in determining fair value. The Company adopted this guidance effective January 1, 2008. See Note 9 for more information on SFAS No. 157.

In November 2007, the staff of the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”) No. 109, “Written Loan Commitments Recorded at Fair Value Through Earnings.” SAB 109 revises and rescinds portions of SAB 105, “Application of Accounting Principles to Loan Commitments.” Specifically, SAB 109 states that the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SAB 109 is effective for all written loan commitments recorded at fair value that are entered into, or substantially modified, in fiscal quarters beginning after December 15, 2007. The Company adopted SAB 109 effective January 1, 2008 for its loan commitments that are recorded at fair value through earnings. The Company’s adoption of this guidance did not have a material effect on the Company’s consolidated financial position or results of operations.

In April 2007, the FASB issued FASB Staff Position (“FSP”) FIN 39-1, “Amendment of FASB Interpretation No. 39.” FSP FIN 39-1 modifies FIN No. 39, “Offsetting of Amounts Related to Certain Contracts,” and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. This FSP is effective for fiscal years beginning after November 15, 2007 and is required to be applied retrospectively to financial statements for all periods presented. The Company’s adoption of this guidance effective January 1, 2008 did not have a material effect on the Company’s consolidated financial position or results of operations.

In January 2008, the FASB issued Statement No. 133 Implementation Issue No. E23, “Hedging—General: Issues Involving the Application of the Shortcut Method under Paragraph 68.” Implementation Issue No. E23 amends Statement No. 133, paragraph 68 with respect to the conditions that must be met in order to apply the shortcut method for assessing hedge effectiveness. This implementation guidance was effective for hedging relationships designated on or after January 1, 2008. The Company’s adoption of this guidance effective January 1, 2008 did not have a material effect on the Company’s consolidated financial position or results of operations.

Recent Accounting Pronouncements

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” an amendment of FASB Statement No. 133. This statement amends and expands the disclosure requirements for derivative instruments and hedging activities by requiring companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement No. 133 and its related interpretations, and (c) how

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the impact of SFAS No. 161 on the notes to the consolidated financial statements.

In February 2008, the FASB issued FSP FAS 140-3, “Accounting for Transfers of Financial Assets and Repurchase Financing Transactions.” The FSP provides recognition and derecognition guidance for a repurchase financing transaction, which is a repurchase agreement that relates to a previously transferred financial asset between the same counterparties, that is entered into contemporaneously with or in contemplation of, the initial transfer. The FSP is effective for fiscal years beginning after November 15, 2008. The FSP is to be applied prospectively to new transactions entered into after the adoption date. The Company will adopt this guidance effective January 1, 2009. The Company is currently assessing the impact of this FSP on the Company’s consolidated financial position and results of operations.

In February 2008, the FASB issued FSP FAS 157-2, “Effective Date of FASB Statement No. 157.” This FSP applies to nonfinancial assets and nonfinancial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). FSP FAS 157-2 delays the effective date of SFAS No. 157 for these items to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years.

In December 2007, the FASB issued SFAS No. 141R, “Business Combinations.” This statement, which addresses the accounting for business acquisitions, is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited, and generally applies to business acquisitions completed after December 31, 2008. Among other things, the new standard requires that all acquisition-related costs be expensed as incurred, and that all restructuring costs related to acquired operations be expensed as incurred. This new standard also addresses the current and subsequent accounting for assets and liabilities arising from contingencies acquired or assumed and, for acquisitions both prior and subsequent to December 31, 2008, requires the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. The Company is currently assessing the impact of SFAS No. 141R on the Company’s consolidated financial position and results of operations.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements.” SFAS No. 160 will change the accounting for minority interests, which will be recharacterized as noncontrolling interests and classified by the parent company as a component of equity. This statement is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited. Upon adoption, SFAS No. 160 requires retroactive adoption of the presentation and disclosure requirements for existing minority interests and prospective adoption for all other requirements. The Company is currently assessing the impact of SFAS No. 160 on the Company’s consolidated financial position and results of operations.

In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans” an amendment of FASB Statements No. 87, 88, 106 and 132(R). This statement requires an employer on a prospective basis to recognize the overfunded or underfunded status of its defined benefit pension and postretirement plans as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. The Company adopted this requirement, along with the required disclosures, on December 31, 2006. SFAS No. 158 also requires an employer on a prospective basis to measure the funded status of its plans as of its

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

fiscal year-end. This requirement is effective for fiscal years ending after December 15, 2008. The Company will adopt this guidance on December 31, 2008 and anticipates that the impact of changing from a September 30 measurement date to a December 31 measurement date will not have a material effect on the Company’s consolidated financial position.

3. ACQUISITIONS AND DISPOSITIONS

Acquisition of Hyundai Investment and Securities Co., Ltd.

In 2004, the Company acquired an 80 percent interest in Hyundai Investment and Securities Co., Ltd., a Korean asset management firm, from an agency of the Korean government, for $301 million in cash, including $210 million used to repay debt assumed. Subsequent to the acquisition, the company was renamed Prudential Investment & Securities Co., Ltd. On January 25, 2008, the Company acquired the remaining 20 percent for $90 million.

Additional Investment in UBI Pramerica

On January 18, 2008, the Company made an additional investment of $154 million in its UBI Pramerica operating joint venture in Italy, which is accounted for under the equity method. This additional investment was necessary to maintain the Company’s ownership interest at 35% and was a result of the merger of the Company’s joint venture partner with another Italian bank, and their subsequent consolidation of their asset management companies into the UBI Pramerica joint venture.

Discontinued Operations

Income (loss) from discontinued businesses, including charges upon disposition, are as follows:


	Three Months Ended March 31,
	2008			2007
	(in millions)
Equity sales, trading and research operations	$	(1	)	$	2
Real estate investments sold or held for sale		1			18
International securities operations		1			(3	)
Healthcare operations		—			5

Income from discontinued operations before income taxes		1			22
Income tax expense (benefit)		—			(17	)

Income from discontinued operations, net of taxes	$	1		$	39

The three months ended March 31, 2007 includes a $26 million tax benefit associated with a discontinued international business. Real estate investments sold or held for sale reflects the income from discontinued real estate investments.

The Company’s Unaudited Interim Consolidated Statements of Financial Position include total assets and total liabilities related to discontinued businesses of $215 million and $54 million, respectively, as of March 31, 2008 and $242 million and $98 million, respectively, as of December 31, 2007. Charges recorded in connection with the disposals of businesses include estimates that are subject to subsequent adjustment. It is possible that such adjustments might be material to future net results of operations of a particular quarterly or annual period.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

4. CLOSED BLOCK

On the date of demutualization, Prudential Insurance established a Closed Block for certain individual life insurance policies and annuities issued by Prudential Insurance in the U.S. The recorded assets and liabilities were allocated to the Closed Block at their historical carrying amounts. The Closed Block forms the principal component of the Closed Block Business.

The policies included in the Closed Block are specified individual life insurance policies and individual annuity contracts that were in force on the effective date of the Plan of Reorganization and for which Prudential Insurance is currently paying or expects to pay experience-based policy dividends. Assets have been allocated to the Closed Block in an amount that has been determined to produce cash flows which, together with revenues from policies included in the Closed Block, are expected to be sufficient to support obligations and liabilities relating to these policies, including provision for payment of benefits, certain expenses, and taxes and to provide for continuation of the policyholder dividend scales in effect in 2000, assuming experience underlying such scales continues. To the extent that, over time, cash flows from the assets allocated to the Closed Block and claims and other experience related to the Closed Block are, in the aggregate, more or less favorable than what was assumed when the Closed Block was established, total dividends paid to Closed Block policyholders in the future may be greater than or less than the total dividends that would have been paid to these policyholders if the policyholder dividend scales in effect in 2000 had been continued. Any cash flows in excess of amounts assumed will be available for distribution over time to Closed Block policyholders and will not be available to stockholders. If the Closed Block has insufficient funds to make guaranteed policy benefit payments, such payments will be made from assets outside of the Closed Block. The Closed Block will continue in effect as long as any policy in the Closed Block remains in force unless, with the consent of the New Jersey insurance regulator, it is terminated earlier.

The excess of Closed Block Liabilities over Closed Block Assets at the date of the demutualization (adjusted to eliminate the impact of related amounts in “Accumulated other comprehensive income (loss)”) represented the estimated maximum future earnings at that date from the Closed Block expected to result from operations attributed to the Closed Block after income taxes. In establishing the Closed Block, the Company developed an actuarial calculation of the timing of such maximum future earnings. If actual cumulative earnings of the Closed Block from inception through the end of any given period are greater than the expected cumulative earnings, only the expected earnings will be recognized in income. Any excess of actual cumulative earnings over expected cumulative earnings will represent undistributed accumulated earnings attributable to policyholders, which are recorded as a policyholder dividend obligation. The policyholder dividend obligation represents amounts to be paid to Closed Block policyholders as an additional policyholder dividend unless otherwise offset by future Closed Block performance that is less favorable than originally expected. If the actual cumulative earnings of the Closed Block from its inception through the end of any given period are less than the expected cumulative earnings of the Closed Block, the Company will recognize only the actual earnings in income. However, the Company may reduce policyholder dividend scales in the future, which would be intended to increase future actual earnings until the actual cumulative earnings equaled the expected cumulative earnings. The Company recognized a policyholder dividend obligation of $579 million and $732 million as of March 31, 2008 and December 31, 2007, respectively, to Closed Block policyholders for the excess of actual cumulative earnings over the expected cumulative earnings. Additionally, net unrealized investment gains (losses) that have arisen subsequent to the establishment of the Closed Block were reflected as an adjustment to the policyholder dividend obligation of $(128) million and $1.047 billion as of March 31, 2008 and December 31, 2007, respectively, with an offsetting amount reported in “Accumulated other comprehensive income (loss).” See the table below for changes in the components of the policyholder dividend obligation for the three months ended March 31, 2008.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Closed Block Liabilities and Assets designated to the Closed Block, as well as maximum future earnings to be recognized from Closed Block Liabilities and Closed Block Assets, are as follows:


	March 31, 2008			December 31, 2007
	(in millions)
Closed Block Liabilities
Future policy benefits	$	51,271		$	51,208
Policyholders’ dividends payable		1,268			1,212
Policyholder dividend obligation		451			1,779
Policyholders’ account balances		5,568			5,555
Other Closed Block liabilities		9,789			10,649

Total Closed Block Liabilities		68,347			70,403

Closed Block Assets
Fixed maturities, available for sale, at fair value		42,676			45,459
Other trading account assets, at fair value		149			142
Equity securities, available for sale, at fair value		3,503			3,858
Commercial loans		7,895			7,353
Policy loans		5,391			5,395
Other long-term investments		1,208			1,311
Short-term investments		1,492			1,326

Total investments		62,314			64,844
Cash and cash equivalents		1,483			1,310
Accrued investment income		673			630
Other Closed Block assets		832			581

Total Closed Block Assets		65,302			67,365

Excess of reported Closed Block Liabilities over Closed Block Assets		3,045			3,038
Portion of above representing accumulated other comprehensive income:
Net unrealized investment gains (losses)		(168	)		1,006
Allocated to policyholder dividend obligation		128			(1,047	)

Future earnings to be recognized from Closed Block Assets and Closed Block Liabilities	$	3,005		$	2,997

Information regarding the policyholder dividend obligation is as follows:


	Three Months Ended March 31, 2008
	(in millions)
Balance, January 1, 2008	$	1,779
Impact on income before gains (losses) allocable to policyholder dividend obligation		(153	)
Change in net unrealized investment gains (losses)		(1,175	)

Balance, March 31, 2008	$	451

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Closed Block revenues and benefits and expenses for the three months ended March 31, 2008 and 2007 were as follows:


	Three Months Ended March 31,
	2008			2007
	(in millions)
Revenues
Premiums	$	856		$	838
Net investment income		841			859
Realized investment gains (losses), net		(95	)		200
Other income		19			13

Total Closed Block revenues		1,621			1,910

Benefits and Expenses
Policyholders’ benefits		972			949
Interest credited to policyholders’ account balances		35			36
Dividends to policyholders		502			683
General and administrative expenses		172			171

Total Closed Block benefits and expenses		1,681			1,839

Closed Block revenues, net of Closed Block benefits and expenses, before income taxes and discontinued operations		(60	)		71

Income tax expense (benefit)		(52	)		63

Closed Block revenues, net of Closed Block benefits and expenses and income taxes, before discontinued operations		(8	)		8
Income from discontinued operations, net of taxes		—			2

Closed Block revenues, net of Closed Block benefits and expenses, income taxes and discontinued operations	$	(8	)	$	10

5. STOCKHOLDERS’ EQUITY

The Company has outstanding two classes of common stock: the Common Stock and the Class B Stock. The changes in the number of shares issued, held in treasury and outstanding are as follows for the periods indicated:


	Common Stock					Class B Stock
	Issued	Held In Treasury		Outstanding		Issued and Outstanding
	(in millions)
Balance, December 31, 2007	604.9	157.5		447.4		2.0
Common Stock issued	—	—		—		—
Common Stock acquired	—	11.4		(11.4	)	—
Stock-based compensation programs(1)	—	(1.4	)	1.4		—

Balance, March 31, 2008	604.9	167.5		437.4		2.0

(1)	Represents net shares issued from treasury pursuant to the Company’s stock-based compensation programs.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Common Stock Held in Treasury

In November 2007, Prudential Financial’s Board of Directors authorized the Company to repurchase up to $3.5 billion of its outstanding Common Stock in calendar year 2008. The timing and amount of any repurchases under this authorization will be determined by management based upon market conditions and other considerations, and the repurchases may be effected in the open market, through derivative, accelerated repurchase and other negotiated transactions and through prearranged trading plans complying with Rule 10b5-1(c) of the Securities Exchange Act of 1934, as amended (“the Exchange Act”). The 2008 stock repurchase program supersedes all previous repurchase programs. During the three months ended March 31, 2008, the Company acquired 11.4 million shares of its Common Stock at a total cost of $869 million.

Comprehensive Income

The components of comprehensive income are as follows:


	Three Months Ended March 31
	2008			2007
	(in millions)
Net income	$	69		$	1,120
Other comprehensive income (loss), net of taxes:
Change in foreign currency translation adjustments		253			(40	)
Change in net unrealized investments gains (losses)(1)		(1,238	)		201
Change in pension and postretirement unrecognized net periodic benefit		(1	)		12

Other comprehensive income (loss)(2)		(986	)		173

Comprehensive income (loss)	$	(917	)	$	1,293

(1)	Includes cash flow hedges of $(76) million and $3 million for the three months ended March 31, 2008 and 2007, respectively.

(2)	Amounts are net of tax expense (benefit) of $(531) million and $131 million for the three months March 31, 2008 and 2007, respectively.

The balance of and changes in each component of “Accumulated other comprehensive income (loss)” for the three months ended March 31, 2008 are as follows (net of taxes):


	Accumulated Other Comprehensive Income (Loss)
	Foreign Currency Translation Adjustments		Net Unrealized Investment Gains (Losses)(1)			Pension and Postretirement Unrecognized Net Periodic Benefit (Cost)			Total Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance, December 31, 2007	$	312	$	400		$	(265	)	$	447
Change in component during period		253		(1,238	)		(1	)		(986	)

Balance, March 31, 2008	$	565	$	(838	)	$	(266	)	$	(539	)

(1)	Includes cash flow hedges of $(249) million and $(173) million as of March 31, 2008 and December 31, 2007, respectively.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

6. EARNINGS PER SHARE

The Company has outstanding two separate classes of common stock. The Common Stock reflects the performance of the Financial Services Businesses and the Class B Stock reflects the performance of the Closed Block Business. Accordingly, earnings per share is calculated separately for each of these two classes of common stock.

Net income for the Financial Services Businesses and the Closed Block Business is determined in accordance with U.S. GAAP and includes general and administrative expenses charged to each of the respective businesses based on the Company’s methodology for the allocation of such expenses. Cash flows between the Financial Services Businesses and the Closed Block Business related to administrative expenses are determined by a policy servicing fee arrangement that is based upon insurance and policies in force and statutory cash premiums. To the extent reported administrative expenses vary from these cash flow amounts, the differences are recorded, on an after tax basis, as direct equity adjustments to the equity balances of the businesses.

The direct equity adjustments modify the earnings available to each of the classes of common stock for earnings per share purposes.

Common Stock

A reconciliation of the numerators and denominators of the basic and diluted per share computations is as follows:


	Three Months Ended March 31,
	2008					2007
	Income		Weighted Average Shares	Per Share Amount		Income		Weighted Average Shares	Per Share Amount
	(in millions, except per share amounts)
Basic earnings per share
Income from continuing operations attributable to the Financial Services Businesses	$	76				$	988
Direct equity adjustment		12					15

Income from continuing operations attributable to the Financial Services Businesses available to holders of Common Stock after direct equity adjustment	$	88	442.1	$	0.20	$	1,003	468.4	$	2.14

Effect of dilutive securities and compensation programs
Stock options			3.9					5.8
Deferred and long-term compensation programs			2.6					3.0

Diluted earnings per share
Income from continuing operations attributable to the Financial Services Businesses available to holders of Common Stock after direct equity adjustment	$	88	448.6	$	0.20	$	1,003	477.2	$	2.10

For the three months ended March 31, 2008 and 2007, 4.1 million and 1.2 million options, respectively, weighted for the portion of the period they were outstanding, with a weighted average exercise price of $83.44 and $91.36 per share, respectively, were excluded from the computation of diluted earnings per share because the options, based on application of the treasury stock method, were antidilutive.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Convertible Senior Notes

The Company’s convertible senior notes provide for the Company to issue shares of its Common Stock as a component of the conversion of the notes. The $2.0 billion November 2005 issuance was called for redemption in May 2007. These notes were not dilutive to earnings per share for the three months ended March 31, 2007, as the average market price of the Common Stock was below the initial conversion price of $90.00. The $2.0 billion December 2006 issuance will be dilutive to earnings per share if the average market price of the Common Stock for a particular period is above the initial conversion price of $104.21. The $3.0 billion December 2007 issuance will be dilutive to earnings per share if the average market price of the Common Stock for a particular period is above the initial conversion price of $132.39.

