485BPOS 1 d485bpos.txt PALAC XTRA CREDIT 8 Filed with the Securities and Exchange Commission on April 17, 2009 Registration No. 333-150220 Investment Company Act No. 811-5438 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Post-Effective Amendment No. 10 and REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 179 PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B (Exact Name of Registrant) PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION (Name of Depositor) ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (Address of Depositor's Principal Executive Offices) (203) 926-1888 (Depositor's Telephone Number) JOSEPH D. EMANUEL, CHIEF LEGAL OFFICER One Corporate Drive, Shelton, Connecticut 06484 (Name and Address of Agent for Service of Process) Copy To: C. CHRISTOPHER SPRAGUE, ESQ. VICE PRESIDENT AND CORPORATE COUNSEL One Corporate Drive, Shelton, Connecticut 06484 (203) 402-1233 Approximate Date of Proposed Sale to the Public: continuous Title of Securities Being Registered: Units of interest in Separate Accounts under variable annuity contracts. It is proposed that this filing become effective: (check appropriate space) [_]immediately upon filing pursuant to paragraph (b) of Rule 485 [X]on May 1, 2009 pursuant to paragraph (b) of Rule 485 [_]60 days after filing pursuant to paragraph (a) (i) of Rule 485 [_]on _________ pursuant to paragraph (a) (i) of Rule 485 [_]75 days after filing pursuant to paragraph (a) (ii) of Rule 485 [_]on ________ pursuant to paragraph (a) (ii) of Rule 485 ================================================================================ PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION A Prudential Financial Company One Corporate Drive, Shelton, Connecticut 06484 ADVANCED SERIES XTRA CREDIT EIGHT/SM/ ("XT8")/SM/ Flexible Premium Deferred Annuities PROSPECTUS: May 1, 2009 This prospectus describes a flexible premium deferred annuity (the "Annuities" or the "Annuity") offered by Prudential Annuities Life Assurance Corporation ("Prudential Annuities/SM/", "we", "our", or "us"). The Annuity may be offered as an individual annuity contract or as an interest in a group annuity. The Annuity has different features and benefits that may be appropriate for you based on your financial situation, your age and how you intend to use the Annuity. This Prospectus describes the important features of the Annuities and what you should consider before purchasing the Annuity. The Prospectus also describes the fees and charges you pay and product features such as the availability of certain bonus amounts and basic death benefit protection. These features are discussed more fully in the Prospectus. There may be differences in compensation among different annuity products that could influence a Financial Professional's decision as to which annuity to recommend to you. In addition, selling broker-dealer firms through which the Annuity is sold may decline to make available to their customers certain of the optional features and investment options offered generally under the Annuity. Alternatively, such firms may restrict the optional benefits that they do make available to their customers (e.g., by imposing a lower maximum issue age for certain optional benefits than what is prescribed generally under the Annuity). Please speak to your Financial Professional for further details. The Annuity or certain of its investment options and/or features may not be available in all states. For the variations specific to Annuities approved for sale by the New York State Insurance Department, see Appendix D. Certain terms are capitalized in this Prospectus. Those terms are either defined in the Glossary of Terms or in the context of the particular section. Because this Annuity grants credit amounts with respect to your Purchase Payments, the expenses of this Annuity may be higher than expenses for an annuity without a credit. In addition, the amount of the credits that you receive under this Annuity may be more than offset by the additional fees and charges associated with the credit. This Annuity is no longer offered for new sales, however, existing owners may continue to make purchase payments. THE SUB-ACCOUNTS Each Sub-account of Prudential Annuities Life Assurance Corporation Variable Account B invests in an underlying mutual fund portfolio. Prudential Annuities Life Assurance Corporation Variable Account B is a separate account of Prudential Annuities, and is the investment vehicle in which your Purchase Payments are held. Currently, portfolios of the following underlying mutual funds are being offered: AIM Variable Insurance Funds, Advanced Series Trust, Evergreen Variable Annuity Trust, First Defined Portfolio Fund, LLC, Nationwide Variable Insurance Trust, The Prudential Series Fund, Franklin Templeton Variable Insurance Products Trust and Wells Fargo Variable Trust. See the following page for the complete list of Sub-accounts. PLEASE READ THIS PROSPECTUS Please read this Prospectus and the current prospectus for the underlying mutual funds. Keep them for future reference. If you are purchasing an Annuity as a replacement for an existing variable annuity or variable life coverage or a fixed insurance policy, you should consider any surrender or penalty charges you may incur when replacing your existing coverage and that this Annuity may be subject to a contingent deferred sales charge if you elect to surrender the Annuity or take a partial withdrawal. You should consider your need to access the Annuity's Account Value and whether the Annuity's liquidity features will satisfy that need. AVAILABLE INFORMATION We have also filed a Statement of Additional Information that is available from us, without charge, upon your request. The contents of the Statement of Additional Information are described at the end of this prospectus under "Contents of Statement of Additional Information". The Statement of Additional Information is incorporated by reference into this prospectus. This Prospectus is part of the registration statement we filed with the SEC regarding this offering. Additional information on us and this offering is available in the registration statement and the exhibits thereto. You may review and obtain copies of these materials at no cost to you by contacting us. These documents, as well as documents incorporated by reference, may also be obtained through the SEC's Internet Website (http://www.sec.gov) for this registration statement as well as for other registrants that file electronically with the SEC. These annuities are NOT deposits or obligations of, or issued, guaranteed or endorsed by, any bank, are NOT insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency. An investment in an annuity involves investment risks, including possible loss of value, even with respect to amounts allocated to the AST Money Market Sub-account. -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. XTRA CREDIT(R) IS A REGISTERED TRADEMARK OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND IS USED UNDER LICENSE BY ITS AFFILIATES. -------------------------------------------------------------------------------- FOR FURTHER INFORMATION CALL: 1-888-PRU-2888 Prospectus Dated: May 1, 2009 Statement of Additional Information Dated: May 1, 2009 ASXT8PROS XT8SAI
PLEASE SEE OUR PRIVACY POLICY AND OUR IRA, ROTH IRA AND FINANCIAL DISCLOSURE STATEMENTS ATTACHED TO THE BACK COVER OF THIS PROSPECTUS. INVESTMENT OPTIONS (Certain investment options may not be available with your Annuity) Advanced Series Trust AST Academic Strategies Asset Allocation AST Advanced Strategies AST Aggressive Asset Allocation AST AllianceBernstein Core Value AST AllianceBernstein Growth & Income AST American Century Income & Growth AST Balanced Asset Allocation AST Bond Portfolio 2015 AST Bond Portfolio 2016 AST Bond Portfolio 2018 AST Bond Portfolio 2019 AST Bond Portfolio 2020 AST Capital Growth Asset Allocation AST CLS Growth Asset Allocation AST CLS Moderate Asset Allocation AST Cohen & Steers Realty AST DeAM Large-Cap Value AST Federated Aggressive Growth AST First Trust Balanced Target AST First Trust Capital Appreciation Target AST Focus Four Plus AST Global Real Estate AST Goldman Sachs Concentrated Growth AST Goldman Sachs Mid-Cap Growth AST Goldman Sachs Small-Cap Value AST High Yield AST Horizon Growth Asset Allocation AST Horizon Moderate Asset Allocation AST International Growth AST International Value AST Investment Grade Bond AST JPMorgan International Equity AST Large-Cap Value AST Lord Abbett Bond Debenture AST Marsico Capital Growth AST MFS Global Equity AST MFS Growth AST Mid-Cap Value AST Money Market AST Neuberger Berman Mid-Cap Growth AST Neuberger Berman/LSV Mid-Cap Value AST Neuberger Berman Small-Cap Growth AST Nieman Capital Growth Asset Allocation AST Parametric Emerging Markets Equity AST PIMCO Limited Maturity Bond AST PIMCO Total Return Bond AST Preservation Asset Allocation AST QMA US Equity Alpha AST Schroders Multi-Asset World Strategies AST Small-Cap Growth AST Small-Cap Value AST T. Rowe Price Asset Allocation AST T. Rowe Price Global Bond AST T. Rowe Price Large-Cap Growth AST T. Rowe Price Natural Resources AST UBS Dynamic Alpha AST Western Asset Core Plus Bond AIM Variable Insurance Funds AIM V.I. Dynamics Fund -- Series I shares AIM V.I. Financial Services Fund -- Series I shares AIM V.I. Global Health Care Fund -- Series I shares AIM V.I. Technology Fund -- Series I shares Evergreen Variable Annuity Trust Growth International Equity Omega First Defined Portfolio Fund, LLC First Trust Target Focus Four Global Dividend Target 15 NASDAQ(R) Target 15 S&P(R) Target 24 Target Managed VIP The Dow(R) DART 10 The Dow(R) Target Dividend Value Line(R) Target 25 Franklin Templeton Variable Insurance Products Trust Franklin Templeton VIP Founding Funds Allocation Fund Nationwide Variable Insurance Trust Gartmore NVIT Developing Markets Fund Wells Fargo Variable Trust Wells Fargo Advantage VT Equity Income CONTENTS GLOSSARY OF TERMS..................................................................... 1 SUMMARY OF CONTRACT FEES AND CHARGES.................................................. 4 EXPENSE EXAMPLES...................................................................... 14 SUMMARY............................................................................... 15 INVESTMENT OPTIONS.................................................................... 19 WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?................... 19 WHAT ARE THE FIXED ALLOCATIONS?...................................................... 34 FEES AND CHARGES...................................................................... 35 WHAT ARE THE CONTRACT FEES AND CHARGES?.............................................. 35 WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?......................................... 36 WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYMENT OPTION?............................ 37 EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES............................................ 37 PURCHASING YOUR ANNUITY............................................................... 38 WHAT ARE OUR REQUIREMENTS FOR PURCHASING ONE OF THE ANNUITIES?....................... 38 MANAGING YOUR ANNUITY................................................................. 39 MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?...................... 39 MAY I RETURN MY ANNUITY IF I CHANGE MY MIND?......................................... 39 MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?............................................. 40 MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?......................... 