Class B Stock

Income (loss) from continuing operations per share of Class B Stock was $(10.00) and $39.00 for the three months ended March 31, 2008 and 2007, respectively.

The income (loss) from continuing operations attributable to the Closed Block Business available to holders of Class B Stock after direct equity adjustment for the three months ended March 31, 2008 and 2007 amounted to $(20) million and $78 million, respectively. The direct equity adjustment resulted in a decrease in the income (loss) from continuing operations attributable to the Closed Block Business applicable to holders of Class B Stock for earnings per share purposes of $12 million and $15 million for the three months ended March 31, 2008 and 2007, respectively. For the three months ended March 31, 2008 and 2007, the weighted average number of shares of Class B Stock used in the calculation of earnings per share amounted to 2.0 million. There are no potentially dilutive shares associated with the Class B Stock.

7. EMPLOYEE BENEFIT PLANS

The Company has funded and non-funded contributory and non-contributory defined benefit pension plans, which cover substantially all of its employees. For some employees, benefits are based on final average earnings and length of service, while benefits for other employees are based on an account balance that takes into consideration age, service and earnings during their career.

The Company provides certain health care and life insurance benefits for its retired employees, their beneficiaries and covered dependents (“other postretirement benefits”). The health care plan is contributory; the life insurance plan is non-contributory. Substantially all of the Company’s U.S. employees may become eligible to receive other postretirement benefits if they retire after age 55 with at least 10 years of service or under certain circumstances after age 50 with at least 20 years of continuous service.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Net periodic (benefit) cost included in “General and administrative expenses” includes the following components:


	Three Months Ended March 31,
	Pension Benefits						Other Postretirement Benefits
	2008			2007			2008			2007
	(in millions)
Components of net periodic (benefit) cost
Service cost	$	39		$	42		$	3		$	3
Interest cost		117			108			31			34
Expected return on plan assets		(180	)		(192	)		(40	)		(23	)
Amortization of prior service cost		11			7			(3	)		(1	)
Amortization of actuarial (gain) loss, net		4			7			—			3
Special termination benefits		2			—			—			—

Net periodic (benefit) cost	$	(7	)	$	(28	)	$	(9	)	$	16

8. SEGMENT INFORMATION

Segments

The Company has organized its principal operations into the Financial Services Businesses and the Closed Block Business. Within the Financial Services Businesses, the Company operates through three divisions, which together encompass eight reportable segments. The Company’s real estate and relocation services business as well as businesses that are not sufficiently material to warrant separate disclosure and businesses to be divested are included in Corporate and Other operations within the Financial Services Businesses. Collectively, the businesses that comprise the three operating divisions and Corporate and Other are referred to as the Financial Services Businesses.

In reporting results for the three months ended March 31, 2008, the Company has classified its commercial mortgage securitization operations as a divested business, reflecting its decision to exit this business. As a result of this decision, these operations, which involved the origination and purchase of commercial mortgage loans for sale into commercial mortgage-backed securitization transactions, together with related hedging activities, previously reported within the Asset Management segment, have been classified within divested businesses and are reflected in the Company’s Corporate and Other operations. Accordingly, these results are excluded from adjusted operating income, with prior period results being adjusted to reflect such reclassification. These operations had a pre-tax loss of $107 million for the first quarter of 2008. The Company will retain and continue the remainder of its commercial mortgage origination, servicing and other commercial mortgage related activities, which remain a part of the Asset Management segment.

Adjusted Operating Income

In managing the Financial Services Businesses, the Company analyzes the operating performance of each segment using “adjusted operating income.” Adjusted operating income does not equate to “income from continuing operations before income taxes and equity in earnings of operating joint ventures” or “net income” as determined in accordance with U.S. GAAP but is the measure of segment profit or loss used by the Company to evaluate segment performance and allocate resources, and, consistent with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” is the measure of segment performance presented below.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Adjusted operating income is calculated by adjusting each segment’s “income from continuing operations before income taxes and equity in earnings of operating joint ventures” for the following items, which are described in greater detail below:

•

realized investment gains (losses), net, and related charges and adjustments;

•

net investment gains and losses on trading account assets supporting insurance liabilities and changes in experience-rated contractholder liabilities due to asset value changes;

•

the contribution to income/loss of divested businesses that have been or will be sold or exited but that did not qualify for “discontinued operations” accounting treatment under U.S. GAAP; and

•

equity in earnings of operating joint ventures.

These items are important to an understanding of overall results of operations. Adjusted operating income is not a substitute for income determined in accordance with U.S. GAAP, and the Company’s definition of adjusted operating income may differ from that used by other companies. However, the Company believes that the presentation of adjusted operating income as measured for management purposes enhances the understanding of results of operations by highlighting the results from ongoing operations and the underlying profitability factors of the Financial Services Businesses.

Effective with the first quarter of 2008, the Company has amended its definition of adjusted operating income as it relates to certain externally managed investments in the European market held within the general account portfolio. These investments are medium term notes that are collateralized by investment portfolios primarily consisting of investment grade European fixed income securities, including corporate bonds and asset-backed securities, and derivatives, as well as varying degrees of leverage. The notes have a stated coupon and provide a return based on the performance of the underlying portfolios and the level of leverage. The Company invests in these notes to earn a coupon through maturity, consistent with its investment purpose for other debt securities. The notes are accounted for under U.S. GAAP as available for sale fixed maturity securities with bifurcated embedded derivatives (total return swaps). Changes in the value of the fixed maturity securities are reported in Stockholders’ Equity under the heading “Accumulated Other Comprehensive Income” and changes in the market value of the embedded total return swaps are included in current period earnings in “Realized investment gains (losses), net.” Historically, adjusted operating income included cumulative losses and recoveries of such losses on the embedded derivatives in the period they occurred, while cumulative net gains on the embedded derivatives were deferred and amortized into adjusted operating income over the remaining life of the notes.

Adjusted operating income under the amended definition excludes any amounts related to changes in the market value of the embedded derivatives. Adjusted operating income for all periods presented has been revised to conform with the amended definition. The Company views adjusted operating income under the amended definition as a more meaningful presentation of its results for purposes of analyzing the operating performance of, and allocating resources to, its business segments, as the amended definition presents the results of these investments on a basis generally consistent with similar investments held directly within the general account portfolio. The Company believes the mark to market losses discussed below, resulting primarily from unprecedented credit spread widening, are not representative of the fundamental value of the underlying investments over the long term. Adjusted operating income continues to include the coupon on these notes, which reflects the market based interest rate and spread of securities comparable to the underlying securities that existed at the time the Company entered into the investments. The accounting for these investments under U.S. GAAP has not changed.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

For the three months ended March 31, 2008 and 2007, the Company recorded a loss of $208 million and a gain of $8 million, respectively, within “Realized investment gains (losses), net” related to the change in value on the embedded derivatives associated with these investments, which are excluded from adjusted operating income under the amended definition. The loss of $208 million for the three months ended March 31, 2008 is reflected within the U.S. GAAP results of the following segments: Individual Life—$12 million, Individual Annuities—$11 million, Group Insurance—$10 million, Retirement—$39 million, and International Insurance—$136 million. Adjusted operating income under the former definition included a $1 million gain for the three months ended March 31, 2007, which represented the amortization of cumulative deferred gains.

Realized investment gains (losses), net, and related charges and adjustments. Adjusted operating income excludes realized investment gains (losses), net, except as indicated below. A significant element of realized investment gains and losses are impairments and credit-related and interest rate-related gains and losses. Impairments and losses from sales of credit-impaired securities, the timing of which depends largely on market credit cycles, can vary considerably across periods. The timing of other sales that would result in gains or losses, such as interest rate-related gains or losses, is largely subject to the Company’s discretion and influenced by market opportunities, as well as the Company’s tax profile. Trends in the underlying profitability of the Company’s businesses can be more clearly identified without the fluctuating effects of these transactions.

Charges that relate to realized investment gains (losses), net, are also excluded from adjusted operating income. The related charges are associated with: policyholder dividends; amortization of deferred policy acquisition costs, valuation of business acquired (“VOBA”), unearned revenue reserves and deferred sales inducements; interest credited to policyholders’ account balances; reserves for future policy benefits; payments associated with the market value adjustment features related to certain of the annuity products the Company sells; and minority interest in consolidated operating subsidiaries. The related charges associated with policyholder dividends include a percentage of the net increase in the fair value of specified assets included in Gibraltar Life’s reorganization plan that is required to be paid as a special dividend to Gibraltar Life policyholders. Deferred policy acquisition costs, VOBA, unearned revenue reserves and deferred sales inducements for certain products are amortized based on estimated gross profits, which include net realized investment gains and losses on the underlying invested assets. The related charge for these items represent the portion of this amortization associated with net realized investment gains and losses. The related charges for interest credited to policyholders’ account balances relate to certain group life policies that pass back certain realized investment gains and losses to the policyholder. The reserves for certain policies are adjusted when cash flows related to these policies are affected by net realized investment gains and losses, and the related charge for reserves for future policy benefits represents that adjustment. Certain of the Company’s annuity products contain a market value adjustment feature that requires us to pay to the contractholder or entitles us to receive from the contractholder, upon surrender, a market value adjustment based on the crediting rates on the contract surrendered compared to crediting rates on newly issued contracts or based on an index rate at the time of purchase compared to an index rate at time of surrender, as applicable. These payments mitigate the net realized investment gains or losses incurred upon the disposition of the underlying invested assets. The related charge represents the payments or receipts associated with these market value adjustment features. Minority interest expense is recorded for the earnings of consolidated subsidiaries owed to minority investors. The related charge for minority interest in consolidated operating subsidiaries represents the portion of these earnings associated with net realized investment gains and losses.

Adjustments to “Realized investment gains (losses), net,” for purposes of calculating adjusted operating income, include the following:

Gains and losses pertaining to derivative contracts that do not qualify for hedge accounting treatment, other than derivatives used in the Company’s capacity as a broker or dealer, are included in “Realized investment gains

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(losses), net.” This includes mark-to-market adjustments of open contracts as well as periodic settlements. As discussed further below, adjusted operating income includes a portion of realized gains and losses pertaining to certain derivative contracts.

Adjusted operating income of the International Insurance segment and International Investments segment, excluding the global commodities group, reflect the impact of an intercompany arrangement with Corporate and Other operations pursuant to which the segments’ non-U.S. dollar denominated earnings in all countries for a particular year, including its interim reporting periods, are translated at fixed currency exchange rates. The fixed rates are determined in connection with a currency hedging program designed to mitigate the risk that unfavorable rate changes will reduce the segments’ U.S. dollar equivalent earnings. Pursuant to this program, the Company’s Corporate and Other operations execute forward currency contracts with third parties to sell the hedged currency in exchange for U.S. dollars at a specified exchange rate. The maturities of these contracts correspond with the future periods in which the identified non-U.S. dollar denominated earnings are expected to be generated. These contracts do not qualify for hedge accounting under U.S. GAAP and, as noted above, all resulting profits or losses from such contracts are included in “Realized investment gains (losses), net.” When the contracts are terminated in the same period that the expected earnings emerge, the resulting positive or negative cash flow effect is included in adjusted operating income (net gains of $1 million and $21 million for the three months ended March 31, 2008 and 2007, respectively). As of March 31, 2008 and December 31, 2007, the fair value of open contracts used for this purpose was a net liability of $128 million and a net asset of $12 million, respectively.

The Company uses interest rate and currency swaps and other derivatives to manage interest and currency exchange rate exposures arising from mismatches between assets and liabilities, including duration mismatches. For the derivative contracts that do not qualify for hedge accounting treatment, mark-to-market adjustments of open contracts as well as periodic settlements are included in “Realized investment gains (losses), net.” However, the periodic swap settlements, as well as other derivative related yield adjustments, are included in adjusted operating income to reflect the after-hedge yield of the underlying instruments. Adjusted operating income includes net gains of $12 million and $23 million for the three months ended March 31, 2008 and 2007, respectively, due to periodic settlements and yield adjustments of such contracts.

Certain products the Company sells are accounted for as freestanding derivatives or contain embedded derivatives. Changes in the fair value of these derivatives, along with any fees received or payments made relating to the derivative, are recorded in “Realized investment gains (losses), net.” These “Realized investment gains (losses), net” are included in adjusted operating income in the period in which the gain or loss is recorded. In addition, the changes in fair value of any associated derivative portfolio that is part of an economic hedging program related to the risk of these products (but which do not qualify for hedge accounting treatment under U.S. GAAP) are also included in adjusted operating income in the period in which the gains or losses on the derivative portfolio are recorded. Adjusted operating income includes net losses of $43 million and net gains of $15 million for the three months ended March 31, 2008 and 2007, respectively, related to these products and any associated derivative portfolio.

Adjustments are also made for the purposes of calculating adjusted operating income for the following items:

The Company conducts certain activities for which “Realized investment gains (losses), net” are a principal source of earnings for its businesses and therefore included in adjusted operating income, particularly within the Company’s Asset Management segment. For example, Asset Management’s proprietary investing business makes investments for sale or syndication to other investors or for placement or co-investment in the Company’s managed funds and structured products. The “Realized investment gains (losses), net” associated with the sale of

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

these proprietary investments, including related derivative results, are a principal source of earnings for this business and included in adjusted operating income. In addition, the “Realized investment gains (losses), net” associated with loans originated by the Company’s commercial mortgage operations, including related derivative results and retained mortgage servicing rights, are a principal source of earnings for this business and included in adjusted operating income. Net realized investment losses of $39 million and gains of $19 million related to these and other businesses were included in adjusted operating income for the three months ended March 31, 2008 and 2007, respectively.

The Company has certain investments supporting insurance liabilities in its general account portfolio that are classified as trading. These trading investments are carried at fair value and included in “Other trading account assets, at fair value” on the Company’s statements of financial position. Realized and unrealized gains and losses for these investments are recorded in “Asset management fees and other income,” and interest and dividend income for these investments is recorded in “Net investment income.” Consistent with the exclusion of realized investment gains and losses with respect to other investments supporting insurance liabilities managed on a consistent basis the net gains or losses on these investments, which is recorded within “Asset management fees and other income,” is excluded from adjusted operating income and is reflected as an adjustment to “Realized investment gains (losses), net.” These adjustments were a net gain of $3 million for the three months ended March 31, 2008. There was no adjustment for the three months ended March 31, 2007.

The Company has certain assets and liabilities for which, under GAAP, the change in value due to changes in foreign currency exchange rates during the period is recorded in “Asset management fees and other income.” To the extent the foreign currency exposure on these assets and liabilities is economically hedged, the change in value included in “Asset management fees and other income” is excluded from adjusted operating income and is reflected as an adjustment to “Realized investment gains (losses), net.” These adjustments were a net gain of $65 million and $12 million for the three months ended March 31, 2008 and 2007, respectively.

Investment gains and losses on trading account assets supporting insurance liabilities and changes in experience-rated contractholder liabilities due to asset value changes. Certain products included in the Retirement and International Insurance segments are experience-rated in that investment results associated with these products will ultimately accrue to contractholders. The investments supporting these experience-rated products, excluding commercial loans, are classified as trading and are carried at fair value. These trading investments are reflected on the statements of financial position as “Trading account assets supporting insurance liabilities, at fair value.” Realized and unrealized gains and losses for these investments are reported in “Asset management fees and other income.” Interest and dividend income for these investments is reported in “Net investment income.” Commercial loans that support these experience-rated products are carried at unpaid principal, net of unamortized discounts and an allowance for losses, and are reflected on the statements of financial position as “Commercial loans.”

Adjusted operating income excludes net investment gains and losses on trading account assets supporting insurance liabilities. This is consistent with the exclusion of realized investment gains and losses with respect to other investments supporting insurance liabilities managed on a consistent basis. In addition, to be consistent with the historical treatment of charges related to realized investment gains and losses on available for sale securities, adjusted operating income also excludes the change in contractholder liabilities due to asset value changes in the pool of investments (including commercial loans) supporting these experience-rated contracts, which are reflected in “Interest credited to policyholders’ account balances.” The result of this approach is that adjusted operating income for these products includes only net fee revenue and interest spread the Company earns on these experience-rated contracts, and excludes changes in fair value of the pool of investments, both realized and unrealized, that accrue to the contractholders.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Divested businesses. The contribution to income/loss of divested businesses that have been or will be sold or exited, but that did not qualify for “discontinued operations” accounting treatment under U.S. GAAP, are excluded from adjusted operating income as the results of divested businesses are not relevant to understanding the Company’s ongoing operating results.

Equity in earnings of operating joint ventures. Equity in earnings of operating joint ventures, on a pre-tax basis, are included in adjusted operating income as these results are a principal source of earnings. These earnings are reflected on a GAAP basis on an after-tax basis as a separate line on the Company’s Unaudited Interim Consolidated Statements of Operations.

The summary below reconciles adjusted operating income before income taxes for the Financial Services Businesses to income from continuing operations before income taxes and equity in earnings of operating joint ventures:


	Three Months Ended March 31,
	2008			2007
	(in millions)
Adjusted Operating Income before income taxes for Financial Services Businesses by Segment:
Individual Life	$	96		$	101
Individual Annuities		115			166
Group Insurance		90			51

Total Insurance Division		301			318

Asset Management		119			175
Financial Advisory		44			97
Retirement		124			148

Total Investment Division		287			420

International Insurance		413			412
International Investments		26			62

Total International Insurance and Investments Division		439			474

Corporate Operations		(12	)		12
Real Estate and Relocation Services		(23	)		(3	)

Total Corporate and Other		(35	)		9

Adjusted Operating Income before income taxes for Financial Services Businesses		992			1,221
Reconciling items:
Realized investment gains (losses), net, and related adjustments		(665	)		147
Charges related to realized investment gains (losses), net		(13	)		(6	)
Investment gains (losses) on trading account assets supporting insurance liabilities, net		(262	)		82
Change in experience-rated contractholder liabilities due to asset value changes		200			(62	)
Divested businesses		(112	)		28
Equity in earnings of operating joint ventures		(60	)		(120	)

Income from continuing operations before income taxes and equity in earnings of operating joint ventures for Financial Services Businesses		80			1,290
Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures for Closed Block Business		(26	)		137

Income from continuing operations before income taxes and equity in earnings of operating joint ventures	$	54		$	1,427

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The Insurance division results reflect deferred policy acquisition costs as if the individual annuity business and group insurance business were stand-alone operations. The elimination of intersegment costs capitalized in accordance with this policy is included in consolidating adjustments within Corporate and Other operations.

The summary below presents revenues for the Company’s reportable segments:


	Three Months Ended March 31,
	2008			2007
	(in millions)
Financial Services Businesses:
Individual Life	$	680		$	631
Individual Annuities		573			604
Group Insurance		1,257			1,205

Total Insurance Division		2,510			2,440

Asset Management		548			545
Financial Advisory		51			111
Retirement		1,267			1,163

Total Investment Division		1,866			1,819

International Insurance		2,325			2,053
International Investments		176			177

Total International Insurance and Investments Division		2,501			2,230

Corporate Operations		53			100
Real Estate and Relocation Services		46			59

Total Corporate and Other		99			159

Total		6,976			6,648

Reconciling items:
Realized investment gains (losses), net, and related adjustments		(665	)		147
Charges related to realized investment gains (losses), net		1			1
Investment gains (losses) on trading account assets supporting insurance liabilities, net		(262	)		82
Divested businesses		(97	)		26
Equity in earnings of operating joint ventures		(60	)		(120	)

Total Financial Services Businesses		5,893			6,784

Closed Block Business		1,671			1,991

Total per Unaudited Interim Consolidated Financial Statements	$	7,564		$	8,775

The Asset Management segment revenues include intersegment revenues of $93 million and $91 million for the three months ended March 31, 2008 and 2007, respectively, primarily consisting of asset-based management and administration fees. Management has determined the intersegment revenues with reference to market rates. Intersegment revenues are eliminated in consolidation in Corporate and Other.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

The summary below presents total assets for the Company’s reportable segments as of the periods indicated:


	March 31, 2008		December 31, 2007
	(in millions)
Individual Life	$	35,214	$	36,124
Individual Annuities		73,018		76,685
Group Insurance		32,020		32,913

Total Insurance Division		140,252		145,722

Asset Management		41,449		40,592
Financial Advisory		2,887		1,294
Retirement		127,764		132,614

Total Investment Division		172,100		174,500

International Insurance		69,718		65,387
International Investments		8,855		7,711

Total International Insurance and Investments Division		78,573		73,098

Corporate Operations		14,365		17,430
Real Estate and Relocation Services		1,280		1,281

Total Corporate and Other		15,645		18,711

Total Financial Services Businesses		406,570		412,031

Closed Block Business		71,750		73,783

Total per Unaudited Interim Consolidated Financial Statements	$	478,320	$	485,814

9. FAIR VALUE

Transition Impact—As discussed in Note 2, the Company adopted SFAS No. 157 and SFAS No. 159 effective January 1, 2008. As a result of adopting SFAS No. 157, the Company eliminated the deferral of gains at inception of certain derivatives contracts whose fair value was not evidenced by market-observable data. The elimination of the deferral of these gains resulted in a net after-tax increase to retained earnings of $3 million.

Also as discussed in Note 2, in conjunction with the adoption of SFAS No. 159, the Company elected the fair value option for fixed rate commercial loans held for investments that were held at December 31, 2007. This election resulted in $399 million of commercial loans being reported at fair value, with no material impact on the Company’s consolidated financial position. In addition, SFAS No. 159 requires entities to classify cash receipts and cash payments related to items measured at fair value according to their nature and purpose on the Statement of Cash Flows. As a result, cash flows related to trading account assets supporting insurance liabilities and certain other assets are classified as investing rather than operating as of the adoption date of this guidance.

Fair Value Measurement—Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. SFAS No. 157 establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1—Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These generally provide the most reliable evidence and are used to

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

measure fair value whenever available. The Company’s Level 1 assets and liabilities primarily include equity securities and derivative contracts that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2—Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities and other observable inputs. The Company’s Level 2 assets and liabilities include: fixed maturities (corporate public and private bonds, most government securities, certain asset-backed and mortgage-backed securities, etc.), certain equity securities, commercial loans, short-term investments and cash equivalents (primarily commercial paper and money market funds), and certain over-the-counter derivatives. Valuations are generally obtained from third party pricing services for identical or comparable assets or liabilities (and validated through backtesting to trade data or confirmation that the pricing service significant inputs are observable) or determined through use of valuation methodologies using observable market inputs.

Level 3—Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the Company’s or third party pricing service assumptions about the assumptions market participants would use in pricing the asset or liability. The Company’s Level 3 assets and liabilities primarily include: certain private fixed maturities and equity securities, certain manually priced public equity securities and fixed maturities, (including certain asset-backed securities), certain highly structured over-the-counter derivative contracts, and embedded derivatives resulting from certain products with guaranteed benefits. Valuations are determined using valuation methodologies such as option pricing models, discounted cash flow models and other similar techniques.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis, as of March 31, 2008.


	Level 1		Level 2		Level 3		Netting(2)			Total
	(in millions)
Fixed maturities, available for sale	$	5	$	161,368	$	3,099	$	—		$	164,472
Trading Account Assets Supporting Insurance Liabilities		601		13,850		193		—			14,644
Other trading account assets		428		5,211		626		(3,432	)		2,833
Equity securities, available for sale		5,372		2,570		187		—			8,129
Commercial loans		—		657		—		—			657
Other long-term investments		308		336		877		—			1,521
Short term investments		—		4,100		—		—			4,100
Cash and cash equivalents		115		7,393		—		—			7,508
Other assets		88		2,696		—		—			2,784

Sub-total excluding separate account assets		6,917		198,181		4,982		(3,432	)		206,648
Separate account assets(1)		82,027		77,767		22,108		—			181,902

Total assets	$	88,944	$	275,948	$	27,090	$	(3,432	)	$	388,550

Future policy benefits		—		—		452		—			452
Long-term debt		—		—		184		—			184
Other liabilities		13		4,209		118		(3,109	)		1,231

Total liabilities	$	13	$	4,209	$	754	$	(3,109	)	$	1,867

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

(1)

Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account assets classified as Level 3 consist primarily of real estate and real estate investment funds. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value in the Company’s consolidated Statement of Financial Position.

(2)	“Netting” amounts represent cash collateral and the impact of offsetting asset and liability positions held with the same counterparty as permitted by FASB Interpretation No. 39, Offsetting of Amounts Related to Certain Contracts and FSP FIN 39-1, Amendment of FASB Interpretation No. 39.

The following tables provide a summary of the changes in fair value of Level 3 assets and liabilities for the period January 1, 2008 to March 31, 2008, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at March 31, 2008.


	Fixed Maturities, Available For Sale			Trading Account Assets Supporting Insurance Liabilities			Other Trading Account Assets			Equity Securities, Available for Sale
	(in millions)
Fair value, beginning of period	$	2,890		$	291		$	497		$	190
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		(144	)		—			99			(1	)
Asset management fees and other income		—			1			(5	)		—
Included in other comprehensive income (loss)		(122	)		—			—			(12	)
Net investment income		3			—			—			—
Purchases, sales, issuances, and settlements		(58	)		(9	)		34			(2	)
Foreign currency translation		—			—			1			1
Transfers into (out of) Level 3		530			(90	)		—			11

Fair value, end of period	$	3,099		$	193		$	626		$	187

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period(2):
Included in earnings:
Realized investment gains (losses), net	$	(150	)	$	—		$	99		$	(1	)
Asset management fees and other income	$	—		$	(10	)	$	(5	)	$	—
Included in other comprehensive income (loss)	$	(118	)	$	—		$	—		$	(12	)

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)


	Other Long- term Investments			Separate Account Assets(1)			Future Policy Benefits			Long- Term Debt			Other Liabilities
	(in millions)
Fair value, beginning of period	$	824		$	21,815		$	(168	)	$	(152	)	$	(77	)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		—			—			(265	)		—			(41	)
Asset management fees and other income		21			—			—			1			—
Interest credited to policyholders’ account balances		—			169			—			—			—
Included in other comprehensive income		—			—			—			—			—
Net investment income		2			—			—			(33	)		—
Purchases, sales, issuances, and settlements		30			162			(19	)		—			—
Transfers into (out of) Level 3		—			(38	)		—			—			—

Fair value, end of period	$	877		$	22,108		$	(452	)	$	(184	)	$	(118	)

Unrealized gains (losses) for the period relating to those Level 3 assets and liabilities that were still held by the Company at the end of the period(2):
Included in earnings:
Realized investment gains (losses), net		—		$	—		$	(267	)	$	—		$	(41	)
Asset management fees and other income	$	(13	)	$	—		$	—		$	1		$	—
Interest credited to policyholders’ account balances	$	—		$	170		$	—		$	—		$	—

(1)

Separate account assets represent segregated funds that are invested for certain customers. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account liabilities are not included in the above table as they are reported at contract value and not fair value in the Company’s consolidated Statement of Financial Position.

(2)	Unrealized gains or losses related to assets still held at the end of the period do not include amortization or accretion of premiums and discounts.

Certain assets and liabilities are measured at fair value on a nonrecurring basis. During the first quarter of 2008, the Company recorded a loss of $23 million as a result of writing down certain commercial loans that are carried at the lower of cost or market. These loans have a carrying value of $331 million as of March 31, 2008. These fair value adjustments were classified as Level 2 in the valuation hierarchy. In addition, the Company recorded a loss of $2 million related to impairments of equity method investments. These fair value adjustments were classified as Level 3 in the valuation hierarchy.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Fair Value Option—As discussed above, SFAS No. 159 provides a fair value option election that allows the Company to irrevocably elect fair value as the measurement attribute for certain financial assets and liabilities. The following table presents information regarding changes in fair values recorded in earnings, including gains or losses on sales, for commercial loans where the fair value option has been elected.


	Three Months Ended March 31, 2008
	Reported in Realized Investment Gain (Losses), net
	(in millions)
Assets:
Commercial Loans:
Changes in instrument-specific credit risk	$	(19	)
Other changes in fair value	$	14

Changes in fair value due to instrument-specific credit risk are estimated based on changes in credit spreads and quality ratings for the period reported.

The fair values and aggregate contractual principal amounts of commercial loans, for which the fair value option has been elected, were $657 million as of March 31, 2008.

None of the loans where the fair value option has been selected are more than 90 days past due or in non-accrual status. Interest income on commercial loans is included in net investment income. For the quarter ended March 31, 2008, the Company recorded $11 million of interest income on these loans. Interest income on these loans is recorded based on the effective interest rates as determined at the closing of the loan.

10. INVESTMENT IN WACHOVIA SECURITIES

On July 1, 2003, the Company combined its retail securities brokerage and clearing operations with those of Wachovia Corporation (“Wachovia”) and formed Wachovia Securities Financial Holdings, LLC (“Wachovia Securities”), a joint venture headquartered in St. Louis, Missouri. As of December 31, 2007, the Company had a 38% ownership interest in the joint venture with Wachovia owning the remaining 62%. The transaction included certain assets and liabilities of the Company’s securities brokerage operations; however, the Company retained certain assets and liabilities related to the contributed businesses, including liabilities for certain litigation and regulatory matters. The Company and Wachovia have each agreed to indemnify the other for certain losses, including losses resulting from litigation and regulatory matters relating to certain events arising from the operations of their respective contributed businesses prior to March 31, 2004.

On October 1, 2007, Wachovia completed the acquisition of A.G. Edwards, Inc. (“A.G. Edwards”) for $6.8 billion and on January 1, 2008 combined the retail securities brokerage business of A.G. Edwards with Wachovia Securities.

The Company has elected the “lookback” option under the terms of the agreements relating to the joint venture. The “lookback” option permits the Company to delay for two years following the combination of the A.G. Edwards business with Wachovia Securities the Company’s decision to make or not to make payments to avoid or limit dilution of its ownership interest in the joint venture. During this “lookback” period, the Company’s share in the earnings of the joint venture and one-time costs associated with the combination of the A.G. Edwards business with Wachovia Securities is based on the Company’s diluted ownership level, which is in

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

the process of being determined. Any payments at the end of the “lookback” period to restore all or part of the Company’s ownership interest in the joint venture will be based on the appraised or agreed value of the joint venture excluding the A.G. Edwards business as well as the A.G. Edwards business. In such event, the Company would also need to make a true-up payment of one-time costs incurred during the “lookback” period associated with the combination to reflect the incremental increase in its ownership interest in the joint venture. Alternatively, at the end of the “lookback” period, the Company may “put” its joint venture interests to Wachovia based on the appraised value of the joint venture, excluding the A.G. Edwards business, as of January 1, 2008, the date of the combination of the A.G. Edwards business with Wachovia Securities.

The Company also retains its separate right to “put” its joint venture interests to Wachovia at any time after July 1, 2008 based on the appraised value of the joint venture, including the A.G. Edwards business, determined as if it were a public company and including a control premium such as would apply in the case of a sale of 100% of its common equity. However, if in connection with the “lookback” option the Company elects at the end of the “lookback” period to make payments to avoid or limit dilution, the Company may not exercise this “put” option prior to the first anniversary of the end of the “lookback” period. The agreement between Prudential Financial and Wachovia also gives the Company put rights, and Wachovia call rights, in certain other specified circumstances, at prices determined in accordance with the agreement.

The Company and Wachovia are currently negotiating possible modifications to the terms of the existing agreements relating to the joint venture. Based upon the existing agreements and our estimates of the values of the A.G. Edwards business and the joint venture excluding the A.G. Edwards business, the Company adjusted the carrying value of its ownership interest in the joint venture effective as of January 1, 2008 to reflect the addition of that business and the dilution of its 38% ownership level and to record the value of the above described rights under the “lookback” option. As a result, effective January 1, 2008, the Company recognized an increase to “Additional paid-in capital” of $977 million, net of tax. The Company’s recorded share of pre-tax earnings from the joint venture of $51 million for the three months ended March 31, 2008 reflects its estimated diluted ownership level based upon the existing agreements and its estimates of the values of the A.G. Edwards business and the joint venture excluding the A.G. Edwards business. As noted above, the Company and Wachovia are negotiating possible modifications to the terms of the existing agreements relating to the joint venture. Such modifications, if agreed to, as well as the establishment of definitive agreed or appraised values for the A.G. Edwards business and the joint venture excluding the A.G. Edwards business, will result in an adjustment to the credit to equity and a true-up to the earnings from the joint venture for any difference between the diluted ownership percentage used to record earnings for the three months ended March 31, 2008 and the finally determined diluted ownership percentage. The Company does not anticipate any such adjustment to have a material effect on its reported results of operations.

11. CONTINGENT LIABILITIES AND LITIGATION AND REGULATORY MATTERS

Contingent Liabilities

On an ongoing basis, the Company’s internal supervisory and control functions review the quality of sales, marketing and other customer interface procedures and practices and may recommend modifications or enhancements. From time to time, this review process results in the discovery of product administration, servicing or other errors, including errors relating to the timing or amount of payments or contract values due to customers. In certain cases, if appropriate, the Company may offer customers remediation and may incur charges, including the cost of such remediation, administrative costs and regulatory fines.

Litigation and Regulatory Matters

The Company is subject to legal and regulatory actions in the ordinary course of its businesses. Pending legal and regulatory actions include proceedings relating to aspects of the Company’s businesses and operations that are specific to it and proceedings that are typical of the businesses in which it operates, including in both

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

cases businesses that have either been divested or placed in wind-down status. 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. The outcome of a litigation or regulatory matter, and the amount or range of potential loss at any particular time, is often inherently uncertain.

Insurance and Annuities

From November 2002 to March 2005, eleven separate complaints were filed against the Company and the law firm of Leeds Morelli & Brown in New Jersey state court. The cases were consolidated for pre-trial proceedings in New Jersey Superior Court, Essex County and captioned Lederman v. Prudential Financial, Inc., et al. The complaints allege that an alternative dispute resolution agreement entered into among Prudential Insurance, over 350 claimants who are current and former Prudential Insurance employees, and Leeds Morelli & Brown (the law firm representing the claimants) was illegal and that Prudential Insurance conspired with Leeds Morelli & Brown to commit fraud, malpractice, breach of contract, and violate racketeering laws by advancing legal fees to the law firm with the purpose of limiting Prudential’s liability to the claimants. In 2004, the Superior Court sealed these lawsuits and compelled them to arbitration. In May 2006, the Appellate Division reversed the trial court’s decisions, held that the cases were improperly sealed, and should be heard in court rather than arbitrated. In November 2006, plaintiffs filed a motion seeking to permit over 200 individuals to join the cases as additional plaintiffs, to authorize a joint trial on liability issues for all plaintiffs, and to add a claim under the New Jersey discrimination law. In March 2007, the court granted plaintiffs’ motion to amend the complaint to add over 200 additional plaintiffs and a claim under the New Jersey discrimination law but denied without prejudice plaintiffs’ motion for a joint trial on liability issues. In June 2007, Prudential Financial and Prudential Insurance moved to dismiss the complaint. In November 2007, the court granted the motion, in part, and dismissed the commercial bribery and conspiracy to commit malpractice claims and denied the motion with respect to other claims. In December 2007, the Prudential defendants answered the complaints and asserted counterclaims against each plaintiff for breach of contract and cross-claims against Leeds Morrelli & Brown for breach of contract and the covenant of good faith and fair dealing, fraudulent inducement, indemnification and contribution. In January 2008, plaintiffs filed a demand pursuant to New Jersey law stating that they were seeking damages in the amount of $6.5 billion.