40 MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?..................... 40 MANAGING YOUR ACCOUNT VALUE........................................................... 41 HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?......................................... 41 HOW DO I RECEIVE CREDITS UNDER THE XT8 ANNUITY?...................................... 41 HOW ARE CREDITS APPLIED TO ACCOUNT VALUE UNDER THE XT8 ANNUITY?...................... 41 ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?........... 42 DO YOU OFFER DOLLAR COST AVERAGING?.................................................. 43 HOW DO THE FIXED ALLOCATIONS WORK?................................................... 45 HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?.................................... 46 WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?....................................... 46 DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?..................................... 47 ARE ANY ASSET ALLOCATION PROGRAMS AVAILABLE?......................................... 47 WHAT IS THE BALANCED INVESTMENT PROGRAM?............................................. 47 MAY I GIVE MY FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION INSTRUCTIONS?. 47 MAY I AUTHORIZE MY THIRD PARTY INVESTMENT ADVISOR TO MANAGE MY ACCOUNT?.............. 48 HOW DOES THE MARKET VALUE ADJUSTMENT WORK?........................................... 48 ACCESS TO ACCOUNT VALUE............................................................... 50 WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?..................................... 50 ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?........................................ 50 CAN I WITHDRAW A PORTION OF MY ANNUITY?.............................................. 50 HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?........................................ 51 CAN I MAKE PERIODIC WITHDRAWALS FROM MY ANNUITY DURING THE ACCUMULATION PERIOD?...... 51 DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE?.............................................................................. 51 WHAT ARE REQUIRED MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?.......... 51 CAN I SURRENDER MY ANNUITY FOR ITS VALUE?............................................ 52 WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?.......................... 52 WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?......................................... 52 HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?................................. 53 HOW ARE ANNUITY PAYMENTS CALCULATED?................................................. 53
(i) LIVING BENEFIT PROGRAMS..................................................................... 55 DO YOU OFFER PROGRAMS DESIGNED TO PROVIDE INVESTMENT PROTECTION FOR OWNERS WHILE THEY ARE ALIVE?............................................................................... 55 GUARANTEED RETURN OPTION PLUS 2008 (GRO PLUS 2008)......................................... 56 HIGHEST DAILY GUARANTEED RETURN OPTION (HD GRO)............................................ 60 GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB)............................................... 63 GUARANTEED MINIMUM INCOME BENEFIT (GMIB)................................................... 66 LIFETIME FIVE INCOME BENEFIT (LIFETIME FIVE)............................................... 70 SPOUSAL LIFETIME FIVE INCOME BENEFIT (SPOUSAL LIFETIME FIVE)............................... 75 HIGHEST DAILY LIFETIME FIVE INCOME BENEFIT (HD5)........................................... 79 HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT (HD7).......................................... 87 SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT (SHD7)................................. 98 HIGHEST DAILY LIFETIME 7 PLUS/SM/ INCOME BENEFIT (HIGHEST DAILY LIFETIME 7 PLUS)/SM/....... 108 SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS/SM/ INCOME BENEFIT (SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS)/SM/................................................................................ 121 DEATH BENEFIT............................................................................... 131 WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?.............................................. 131 BASIC DEATH BENEFIT........................................................................ 131 OPTIONAL DEATH BENEFITS.................................................................... 131 PRUDENTIAL ANNUITIES'S ANNUITY REWARDS..................................................... 136 PAYMENT OF DEATH BENEFITS.................................................................. 136 VALUING YOUR INVESTMENT..................................................................... 139 HOW IS MY ACCOUNT VALUE DETERMINED?........................................................ 139 WHAT IS THE SURRENDER VALUE OF MY ANNUITY?................................................. 139 HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?................................................ 139 HOW DO YOU VALUE FIXED ALLOCATIONS?........................................................ 139 WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?................................................ 139 TAX CONSIDERATIONS.......................................................................... 141 GENERAL INFORMATION......................................................................... 150 HOW WILL I RECEIVE STATEMENTS AND REPORTS?................................................. 150 WHO IS PRUDENTIAL ANNUITIES?............................................................... 150 WHAT ARE SEPARATE ACCOUNTS?................................................................ 150 WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?....................................... 152 WHO DISTRIBUTES ANNUITIES OFFERED BY PRUDENTIAL ANNUITIES?................................. 153 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................ 156 FINANCIAL STATEMENTS....................................................................... 156 HOW TO CONTACT US.......................................................................... 156 INDEMNIFICATION............................................................................ 157 LEGAL PROCEEDINGS.......................................................................... 157 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION........................................ 158 APPENDIX A - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B....................... A-1 APPENDIX B - CALCULATION OF OPTIONAL DEATH BENEFITS......................................... B-1 APPENDIX C - FORMULA UNDER HIGHEST DAILY LIFETIME FIVE INCOME BENEFIT....................... C-1 APPENDIX D - ANNUITIES APPROVED FOR SALE BY THE NEW YORK STATE INSURANCE DEPARTMENT......... D-1 APPENDIX E - FORMULA UNDER GRO PLUS 2008 AND HIGHEST DAILY GRO.............................. E-1 APPENDIX F - FORMULA UNDER HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT AND SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT............................................... F-1 APPENDIX G - SELECTING THE VARIABLE ANNUITY THAT'S RIGHT FOR YOU............................ G-1 APPENDIX H - FORMULA UNDER HIGHEST DAILY LIFETIME 7 PLUS INCOME BENEFIT AND SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS INCOME BENEFIT.............................................. H-1 APPENDIX I - SPECIAL CONTRACT PROVISIONS FOR ANNUITIES ISSUED IN CERTAIN STATES............. I-1
(ii) GLOSSARY OF TERMS Many terms used within this Prospectus are described within the text where they appear. The description of those terms are not repeated in this Glossary of Terms. Account Value: The value of each allocation to a Sub-account (also referred to as a "variable investment option") or a Fixed Allocation prior to the Annuity Date, increased by any earnings, and/or less any losses, distributions and charges. The Account Value is calculated before we assess any applicable Contingent Deferred Sales Charge ("CDSC" or "surrender charge") and/or, other than on an annuity anniversary, any fee that is deducted from the Annuity annually in arrears. The Account Value is determined separately for each Sub-account and for each Fixed Allocation, and then totaled to determine the Account Value for your entire Annuity. The Account Value of each Fixed Allocation on other than its Maturity Date may be calculated using a market value adjustment. The Account Value includes any Credits we applied to your Purchase Payments that we are entitled to take back under certain circumstances. With respect to Annuities with a Highest Daily Lifetime Five Income Benefit election, Account Value includes the value of any allocation to the Benefit Fixed Rate Account. Adjusted Purchase Payments: As used in the discussion of certain optional benefits in this prospectus and elsewhere, Adjusted Purchase Payments are purchase payments, increased by any Credits applied to your Account Value in relation to such Purchase Payments, and decreased by any charges deducted from such Purchase Payments. Annuitization: The application of Account Value to one of the available annuity options for the Owner to begin receiving periodic payments for life (or joint lives), for a guaranteed minimum number of payments or for life with a guaranteed minimum number of payments. Annuity Date: The date you choose for annuity payments to commence. Unless we agree otherwise, the Annuity Date must be no later than the first day of the calendar month coinciding with or next following the later of: (a) the oldest Owner's or Annuitant's 95/th/ birthday, whichever occurs first, and (b) the fifth anniversary of the Issue Date. Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and each successive 12-month period thereafter. Benefit Fixed Rate Account: A fixed investment option offered as part of this Annuity that is used only if you have elected the optional Highest Daily Lifetime Five Income Benefit. Amounts allocated to the Benefit Fixed Rate Account earn a fixed rate of interest, and are held within our general account. You may not allocate Purchase Payments to the Benefit Fixed Rate Account. Rather, Account Value is transferred to the Benefit Fixed Rate Account only under the asset transfer feature of the Highest Daily Lifetime Five Income Benefit. Code: The Internal Revenue Code of 1986, as amended from time to time. Combination 5% Roll-Up and HAV Death Benefit: We offer an optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing the greater of the Highest Anniversary Value Death Benefit and a 5% annual increase on Purchase Payments adjusted for withdrawals. Contingent Deferred Sales Charge (CDSC): This is a sales charge that may be deducted when you make a full or partial withdrawal under your Annuity. We refer to this as a "contingent" charge because it is imposed only if you make a withdrawal. The charge is a percentage of each applicable Purchase Payment that is being withdrawn. The period during which a particular percentage applies is measured from the Issue Date of the Annuity. See "Summary of Contract Fees and Charges" for details on the CDSC. DCA Fixed Rate Option: An investment option that offers a fixed rate of interest for a specified period during the accumulation period. The DCA Fixed Rate Option is used only with our 6 or 12 Month Dollar Cost Averaging Program ("6 or 12 month DCA Program"), under which the Purchase Payments that you have allocated to that DCA Fixed Rate Option are transferred to the designated Sub-accounts over a 6 month or 12 month period. Withdrawals or transfers from the DCA Fixed Rate Option are not subject to any Market Value Adjustment. Enhanced Beneficiary Protection Death Benefit: We offer an Optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing amounts in addition to the basic Death Benefit that can be used to offset federal and state taxes payable on any taxable gains in your Annuity at the time of your death. Fixed Allocation: An investment option that offers a fixed rate of interest for a specified Guarantee Period during the accumulation period. Certain Fixed Allocations are subject to a market value adjustment if you withdraw Account Value prior to the Fixed Allocation's maturity (MVA Fixed Allocation). We also offer DCA Fixed Rate Options that are used with our 6 or 12 Month Dollar Cost Averaging Program ("6 or 12 Month DCA Program"), and are not subject to any market value adjustment. You may participate in a dollar cost averaging program outside of the 6 or 12 Month DCA Program, where the source of funds to be transferred is a fixed allocation. 