The Company, along with a number of other insurance companies, received formal requests for information from the State of New York Attorney General’s Office (“NYAG”), the Securities and Exchange Commission (“SEC”), the Connecticut Attorney General’s Office, the Massachusetts Office of the Attorney General, the Department of Labor, the United States Attorney for the Southern District of California, the District Attorney of the County of San Diego, and various state insurance departments relating to payments to insurance intermediaries and certain other practices that may be viewed as anti-competitive. The Company may receive additional requests from these and other regulators and governmental authorities concerning these and related subjects. The Company is cooperating with these inquiries and has had discussions with certain authorities in an effort to resolve the inquiries into this matter. In December 2006, Prudential Insurance reached a resolution of the NYAG investigation. Under the terms of the settlement, Prudential Insurance paid a $2.5 million penalty and established a $16.5 million fund for policyholders, adopted business reforms and agreed, among other things, to continue to cooperate with the NYAG in any litigation, ongoing investigations or other proceedings. Prudential Insurance also settled the litigation brought by the California Department of Insurance and agreed to business reforms and disclosures as to group insurance contracts insuring customers or residents in California and to pay certain costs of investigation. In addition, in April 2008, Prudential Insurance reached a settlement of proceedings regarding these matters with the District Attorneys of San Diego, Los Angeles and Alameda

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

counties. Pursuant to this settlement, Prudential Insurance paid $350,000 in penalties and costs. These matters are also the subject of litigation brought by private plaintiffs, including purported class actions that have been consolidated in the multidistrict litigation in the United States District Court for the District of New Jersey, In re Employee Benefit Insurance Brokerage Antitrust Litigation. In August and September 2007, the court dismissed the anti-trust and RICO claims. In January 2008, the court dismissed the ERISA claims with prejudice. In February 2008, the court dismissed the state law claims without prejudice. Plaintiffs have filed a notice of appeal to the Third Circuit Court of Appeals. The above settlements may adversely affect the existing litigation or cause additional litigation and result in adverse publicity and other potentially adverse impacts to the Company’s business.

In April 2005, the Company voluntarily commenced a review of the accounting for its reinsurance arrangements to confirm that it complied with applicable accounting rules. This review included an inventory and examination of current and past arrangements, including those relating to the Company’s wind down and divested businesses and discontinued operations. Subsequent to commencing this voluntary review, the Company received a formal request from the Connecticut Attorney General for information regarding its participation in reinsurance transactions generally and a formal request from the SEC for information regarding certain reinsurance contracts entered into with a single counterparty since 1997 as well as specific contracts entered into with that counterparty in the years 1997 through 2002 relating to the Company’s property and casualty insurance operations that were sold in 2003. It is possible that the Company may receive additional requests from regulators relating to reinsurance arrangements. The Company intends to cooperate with all such requests.

The Company’s subsidiary, Prudential Annuities Life Assurance Corporation (formerly known as American Skandia Life Assurance Corporation), is in the final stages of its remediation program to correct errors in the administration of approximately 11,000 annuity contracts issued by that company. The owners of these contracts did not receive notification that the contracts were approaching or past their designated annuitization date or default annuitization date (both dates referred to as the “contractual annuity date”) and the contracts were not annuitized at their contractual annuity dates. Some of these contracts also were affected by data integrity errors resulting in incorrect contractual annuity dates. The lack of notice and data integrity errors, as reflected on the annuities administrative system, all occurred before the acquisition of the American Skandia entities by the Company. The remediation and administrative costs of the remediation program are subject to the indemnification provisions of the acquisition agreement pursuant to which the Company purchased the American Skandia entities in May 2003 from Skandia.

Securities

Prudential Securities has been named as a defendant in a number of industry-wide purported class actions in the United States District Court for the Southern District of New York relating to its former securities underwriting business. Plaintiffs in one consolidated proceeding, captioned In re: Initial Public Offering Securities Litigation, allege, among other things, that the underwriters engaged in a scheme involving tying agreements, undisclosed compensation arrangements and research analyst conflicts to manipulate and inflate the prices of shares sold in initial public offerings in violation of the federal securities laws. Certain issuers of these securities and their current and former officers and directors have also been named as defendants. In October 2004, the district court granted plaintiffs’ motion for class certification in six “focus cases.” In December 2006, the United States Court of Appeals for the Second Circuit vacated that decision and remanded the case to the district court for further proceedings. In August 2000, Prudential Securities was named as a defendant, along with other underwriters, in a purported class action, captioned CHS Electronics Inc. v. Credit Suisse First Boston Corp. et al., which alleges on behalf of issuers of securities in initial public offerings that the defendants conspired to fix at 7% the discount that underwriting syndicates receive from issuers in violation of federal

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

antitrust laws. Plaintiffs moved for class certification in September 2004 and for partial summary judgment in November 2005. The summary judgment motion has been deferred pending disposition of the class certification motion. In April 2006, the district court denied class certification. In September 2007, the Second Circuit Court of Appeals reversed the district court’s decision denying class certification and remanded the case to the district court for further proceedings. In a related action, captioned Gillet v. Goldman Sachs et al., plaintiffs allege substantially the same antitrust claims on behalf of investors, though only injunctive relief is currently being sought.

Other Matters

Mutual Fund Market Timing Practices

In August 2006, Prudential Equity Group, LLC (“PEG”), a wholly owned subsidiary of the Company, reached a resolution of the previously disclosed regulatory and criminal investigations into deceptive market related activities involving PEG’s former Prudential Securities operations. The settlements relate to conduct that generally occurred between 1999 and 2003 involving certain former Prudential Securities brokers in Boston and certain other branch offices in the U.S., their supervisors, and other members of the Prudential Securities control structure with responsibilities that related to the market timing activities, including certain former members of Prudential Securities senior management. The Prudential Securities operations were contributed to a joint venture with Wachovia Corporation in July 2003, but PEG retained liability for the market timing related activities. In connection with the resolution of the investigations, PEG entered into separate settlements with each of the United States Attorney for the District of Massachusetts (“USAO”), the Secretary of the Commonwealth of Massachusetts, Securities Division, SEC, the National Association of Securities Dealers, the New York Stock Exchange, the New Jersey Bureau of Securities and the New York Attorney Generals Office. These settlements resolve the investigations by the above named authorities into these matters as to all Prudential entities without further regulatory proceedings or filing of charges so long as the terms of the settlement are followed and provided, in the case of the settlement agreement reached with the USAO, that the USAO has reserved the right to prosecute PEG if there is a material breach by PEG of that agreement during its five year term and in certain other specified events. Under the terms of the settlements, PEG paid $270 million into a Fair Fund administered by the SEC to compensate those harmed by the market timing activities. In addition, $330 million was paid in fines and penalties. Pursuant to the settlements, PEG retained, at PEG’s ongoing cost and expense, the services of an Independent Distribution Consultant acceptable to certain of the authorities to develop a proposed distribution plan for the distribution of Fair Fund amounts according to a methodology developed in consultation with and acceptable to certain of the authorities. In addition, as part of the settlements, PEG has agreed, among other things, to continue to cooperate with the above named authorities in any litigation, ongoing investigations or other proceedings relating to or arising from their investigations into these matters. In connection with the settlements, the Company has agreed with the USAO, among other things, to cooperate with the USAO and to maintain and periodically report on the effectiveness of its compliance procedures. The settlement documents include findings and admissions that may adversely affect existing litigation or cause additional litigation and result in adverse publicity and other potentially adverse impacts to the Company’s businesses.

In addition to the regulatory proceedings described above that were settled in 2006, in October 2004, the Company and Prudential Securities were named as defendants in several class actions brought on behalf of purchasers and holders of shares in a number of mutual fund complexes. The actions are consolidated as part of a multi-district proceeding, In re: Mutual Fund Investment Litigation, pending in the United States District Court for the District of Maryland. The complaints allege that the purchasers and holders were harmed by dilution of the funds’ values and excessive fees, caused by market timing and late trading, and seek unspecified damages. In August 2005, the Company was dismissed from several of the actions, without prejudice to repleading the state

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

claims, but remains a defendant in other actions in the consolidated proceeding. In July 2006, in one of the consolidated mutual fund actions, Saunders v. Putnam American Government Income Fund, et al., the United States District Court for the District of Maryland granted plaintiffs leave to refile their federal securities law claims against Prudential Securities. In August 2006, the second amended complaint was filed alleging federal securities law claims on behalf of a purported nationwide class of mutual fund investors seeking compensatory and punitive damages in unspecified amounts. Discovery is ongoing. Motions to dismiss the other actions are pending.

Commencing in 2003, the Company received formal requests for information from the SEC and NYAG relating to market timing in variable annuities by certain Prudential Annuities entities. In connection with these investigations, with the approval of Skandia Insurance Company Ltd. (publ) (“Skandia”), an offer was made by Prudential Annuities to the authorities investigating its companies, the SEC and NYAG, to settle these matters by paying restitution and a civil penalty of $95 million in the aggregate. While not assured, the Company believes these discussions are likely to lead to settlements with these authorities. Any regulatory settlement involving a Prudential Annuities entity would be subject to the indemnification provisions of the acquisition agreement pursuant to which the Company purchased the Prudential Annuities entities in May 2003 from Skandia. If achieved, settlement of the matters relating to Prudential Annuities also could involve continuing monitoring, changes to and/or supervision of business practices, findings that may adversely affect existing or cause additional litigation, adverse publicity and other adverse impacts to the Company’s businesses.

Other

In October 2007, Prudential Retirement Insurance and Annuity Co. (“PRIAC”) filed an action in the United States District Court for the Southern District of New York, Prudential Retirement Insurance & Annuity Co. v. State Street Global Advisors, in PRIAC’s fiduciary capacity and on behalf of certain defined benefit and defined contribution plan clients of PRIAC, against an unaffiliated asset manager, State Street Global Advisors (“SSgA”) and SSgA’s affiliate, State Street Bank and Trust Company (“State Street”). This action seeks, among other relief, restitution of certain losses attributable to certain investment funds sold by SSgA as to which PRIAC believes SSgA employed investment strategies and practices that were misrepresented by SSgA and failed to exercise the standard of care of a prudent investment manager. PRIAC also intends to vigorously pursue any other available remedies against SSgA and State Street in respect of this matter. Given the unusual circumstances surrounding the management of these SSgA funds and in order to protect the interests of the affected plans and their participants while PRIAC pursues these remedies, PRIAC implemented a process under which affected plan clients that authorized PRIAC to proceed on their behalf have received payments from funds provided by PRIAC for the losses referred to above. The Company’s consolidated financial statements, and the results of the Retirement segment included in the Company’s Investment Division, for the year ended December 31, 2007 include a pre-tax charge of $82 million, reflecting these payments to plan clients and certain related costs.

In September and October 2005, five purported class action lawsuits were filed against the Company, Prudential Securities and PEG claiming that stockbrokers were improperly classified as exempt employees under state and federal wage and hour laws, were improperly denied overtime pay and that improper deductions were made from the stockbrokers’ wages. Two of the stockbrokers’ complaints, Janowsky v. Wachovia Securities, LLC and Prudential Securities Incorporated and Goldstein v. Prudential Financial, Inc., were filed in the United States District Court for the Southern District of New York. The Goldstein complaint purports to have been filed on behalf of a nationwide class. The Janowsky complaint alleges a class of New York brokers. Motions to dismiss and compel arbitration were filed in the Janowsky and Goldstein matters, which have been consolidated for pre-trial purposes. The three stockbrokers complaints filed in California Superior Court, Dewane v. Prudential Equity Group, Prudential Securities Incorporated, and Wachovia Securities LLC; DiLustro v.

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Consolidated Financial Statements—(Continued)

Prudential Securities Incorporated, Prudential Equity Group Inc. and Wachovia Securities; and Carayanis v. Prudential Equity Group LLC and Prudential Securities Inc., purport to have been brought on behalf of classes of California brokers. The Carayanis complaint was subsequently withdrawn without prejudice in May 2006. In June 2006, a purported New York state class action complaint was filed in the United States District Court for the Eastern District of New York, Panesenko v. Wachovia Securities, et al., alleging that the Company failed to pay overtime to stockbrokers in violation of state and federal law and that improper deductions were made from the stockbrokers’ wages in violation of state law. In September 2006, Prudential Securities was sued in Badain v. Wachovia Securities, et al., a purported nationwide class action filed in the United States District Court for the Western District of New York. The complaint alleges that Prudential Securities failed to pay overtime to stockbrokers in violation of state and federal law and that improper deductions were made from the stockbrokers’ wages in violation of state law. In December 2006, these cases were transferred to the United States District Court for the Central District of California by the Judicial Panel on Multidistrict Litigation for coordinated or consolidated pre-trial proceedings. The complaints seek back overtime pay and statutory damages, recovery of improper deductions, interest, and attorneys’ fees. In December 2007 plaintiffs moved to certify the class. The motion is pending. In October 2006, a purported class action lawsuit, Bouder v. Prudential Financial, Inc. and Prudential Insurance Company of America, was filed in the United States District Court for the District of New Jersey, claiming that the Company failed to pay overtime to insurance agents who were registered representatives in violation of federal and state law, and that improper deductions were made from these agents’ wages in violation of state law. In March 2008, the court granted plaintiffs’ motion to conditionally certify a nationwide class.

Summary

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

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Supplemental Combining Statements of Financial Position

March 31, 2008 and December 31, 2007 (in millions)


	March 31, 2008									December 31, 2007
	Financial Services Businesses			Closed Block Business			Consolidated			Financial Services Businesses		Closed Block Business			Consolidated
ASSETS
Fixed maturities:
Available for sale, at fair value	$	117,914		$	46,558		$	164,472		$	112,748	$	49,414		$	162,162
Held to maturity, at amortized cost		3,735			—			3,735			3,548		—			3,548
Trading account assets supporting insurance liabilities, at fair value		14,644			—			14,644			14,473		—			14,473
Other trading account assets, at fair value		2,684			149			2,833			3,471		142			3,613
Equity securities, available for sale, at fair value		4,551			3,578			8,129			4,640		3,940			8,580
Commercial loans		23,444			8,494			31,938			22,093		7,954			30,047
Policy loans		4,147			5,391			9,538			3,942		5,395			9,337
Securities purchased under agreements to resell		178			—			178			129		—			129
Other long-term investments		5,266			1,139			6,405			5,163		1,268			6,431
Short-term investments		4,176			1,555			5,731			3,852		1,385			5,237

Total investments		180,739			66,864			247,603			174,059		69,498			243,557
Cash and cash equivalents		8,133			1,627			9,760			9,624		1,436			11,060
Accrued investment income		1,540			726			2,266			1,496		678			2,174
Reinsurance recoverables		1,975			—			1,975			2,119		—			2,119
Deferred policy acquisition costs		11,924			904			12,828			11,396		943			12,339
Other assets		20,357			1,629			21,986			17,754		1,228			18,982
Separate account assets		181,902			—			181,902			195,583		—			195,583

TOTAL ASSETS	$	406,570		$	71,750		$	478,320		$	412,031	$	73,783		$	485,814

LIABILITIES AND ATTRIBUTED EQUITY
LIABILITIES
Future policy benefits	$	63,590		$	51,273		$	114,863		$	60,259	$	51,209		$	111,468
Policyholders’ account balances		84,812			5,568			90,380			78,599		5,555			84,154
Policyholders’ dividends		739			1,719			2,458			670		2,991			3,661
Reinsurance payables		1,396			—			1,396			1,552		—			1,552
Securities sold under agreements to repurchase		3,727			5,072			8,799			5,281		6,160			11,441
Cash collateral for loaned securities		2,761			2,197			4,958			3,041		3,271			6,312
Income taxes		3,575			—			3,575			3,402		151			3,553
Short-term debt		13,788			2,436			16,224			14,514		1,143			15,657
Long-term debt		13,302			1,750			15,052			12,351		1,750			14,101
Other liabilities		15,494			522			16,016			14,609		266			14,875
Separate account liabilities		181,902			—			181,902			195,583		—			195,583

Total liabilities		385,086			70,537			455,623			389,861		72,496			462,357

COMMITMENTS AND CONTINGENT LIABILITIES
ATTRIBUTED EQUITY
Accumulated other comprehensive income (loss)		(473	)		(66	)		(539	)		459		(12	)		447
Other attributed equity		21,957			1,279			23,236			21,711		1,299			23,010

Total attributed equity		21,484			1,213			22,697			22,170		1,287			23,457

TOTAL LIABILITIES AND ATTRIBUTED EQUITY	$	406,570		$	71,750		$	478,320		$	412,031	$	73,783		$	485,814

See Notes to Unaudited Interim Supplemental Combining Financial Information

PRUDENTIAL FINANCIAL, INC.

Unaudited Interim Supplemental Combining Statements of Operations

Three Months Ended March 31, 2008 and 2007 (in millions)


	Three Months Ended March 31,
	2008									2007
	Financial Services Businesses			Closed Block Business			Consolidated			Financial Services Businesses		Closed Block Business		Consolidated
REVENUES
Premiums	$	3,102		$	856		$	3,958		$	2,721	$	838	$	3,559
Policy charges and fee income		825			—			825			785		—		785
Net investment income		2,121			906			3,027			2,002		933		2,935
Realized investment gains (losses), net		(802	)		(110	)		(912	)		213		207		420
Asset management fees and other income		647			19			666			1,063		13		1,076

Total revenues		5,893			1,671			7,564			6,784		1,991		8,775

BENEFITS AND EXPENSES
Policyholders’ benefits		3,063			972			4,035			2,736		949		3,685
Interest credited to policyholders’ account balances		602			35			637			807		36		843
Dividends to policyholders		57			502			559			28		683		711
General and administrative expenses		2,091			188			2,279			1,923		186		2,109

Total benefits and expenses		5,813			1,697			7,510			5,494		1,854		7,348

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES		80			(26	)		54			1,290		137		1,427

Income tax expense (benefit)		47			(18	)		29			379		44		423

INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES		33			(8	)		25			911		93		1,004
Equity in earnings of operating joint ventures, net of taxes		43			—			43			77		—		77

INCOME (LOSS) FROM CONTINUING OPERATIONS		76			(8	)		68			988		93		1,081
Income from discontinued operations, net of taxes		1			—			1			37		2		39

NET INCOME (LOSS)	$	77		$	(8	)	$	69		$	1,025	$	95	$	1,120

See Notes to Unaudited Interim Supplemental Combining Financial Information

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Supplemental Combining Financial Information

1. BASIS OF PRESENTATION

The supplemental combining financial information presents the consolidated financial position and results of operations for Prudential Financial, Inc. and its subsidiaries (together, the “Company”), separately reporting the Financial Services Businesses and the Closed Block Business. The Financial Services Businesses and the Closed Block Business are both fully integrated operations of the Company and are not separate legal entities. The supplemental combining financial information presents the results of the Financial Services Businesses and the Closed Block Business as if they were separate reporting entities and should be read in conjunction with the Consolidated Financial Statements.

The Company has outstanding two classes of common stock. The Common Stock reflects the performance of the Financial Services Businesses and the Class B Stock reflects the performance of the Closed Block Business.

The Closed Block Business was established on the date of demutualization and includes the assets and liabilities of the Closed Block (see Note 4 to the Unaudited Interim Consolidated Financial Statements for a description of the Closed Block). It also includes assets held outside the Closed Block necessary to meet insurance regulatory capital requirements related to products included within the Closed Block; deferred policy acquisition costs related to the Closed Block policies; the principal amount of the IHC debt (as discussed in Note 2 below) and related unamortized debt issuance costs, as well as an interest rate swap related to the IHC debt; and certain other related assets and liabilities. The Financial Services Businesses consist of the Insurance, Investment, and International Insurance and Investments divisions and Corporate and Other operations.

2. ALLOCATION OF RESULTS

This supplemental combining financial information reflects the assets, liabilities, revenues and expenses directly attributable to the Financial Services Businesses and the Closed Block Business, as well as allocations deemed reasonable by management in order to fairly present the financial position and results of operations of the Financial Services Businesses and the Closed Block Business on a stand alone basis. While management considers the allocations utilized to be reasonable, management has the discretion to make operational and financial decisions that may affect the allocation methods and resulting assets, liabilities, revenues and expenses of each business. In addition, management has limited discretion over accounting policies and the appropriate allocation of earnings between the two businesses. The Company is subject to agreements which provide that, in most instances, the Company may not change the allocation methodology or accounting policies for the allocation of earnings between the Financial Services Businesses and Closed Block Business without the prior consent of the Class B Stock holders or IHC debt bond insurer.

The Financial Services Businesses and Closed Block Business participate in the Company’s commingled internal short-term cash management facility, pursuant to which they invest cash from securities lending and repurchase activities as well as certain trading and operating activities. The net funds invested in the facility are generally held in investments that are short term, including mortgage- and asset-backed securities. As of March 31, 2008, the balance held in this facility was approximately $15.9 billion. Historically, and as of March 31, 2008, a proportionate interest in each security held in the portfolio was allocated to the Financial Services Businesses and the Closed Block Business based upon their proportional cash contributions to the facility as of the balance sheet date. Participation in the facility by the Financial Services Businesses and the Closed Block Business is dependent on cash flows arising from the activities noted above, which in turn, under the historical allocation methodology, could change the allocation of the facility’s assets between the two Businesses. A proportionate share of any realized investment gain or loss was recorded by each Business based upon their respective ownership percentages in the facility as of the date of the realized gain or loss. Beginning

PRUDENTIAL FINANCIAL, INC.

Notes to Unaudited Interim Supplemental Combining Financial Information—(Continued)

April 1, 2008, management implemented changes in the facility in order to permit each Business to hold discrete ownership of its investments in the facility without affecting or being affected by the level of participation in the facility by the other Business. With these changes, any realized investment gain or loss will be recorded by the respective Business based upon their discrete ownership of investments in the facility. Pending the implementation of these changes, the facility was managed so that the proportionate interests of the Financial Services Businesses and Closed Block Business in the entire facility were maintained at approximately the same proportions held as of June 30, 2007 (approximately 49% and 51%, respectively).

General corporate overhead not directly attributable to a specific business that has been incurred in connection with the generation of the businesses’ revenues is generally allocated between the Financial Services Businesses and the Closed Block Business based on the general and administrative expenses of each business as a percentage of the total general and administrative expenses for all businesses.

Prudential Holdings, LLC, a wholly owned subsidiary of Prudential Financial, Inc., has outstanding senior secured notes (the “IHC debt”), of which net proceeds of $1.66 billion were allocated to the Financial Services Businesses concurrent with the demutualization on December 18, 2001. The IHC debt is serviced by the cash flows of the Closed Block Business, and the results of the Closed Block Business reflect interest expense associated with the IHC debt.

Income taxes are allocated between the Financial Services Businesses and the Closed Block Business as if they were separate companies based on the taxable income or losses and other tax characterizations of each business. If a business generates benefits, such as net operating losses, it is entitled to record such tax benefits to the extent they are expected to be utilized on a consolidated basis.

Holders of Common Stock have no interest in a separate legal entity representing the Financial Services Businesses; holders of the Class B Stock have no interest in a separate legal entity representing the Closed Block Business; and holders of each class of common stock are subject to all of the risks associated with an investment in the Company.

In the event of a liquidation, dissolution or winding-up of the Company, holders of Common Stock and holders of Class B Stock would be entitled to receive a proportionate share of the net assets of the Company that remain after paying all liabilities and the liquidation preferences of any preferred stock.

The results of the Financial Services Businesses are subject to certain risks pertaining to the Closed Block. These include any expenses and liabilities from litigation affecting the Closed Block policies as well as the consequences of certain potential adverse tax determinations. In connection with the sale of the Class B Stock and IHC debt, the cost of indemnifying the investors with respect to certain matters will be borne by the Financial Services Businesses.

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the consolidated financial condition of Prudential Financial as of March 31, 2008, compared with December 31, 2007, and its consolidated results of operations for the three months ended March 31, 2008 and 2007. You should read the following analysis of our consolidated financial condition and results of operations in conjunction with the MD&A, the “Risk Factors” section and the Audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as well as the “Risk Factors” section, the statements under “Forward-Looking Statements” and the Unaudited Interim Consolidated Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

Overview

Prudential Financial has two classes of common stock outstanding. The Common Stock, which is publicly traded (NYSE:PRU), reflects the performance of the Financial Services Businesses, while the Class B Stock, which was issued through a private placement and does not trade on any exchange, reflects the performance of the Closed Block Business. The Financial Services Businesses and the Closed Block Business are discussed below.

Financial Services Businesses

Our Financial Services Businesses consist of three operating divisions, which together encompass eight segments, and our Corporate and Other operations. The Insurance division consists of our Individual Life, Individual Annuities and Group Insurance segments. The Investment division consists of our Asset Management, Financial Advisory and Retirement segments. The International Insurance and Investments division consists of our International Insurance and International Investments segments. Our Corporate and Other operations include our real estate and relocation services business, as well as corporate items and initiatives that are not allocated to business segments. Corporate and Other operations also include businesses that have been or will be divested and businesses that we have placed in wind-down status.

We attribute financing costs to each segment based on the amount of financing used by each segment, excluding financing costs associated with corporate debt. The net investment income of each segment includes earnings on the amount of equity that management believes is necessary to support the risks of that segment.

We seek growth internally and through acquisitions, joint ventures or other forms of business combinations or investments. Our principal acquisition focus is in our current business lines, both domestic and international.

Closed Block Business

In connection with the demutualization, we ceased offering domestic participating products. The liabilities for our traditional domestic in force participating products were segregated, together with assets, in a regulatory mechanism referred to as the “Closed Block.” The Closed Block is designed generally to provide for the reasonable expectations for future policy dividends after demutualization of holders of participating individual life insurance policies and annuities included in the Closed Block by allocating assets that will be used exclusively for payment of benefits, including policyholder dividends, expenses and taxes with respect to these products. See Note 4 to the Unaudited Interim Consolidated Financial Statements for more information on the Closed Block. At the time of demutualization, we determined the amount of Closed Block assets so that the Closed Block assets initially had a lower book value than the Closed Block liabilities. We expect that the Closed Block assets will generate sufficient cash flow, together with anticipated revenues from the Closed Block policies, over the life of the Closed Block to fund payments of all expenses, taxes, and policyholder benefits to be paid to, and the reasonable dividend expectations of, holders of the Closed Block policies. We also segregated for accounting purposes the assets that we need to hold outside the Closed Block to meet capital requirements related

to the Closed Block policies. No policies sold after demutualization will be added to the Closed Block, and its in force business is expected to ultimately decline as we pay policyholder benefits in full. We also expect the proportion of our business represented by the Closed Block to decline as we grow other businesses.

Concurrently with our demutualization, Prudential Holdings, LLC, a wholly owned subsidiary of Prudential Financial that owns the capital stock of Prudential Insurance, issued $1.75 billion in senior secured notes, which we refer to as the IHC debt. The net proceeds from the issuances of the Class B Stock and IHC debt, except for $72 million used to purchase a guaranteed investment contract to fund a portion of the bond insurance cost associated with that debt, were allocated to the Financial Services Businesses. However, we expect that the IHC debt will be serviced by the net cash flows of the Closed Block Business over time, and we include interest expenses associated with the IHC debt when we report results of the Closed Block Business.

The Closed Block Business consists principally of the Closed Block, assets that we must hold outside the Closed Block to meet capital requirements related to the Closed Block policies, invested assets held outside the Closed Block that represent the difference between the Closed Block assets and Closed Block liabilities and the interest maintenance reserve, deferred policy acquisition costs related to Closed Block policies, the principal amount of the IHC debt and related hedging activities, and certain other related assets and liabilities.

Executive Summary

Prudential Financial, one of the largest financial services companies in the U.S., offers individual and institutional clients a wide array of financial products and services, including life insurance, annuities, mutual funds, pension and retirement-related services and administration, investment management, real estate brokerage and relocation services, and, through a joint venture, retail securities brokerage services. We offer these products and services through one of the largest distribution networks in the financial services industry.

During the latter half of 2007 and continuing through the first quarter 2008, dislocations in the credit and capital markets, initially driven by broad market concerns over the impact of sub-prime mortgage holdings of financial institutions, have generally resulted in increased cost of credit for financial institutions in the marketplace. While credit has generally become more expensive, Prudential Financial’s ability to access the capital markets has not been materially impacted.

The first three months of 2008 reflect our continued efforts to redeploy capital effectively to seek enhanced returns, including the continuation of our share repurchase program. In the first three months of 2008, we repurchased 11.4 million shares of Common Stock at a total cost of $869 million and are authorized, under a stock repurchase program authorized by Prudential Financial’s Board of Directors in November 2007, to repurchase up to an additional $2.6 billion of Common Stock during 2008.

Our consolidated net income for the first quarter of 2008 of $69 million, a decrease from $1.120 billion for the first quarter of 2007, primarily reflects the impact of current market conditions on the results of our segments and investment portfolio.

We analyze performance of the segments and Corporate and Other operations of the Financial Services Businesses using a measure called adjusted operating income. See “—Consolidated Results of Operations” for a definition of adjusted operating income and a discussion of its use as a measure of segment operating performance.

Shown below are the contributions of each segment and Corporate and Other operations to our adjusted operating income for the three months ended March 31, 2008 and 2007 and a reconciliation of adjusted operating income of our segments and Corporate and Other operations to income from continuing operations before income taxes and equity in earnings of operating joint ventures.


	Three Months Ended March 31,
	2008			2007
	(in millions)
Adjusted operating income before income taxes for segments of the Financial Services Businesses:
Individual Life	$	96		$	101
Individual Annuities		115			166
Group Insurance		90			51
Asset Management		119			175
Financial Advisory		44			97
Retirement		124			148
International Insurance		413			412
International Investments		26			62
Corporate and Other		(35	)		9
Reconciling Items:
Realized investment gains (losses), net, and related adjustments		(665	)		147
Charges related to realized investment gains (losses), net		(13	)		(6	)
Investment gains (losses) on trading account assets supporting insurance liabilities, net		(262	)		82
Change in experience-rated contractholder liabilities due to asset value changes		200			(62	)
Divested businesses		(112	)		28
Equity in earnings of operating joint ventures		(60	)		(120	)

Income from continuing operations before income taxes and equity in earnings of operating joint ventures for Financial Services Businesses		80			1,290
Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures for Closed Block Business		(26	)		137

Consolidated income from continuing operations before income taxes and equity in earnings of operating joint ventures	$	54		$	1,427

Results for the three months ended March 31, 2008 presented above reflect the following:

•

Individual Life segment results for the first quarter of 2008 decreased from the prior year quarter primarily due to a net increase in amortization of deferred policy acquisition costs net of related amortization of unearned revenue reserves, reflecting unfavorable separate account fund performance in the first quarter of 2008 as compared to the first quarter of 2007, and an increase in other costs. These items were partially offset by more favorable mortality experience, net of reinsurance, compared to the first quarter of the prior year.

•

Individual Annuities segment results for the first quarter of 2008 declined in comparison to the first quarter of 2007 primarily reflecting an unfavorable variance in the mark-to-market of embedded derivatives and related hedge positions associated with our living benefit features, net of a related decrease in the amortization of deferred policy acquisition and other costs, due to financial market conditions in the first quarter of 2008. In addition, a quarterly adjustment for current period experience resulted in an increase in amortization of deferred policy acquisition and other costs, and greater costs associated with guaranteed minimum death and income benefits, resulting from less favorable than expected experience.

•

Group Insurance segment results improved for the first quarter of 2008, reflecting growth in our group disability business and more favorable claims experience in our group life business. Also included in current quarter results is a $20 million benefit from a premium adjustment for updated data on a large group life insurance case.

•

Asset Management segment results for the first quarter of 2008 decreased in comparison to the first quarter of 2007, largely attributable to less favorable results from the segment’s proprietary investing business primarily related to changes in market value in a fixed income fund as well as higher expenses. These items were partially offset by greater performance based incentive fees, primarily related to institutional real estate funds, and higher asset management fees.

•

Financial Advisory segment results for the first quarter of 2008 decreased from the first quarter of 2007 primarily due to lower income from our share of the retail brokerage joint venture with Wachovia, which includes transition costs in the first quarter of 2008 of $46 million associated with the January 1, 2008 combination of the A.G. Edwards business with Wachovia Securities. Our reported share of earnings and transition costs for the first quarter of 2008 are based on our estimate of our diluted ownership percentage subsequent to this combination.

•

Retirement segment results for the first quarter of 2008 declined in comparison to the first quarter of 2007, primarily reflecting higher general and administrative expenses, including costs associated with the acquired retirement business of Union Bank of California, N.A. Also contributing to the decrease was a lower contribution from investment results, primarily due to a decrease in the level of mortgage prepayment income, an unfavorable variance in the mark to market of equity investments required in certain of our separate account products, and lower investment yields on certain general account defined contribution balances.

•

The International Insurance segment is comprised of its Life Planner and Gibraltar Life operations. Results from the segment’s Life Planner operations improved primarily reflecting the continued growth of our Japanese and Korean Life Planner operations, partially offset by higher amortization of deferred policy acquisition costs. Results from the segment’s Gibraltar Life operation decreased reflecting less favorable mortality experience and higher amortization of deferred policy acquisition costs.

•

International Investments segment results for the first quarter of 2008 declined from the prior year quarter due to a credit loss in our global commodities group, as well as lower front-end fees in our Korean asset management operation.

•

Corporate and Other results for the first quarter of 2008 declined from the prior year quarter, reflecting a lower contribution from investment income, net of interest expense, together with an increased loss from our real estate and relocation business.

•

Realized investment gains (losses), net, and related adjustments for the Financial Services Businesses in the first quarter of 2008 amounted to $(665) million. Results for the first quarter of 2008 relate primarily to other-than-temporary impairments of fixed maturity and equity securities and decreases in the market value of certain externally managed investments in the European market.

•

Income (loss) from continuing operations before income taxes in the Closed Block Business decreased $163 million in the first quarter of 2008 compared to the first quarter of 2007. Results in the first quarter of 2008 include $110 million of net realized investment losses as compared to $207 million of net realized investment gains in the first quarter of 2007, partially offset by a decrease in dividends to policyholders reflecting a decrease in the cumulative earnings policyholder dividend obligation expense, partially offset by an increase in dividends paid and accrued to policyholders.

Accounting Policies & Pronouncements

Application of Critical Accounting Estimates

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

Management believes the accounting policies relating to the following areas are most dependent on the application of estimates and assumptions:

•

Valuation of investments;

•

Policyholder liabilities;

•

Deferred policy acquisition costs;

•

Goodwill;

•

Pension and other postretirement benefits;

•

Taxes on income; and

•

Reserves for contingencies, including reserves for losses in connection with unresolved legal matters.

Accounting Pronouncements Adopted

See Note 2 to the Unaudited Interim Consolidated Financial Statements for a discussion of recently adopted accounting pronouncements, including the adoption of SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” and SFAS No. 157, “Fair Value Measurements.”

Recent Accounting Pronouncements

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

Consolidated Results of Operations

The following table summarizes income from continuing operations for the Financial Services Businesses and the Closed Block Business as well as other components comprising net income.