1 Free Look: Under state insurance laws, you have the right, during a limited period of time, to examine your Annuity and decide if you want to keep it or cancel it. This right is referred to as your "free look" right. The length of this time period depends on the law of your state, and may vary depending on whether your purchase is a replacement or not. Guaranteed Minimum Income Benefit (GMIB): An optional benefit that, for an additional cost, after a seven-year waiting period, guarantees your ability to begin receiving income from your Annuity in the form of annuity payments based on your total Purchase Payments and an annual increase of 5% on such Purchase Payments adjusted for withdrawals (called the "Protected Income Value"), regardless of the impact of market performance on your Account Value. We no longer offer GMIB. Guaranteed Minimum Withdrawal Benefit (GMWB): An optional benefit that, for an additional cost, guarantees your ability to withdraw amounts over time equal to an initial principal value, regardless of the impact of market performance on your Account Value. We no longer offer GMWB. Guarantee Period: A period of time during the accumulation period where we credit a fixed rate of interest on a Fixed Allocation. Guaranteed Return Option Plus 2008/SM/ (GRO Plus 2008)/SM//Highest Daily Guaranteed Return Option/SM/ (Highest Daily GRO): Each of GRO Plus 2008 and Highest Daily GRO is a separate optional benefit that, for an additional cost, guarantees a minimum Account Value at one or more future dates and that requires your participation in an asset transfer program. Highest Anniversary Value Death Benefit ("HAV"): We offer an optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing a death benefit equal to the greater of the basic Death Benefit and the Highest Anniversary Value, less proportional withdrawals. Highest Daily Lifetime Five/SM/ Income Benefit: An optional benefit that, for an additional cost, guarantees your ability to withdraw an annual amount equal to a percentage of a guaranteed benefit base called the Total Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. We no longer offer Highest Daily Lifetime Five. Highest Daily Lifetime Seven/SM/ Income Benefit: An optional benefit that is available for an additional charge. The benefit guarantees your ability to withdraw amounts equal to a percentage of a guaranteed benefit base called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. Highest Daily Lifetime Seven is the same class of optional benefit as our Highest Daily Lifetime Five Income Benefit, but differs (among other things) with respect to how the Protected Withdrawal Value is calculated and how the lifetime withdrawals are calculated. Starting in 2009, we began offering Highest Daily Lifetime 7 Plus in lieu of Highest Daily Lifetime Seven wherever we have received the required State and selling firm approvals. Highest Daily Lifetime 7 Plus/SM/ Income Benefit: An optional benefit that is available for an additional charge. The benefit guarantees your ability to withdraw amounts equal to a percentage of a guaranteed benefit base called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. Highest Daily Lifetime 7 Plus is the same class of optional benefit as our Highest Daily Lifetime Seven Income Benefit, but differs (among other things) with respect to how the Protected Withdrawal Value is calculated and how the lifetime withdrawals are calculated. Starting in 2009, we began offering Highest Daily Lifetime 7 Plus in lieu of Highest Daily Lifetime Seven wherever we have received the required State and selling firm approvals. Highest Daily Value Death Benefit ("HDV"): An optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing a death benefit equal to the greater of the basic Death Benefit and the Highest Daily Value, less proportional withdrawals. We no longer offer HDV. Interim Value: The value of the MVA Fixed Allocation on any date other than the Maturity Date. The Interim Value is equal to the initial value allocated to the MVA Fixed Allocation plus all interest credited to the Fixed Allocation as of the date calculated, less any transfers or withdrawals from the MVA Fixed Allocation. Issue Date: The effective date of your Annuity. Key Life: Under the Beneficiary Continuation Option, the person whose life expectancy is used to determine payments. Lifetime Five/SM/ Income Benefit: An optional benefit that, for an additional cost, guarantees your ability to withdraw an annual amount equal to a percentage of an initial principal value called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. We no longer offer Lifetime Five. 2 MVA: A market value adjustment used in the determination of Account Value of a MVA Fixed Allocation on any day more than 30 days prior to the Maturity Date of such MVA Fixed Allocation. In addition to MVA Fixed Allocations that are subject to an MVA, Book Value Fixed Allocations may be used with our enhanced dollar cost averaging program, and are not subject to any MVA. Owner: With an Annuity issued as an individual annuity contract, the Owner is either an eligible entity or person named as having ownership rights in relation to the Annuity. With an Annuity issued as a certificate under a group annuity contract, the "Owner" refers to the person or entity who has the rights and benefits designated as to the "Participant" in the certificate. Spousal Lifetime Five/SM/ Income Benefit: An optional benefit that, for an additional cost, guarantees until the later death of two Designated Lives (as defined in this Prospectus) the ability to withdraw an annual amount equal to a percentage of guaranteed benefit base called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. We no longer offer Spousal Lifetime Five. Spousal Highest Daily Lifetime Seven/SM/ Income Benefit: An optional benefit that, for an additional charge, guarantees your ability to withdraw amounts equal to a percentage of a guaranteed benefit base called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. The benefit is the spousal version of the Highest Daily Lifetime Seven Income Benefit and is the same class of optional benefit as our Highest Daily Lifetime Five Income Benefit, but differs (among other things) with respect to how the Protected Withdrawal Value are calculated and to how the lifetime withdrawals are calculated. Starting in 2009, we began offering Spousal Highest Daily Lifetime 7 Plus in lieu of Spousal Highest Daily Lifetime Seven wherever we have received the required State and selling firm approvals. Spousal Highest Daily Lifetime 7 Plus/SM/ Income Benefit: An optional benefit that, for an additional charge, guarantees your ability to withdraw amounts equal to a percentage of a guaranteed benefit base called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. The benefit is the spousal version of the Highest Daily Lifetime 7 Plus Income Benefit and is the same class of optional benefit as our Spousal Highest Daily Lifetime Seven Income Benefit, but differs (among other things) with respect to how the Protected Withdrawal Values are calculated and to how the lifetime withdrawals are calculated. Starting in 2009, we began offering Spousal Highest Daily Lifetime 7 Plus in lieu of Spousal Highest Daily Lifetime Seven wherever we have received the required State and selling firm approvals. Sub-Account: We issue your Annuity through our separate account. See "What is the Separate Account?" under the General Information section. The separate account invests in underlying mutual fund portfolios. From an accounting perspective, we divide the separate account into a number of sections, each of which corresponds to a particular underlying mutual fund portfolio. We refer to each such section of our separate account as a "Sub-account". Surrender Value: The value of your Annuity available upon surrender prior to the Annuity Date. It equals the Account Value as of the date we price the surrender minus any applicable CDSC, Annual Maintenance Fee, Tax Charge and the charge for any optional benefits and any additional amounts we applied to your Purchase Payments that we may be entitled to recover under certain circumstances. The surrender value may be calculated using a MVA with respect to amounts in any Fixed Allocation. Unit: A measure used to calculate your Account Value in a Sub-account during the accumulation period. Valuation Day: Every day the New York Stock Exchange is open for trading or any other day the Securities and Exchange Commission requires mutual funds or unit investment trusts to be valued. 3 SUMMARY OF CONTRACT FEES AND CHARGES Below is a summary of the fees and charges for the Annuities. Some fees and charges are assessed against each Annuity while others are assessed against assets allocated to the Sub-accounts. The fees and charges that are assessed against an Annuity include any applicable Contingent Deferred Sales Charge, Transfer Fee, Tax Charge and Annual Maintenance Fee. The charges that are assessed against the Sub-accounts are the Mortality and Expense Risk charge, the charge for Administration of the Annuity, and the charge for certain optional benefits you elect. Certain optional benefits deduct a charge from each Annuity based on a percentage of a "protected value." Each underlying mutual fund portfolio assesses a fee for investment management, other expenses and, with some mutual funds, a 12b-1 fee. The prospectus for each underlying mutual fund provides more detailed information about the expenses for the underlying mutual funds. The following tables provide a summary of the fees and charges you will pay if you surrender your Annuity or transfer Account Value among investment options. These fees and charges are described in more detail within this Prospectus. ----------------------------- TRANSACTION FEES AND CHARGES ----------------------------- ------------------------------------------------------ CONTINGENT DEFERRED SALES CHARGES FOR THE ANNUITY /1/ ------------------------------------------------------ Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr. 9 Yr. 10 Yr. 11+ -------------------------------------------------------------------- 9.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -------------------------------------------------------------------- 1 The Contingent Deferred Sales Charges are assessed upon surrender or withdrawal. The charge is a percentage of each applicable Purchase Payment deducted upon surrender or withdrawal. The period during which a particular percentage applies is measured from the Issue Date of the Annuity.