	Three Months Ended March 31,
	2008			2007
	(in millions)
Financial Services Businesses by segment:
Individual Life	$	(40	)	$	89
Individual Annuities		79			158
Group Insurance		3			65

Total Insurance Division		42			312

Asset Management		131			177
Financial Advisory		(7	)		(14	)
Retirement		(120	)		158

Total Investment Division		4			321

International Insurance		318			547
International Investments		20			53

Total International Insurance and Investments Division		338			600

Corporate and Other		(304	)		57

Income from continuing operations before income taxes and equity in earnings of operating joint ventures for Financial Services Businesses		80			1,290
Income tax expense		47			379

Income from continuing operations before equity in earnings of operating joint ventures for Financial Services Businesses		33			911
Equity in earnings of operating joint ventures, net of taxes		43			77

Income from continuing operations for Financial Services Businesses		76			988
Income from discontinued operations, net of taxes		1			37

Net income – Financial Services Businesses	$	77		$	1,025

Basic income from continuing operations per share – Common Stock	$	0.20		$	2.14
Diluted income from continuing operations per share – Common Stock	$	0.20		$	2.10
Basic net income per share – Common Stock	$	0.20		$	2.22
Diluted net income per share – Common Stock	$	0.20		$	2.18

Closed Block Business:
Income (loss) from continuing operations before income taxes for Closed Block Business	$	(26	)	$	137
Income tax expense (benefit)		(18	)		44

Income (loss) from continuing operations for Closed Block Business		(8	)		93
Income from discontinued operations, net of taxes		—			2

Net income (loss) – Closed Block Business	$	(8	)	$	95

Basic and diluted income (loss) from continuing operations per share – Class B Stock	$	(10.00	)	$	39.00
Basic and diluted net income (loss) per share – Class B Stock	$	(10.00	)	$	40.00

Consolidated:

Net income	$	69		$	1,120

Results of Operations—Financial Services Businesses

2008 to 2007 Three Month Comparison. Income from continuing operations attributable to the Financial Services Businesses decreased $912 million, from $988 million in the first quarter of 2007 to $76 million in the first quarter of 2008. This decrease resulted primarily from net realized investment losses in the first quarter of 2008 compared to net realized investment gains in the prior year quarter. On a diluted per share basis, income from continuing operations attributable to the Financial Services Businesses for the three months ended March 31, 2008 of $0.20 per share of Common Stock decreased from $2.10 per share of Common Stock for the three months ended March 31, 2007. This decrease reflects the decline in earnings discussed above, partially offset by the benefit of a lower number of shares of Common Stock outstanding due to our share repurchase program. We analyze the operating performance of the segments included in the Financial Services Businesses using “adjusted operating income” as described in “—Segment Measures,” below. For a discussion of our segment results on this basis see “—Results of Operations for Financial Services Businesses by Segment,” below. In addition, for a discussion of the realized investment gains (losses), net attributable to the Financial Services Businesses, see “—Realized Investment Gains and Losses and General Account Investments—Realized Investment Gains and Losses,” below.

The direct equity adjustment increased income from continuing operations available to holders of the Common Stock for earnings per share purposes by $12 million for the three months ended March 31, 2008, compared to $15 million for the three months ended March 31, 2007. The direct equity adjustment modifies earnings available to holders of the Common Stock and the Class B Stock for earnings per share purposes. The holders of the Common Stock will benefit from the direct equity adjustment as long as reported administrative expenses of the Closed Block Business are less than the cash flows for administrative expenses determined by the policy servicing fee arrangement that is based upon insurance and policies in force and statutory cash premiums. As statutory cash premiums and policies in force in the Closed Block Business decline, we expect the benefit to the Common Stock holders from the direct equity adjustment to decline accordingly. If the reported administrative expenses of the Closed Block Business exceed the cash flows for administrative expenses determined by the policy servicing fee arrangement, the direct equity adjustment will reduce income available to holders of the Common Stock for earnings per share purposes.

Results of Operations—Closed Block Business

2008 to 2007 Three Month Comparison. Income (loss) from continuing operations attributable to the Closed Block Business for the three months ended March 31, 2008, was $(8) million, or $(10.00) per share of Class B Stock, compared to $93 million, or $39.00 per share of Class B Stock, for the three months ended March 31, 2007. The direct equity adjustment decreased income from continuing operations available to the Class B Stock holders for earnings per share purposes by $12 million for the three months ended March 31, 2008, compared to $15 million for the three months ended March 31, 2007. For a discussion of the results of operations for the Closed Block Business, see “—Results of Operations of Closed Block Business,” below.

Segment Measures

In managing our business, we analyze operating performance separately for our Financial Services Businesses and our Closed Block Business. For the Financial Services Businesses, we analyze our segments’ operating performance using “adjusted operating income.” Results of the Closed Block Business for all periods are evaluated and presented only in accordance with U.S. GAAP. Adjusted operating income does not equate to “income from continuing operations before income taxes and equity in earnings of operating joint ventures” or “net income” as determined in accordance with U.S. GAAP but is the measure of segment profit or loss we use to evaluate segment performance and allocate resources, and consistent with SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” is our measure of segment performance.

Adjusted operating income is calculated for the segments of the Financial Services Businesses by adjusting each segment’s “income from continuing operations before income taxes and equity in earnings of operating joint ventures” for the following items:

•

realized investment gains (losses), net, except as indicated below, and related charges and adjustments;

•

net investment gains and losses on trading account assets supporting insurance liabilities and changes in experience-rated contractholder liabilities due to asset value changes;

•

the contribution to income/loss of divested businesses that have been or will be sold or exited that do not qualify for “discontinued operations” accounting treatment under U.S. GAAP; and

•

equity in earnings of operating joint ventures.

The items above are important to an understanding of our overall results of operations. Adjusted operating income is not a substitute for income determined in accordance with U.S. GAAP, and our definition of adjusted operating income may differ from that used by other companies. However, we believe that the presentation of adjusted operating income as we measure it for management purposes enhances understanding of our results of operations by highlighting the results from ongoing operations and the underlying profitability of the Financial Services Businesses.

Effective with the first quarter of 2008, we have amended our definition of adjusted operating income as it relates to certain externally managed investments in the European market held within the general account portfolio. These investments are medium term notes that are collateralized by investment portfolios primarily consisting of investment grade European fixed income securities, including corporate bonds and asset-backed securities, and derivatives, as well as varying degrees of leverage. The notes have a stated coupon and provide a return based on the performance of the underlying portfolios and the level of leverage. We invest in these notes to earn a coupon through maturity, consistent with our investment purpose for other debt securities. The notes are accounted for under U.S. GAAP as available for sale fixed maturity securities with bifurcated embedded derivatives (total return swaps). Changes in the value of the fixed maturity securities are reported in Stockholders’ Equity under the heading “Accumulated Other Comprehensive Income” and changes in the market value of the embedded total return swaps are included in current period earnings in “Realized investment gains (losses), net.” Historically, adjusted operating income included cumulative losses and recoveries of such losses on the embedded derivatives in the period they occurred, while cumulative net gains on the embedded derivatives were deferred and amortized into adjusted operating income over the remaining life of the notes.

Adjusted operating income under the amended definition excludes any amounts related to changes in the market value of the embedded derivatives. Adjusted operating income for all periods presented has been revised to conform with the amended definition. We view adjusted operating income under the amended definition as a more meaningful presentation of our results for purposes of analyzing the operating performance of, and allocating resources to, our business segments, as the amended definition presents the results of these investments on a basis generally consistent with similar investments held directly within the general account portfolio. We believe the mark to market losses discussed below, resulting primarily from unprecedented credit spread widening, are not representative of the fundamental value of the underlying investments over the long term. Adjusted operating income continues to include the coupon on these notes, which reflects the market based interest rate and spread of securities comparable to the underlying securities that existed at the time we entered into the investments. The accounting for these investments under U.S. GAAP has not changed.

For the three months ended March 31, 2008 and 2007, we recorded a loss of $208 million and a gain of $8 million, respectively, within “Realized investment gains (losses), net” related to the change in value on the embedded derivatives associated with these investments, which are excluded from adjusted operating income under the amended definition. The loss of $208 million for the three months ended March 31, 2008 is reflected within the U.S. GAAP results of the following segments: Individual Life—$12 million, Individual Annuities—$11 million, Group Insurance—$10 million, Retirement—$39 million, and International Insurance—$136

million. Adjusted operating income under the former definition included a $1 million gain for the three months ended March 31, 2007, which represented the amortization of cumulative deferred gains.

In reporting adjusted operating income for the three months ended March 31, 2008, we have classified our commercial mortgage securitization operations as a divested business, reflecting our decision to exit this business. As a result of this decision, these operations, which involved the origination and purchase of commercial mortgage loans for sale into commercial mortgage-backed securitization transactions, together with related hedging activities, previously reported within the Asset Management segment, have been classified within divested businesses and are reflected in our Corporate and Other operations. Accordingly, these results are excluded from adjusted operating income, with prior period results being adjusted to reflect such reclassification. These operations had a pre-tax loss of $107 million for the first quarter of 2008.

Adjusted operating income excludes “Realized investment gains (losses), net,” except as indicated below, and related charges and adjustments. A significant element of realized investment gains and losses are impairments and credit-related and interest rate-related gains and losses. Impairments and losses from sales of credit-impaired securities, the timing of which depends largely on market credit cycles, can vary considerably across periods. The timing of other sales that would result in gains or losses, such as interest rate-related gains or losses, is largely subject to our discretion and influenced by market opportunities, as well as our tax profile. Trends in the underlying profitability of our businesses can be more clearly identified without the fluctuating effects of these transactions. Similarly, adjusted operating income excludes investment gains and losses on trading account assets supporting insurance liabilities and changes in experience-rated contractholder liabilities due to asset value changes, because these recorded changes in asset and liability values will ultimately accrue to the contractholders. Adjusted operating income excludes the results of divested businesses because they are not relevant to understanding our ongoing operating results. The contributions to income/loss of wind-down businesses that we have not divested remain in adjusted operating income. See Note 8 to the Unaudited Interim Consolidated Financial Statements for further information on the presentation of segment results.

As noted above, certain “Realized investment gains (losses), net,” are included in adjusted operating income. We include in adjusted operating income the portion of our realized investment gains and losses on derivatives that arise from the termination of contracts used to hedge our foreign currency earnings in the same period that the expected earnings emerge. Similarly, we include in adjusted operating income the portion of our realized investment gains and losses on derivatives that represent current period yield adjustments. The realized investment gains or losses from products that are free standing derivatives, or contain embedded derivatives, along with the realized investment gains or losses from associated derivative portfolios that are part of an economic hedging program related to the risk of these products, are included in adjusted operating income. Adjusted operating income also includes those realized investment gains and losses that represent profit or loss of certain of our businesses which primarily originate investments for sale or syndication to unrelated investors.

Results of Operations for Financial Services Businesses by Segment

Insurance Division

Individual Life

Operating Results

The following table sets forth the Individual Life segment’s operating results for the periods indicated.


	Three Months Ended March 31,
	2008			2007
	(in millions)
Operating results:
Revenues	$	680		$	631
Benefits and expenses		584			530

Adjusted operating income		96			101
Realized investment gains (losses), net, and related adjustments(1)		(136	)		(12	)

Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures	$	(40	)	$	89

(1)

Revenues exclude Realized investment gains (losses), net, and related adjustments. See “—Realized Investment Gains and Losses and General Account Investments—Realized Investment Gains and Losses.” “Realized investments gains (losses), net” includes $(12) million and $1 million for the three months ended March 31, 2008 and 2007, respectively, related to certain externally managed investments in the European market. See “—Consolidated Results of Operations—Segment Measures” for information on the amendment to our adjusted operating income definition related to the treatment of these investments.

Adjusted Operating Income

2008 to 2007 Three Month Comparison. Adjusted operating income decreased $5 million, from $101 million in the first quarter of 2007 to $96 million in the first quarter of 2008. The decrease in adjusted operating income primarily reflects a net increase in amortization of deferred policy acquisition costs net of related amortization of unearned revenue reserves, reflecting unfavorable separate account fund performance and policy persistency in the first quarter of 2008 consistent with expected levels, compared to a level more favorable than expectations in the first quarter of 2007, an increase in other costs and a decline in separate account fees. This decrease was partially offset by more favorable mortality experience, net of reinsurance, compared to the first quarter of the prior year.

Revenues

2008 to 2007 Three Month Comparison. Revenues, as shown in the table above under “—Operating Results,” increased by $49 million, from $631 million in the first quarter of 2007 to $680 million in the first quarter of 2008. Premiums increased $22 million, primarily due to increased premiums on term life insurance reflecting continued growth of our in force block of term insurance. Net investment income increased $25 million, reflecting higher asset balances primarily from the financing of regulatory capital requirements associated with statutory reserves for certain term and universal life insurance policies. An increase in policy charges and fee income reflecting the increase in amortization of unearned revenue reserves, discussed above, was partially offset by lower asset based fees due to lower separate account asset balances reflecting market value changes.

Benefits and Expenses

2008 to 2007 Three Month Comparison. Benefits and expenses, as shown in the table above under “—Operating Results,” increased by $54 million, from $530 million in the first quarter of 2007 to $584 million in the first quarter of 2008. Amortization of deferred policy acquisition costs increased $33 million, reflecting

unfavorable separate account fund performance and policy persistency in the first quarter of 2008 consistent with expected levels, compared to a level more favorable than expectations in the first quarter of 2007. Interest expense increased $14 million, primarily reflecting interest on borrowings related to the financing of regulatory capital requirements associated with statutory reserves for certain term and universal life insurance policies.

Sales Results

The following table sets forth individual life insurance business sales, as measured by scheduled premiums from new sales on an annualized basis and first year excess premiums and deposits on a cash-received basis, for the periods indicated. Sales of the individual life insurance business do not correspond to revenues under U.S. GAAP. They are, however, a relevant measure of business activity. In managing our individual life insurance business, we analyze new sales on this basis because it measures the current sales performance of the business, while revenues primarily reflect the renewal persistency and aging of in force policies written in prior years and net investment income as well as current sales.


	Three Months Ended March 31,
	2008		2007
	(in millions)
Life insurance sales(1):
Excluding corporate-owned life insurance:
Variable life	$	16	$	48
Universal life		40		44
Term life		51		49

Total excluding corporate-owned life insurance		107		141
Corporate-owned life insurance		—		5

Total	$	107	$	146


	Three Months Ended March 31,
	2008		2007
	(in millions)
Life insurance sales by distribution channel, excluding corporate-owned life insurance(1):
Prudential Agents	$	40	$	42
Third party		67		99

Total	$	107	$	141

(1)	Scheduled premiums from new sales on an annualized basis and first year excess premiums and deposits on a cash-received basis.

2008 to 2007 Three Month Comparison. Sales of new life insurance, excluding corporate-owned life insurance, measured as described above, decreased $34 million, from $141 million in the first quarter of 2007 to $107 million in the first quarter of 2008, primarily due to lower sales of variable life products as the prior year quarter included the benefit of several large case sales which have uneven quarterly sales patterns. The level of universal life sales in the first quarter of 2008 is reflective of highly competitive pricing in the marketplace and our continued avoidance of both investor oriented and aggressive financing sales. These decreases were partially offset by continued strong term life product sales.

The decrease in sales of life insurance, excluding corporate-owned life insurance, reflects a $32 million decrease in sales from the third party distribution channel, which reflects the lower sales of variable life products, as discussed above, and a decrease in universal life sales. Sales by Prudential Agents were slightly lower than during the first quarter of 2007, reflecting a decline in the number of agents from 2,505 at March 31, 2007 to 2,436 at March 31, 2008. Although the number of agents has declined, per agent productivity, including investment products, has increased.

Policy Surrender Experience

The following table sets forth the individual life insurance business’ policy surrender experience for variable and universal life insurance, measured by cash value of surrenders, for the periods indicated. These amounts do not correspond to expenses under U.S. GAAP. In managing this business, we analyze the cash value of surrenders because it is a measure of the degree to which policyholders are maintaining their in force business with us, a driver of future profitability. Generally, our term life insurance products do not provide for cash surrender values.


	Three Months Ended March 31,
	2008			2007
	($ in millions)
Cash value of surrenders	$	178		$	167

Cash value of surrenders as a percentage of mean future benefit reserves, policyholders’ account balances, and separate account balances		3.1	%		3.0	%

2008 to 2007 Three Month Comparison. The total cash value of surrenders increased $11 million, from $167 million in the first quarter of 2007 to $178 million in the first quarter of 2008, reflecting a greater volume of surrenders in the first quarter of 2008 compared to the first quarter of 2007. Cash value of surrenders as a percentage of mean future policy benefit reserves, policyholders’ account balances and separate account balances increased from 3.0% in the first quarter of 2007 to 3.1% in the first quarter of 2008.

Individual Annuities

Operating Results

The following table sets forth the Individual Annuities segment’s operating results for the periods indicated.


	Three Months Ended March 31,
	2008			2007
	(in millions)
Operating results:
Revenues	$	573		$	604
Benefits and expenses		458			438

Adjusted operating income		115			166
Realized investment gains (losses), net, and related adjustments(1)		(53	)		(8	)
Related charges(1)(2)		17			—

Income from continuing operations before income taxes and equity in earnings of operating joint ventures	$	79		$	158

(1)

Revenues exclude Realized investment gains (losses), net, and related charges and adjustments. The related charges represent payments related to the market value adjustment features of certain of our annuity products. See “—Realized Investment Gains and Losses and General Account Investments—Realized Investment Gains and Losses.” Realized investments gains (losses), net includes $(11) million and $0 million for the three months ended March 31, 2008 and 2007, respectively, related to certain externally managed investments in the European market. See “—Consolidated Results of Operations—Segment Measures” for information on the amendment to our adjusted operating income definition related to the treatment of these investments.

(2)	Benefits and expenses exclude related charges which represent the unfavorable (favorable) impact of Realized investment gains (losses), net, on change in reserves and the amortization of deferred policy acquisition costs, deferred sales inducements and value of business acquired.

Adjusted Operating Income

2008 to 2007 Three Month Comparison. Adjusted operating income decreased $51 million, from $166 million in the first quarter of 2007 to $115 million in the first quarter of 2008. Contributing to this decrease is a $24 million unfavorable variance in the mark-to-market of embedded derivatives and related hedge positions associated with our living benefit features, net of related amortization of deferred policy acquisition and other costs. The unfavorable variance reflects a net charge of $17 million in the first quarter of 2008 compared to a net benefit of $7 million in the first quarter of 2007, and was largely driven by financial market conditions in the first quarter of 2008.

Also contributing to the decrease in adjusted operating income in the first quarter of 2008 is a $22 million unfavorable variance due to increased amortization of deferred policy acquisition and other costs, and higher charges relating to the reserves for the guaranteed minimum death and income benefit features of our variable annuity products, resulting from the quarterly adjustment for current period experience. The first quarter of 2008 reflects a charge of $15 million relating to this quarterly adjustment, due to less favorable than expected experience, while the first quarter of 2007 reflects a benefit of $7 million due to better than expected experience. The quarterly adjustment for current period experience reflects the cumulative impact of differences between actual gross profits for the period and the previously estimated expected gross profits for the period, as well as an update for current and future expected claims costs associated with these contract guarantees. Total estimated gross profits, including actual experience and estimates for future periods, are used as the basis for amortizing deferred policy acquisition and other costs. In addition, total estimated revenues and guaranteed benefit claims, which are components of total gross profits, are used for establishing the reserves for the guaranteed minimum death and income benefit features of our variable annuity products. To the extent each period’s actual experience differs from the previous estimate for that period, the assumed level of total gross profits may change, and a cumulative adjustment to previous periods’ costs, referred to as an adjustment for current period experience, may be required. Less favorable than expected gross profits in the current period were primarily due to lower than expected fee income and higher actual and expected contract guarantee claims costs in the first quarter of 2008, primarily driven by financial market conditions.

Management estimates the amortization of deferred policy acquisition and other costs, and the costs relating to the reserves for the guaranteed minimum death and income benefit features of our variable annuity products in the first quarter of 2008 would have increased approximately $30 million had we adjusted our estimate of future gross profits to reflect the actual fund performance and corresponding changes to the future rate of return assumptions. For purposes of evaluating deferred policy acquisition and other costs and these reserves, the future rate of return assumptions are derived using a reversion to the mean approach, a common industry practice. As part of our approach, we develop a range of total estimated gross profits each period using statistically generated future rates of return that take into consideration the latest actual rates of return experienced to date. For the first quarter of 2008, since the previously determined total estimated gross profits were within the current period’s range, we did not adjust our future rate of return assumptions.

Revenues

2008 to 2007 Three Month Comparison. Revenues, as shown in the table above under “—Operating Results,” decreased $31 million, from $604 million in the first quarter of 2007 to $573 million in the first quarter of 2008, primarily relating to a $39 million decrease in policy charges and fees and asset management fees and other income, reflecting a $54 million unfavorable variance in the mark-to-market of embedded derivatives and related hedge positions associated with our living benefit features, as discussed above, partially offset by an increase in fee income. The unfavorable variance in the mark-to-market of embedded derivatives and related hedge positions associated with our living benefit features reflects a net charge of $40 million in the first quarter of 2008 compared to a net benefit of $14 million in the first quarter of 2007. The increase in fee income was driven by higher average variable annuity account values and higher election rates relating to our optional living benefit features, which generate higher percentage fee rates. The increase in average variable annuity account values was due to consistent positive net asset flows since the first quarter of 2007 and market value increases in

the second and third quarters of 2007, partially offset by equity market declines in the first quarter of 2008. Net investment income increased $10 million reflecting higher average annuity account values invested in our general account. The increase in account values invested in our general account resulted from transfers relating to an automatic rebalancing element in some of our living benefit product features, which, as part of our overall risk management strategy, transferred investments out of equity sensitive separate accounts during the period due to equity market declines.

Benefits and Expenses

2008 to 2007 Three Month Comparison. Benefits and expenses, as shown in the table above under “—Operating Results,” increased $20 million, from $438 million in the first quarter of 2007 to $458 million in the first quarter of 2008. Policyholders’ benefits, including interest credited to policyholders’ account balances, increased $25 million reflecting higher charges for the reserves for our guaranteed minimum death and income benefit features, as discussed above, as well as an increase in interest credited to policyholders due to higher average annuity account values invested in our general account. In addition, general and administrative expenses, net of capitalization, increased $5 million, reflecting higher distribution and asset management costs associated with growth in variable annuity account values. Partially offsetting these increases was an $11 million decrease in the amortization of deferred policy acquisition costs, resulting from the net impact on gross profits of the unfavorable variance relating to the hedging of our living benefit features, and the adjustment for current period experience, as discussed above.

Account Values

The following table sets forth changes in account values for the individual annuity business, for the periods indicated. For our individual annuity business, assets are reported at account value, and net sales (redemptions) are gross sales minus redemptions or surrenders and withdrawals, as applicable.


	Three Months Ended March 31,
	2008			2007
	(in millions)
Variable Annuities(1):
Beginning total account value	$	80,330		$	74,555
Sales		2,829			2,779
Surrenders and withdrawals		(2,173	)		(2,310	)

Net sales		656			469
Benefit payments		(294	)		(306	)

Net flows		362			163
Change in market value, interest credited and other activity		(5,409	)		1,168
Policy charges		(306	)		(295	)

Ending total account value(2)	$	74,977		$	75,591

Fixed Annuities:
Beginning total account value	$	3,488		$	3,748
Sales		17			21
Surrenders and withdrawals		(53	)		(81	)

Net redemptions		(36	)		(60	)
Benefit payments		(43	)		(43	)

Net flows		(79	)		(103	)
Interest credited and other activity		32			35
Policy charges		(1	)		(1	)

Ending total account value	$	3,440		$	3,679

(1)	Variable annuities include only those sold as retail investment products. Investments through defined contribution plan products are included with such products within the Retirement segment.

(2)

As of March 31, 2008, variable annuity account values are invested in equity funds ($35 billion or 46%), balanced funds ($20 billion or 27%), bond funds ($8 billion or 11%), and other ($12 billion or 16%). Variable annuity account values with living benefit features were $36.0 billion and $30.3 billion as of March 31, 2008 and 2007, respectively.

2008 to 2007 Three Month Comparison. Total account values for fixed and variable annuities amounted to $78.4 billion as of March 31, 2008, a decrease of $5.4 billion from December 31, 2007. The decrease came primarily from decreases in the market value of customers’ variable annuities due to significant equity market declines in the first quarter of 2008. Total account values as of March 31, 2008 decreased $853 million from March 31, 2007, primarily reflecting decreases in the market value of customers’ variable annuities, partially offset by positive variable annuity net flows. Individual variable annuity gross sales increased by $50 million, despite market volatility and equity market declines, reflecting sustained momentum in the growth of our distribution relationships, and the introduction of additional optional living benefit product features in the first quarter of 2008. Individual variable annuity surrenders and withdrawals decreased by $137 million, from $2.3 billion in the first quarter of 2007 to $2.2 billion in the first quarter of 2008.

Group Insurance

Operating Results

The following table sets forth the Group Insurance segment’s operating results for the periods indicated.


	Three Months Ended March 31,
	2008			2007
	(in millions)
Operating results:
Revenues	$	1,257		$	1,205
Benefits and expenses		1,167			1,154

Adjusted operating income		90			51
Realized investment gains (losses), net, and related adjustments(1)		(87	)		14
Related charges(2)		—			—

Income from continuing operations before income taxes and equity in earnings of operating joint ventures	$	3		$	65

(1)

Revenues exclude Realized investment gains (losses), net, and related adjustments. See “—Realized Investment Gains and Losses and General Account Investments—Realized Investment Gains and Losses.” “Realized investments gains (losses), net” includes $(10) million and $0 million for the three months ended March 31, 2008 and 2007, respectively, related to certain externally managed investments in the European market. See “—Consolidated Results of Operations—Segment Measures” for information on the amendment to our adjusted operating income definition related to the treatment of these investments.

(2)	Benefits and expenses exclude related charges which represent the unfavorable (favorable) impact of Realized investment gains (losses), net, on interest credited to policyholders’ account balances.

Adjusted Operating Income

2008 to 2007 Three Month Comparison. Adjusted operating income increased $39 million, from $51 million in the first quarter of 2007 to $90 million in the first quarter of 2008, reflecting growth in our group disability business. In addition, our group life business benefited from more favorable claims experience, which was

partially offset by reduced business in force. Also included in current quarter results is a $20 million benefit from a premium adjustment for updated data on a large group life insurance case.

Revenues

2008 to 2007 Three Month Comparison. Revenues, as shown in the table above under “—Operating Results,” increased by $52 million, from $1.205 billion in the first quarter of 2007 to $1.257 billion in the first quarter of 2008. Group life premiums decreased by $26 million, from $719 million in the first quarter of 2007 to $693 million in the first quarter of 2008, primarily reflecting lower net premiums from experience-rated group life business resulting from the decrease in policyholder benefits on these contracts as discussed below. Also contributing to this decrease were lower premiums from non-experience-rated group life business due to reduced business in force. Lapse activity increased slightly as group life persistency deteriorated from 96% in the first quarter of 2007 to 95% in the first quarter of 2008. Offsetting these decreases is a premium adjustment for updated data on a large case. Group disability premiums, which include long-term care products, increased by $67 million from $207 million in the first quarter of 2007 to $274 million in the first quarter of 2008. This increase reflects growth in business in force resulting from new sales, which included the assumption of existing liabilities from third parties during the first quarter of 2008, exceeding the level of lapses, which increased slightly as persistency deteriorated from 92% in the first quarter of 2007 to 91% in the first quarter of 2008. The slight declines in group life and group disability persistency are reflective of continuing competitive pricing in the marketplace and the pricing discipline we apply in writing business. Net investment income was relatively unchanged, as the benefit from growth in invested assets was offset by lower investment yields.

Benefits and Expenses

The following table sets forth the Group Insurance segment’s benefits and administrative operating expense ratios for the periods indicated.


	Three Months Ended March 31,
	2008		2007
Benefits ratio(1):
Group life	87.1	%	91.5	%
Group disability	91.1		91.0
Administrative operating expense ratio(2):
Group life	8.2		9.6
Group disability	17.4		22.1

(1)	Ratio of policyholder benefits to earned premiums, policy charges and fee income. Group disability ratios include long-term care products.

(2)	Ratio of administrative operating expenses (excluding commissions) to gross premiums, policy charges and fee income. Group disability ratios include long-term care products.

2008 to 2007 Three Month Comparison. Benefits and expenses, as shown in the table above under “—Operating Results,” increased by $13 million, from $1.154 billion in the first quarter of 2007 to $1.167 billion in the first quarter of 2008. This increase is due to a $10 million increase in policyholders’ benefits, including the change in policy reserves, primarily reflecting growth of business in force in our group disability business, partially offset by more favorable claims experience in our group life businesses, which resulted in lower premiums from experience-rated group life business as discussed above.

The group life benefits ratio improved 4.4 percentage points from the first quarter of 2007 to the first quarter of 2008, due to the benefit from a premium adjustment for updated data on a large case combined with more favorable mortality experience in our group life business. The group disability benefits ratio was relatively stable. The group life administrative operating expense ratio improved from the first quarter of 2007 to the first quarter of 2008, as gross premiums increased, primarily from the experience-rated group life business, while operating expenses were relatively unchanged. The group disability administrative operating expense ratio improved from the first quarter of 2007 to the first quarter of 2008, reflecting growth in the business from new sales as noted above, while maintaining stable operating expenses.

Sales Results

The following table sets forth the Group Insurance segment’s new annualized premiums for the periods indicated. In managing our group insurance business, we analyze new annualized premiums, which do not correspond to revenues under U.S. GAAP, because new annualized premiums measure the current sales performance of the business unit, while revenues primarily reflect the renewal persistency and aging of in force policies written in prior years and net investment income, in addition to current sales.


	Three Months Ended March 31,
	2008		2007
	(in millions)
New annualized premiums(1):
Group life	$	112	$	103
Group disability(2)		114		92

Total	$	226	$	195

(1)

Amounts exclude new premiums resulting from rate changes on existing policies, from additional coverage under our Servicemembers’ Group Life Insurance contract and from excess premiums on group universal life insurance that build cash value but do not purchase face amounts, and include premiums from the takeover of claim liabilities.

(2)	Includes long-term care products.

2008 to 2007 Three Month Comparison. Total new annualized premiums increased $31 million, or 16%, from $195 million in the first quarter of 2007 to $226 million in the first quarter of 2008. This increase is primarily attributable to higher sales in our group disability business reflecting premiums related to the assumption of existing liabilities from a third party and higher long-term care sales. Our sales are reflective of the continuing competitive pricing in the marketplace and the pricing discipline we apply in writing business.

Investment Division

Asset Management

Operating Results

The following table sets forth the Asset Management segment’s operating results for the periods indicated.


	Three Months Ended March 31,
	2008		2007
	(in millions)
Operating results:
Revenues	$	548	$	545
Expenses		429		370

Adjusted operating income		119		175
Realized investment gains (losses), net, and related adjustments(1)		12		2

Income from continuing operations before income taxes and equity in earnings of operating joint ventures	$	131	$	177

(1)	Revenues exclude Realized investment gains (losses), net, and related adjustments. See “—Realized Investment Gains and Losses and General Account Investments—Realized Investment Gains and Losses.”

In reporting results for the three months ended March 31, 2008, we have classified our commercial mortgage securitization operations as a divested business, reflecting our decision to exit this business. As a result of this decision, these operations, which involved the origination and purchase of commercial mortgage loans for sale into commercial mortgage-backed securitization transactions, together with related hedging activities, are excluded from the Asset Management segment and included in Corporate and Other operations as a divested business. Accordingly, these results are excluded from adjusted operating income, with prior period results being adjusted to reflect such reclassification. These operations had a pre-tax loss of $107 million for the first quarter of 2008. We will retain and continue the remainder of our commercial mortgage origination, servicing and other commercial mortgage related activities, which remain a part of our Asset Management segment.

Adjusted Operating Income

2008 to 2007 Three Month Comparison. Adjusted operating income decreased $56 million, from $175 million in the first quarter of 2007 to $119 million in the first quarter of 2008. Results of the segment’s proprietary investing business included losses of $31 million in the first quarter of 2008, compared to income of $20 million in the first quarter of 2007, from changes in market value in a fixed income fund, of which our investment at March 31, 2008 totaled $490 million. The segment’s proprietary investing business also includes losses of $4 million in the first quarter of 2008, compared to a gain of $6 million in the first quarter of 2007, primarily from changes in the market value of equity funds, net of related hedges, of which our investment at March 31, 2008 totaled $266 million. In addition, results in the current quarter reflect lower transaction fees and higher compensation costs. These items were partially offset by greater performance based incentive fees, primarily related to institutional real estate funds, increased asset management fees, and higher income related to securities lending services.

Revenues

The following tables set forth the Asset Management segment’s revenues, presented on a basis consistent with the table above under “—Operating Results,” by type, asset management fees by source and assets under management for the periods indicated. In managing our business we analyze assets under management, which do not correspond to U.S. GAAP assets, because a principal source of our revenues are fees based on assets under management.


	Three Months Ended March 31,
	2008		2007
	(in millions)
Revenues by type:
Asset management fees	$	281	$	262
Incentive, transaction, principal investing and capital markets revenues		101		131
Service, distribution and other revenues(1)		166		152

Total revenues	$	548	$	545

(1)

Includes revenues under a contractual arrangement with Wachovia Securities, related to managed account services, which was originally scheduled to expire on July 1, 2006. This contract was amended effective July 1, 2005 to provide essentially a fixed fee for managed account services and is now scheduled to expire on July 1, 2008. Revenues in the first quarter of 2008 included $8 million for those management account services. Also includes payments from Wachovia Corporation under an agreement dated as of July 30, 2004 implementing arrangements with respect to money market mutual funds in connection with the combination of our retail securities brokerage and clearing operations with those of Wachovia Corporation. The agreement extends for ten years after termination of the joint venture. The revenue from Wachovia Corporation under this agreement was $14 million and $13 million in the three months ended March 31, 2008 and 2007, respectively.


	Three Months Ended March 31,
	2008		2007
	(in millions)
Asset management fees by source:
Institutional customers	$	133	$	117
Retail customers(1)		81		84
General account		67		61

Total asset management fees	$	281	$	262

(1)

Consists of individual mutual funds and both variable annuities and variable life insurance asset management revenues from our separate accounts. This also includes funds invested in proprietary mutual funds through our defined contribution plan products. Revenues from fixed annuities and the fixed rate options of both variable annuities and variable life insurance are included in the general account.


	March 31, 2008		March 31, 2007
	(in billions)
Assets Under Management (at fair market value):
Institutional customers(1)	$	174	$	161
Retail customers(2)		82		84
General account		178		169

Total	$	434	$	414

(1)	Consists of third party institutional assets and group insurance contracts.

(2)

Consists of individual mutual funds and both variable annuities and variable life insurance assets in our separate accounts. This also includes funds invested in proprietary mutual funds through our defined contribution plan products. Fixed annuities and the fixed rate options of both variable annuities and variable life insurance are included in the general account.

2008 to 2007 Three Month Comparison. Revenues, as shown in the table above under “—Operating Results,” increased $3 million, from $545 million in the first quarter of 2007 to $548 million in the first quarter of 2008. Asset management fees increased $19 million, primarily from the management of institutional customer assets as a result of increased asset values due to market appreciation and net asset flows. Service, distribution and other revenues increased $14 million, primarily due to higher income related to securities lending services due to improved yields. Revenues from incentive, transaction, principal investing and capital markets decreased $30 million, primarily reflecting a decline in revenues from the segment’s proprietary investing business driven by changes in market value in a fixed income fund and lower transaction fees, partially offset by an increase in incentive based fees primarily related to institutional real estate funds, a portion of which are offset in incentive compensation expense in accordance with the terms of the contractual agreements. Certain of our incentive fees are subject to positive or negative future adjustment based on cumulative fund performance in relation to specified benchmarks. As of March 31, 2008, approximately $180 million of cumulative incentive fee revenue, net of compensation, is subject to future adjustment.