----------------------------------- OTHER TRANSACTION FEES AND CHARGES (assessed against the Annuity) ----------------------------------- FEE/CHARGE XT8 ----------------------------------- Transfer Fee /1/ Maximum $15.00 Current $10.00 ----------------------------------- Tax Charge 0% to 3.5% (current) /2/ -----------------------------------
1 Currently, we deduct the fee after the 20/th/ transfer each Annuity Year. We guarantee that the number of charge free transfers per Annuity Year will never be less than 8. 2 In some states a tax is payable, either when Purchase Payments are received, upon surrender or when the Account Value is applied under an annuity option. The tax charge is assessed as a percentage of Purchase Payments, Surrender Value, or Account Value, as applicable. We reserve the right to deduct the charge either at the time the tax is imposed, upon a full surrender of the Annuity, or upon annuitization. See the subsection "Tax Charge" under "Fees and Charges" in this Prospectus. 4 The following table provides a summary of the periodic fees and charges you will pay while you own your Annuity, excluding the underlying mutual fund Portfolio annual expenses. These fees and charges are described in more detail within this Prospectus.
----------------------------------------------------------------------------- PERIODIC FEES AND CHARGES ----------------------------------------------------------------------------- FEE/CHARGE XT8 Annual Maintenance Lesser of $35 or 2% of Fee /1/ Account Value -------------------------------------------- Beneficiary Continuation Lesser of $30 or 2% of Option Only Account Value ----------------------------------------------------------------------------- ANNUAL FEES/CHARGES OF THE SUB-ACCOUNTS /2/ (assessed as a percentage of the daily net assets of the Sub-accounts) ----------------------------------------------------------------------------- FEE/CHARGE Mortality & Expense 1.60% Risk Charge /3/ ----------------------------------------------------------------------------- Administration 0.15% Charge /3/ ----------------------------------------------------------------------------- Settlement Service Charge /4/ Qualified: 1.40% Non-qualified: 1.00% ----------------------------------------------------------------------------- Total Annual Charges 1.75% of the Sub-accounts (excluding settlement service charge) -----------------------------------------------------------------------------
1 Assessed annually on the Annuity's anniversary date or upon surrender. For beneficiaries who elect the non-qualified Beneficiary Continuation Option, the fee is only applicable if Account Value is less than $25,000 at the time the fee is assessed. 2 These charges are deducted daily and apply to the Sub-accounts only. 3 The combination of the Mortality and Expense Risk Charge and Administration Charge is referred to as the "Insurance Charge" elsewhere in this Prospectus. 4 The Mortality & Expense Risk Charge and the Administration Charge do not apply if you are a beneficiary under the Beneficiary Continuation Option. The Settlement Service Charge applies only if your beneficiary elects the Beneficiary Continuation Option. 5 The following table sets forth the charge for each optional benefit under the Annuity. The fees for these optional benefits would be in addition to the periodic fees and transaction fees set forth in the tables above. We reserve the right to increase the charge to the maximum charge indicated, upon any step-up or reset under the benefit, or new election of the benefit. The Total Charge column depicts the sum of the 1.75% Insurance Charge and the charge for the particular optional benefit.
------------------------------------------------------------------------------ YOUR OPTIONAL BENEFIT FEES AND CHARGES ------------------------------------------------------------------------------ OPTIONAL BENEFIT OPTIONAL TOTAL BENEFIT FEE/ ANNUAL CHARGE CHARGE /2/ (as a percentage of for XT8 Sub-account net assets, unless otherwise indicated) ------------------------------------------------------------------------------ GUARANTEED RETURN OPTION PLUS 2008 (GRO Plus 2008) Maximum Charge/ 3/ 0.75% 2.50% Current Charge (if elected on or 0.60% 2.35% after May 1, 2009) ------------------------------------------------------------------------------ HIGHEST DAILY GUARANTEED RETURN OPTION (HD GRO) Maximum Charge/ 3/ 0.75% 2.50% Current Charge (if elected on or 0.60% 2.35% after May 1, 2009) ------------------------------------------------------------------------------ GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB) Maximum Charge/ 3/ 1.00% 2.75% Current Charge 0.35% 2.10% ------------------------------------------------------------------------------ GUARANTEED MINIMUM INCOME BENEFIT (GMIB) Maximum Charge/ 3/ 1.00% of PIV 1.75% + 1.00% of PIV Current Charge 0.50% of PIV 1.75% + 0.50% of PIV ------------------------------------------------------------------------------ LIFETIME FIVE/SM/ INCOME BENEFIT Maximum Charge/ 3/ 1.50% 3.25% Current Charge 0.60% 2.35% ------------------------------------------------------------------------------ SPOUSAL LIFETIME FIVE INCOME BENEFIT Maximum Charge/ 3/ 1.50% 3.25% Current Charge 0.75% 2.50% ------------------------------------------------------------------------------ HIGHEST DAILY LIFETIME FIVE INCOME BENEFIT Maximum Charge/ 3/ 1.50% 3.25% Current Charge 0.60% 2.35% ------------------------------------------------------------------------------ HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT Maximum Charge/ 3/ 1.50% of PWV 1.75% + 1.50% of PWV Current Charge 0.60% of PWV 1.75% + 0.60% of PWV ------------------------------------------------------------------------------ HIGHEST DAILY LIFETIME SEVEN W/BENEFICIARY INCOME OPTION Maximum Charge/ 3/ 2.00% of PWV 1.75% + 2.00% of PWV Current Charge 0.95% of PWV 1.75% + 0.95% of PWV ------------------------------------------------------------------------------
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------------------------------------------------------------------------------ YOUR OPTIONAL BENEFIT FEES AND CHARGES ------------------------------------------------------------------------------ OPTIONAL BENEFIT OPTIONAL TOTAL BENEFIT FEE/ ANNUAL CHARGE CHARGE /2/ (as a percentage of for XT8 Sub-account net assets, unless otherwise indicated) ------------------------------------------------------------------------------ HIGHEST DAILY LIFETIME SEVEN W/LIFETIME INCOME ACCELERATOR Maximum Charge /3/ 2.00% of PWV 1.75% + 2.00% of PWV Current Charge 0.95% of PWV 1.75% + 0.95% of PWV ------------------------------------------------------------------------------ SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT Maximum Charge /3/ 1.50% of PWV 1.75% + 1.50% of PWV Current Charge 0.75% of PWV 1.75% + 0.75% of PWV ------------------------------------------------------------------------------ SPOUSAL HIGHEST DAILY LIFETIME SEVEN W/BENEFICIARY INCOME OPTION Maximum Charge /3/ 2.00% of PWV 1.75% + 2.00% of PWV Current Charge 0.95% of PWV 1.75% + 0.95% of PWV ------------------------------------------------------------------------------ HIGHEST DAILY LIFETIME 7 PLUS Maximum Charge /3/ 1.50% greater of 1.75% + Account Value 1.50% greater of and PWV Account Value and PWV Current Charge 0.75% greater of 1.75% + Account Value 0.75% greater of and PWV Account Value and PWV ------------------------------------------------------------------------------ HIGHEST DAILY LIFETIME 7 PLUS WITH BIO Maximum Charge /3/ 2.00% greater of 1.75% + Account Value 2.00% greater of and PWV Account Value and PWV Current Charge 1.10% greater of 1.75% + Account Value 1.10% greater of and PWV Account Value and PWV ------------------------------------------------------------------------------ HIGHEST DAILY LIFETIME 7 PLUS WITH LIA Maximum Charge /3/ 2.00% greater of 1.75% + Account Value 2.00% greater of and PWV Account Value and PWV Current Charge 1.10% greater of 1.75% + Account Value 1.10% greater of and PWV Account Value and PWV ------------------------------------------------------------------------------ SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS Maximum Charge /3/ 1.50% greater of 1.75% + Account Value 1.50% greater of and PWV Account Value and PWV Current Charge 0.90% greater of 1.75% + Account Value 0.90% greater of and PWV Account Value and PWV ------------------------------------------------------------------------------