Expenses

2008 to 2007 Three Month Comparison. Expenses, as shown in the table above under “—Operating Results,” increased $59 million, from $370 million in the first quarter of 2007 to $429 million in the first quarter of 2008, driven by higher costs related to incentive fees, as discussed above, and higher compensation costs primarily reflecting increased headcount.

Financial Advisory

Operating Results

The following table sets forth the Financial Advisory segment’s operating results for the periods indicated.


	Three Months Ended March 31,
	2008			2007
	(in millions)
Operating results:
Revenues	$	51		$	111
Expenses		7			14

Adjusted operating income		44			97
Equity in earnings of operating joint ventures(1)		(51	)		(111	)

Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures	$	(7	)	$	(14	)

(1)

Equity in earnings of operating joint ventures are included in adjusted operating income but excluded from income from continuing operations before income taxes and equity in earnings of operating joint ventures as they are reflected on a U.S. GAAP basis on an after-tax basis as a separate line in our Unaudited Interim Consolidated Statements of Operations.

On July 1, 2003, we combined our retail securities brokerage and clearing operations with those of Wachovia Corporation, or Wachovia, and formed Wachovia Securities Financial Holdings, LLC, or Wachovia Securities, a joint venture headquartered in St. Louis, Missouri. As of December 31, 2007, we had a 38% ownership interest in the joint venture with Wachovia owning the remaining 62%. The transaction included certain assets and liabilities of our securities brokerage operations; however, we retained certain assets and liabilities related to the contributed businesses, including liabilities for certain litigation and regulatory matters. We have agreed with Wachovia to indemnify each other for certain losses, including losses resulting from litigation and regulatory matters relating to certain events arising from the operations of our respective contributed businesses prior to March 31, 2004.

On October 1, 2007, Wachovia completed the acquisition of A.G. Edwards, Inc., or A.G. Edwards, for $6.8 billion and on January 1, 2008 combined the retail securities brokerage business of A.G. Edwards with Wachovia Securities. As discussed in Note 10 to the Unaudited Interim Consolidated Financial Statements, we have elected the “lookback” option under the terms of the agreements relating to the joint venture. The “lookback” option permits us to delay for two years following the combination of the A.G. Edwards business with Wachovia Securities our decision to make or not to make payments to avoid or limit dilution of our ownership interest in the joint venture. During this “lookback” period, our share in the earnings of the joint venture and one-time costs associated with the combination of the A.G. Edwards business with Wachovia Securities is based on our diluted ownership level, which is in the process of being determined. Any payments at the end of the “lookback” period to restore all or part of our ownership interest in the joint venture will be based on the appraised or agreed value of the joint venture excluding the A.G. Edwards business as well as the A.G. Edwards business. In such event, we would also need to make a true-up payment of one-time costs incurred during the “lookback” period associated with the combination to reflect the incremental increase in our ownership interest in the joint venture. Alternatively, at the end of the “lookback” period, we may “put” our joint venture interests to Wachovia based on the appraised value of the joint venture, excluding the A.G. Edwards business, as of January 1, 2008, the date of the combination of the A.G. Edwards business with Wachovia Securities.

We also retain our separate right to “put” our joint venture interests to Wachovia at any time after July 1, 2008 based on the appraised value of the joint venture, including the A.G. Edwards business, determined as if it were a public company and including a control premium such as would apply in the case of a sale of 100% of its

common equity. However, if in connection with the “lookback” option we elect at the end of the “lookback” period to make payments to avoid or limit dilution, we may not exercise this “put” option prior to the first anniversary of the end of the “lookback” period. The agreement between Prudential Financial and Wachovia also gives us put rights, and Wachovia call rights, in certain other specified circumstances, at prices determined in accordance with the agreement.

We are currently negotiating with Wachovia possible modifications to the terms of the existing agreements relating to the joint venture. Based upon the existing agreements and our estimates of the values of the A.G. Edwards business and the joint venture excluding the A.G. Edwards business, we adjusted the carrying value of our ownership interest in the joint venture effective as of January 1, 2008 to reflect the addition of that business and the dilution of our 38% ownership level and to record the value of the above described rights under the “lookback” option. As a result, effective January 1, 2008, we recognized an increase to “Additional paid-in capital” of $977 million, net of tax. Our recorded share of pre-tax earnings from the joint venture of $51 million for the three months ended March 31, 2008, reflects our estimated diluted ownership level based upon the existing agreements and our estimates of the values of the A.G. Edwards business and the joint venture excluding the A.G. Edwards business. As noted above, we are negotiating with Wachovia possible modifications to the terms of the existing agreements relating to the joint venture. Such modifications, if agreed to, as well as the establishment of definitive agreed or appraised values for the A.G. Edwards business and the joint venture excluding the A.G. Edwards business, will result in an adjustment to the credit to equity and a true-up to the earnings from the joint venture for any difference between the diluted ownership percentage used to record earnings for the three months ended March 31, 2008 and the finally determined diluted ownership percentage. We do not anticipate any such adjustment to have a material effect on our reported results of operations.

2008 to 2007 Three Month Comparison. Adjusted operating income decreased $53 million, from $97 million in the first quarter of 2007 to $44 million in the first quarter of 2008. The segment’s results for the first quarter of 2008 include our share of earnings from Wachovia Securities, on a pre-tax basis, of $51 million, based on our estimated diluted ownership level, as discussed above, compared to $111 million in the first quarter of 2007, including transition costs in the first quarter of 2008 of $46 million related to the combination of the A.G. Edwards business with Wachovia Securities. In addition, the prior year quarter benefited from a greater contribution from equity syndication activity. The segment’s results also include expenses of $7 million in the first quarter of 2008 related to obligations and costs we retained in connection with the contributed businesses, primarily for litigation and regulatory matters, compared to $14 million in the first quarter of 2007.

Retirement

Operating Results

The following table sets forth the Retirement segment’s operating results for the periods indicated.


	Three Months Ended March 31,
	2008			2007
	(in millions)
Operating results:
Revenues	$	1,267		$	1,163
Benefits and expenses		1,143			1,015

Adjusted operating income		124			148
Realized investment gains (losses), net, and related adjustments(1)		(179	)		(7	)
Related charges(2)		(3	)		(1	)
Investment gains (losses) on trading account assets supporting insurance liabilities, net(3)		(105	)		58
Change in experience-rated contractholder liabilities due to asset value changes(4)		43			(40	)

Income (loss) from continuing operations before income taxes and equity in earnings of operating joint ventures	$	(120	)	$	158

(1)

Revenues exclude Realized investment gains (losses), net, and related adjustments. See “—Realized Investment Gains and Losses and General Account Investments—Realized Investment Gains and Losses.” Realized investments gains (losses), net includes $(39) million and $1 million for the three months ended March 31, 2008 and 2007, respectively, related to certain externally managed investments in the European market. See “—Consolidated Results of Operations—Segment Measures” for information on the amendment to our adjusted operating income definition related to the treatment of these investments.

(2)	Benefits and expenses exclude related charges which represent the unfavorable (favorable) impact of Realized investment gains (losses), net, on change in reserves and the amortization of deferred policy acquisition costs.

(3)	Revenues exclude net investment gains and losses on trading account assets supporting insurance liabilities. See “—Trading Account Assets Supporting Insurance Liabilities.”

(4)	Benefits and expenses exclude changes in contractholder liabilities due to asset value changes in the pool of investments supporting these experience-rated contracts. See “—Trading Account Assets Supporting Insurance Liabilities.”

On December 31, 2007 we acquired a portion of Union Bank of California, N.A.’s retirement business, including $7.3 billion in full service retirement account values, for $103 million of cash consideration. The retirement account values related to this acquisition primarily consist of mutual funds and other client assets we administer, and are not reported on our balance sheet.

Adjusted Operating Income

2008 to 2007 Three Month Comparison. Adjusted operating income for the Retirement segment decreased $24 million, from $148 million in the first quarter of 2007 to $124 million in the first quarter of 2008, reflecting lower adjusted operating income in our full service business and essentially unchanged results for our institutional investment products business. The decrease relating to the full service business was primarily attributable to higher general and administrative expenses and a lower contribution from investment results due to lower investment yields on certain general account defined contribution balances. Also contributing to the decrease in the full service business was a $4 million loss in the first quarter of 2008 relating to the acquired retirement business of Union Bank of California, N.A., including costs related to an interim service agreement with Union Bank of California, N.A., which covers the integration period. In our institutional investment products business, a decrease in the level of mortgage prepayment income and an unfavorable variance in the mark to market of equity investments required in certain of our separate account products, was offset by more favorable case experience related to a group annuity block of business.

Revenues

2008 to 2007 Three Month Comparison. Revenues, as shown in the table above under “—Operating Results,” increased $104 million, from $1.163 billion in the first quarter of 2007 to $1.267 billion in the first quarter of 2008. Premiums increased $104 million, driven by higher single premium group annuity and life-contingent structured settlement sales, and resulted in a corresponding increase in policyholders’ benefits, including the change in policy reserves, as discussed below. In addition, the first quarter of 2008 included $6 million of revenues associated with the acquired retirement business of Union Bank of California, N.A., which is primarily reflected within asset management fees and other income. Net investment income decreased slightly, as the benefit from a larger base of invested assets due to sales of guaranteed investment products in the institutional and retail markets was offset by lower balances of investments supported by borrowings, a decrease in the level of mortgage prepayment income, an unfavorable variance in the mark to market of equity investments required in certain of our separate account products, and lower investment yields on certain general account defined contribution balances.

Benefits and Expenses

2008 to 2007 Three Month Comparison. Benefits and expenses, as shown in the table above under “—Operating Results,” increased $128 million, from $1.015 billion in the first quarter of 2007 to $1.143 billion in the first quarter of 2008. Policyholders’ benefits, including the change in policy reserves, increased $90 million primarily reflecting the increase in premiums on higher single premium group annuity and life-contingent structured settlement sales discussed above, partially offset by more favorable case experience related to a group annuity block of business in the first quarter of 2008. Interest credited to policyholders’ account balances increased $41 million, primarily reflecting higher interest credited on a greater base of guaranteed investment products sold in the institutional and retail markets. General and administrative expenses, net of capitalization, increased $14 million, and included $10 million of costs in the first quarter of 2008 associated with the acquired retirement business of Union Bank of California, N.A., including costs related to an interim services agreement with Union Bank of California, N.A., which covers the integration period. Partially offsetting these items was a $19 million decrease in interest expense reflecting lower borrowings used to support investments.

Sales Results and Account Values

The following table shows the changes in the account values and net additions (withdrawals) of Retirement segment products for the periods indicated. Net additions (withdrawals) are deposits and sales or additions, as applicable, minus withdrawals and benefits. These concepts do not correspond to revenues under U.S. GAAP, but are used as a relevant measure of business activity.


	Three Months Ended March 31,
	2008			2007
	(in millions)
Full Service(1):
Beginning total account value	$	112,192		$	97,430
Deposits and sales		4,586			4,003
Withdrawals and benefits		(3,933	)		(3,433	)
Change in market value, interest credited and interest income		(5,785	)		1,558

Ending total account value	$	107,060		$	99,558

Net additions	$	653		$	570


Institutional Investment Products(2):
Beginning total account value	$	51,591		$	50,269
Additions		1,810			1,533
Withdrawals and benefits(3)		(1,702	)		(1,743	)
Change in market value, interest credited and interest income		561			607
Other(3)(4)		(593	)		(5	)

Ending total account value	$	51,667		$	50,661

Net additions (withdrawals)	$	108		$	(210	)

(1)	Ending total account value for the full service business includes assets of Prudential’s retirement plan of $5.5 billion and $5.7 billion as of March 31, 2008 and 2007, respectively.

(2)	Ending total account value for the institutional investment products business includes assets of Prudential’s retirement plan of $5.2 billion and $5.3 billion as of March 31, 2008 and 2007, respectively.

(3)	Transfers between the Retirement and Asset Management segments, previously presented within Withdrawals and benefits, have been reclassified to Other for all periods presented.

(4)	Other includes transfers from (to) the Asset Management segment of $(206) million for the three months ended March 31, 2008. Remaining amounts for all periods presented primarily represents changes in asset balances for externally managed accounts.

2008 to 2007 Three Month Comparison. Account values in our full service business amounted to $107.1 billion as of March 31, 2008, a decrease of $5.1 billion from December 31, 2007. The decrease in account values was driven primarily by a decrease in the market value of customer funds due to declines in the equity markets, partially offset by net additions of $653 million. Account values in our full service business as of March 31, 2008 increased $7.5 billion from March 31, 2007, primarily reflecting $7.3 billion of account values acquired from Union Bank of California, N.A. Net additions increased $83 million, from $570 million in the first quarter of 2007 to $653 million in the first quarter of 2008, reflecting higher participant contributions and new plan sales, partially offset by higher plan lapses.

Account values in our institutional investment products business amounted to $51.7 billion as of March 31, 2008, an increase of $76 million from December 31, 2007, primarily reflecting interest on general account business and net additions of $108 million, partially offset by declines in the value of asset balances for externally managed accounts. Account values in our institutional investment products business as of March 31, 2008 increased $1.0 billion from March 31, 2007, primarily reflecting interest on general account business and an increase in the market value of customer funds, partially offset by net withdrawals. Net additions (withdrawals) increased $318 million, from net withdrawals of $210 million in the first quarter of 2007 to net additions of $108 million in the first quarter of 2008. This increase primarily reflects higher additions driven by higher sales of structured settlements and single premium group annuities.

International Insurance and Investments Division

Impact of foreign currency exchange rate movements on earnings

As a U.S.-based company with significant business operations outside the U.S., we seek to mitigate the risk that future unfavorable foreign currency exchange rate movements will reduce our U.S. dollar equivalent earnings. The operations of our International Insurance and International Investments segments are subject to currency fluctuations that can materially affect their U.S. dollar results from period to period even if results on a local currency basis are relatively constant. As discussed further below, we enter into forward currency derivative contracts, as well as “dual currency” and “synthetic dual currency” investments, as part of our strategy to effectively fix the currency exchange rates for a portion of our prospective non-U.S. dollar denominated earnings streams.

Forward currency hedging program

The financial results of our International Insurance segment and International Investments segment, excluding the global commodities group, for all periods presented reflect the impact of an intercompany arrangement with Corporate and Other operations pursuant to which the segments’ non-U.S. dollar denominated earnings in all countries are translated at fixed currency exchange rates. The fixed rates are determined in connection with a currency income hedging program designed to mitigate the risk that unfavorable exchange rate changes will reduce the segments’ U.S. dollar equivalent earnings. Pursuant to this program, Corporate and Other operations executes forward currency contracts with third parties to sell the hedged currency in exchange for U.S. dollars at specified exchange rates. The maturities of these contracts correspond with the future periods in which the identified non-U.S. dollar denominated earnings are expected to be generated. This program is primarily associated with the International Insurance segment’s businesses in Japan, Korea and Taiwan and the International Investments segment’s businesses in Korea and Europe. The intercompany arrangement with Corporate and Other operations increased (decreased) revenues and adjusted operating income of each segment as follows for the periods indicated:


	Three Months Ended March 31,
	2008		2007
	(in millions)
Impact on revenues and adjusted operating income:
International Insurance	$	—	$	28
International Investments		—		(3	)

Total International Insurance and Investments Division	$	—	$	25

Results of Corporate and Other operations include any differences between the translation adjustments recorded by the segments and the gains or losses recorded from the forward currency contracts that settled during the period. The consolidated net impact of this program recorded within the Corporate and Other operations were gains of $1 million and losses of $4 million for the three months ended March 31, 2008 and 2007, respectively.

Dual currency and synthetic dual currency investments

In addition, our Japanese insurance operations also hold dual currency investments in the form of fixed maturities and loans. The principal of these dual currency investments are yen-denominated while the related interest income is U.S. dollar denominated. These investments are the economic equivalent of exchanging what would otherwise be fixed streams of yen-denominated interest income for fixed streams of U.S. dollars. Our Japanese insurance operations also hold investments in yen-denominated investments that have been coupled with cross-currency coupon swap agreements, creating synthetic dual currency investments. The yen/U.S. dollar exchange rate is effectively fixed, as we are obligated in future periods to exchange fixed amounts of Japanese yen interest payments generated by the yen-denominated investments for U.S. dollars at the yen/U.S. dollar exchange rates specified by the cross-currency coupon swap agreements. As of both March 31, 2008 and December 31, 2007, the notional amount of these investments was ¥538 billion, or $4.8 billion based upon the foreign currency exchange rates applicable at the time these investments were acquired. For the three months ended March 31, 2008 and 2007, the weighted average yields generated by these investments were 2.4% and 2.3%, respectively.

Presented below is the fair value of these instruments as reflected on our balance sheet for the periods presented.


	March 31, 2008			December 31, 2007
	(in millions)
Cross-currency coupon swap agreements	$	8		$	40
Foreign exchange component of interest on dual currency investments		(45	)		(11	)

Total	$	(37	)	$	29

The table below presents as of March 31, 2008, the yen-denominated earnings subject to our dual currency and synthetic dual currency investments and the related weighted average exchange rates resulting from these investments.


Year	(1) Interest component of dual currency investments		Cross-currency coupon swap element of synthetic dual currency investments		Yen-denominated earnings subject to these investments	Weighted average exchange rate per U.S. Dollar
	(in billions)					(Yen per $)
Remainder of 2008	¥	2.9	¥	6.5	¥ 9.4	90.8
2009		3.4		5.8	9.2	88.7
2010		3.2		4.9	8.1	87.4
2011		3.1		3.8	6.9	85.6
2012-2034		36.0		56.4	92.4	79.5

Total		¥48.6	¥	77.4	¥126.0	81.7