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------------------------------------------------------------------------------ YOUR OPTIONAL BENEFIT FEES AND CHARGES ------------------------------------------------------------------------------ OPTIONAL BENEFIT OPTIONAL TOTAL BENEFIT FEE/ ANNUAL CHARGE CHARGE /2/ (as a percentage of for XT8 Sub-account net assets, unless otherwise indicated) ------------------------------------------------------------------------------ SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS WITH BIO Maximum Charge /3/ 2.00% greater of 1.75% + Account Value 2.00% greater of and PWV Account Value and PWV Current Charge 1.10% greater of 1.75% + Account Value 1.10% greater of and PWV Account Value and PWV ------------------------------------------------------------------------------ ENHANCED BENEFICIARY PROTECTION DEATH BENEFIT Current and Maximum Charge/ 4/ 0.25% 2.00% ------------------------------------------------------------------------------ HIGHEST ANNIVERSARY VALUE DEATH BENEFIT ("HAV") Current and Maximum Charge/ 4/ (if 0.40% 2.15% elected on or after May 1, 2009) ------------------------------------------------------------------------------ COMBINATION 5% ROLL-UP AND HAV DEATH BENEFIT Current and Maximum Charge/ 4/ (if 0.80% 2.55% elected on or after May 1, 2009) ------------------------------------------------------------------------------ HIGHEST DAILY VALUE DEATH BENEFIT ("HDV") Current and Maximum Charge/ 4/ 0.50% 2.25% ------------------------------------------------------------------------------ Please refer to the section of this Prospectus that describes each optional benefit for a complete description of the benefit, including any restrictions or limitations that may apply. ------------------------------------------------------------------------------
How Charge is Determined 1 GRO PLUS 2008: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual current charge is 2.10% (for elections prior to May 1, 2009) or 2.35%, (for elections on or after May 1, 2009) and applies in all Annuity Years. Highest Daily GRO: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual current charge is 2.10% (for elections prior to May 1, 2009) or 2.35%, (for elections on or after May 1, 2009) and applies in all Annuity Years. Guaranteed Minimum Withdrawal Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual current charge is 2.10%. This benefit is no longer available for new elections. Guaranteed Minimum Income Benefit: Charge for this benefit is assessed against the GMIB Protected Income Value ("PIV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts and the Fixed Allocations. The current charge is 0.50% of PIV for GMIB and is in addition to 1.75% annual charge. This benefit is no longer available for new elections. Lifetime Five Income Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual current charge is 2.35%. This benefit is no longer available for new elections. Spousal Lifetime Five Income Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual current charge is 2.50%. This benefit is no longer available for new elections. Highest Daily Lifetime Five Income Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual current charge is 2.35%. This benefit is no longer available for new elections. Highest Daily Lifetime Seven: Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. The current charge is 0.60% and is in addition to 1.75% annual charge. Highest Daily Lifetime Seven With Beneficiary Income Option. Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. The current charge is 0.95% and is in addition to 1.75% annual charge. Highest Daily Lifetime Seven With Lifetime Income Accelerator. Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. The current charge is 0.95% in addition to 1.75% annual charge. Spousal Highest Daily Lifetime Seven Income Benefit: Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. The current charge is 0.75% and is in addition to 1.75% annual charge. Spousal Highest Daily Lifetime Seven With Beneficiary Income Option. Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. The current charge is 0.95% and is in addition to 1.75% annual charge. Highest Daily Lifetime 7 Plus. Charge for this benefit is assessed against the greater of Account Value and Protected Withdrawal Value. As discussed in the description of the benefit, the charge is taken out of the Sub-accounts and the DCA Fixed Rate Options, if applicable. 0.75% is in addition to 1.75% annual charge of amounts invested in the Sub-accounts. Highest Daily Lifetime 7 Plus with Beneficiary Income Option. Charge for this benefit is assessed against the greater of Account Value and Protected Withdrawal Value. As discussed in the description of the benefit, the charge is taken out of the Sub-accounts and the DCA Fixed Rate Options, if applicable. 1.10% is in addition to 1.75% annual charge of amounts invested in the Sub-accounts. Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator. Charge for this benefit is assessed against the greater of Account Value and Protected Withdrawal Value. As discussed in the description of the benefit, the charge is taken out of the Sub-accounts and the DCA Fixed Rate Options, if applicable. 1.10% is in addition to 1.75% annual charge of amounts invested in the Sub-accounts. 8 Spousal Highest Daily Lifetime 7 Plus. Charge for this benefit is assessed against the greater of Account Value and Protected Withdrawal Value. As discussed in the description of the benefit, the charge is taken out of the Sub-accounts and the DCA Fixed Rate Options, if applicable. 0.90% is in addition to 1.75% annual charge of amounts invested in the Sub-accounts. Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option. Charge for this benefit is assessed against the greater of Account Value and Protected Withdrawal Value. As discussed in the description of the benefit, the charge is taken out of the Sub-accounts and the DCA Fixed Rate Options, if applicable. 1.10% is in addition to 1.75% annual charge of amounts invested in the Sub-accounts. Enhanced Beneficiary Protection Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 2.00%. This benefit is no longer available for new elections. Highest Anniversary Value Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 2.00% (for elections on or after May 1, 2009) or 2.15%, (for elections prior to May 1, 2009) and applies in all Annuity Years. Combination 5% roll-up and HAV Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 2.25% (for elections on or after May 1, 2009) or 2.55%, (for elections prior to May 1, 2009) and applies in all Annuity Years. Highest Daily Value Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 2.25% and applies in all Annuity Years. This benefit is no longer available for new elections. 2 The Total Annual Charge includes the Insurance Charge assessed against the average daily net assets allocated to the Sub-accounts. If you elect more than one optional benefit, the Total Annual Charge would be increased to include the charge for each optional benefit. With respect to GMIB, the 0.50% charge is assessed against the GMIB Protected Withdrawal Value. With respect to each of Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime Seven, Highest Daily Lifetime 7 Plus, and Spousal Highest Daily Lifetime 7 Plus, the charge is assessed against the Protected Withdrawal Value (greater of PWV and Account Value, for the "Plus" benefits). With respect to each of Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime Seven, Highest Daily Lifetime 7 Plus, and Spousal Highest Daily Lifetime 7 Plus, one-fourth of the annual charge is deducted at the end of each quarter, where the quarters are part of years that have as their anniversary the date that the benefit was elected. These optional benefits are not available under the Beneficiary Continuation Option. 3 We reserve the right to increase the charge to the maximum charge indicated, upon any step-up or reset under the benefit, or new election of the benefit. 4 Our reference in the fee table to "current and maximum" charge does not connote that we have the authority to increase the charge for Annuities that already have been issued. Rather, the reference indicates that there is no maximum charge to which the current charge could be increased for existing Annuities. However, our State filings may have included a provision allowing us to impose an increased charge for newly-issued Annuities. The following table provides the range (minimum and maximum) of the total annual expenses for the underlying mutual funds ("Portfolios") as of December 31, 2008. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets.
---------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES ---------------------------------------------------- MINIMUM MAXIMUM ---------------------------------------------------- Total Portfolio Operating Expense 0.62% 2.97% ----------------------------------------------------
The following are the total annual expenses for each underlying mutual fund ("Portfolio") as of December 31, 2008, except as noted. The "Total Annual Portfolio Operating Expenses" reflect the combination of the underlying Portfolio's investment management fee, other expenses and any 12b-1 fees. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets. There is no guarantee that actual expenses will be the same as those shown in the table. For certain of the underlying Portfolios, a portion of the management fee has been waived and/or other expenses have been partially reimbursed. The existence of any such fee waivers and/or reimbursements have been reflected in the footnotes. The following expenses are deducted by the underlying Portfolio before it provides Prudential Annuities with the daily net asset value. The underlying Portfolio information was provided by the underlying mutual funds and has not been independently verified by us. See the prospectuses or statements of additional information of the underlying Portfolios for further details. The current prospectus and statement of additional information for the underlying Portfolios can be obtained by calling 1-888-PRU-2888.
----------------------------------------------------------------------------------------------- UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES (as a percentage of the average net assets of the underlying Portfolios) ----------------------------------------------------------------------------------------------- For the year ended December 31, 2008 ------------------------------------------------- UNDERLYING PORTFOLIO Acquired Total Portfolio Annual Management Other Fees & Portfolio Fee// Expenses 12b-1 Fee Expenses Expenses ----------------------------------------------------------------------------------------------- Advanced Series Trust/1,2,3/ AST Academic Strategies Asset Allocation/4/ 0.72% 0.08% 0.00% 0.74% 1.54% AST Advanced Strategies 0.85% 0.22% 0.00% 0.02% 1.09% AST Aggressive Asset Allocation 0.15% 0.05% 0.00% 0.90% 1.10% AST AllianceBernstein Core Value 0.75% 0.18% 0.00% 0.00% 0.93% AST AllianceBernstein Growth & Income 0.75% 0.13% 0.00% 0.00% 0.88% AST American Century Income & Growth/5/ 0.75% 0.18% 0.00% 0.00% 0.93% AST Balanced Asset Allocation 0.15% 0.02% 0.00% 0.93% 1.10% AST Bond Portfolio 2015/6/ 0.64% 0.26% 0.00% 0.00% 0.90% AST Bond Portfolio 2016/6,7/ 0.65% 1.02% 0.00% 0.00% 1.67% AST Bond Portfolio 2018/6/ 0.64% 0.35% 0.00% 0.00% 0.99% AST Bond Portfolio 2019/6/ 0.64% 0.47% 0.00% 0.00% 1.11% AST Bond Portfolio 2020/6,7/ 0.65% 1.02% 0.00% 0.00% 1.67% AST Capital Growth Asset Allocation 0.15% 0.01% 0.00% 0.96% 1.12%
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------------------------------------------------------------------------------------------------------ UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES (as a percentage of the average net assets of the underlying Portfolios) ------------------------------------------------------------------------------------------------------ For the year ended December 31, 2008 ------------------------------------------------- UNDERLYING PORTFOLIO Acquired Total Portfolio Annual Management Other Fees & Portfolio Fee// Expenses 12b-1 Fee Expenses Expenses ------------------------------------------------------------------------------------------------------ Advanced Series Trust continued AST CLS Growth Asset Allocation/8/ 0.30% 0.20% 0.00% 0.95% 1.45% AST CLS Moderate Asset Allocation/8/ 0.30% 0.16% 0.00% 0.93% 1.39% AST Cohen & Steers Realty Portfolio/5/ 1.00% 0.17% 0.00% 0.00% 1.17% AST DeAM Large-Cap Value 0.85% 0.15% 0.00% 0.00% 1.00% AST Federated Aggressive Growth 0.95% 0.21% 0.00% 0.00% 1.16% AST First Trust Balanced Target 0.85% 0.15% 0.00% 0.00% 1.00% AST First Trust Capital Appreciation Target 0.85% 0.15% 0.00% 0.00% 1.00% AST Focus Four Plus/9/ 0.85% 1.08% 0.00% 0.11% 2.04% AST Global Real Estate 1.00% 0.27% 0.00% 0.00% 1.27% AST Goldman Sachs Concentrated Growth 0.90% 0.14% 0.00% 0.00% 1.04% AST Goldman Sachs Mid-Cap Growth 1.00% 0.18% 0.00% 0.00% 1.18% AST Goldman Sachs Small-Cap Value 0.95% 0.22% 0.00% 0.00% 1.17% AST High Yield/5/ 0.75% 0.18% 0.00% 0.00% 0.93% AST Horizon Growth Asset Allocation/10/ 0.30% 0.35% 0.00% 0.93% 1.58% AST Horizon Moderate Asset Allocation/10/ 0.30% 0.28% 0.00% 0.87% 1.45% AST International Growth 1.00% 0.18% 0.00% 0.00% 1.18% AST International Value 1.00% 0.18% 0.00% 0.00% 1.18% AST Investment Grade Bond/6/ 0.64% 0.13% 0.00% 0.00% 0.77% AST JPMorgan International Equity/5/ 0.89% 0.20% 0.00% 0.00% 1.09% AST Large-Cap Value/5/ 0.75% 0.12% 0.00% 0.00% 0.87% AST Lord Abbett Bond-Debenture 0.80% 0.17% 0.00% 0.00% 0.97% AST Marsico Capital Growth 0.90% 0.13% 0.00% 0.00% 1.03% AST MFS Global Equity 1.00% 0.32% 0.00% 0.00% 1.32% AST MFS Growth 0.90% 0.15% 0.00% 0.00% 1.05% AST Mid-Cap Value 0.95% 0.19% 0.00% 0.00% 1.14% AST Money Market/5/ 0.50% 0.12% 0.00% 0.00% 0.62% AST Neuberger Berman/LSV Mid-Cap Value 0.90% 0.15% 0.00% 0.00% 1.05% AST Neuberger Berman Mid-Cap Growth/5/ 0.90% 0.15% 0.00% 0.00% 1.05% AST Neuberger Berman Small-Cap Growth 0.95% 0.21% 0.00% 0.00% 1.16% AST Niemann Capital Growth Asset Allocation/10/ 0.30% 0.29% 0.00% 0.87% 1.46% AST Parametric Emerging Markets Equity 1.10% 0.53% 0.00% 0.00% 1.63% AST PIMCO Limited Maturity Bond 0.65% 0.15% 0.00% 0.00% 0.80% AST PIMCO Total Return Bond 0.65% 0.13% 0.00% 0.00% 0.78% AST Preservation Asset Allocation 0.15% 0.02% 0.00% 0.87% 1.04% AST QMA US Equity Alpha/11/ 1.00% 0.57% 0.00% 0.00% 1.57% AST Schroders Multi-Asset World Strategies 1.10% 0.35% 0.00% 0.00% 1.45% AST Small-Cap Growth 0.90% 0.22% 0.00% 0.00% 1.12% AST Small-Cap Value 0.90% 0.18% 0.00% 0.00% 1.08% AST T. Rowe Price Asset Allocation 0.85% 0.15% 0.00% 0.00% 1.00% AST T. Rowe Price Global Bond 0.80% 0.19% 0.00% 0.00% 0.99% AST T. Rowe Price Large-Cap Growth 0.88% 0.13% 0.00% 0.00% 1.01% AST T. Rowe Price Natural Resources Portfolio 0.90% 0.14% 0.00% 0.00% 1.04% AST UBS Dynamic Alpha 1.00% 0.16% 0.00% 0.00% 1.16% AST Western Asset Core Plus Bond 0.70% 0.14% 0.00% 0.00% 0.84% ------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------ AIM Variable Insurance Funds/12/ AIM V.I. Dynamics Fund - Series I shares 0.75% 0.47% 0.00% 0.00% 1.22% AIM V.I. Financial Services Fund - Series I shares 0.75% 0.48% 0.00% 0.01% 1.24% AIM V.I. Global Health Care Fund - Series I shares 0.75% 0.38% 0.00% 0.01% 1.14% AIM V.I. Technology Fund - Series I shares 0.75% 0.41% 0.00% 0.01% 1.17%
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----------------------------------------------------------------------------------------------------------- UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES (as a percentage of the average net assets of the underlying Portfolios) ----------------------------------------------------------------------------------------------------------- For the year ended December 31, 2008 ------------------------------------------------- UNDERLYING PORTFOLIO Acquired Total Portfolio Annual Management Other Fees & Portfolio Fee// Expenses 12b-1 Fee Expenses Expenses ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- Evergreen Variable Annuity Trust/13/ Growth 0.70% 0.24% 0.00% 0.01% 0.95% International Equity 0.42% 0.25% 0.00% 0.00% 0.67% Omega 0.52% 0.20% 0.00% 0.00% 0.72% ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- First Defined Portfolio Fund, LLC First Trust Target Focus Four 0.60% 2.12% 0.25% 0.00% 2.97% Global Dividend Target 15 0.60% 0.68% 0.25% 0.00% 1.53% NASDAQ(R) Target 15 0.60% 1.28% 0.25% 0.00% 2.13% S&P(R) Target 24 0.60% 0.98% 0.25% 0.00% 1.83% Target Managed VIP 0.60% 0.66% 0.25% 0.00% 1.51% The Dow(R) DART 10 0.60% 0.96% 0.25% 0.00% 1.81% The Dow(R) Target Dividend 0.60% 0.62% 0.25% 0.00% 1.47% Value Line(R) Target 25 0.60% 0.66% 0.25% 0.00% 1.51% ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- Franklin Templeton Variable Insurance Products Trust/14/ Franklin Templeton VIP Founding Funds Allocation Fund 0.00% 0.13% 0.00% 0.65% 0.78% ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- Nationwide Variable Insurance Trust Gartmore NVIT Developing Markets/15/ 0.95% 0.21% 0.25% N/A 1.41% ----------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------- Wells Fargo Variable Trust/16/ Wells Fargo Advantage VT Equity Income Fund 0.55% 0.24% 0.25% 0.00% 1.04%
1 Advance Series Trust: Share of the Portfolios are generally purchased through variable insurance products. The Advanced Series Trust (the "Trust") has entered into arrangements with the issuers of the variable insurance products offering the Portfolios under which the Trust compensates the issuers 0.10% for providing ongoing services to Portfolio shareholders in lieu of the Trust providing such services directly to shareholders. Amounts paid under these arrangements are included in "Other Expenses." Subject to the expense limitations set forth below, for each Portfolio of the Trust (except as noted below), Prudential Investments LLC and AST Investment Services, Inc. have agreed to voluntarily waive a portion of the 0.10% administrative services fee, based on the average daily net assets of each Portfolio of the Trust, as set forth in the table below. Average Daily Net Assets of Portfolio Fee Rate Including Waiver ------------------------------------------------------------------------------ Up to and including $500 million 0.10% (no waiver) ------------------------------------------------------------------------------ Over $500 million up to and including $750 million 0.09% ------------------------------------------------------------------------------ Over $750 million up to and including $1 billion 0.08% ------------------------------------------------------------------------------ Over $1 billion 0.07% ------------------------------------------------------------------------------ The administrative services fee is not waived in the case of the Dynamic Asset Allocation Portfolios and the Tactical Asset Allocation Portfolios. The Dynamic Asset Allocation Portfolios are AST Aggressive Asset Allocation, AST Balanced Asset Allocation, AST Capital Growth Asset Allocation, and AST Preservation Asset Allocation. The Tactical Asset Allocation Portfolios are AST CLS Growth Asset Allocation, AST CLS Moderate Asset Allocation, AST Horizon Growth Asset Allocation, AST Horizon Moderate Asset Allocation, and AST Niemann Capital Growth Asset Allocation. The Dynamic Asset Allocation Portfolios and the Tactical Asset Allocation Portfolios are "fund of funds" which means each of these Portfolios invests primarily or exclusively in one or more mutual funds, referred to here as "Underlying Portfolios". A Portfolio will not be directly subject to the administrative services fee to the extent it invests in Underlying Portfolios. Because the Dynamic Asset Allocation Portfolios generally invest all of their assets in Underlying Portfolios, the Dynamic Asset Allocation Portfolios generally will not be directly subject to the administrative services fee. Because the Tactical Asset Allocation Portfolios generally invest at least 90% of their assets in Underlying Portfolios, only 10% of their assets generally will be directly subject to the administrative services fee. Because the AST Academic Strategies Asset Allocation Portfolio generally invests approximately 65% of its assets in Underlying Portfolios, only 35% of its assets generally will be directly subject to the administrative services fee. The AST Focus Four Plus Portfolio is not directly subject to the administrative services fee to the extent it invests in the Core Plus Bond Portfolio or any other Trust Portfolio. The AST Academic Strategies Portfolio is not directly subject to the administrative services fee to the extent it invests in any other Trust Portfolio. In determining the administrative services fee, only assets of a Tactical Asset Allocation Portfolio, the AST Academic Strategies Asset Allocation Portfolio, and AST Focus Four Plus Portfolio that are not invested in Underlying Portfolios will be counted as average daily net assets of the relevant Portfolio for purposes of the above-referenced breakpoints. This will result in a Portfolio paying higher administrative services fees than if all of the assets of the Portfolio were counted for purposes of computing the relevant administrative services fee breakpoints. The Underlying Portfolios in which the Dynamic Asset Allocation Portfolios, 11 Tactical Asset Allocation Portfolios, and AST Academic Strategies Asset Allocation Portfolio invest, however, will be subject to the administrative services fee. 2 Some of the Portfolios invest in other investment companies (the "Acquired Portfolios"). For example, each Dynamic and Tactical Asset Allocation Portfolio invests in shares of other Portfolios of the Trust. Investors in a Portfolio indirectly bear the fees and expenses of the Acquired Portfolios. The expenses shown under "Acquired Portfolio Fees and Expenses" represent a weighted average of the expense ratios of the Acquired Portfolios in which each Portfolio invested during the year ended December 31, 2008. The Dynamic Asset Allocation Portfolios and AST Focus Four Plus Portfolio do not pay any transaction fees when purchasing or redeeming shares of the Acquired Portfolios. When a Portfolio's "Acquired Portfolio Fees and Expenses" are less that 0.01%, such expenses are included in the column titled "Other Expenses." This may cause the Total Annual Portfolio Operating Expenses to differ from those set forth in the Financial Highlights tables of such Portfolios in the prospectus for the Trust. 3 The management fee rate shown in the "management fees" column is based on the indicated Portfolio's average daily net assets as of the fiscal year ended December 31, 2008, except that the fee rate shown does not reflect the impact of any contractual or voluntary management fee waivers that may be applicable and which would result in a reduction in the fee rate paid by the Portfolio. The management fee rate for certain Portfolios may include "breakpoints" which are reduced fee rates that are applicable at specified levels of Portfolio assets; the effective fee rates shown in the table reflect and incorporate any fee "breakpoints" which may be applicable. 4 Academic Strategies Asset Allocation Portfolio: The only investment management fee to be paid directly to the Investment Managers by the Academic Strategies Asset Allocation Portfolio will be the Portfolio's annualized contractual investment management fee of 0.72% of its average daily net assets. Since the Academic Strategies Asset Allocation Portfolio is expected to invest approximately 65% of its assets in portfolios of the Trust (referred to here as "Underlying Trust Funds") under normal circumstances, the Academic Strategies Asset Allocation Portfolio will also indirectly pay investment management fees on its investments in the Underlying Trust Funds. To the extent that the other Asset Allocation Portfolios invest their assets in Underlying Trust Funds, such Asset Allocation Portfolios will also indirectly pay investment management fees on its investments in the Underlying Trust Funds. The Academic Strategies Asset Allocation Portfolio will not be directly subject to the administrative services fee to the extent it invests in Underlying Trust Funds. The Underlying Trust Funds in which the Academic Strategies Asset Allocation Portfolio invests, however, will be subject to the administrative services fee. The Academic Strategies Asset Allocation Portfolio indirectly incurs a pro rata portion of the fees and expenses of the Acquired Portfolios in which it invests. From January 1, 2008 to July 20, 2008, the Academic Strategies Asset Allocation Portfolio was known as the AST Balanced Asset Allocation Portfolio (the Balanced Portfolio). The Balanced Portfolio invested all of its assets in Acquired Portfolios. The actual annualized "Acquired Portfolio Fees and Expenses" for the Balanced Portfolio were 0.88% for the period January 1, 2008 to July 20, 2008. As set forth above, under normal conditions, the Academic Strategies Asset Allocation Portfolio invests approximately 65% of its assets in Acquired Portfolios. The actual annualized "Acquired Portfolio Fees and Expenses" for the Academic Strategies Asset Allocation Portfolio were 0.735% for the period July 21, 2008 to December 31, 2008. The Investment Managers have voluntarily agreed to reimburse expenses and/or waive fees so that the Academic Strategies Asset Allocation Portfolio's "Acquired Portfolio Fees and Expenses" on an annualized basis do not exceed 0.685% of the Academic Strategies Asset Allocation Portfolio's average daily net assets based on the daily calculation described below. This arrangement will be monitored and applied daily based upon the Academic Strategies Asset Allocation Portfolio's then current holdings of Acquired Portfolios and the expense ratios of the relevant Acquired Portfolios as of their most recent fiscal year end. Because the expense ratios of the relevant Acquired Portfolios will change over time and may be higher than the expense ratios as of their most recent fiscal year end, it is possible that the Academic Strategies Asset Allocation Portfolio's actual "Acquired Portfolio Fees and Expenses" may be higher than 0.685% of the Portfolio's average daily net assets on an annualized basis. These arrangements relating to the Portfolio's "Acquired Portfolio Fees and Expenses" are voluntary and are subject to termination or modification at any time without prior notice. The Investment Managers have contractually agreed to reimburse expenses and/or waive fees so that the Academic Strategies Asset Allocation Portfolio's investment management fees plus "Other Expenses" (exclusive in all cases of taxes, interest, brokerage commissions, distribution fees, dividend and interest expense, if any, related to short sales, and extraordinary expenses) do not exceed 0.80% of the Portfolio's average daily net assets during the Academic Strategies Asset Allocation Portfolio's first year of operations (i.e., July 21, 2008 through July 20, 2009). 5 Effective as of July 1, 2008, Prudential Investments LLC and AST Investment Services, Inc. have voluntarily agreed to waive a portion of their management fee and/or limit expenses (expressed as a percentage of average daily net assets) for certain Portfolios of the Trust, as set forth in the table below. These arrangements may be discontinued or otherwise modified at any time. Portfolio Fee Waiver and/or Expense Limitation --------------------------------------------------------------------------- AST Large-Cap Value 0.84% --------------------------------------------------------------------------- AST Cohen & Steers Realty 0.97% --------------------------------------------------------------------------- AST American Century Income & Growth 0.87% --------------------------------------------------------------------------- AST High Yield 0.88% --------------------------------------------------------------------------- AST Money Market 0.56% --------------------------------------------------------------------------- AST JPMorgan International Equity 1.01% --------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Growth 1.25% --------------------------------------------------------------------------- 6 With respect to each of the AST Bond Portfolio 2015, AST Bond Portfolio 2016, AST Bond Portfolio 2018, AST Bond Portfolio 2019, AST Bond Portfolio 2020, and the AST Investment Grade Bond Portfolio, Prudential Investments LLC and AST Investment Services, Inc. have voluntarily agreed to waive a portion of their investment management fees and/or reimburse certain expenses for the Portfolios so that each Portfolio's investment management fees plus other expenses (exclusive in all cases of taxes, interest, brokerage commissions, distribution fees, dividend and interest expense, if any, related to short sales, and extraordinary expenses) do not exceed 1.00% of each Portfolio's average daily net assets for the fiscal year ending December 31, 2009. These arrangements are voluntary and may be discontinued or otherwise modified by the Investment Managers at any time without prior notice. 7 AST Bond Portfolio 2016 and AST Bond Portfolio 2020 are based on estimated expenses for 2009 at an estimated asset level. 8 Prudential Investments LLC and AST Investment Services, Inc. have voluntarily agreed to waive a portion of their investment management fees and/or reimburse certain expenses for each of the AST CLS Growth Asset Allocation Portfolio and the AST CLS Moderate Asset Allocation Portfolio so that each Asset Allocation Portfolio's investment management fees plus other expenses (exclusive in all cases of taxes, interest, brokerage commissions, distribution fees, dividend and interest expense, if any, related to short sales, extraordinary expenses, and Underlying Portfolio fees and expenses) do not exceed 0.40% of such Asset Allocation Portfolio's average daily net assets to $100 million; 0.35% of such Asset Allocation Portfolio's average daily net assets from $100 million to $200 million; and 0.30% of such Asset Allocation Portfolio's average daily net assets over $200 million. 12 9 The Investment Managers have contractually agreed to waive their investment management fees on AST Focus Four Plus Portfolio assets invested in the AST Western Asset Core Plus Bond Portfolio through May 1, 2010. Under normal circumstances, the Portfolio invests approximately 25% of its assets in the AST Western Asset Core Plus Bond Portfolio. Assuming a contractual fee waiver of 0.21% (i.e., 25% of the Portfolio's contractual investment management fee of 0.85%), the annualized operating expense ratio of the Portfolio would be reduced from 2.04% to 1.83%. 10 The Investment Managers also have voluntarily agreed to waive a portion of their investment management fees and/or reimburse certain expenses for each of the AST Horizon Growth Asset Allocation Portfolio, the AST Horizon Moderate Asset Allocation Portfolio, and the AST Niemann Capital Growth Asset Allocation Portfolio so that each Asset Allocation Portfolio's investment management fees plus other expenses (exclusive in all cases of taxes, interest, brokerage commissions, distribution fees, dividend and interest expense, if any, related to short sales, extraordinary expenses, and Underlying Portfolio fees and expenses) do not exceed 0.40% of such Asset Allocation Portfolio's average daily net assets to $250 million; 0.35% of such Asset Allocation Portfolio's average daily net assets from $250 million to $750 million; and 0.30% of such Asset Allocation Portfolio's average daily net assets over $750 million. All of these arrangements are voluntary and may be discontinued or otherwise modified by the Investment Managers at any time without prior notice. 11 With respect to the AST QMA US Equity Alpha Portfolio, "Other Expenses" includes dividend expenses on short sales and interest expenses on short sales. 12.Except as otherwise noted, figures shown in the table are for the year ended December 31, 2008 and are expressed as a percentage of the Fund's average daily net assets. There is no guarantee that actual expenses will be the same as those shown in the table. Acquired Fund Fees and Expenses are not fees or expenses incurred by the fund directly but are expenses of the investment companies in which the fund invests. You incur these fees and expenses indirectly through the valuation of the fund's investment in those investment companies. As a result, the Net Annual Fund Operating Expenses listed above may exceed the expense limit numbers. The impact of the acquired fund fees and expense are included in the total returns of the Fund. The Fund's advisor has contractually agreed, through at least April 30, 2010, to waive the advisory fee payable by the Fund in an amount equal to 100% of the net advisory fees Invesco Aim receives from the affiliated money market funds on investments by the Fund of uninvested cash (excluding investments of cash collateral from securities lending) in such affiliated money market funds. Fee Waiver reflects this agreement. The Fund's advisor has contractually agreed, through at least April 30, 2010, to waive advisory fees and/or reimburse expenses of Series I shares to the extent necessary to limit Total Annual Fund Operating Expenses of Series I shares to 1.30% of average daily net assets. The Fund's advisor has contractually agreed, through at least April 30, 2010, to waive advisory fees and/or reimburse expenses of Series I shares to the extent necessary to limit Total Annual Fund Operating Expenses of Series I shares to 0.93% of average daily net assets. 13.The Total fees in the table above include fees and expenses incurred indirectly by the fund as a result of its investment in other investment companies (each, an Acquired Fund). The Total ratio of expenses to net assets excludes expense reductions. Includes voluntary fee waivers and/or reimbursements. The Fund's investment advisor may cease these voluntary waivers and/or reimbursements at any time. 14.The manager has agreed in advance to reduce its fee from assets invested by the Fund in a Franklin Templeton money market fund (the Sweep Money Fund which is the acquired fund in this case) to the extent of the Fund's fees and expenses of the acquired fund. This reduction is required by the Trust's board of trustees and an exemptive order by the Securities and Exchange Commission; this arrangement will continue as long as the exemptive order is relied upon. 15.Management fees have been restated to reflect the elimination of a performance-based management fee and implementation of an asset-based management fee equal to the lowest possible management fee under the previous performance-based fee structure, as approved by the Board of Trustees on September 18, 2008. Under no circumstances, during a six-month transition period, as described on page 6 of Fund prospectus, will the management fee under the new fee structure exceed what the Adviser would have received under the old structure assuming maximum penalty for underperformance. 16.The breakpoint schedule for the Equity Income Fund is as follows: 0.55% from $0 to $499 million; 0.50% for assets from $500 million to $999 million; 0.45% for assets from $1 billion to $2.99 billion; 0.425% for assets from $3 billion to $4.99 billion; and 0.40% for assets $5 billion and higher. Other expenses may include expenses payable to affiliates of Wells Fargo & Company. The adviser has committed through April 30, 2009 to waive fees and/or reimburse expenses to the extent necessary to maintain the net operating expense ratio shown, and may include expenses of any money market or other fund held by the fund. 13 EXPENSE EXAMPLES These examples are intended to help you compare the cost of investing in one Prudential Annuities Annuity with the cost of investing in other Prudential Annuities and/or other variable annuities. Below are examples for each Annuity showing what you would pay in expenses at the end of the stated time periods had you invested $10,000 in the Annuity and your investment has a 5% return each year. The examples reflect the following fees and charges for each Annuity as described in "Summary of Contract Fees and Charges": . Insurance Charge . Contingent Deferred Sales Charge . Annual Maintenance Fee . The maximum combination of optional benefit charges The examples also assume the following for the period shown: . You allocate all of your Account Value to the Sub-account with the maximum gross total annual operating expenses for 2008, and those expenses remain the same each year* . For each charge, we deduct the maximum charge rather than the current charge . You make no withdrawals of Account Value . You make no transfers, or other transactions for which we charge a fee . No tax charge applies . You elect the Highest Daily Lifetime 7 Plus with the Combination 5% Roll-Up and HAV Death Benefit (which are the maximum combination of optional benefit charges) . Expense example calculations are not adjusted to reflect the Purchase Credit. If the Purchase Credit were reflected in the calculations, expenses would be higher. Amounts shown in the examples are rounded to the nearest dollar. * Note: Not all portfolios offered as Sub-accounts may be available depending on optional benefit selection, the applicable jurisdiction and selling firm. THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR THEIR PORTFOLIOS - ACTUAL EXPENSES WILL BE LESS THAN THOSE SHOWN DEPENDING UPON WHICH OPTIONAL BENEFIT YOU ELECT OTHER THAN INDICATED IN THE EXAMPLES OR IF YOU ALLOCATE ACCOUNT VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS. Expense Examples are provided as follows: If you surrender your entire contract at the end of the applicable time period: /1/
1 Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------------ You would pay the following expenses on the $10,000 $1,592 $2,901 $4,049 $6,649 invested, assuming 5% annual return on assets: ------------------------------------------------------------------------------------
If you annuitize at the end of the applicable time period: /2/
1 Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------------ You would pay the following expenses on the $10,000 N/A N/A $3,473 $6,553 invested, assuming 5% annual return on assets: ------------------------------------------------------------------------------------
If you do not surrender your contract at the end of the applicable time period:
1 Year 3 Years 5 Years 10 Years ------------------------------------------------------------------------------------ You would pay the following expenses on the $10,000 $728 $2,133 $3,473 $6,553 invested, assuming 5% annual return on assets: ------------------------------------------------------------------------------------
1 See "Summary of Contract Fees and Charges" for the CDSC schedule. 2 You may not annuitize in the first Three (3) Annuity Years. For information relating to accumulation unit values pertaining to the Sub-accounts, please see Appendix A - Condensed Financial Information About Separate Account B. 14 SUMMARY Advanced Series XTra Credit Eight ("XT8") This Summary describes key features of the variable annuity described in this Prospectus. It is intended to help give you an overview, and to point you to sections of the prospectus that provide greater detail. This Summary is intended to supplement the prospectus, so you should not rely on the Summary alone for all the information you need to know before purchase. You should read the entire Prospectus for a complete description of the variable annuity. Your financial advisor can also help you if you have questions. What is a variable annuity? A variable annuity is a contract between you and an insurance company. It is designed to help you save money for retirement, and provide income during your retirement. With the help of your financial advisor, you choose how to invest your money within your annuity. The value of your annuity will rise or fall depending on whether the investment options you choose perform well or perform poorly. Investing in a variable annuity involves risk and you can lose your money. By the same token, investing in a variable annuity can provide you with the opportunity to grow your money through participation in mutual fund-type investments. Your financial advisor will help you choose your investment options based on your tolerance for risk and your needs. Variable annuities also offer a variety of optional guarantees to receive an income for life through withdrawal, or provide minimum death benefits for your beneficiaries, or minimum account value guarantees. These benefits provide a degree of insurance in the event your annuity performs poorly. These optional benefits are available for an extra cost, and are subject to limitations and conditions more fully described later in this Prospectus. The guarantees are based on the long-term financial strength of the insurance company. What does it mean that my variable annuity is "tax-deferred"? Because variable annuities are issued by an insurance company, you pay no taxes on any earnings from your annuity until you withdraw the money. You may also transfer among your investment options without paying a tax at the time of the transfer. Until you withdraw the money, tax deferral allows you to keep money invested that would otherwise go to pay taxes. When you take your money out of the variable annuity, however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. If you withdraw earnings before you reach age 59 1/2, you also may be subject to a 10% federal tax penalty. You may also purchase one of our variable annuities as a tax-qualified retirement investment such as an IRA, SEP-IRA, Roth IRA, 401(a) plan, or 403(b) plan. Although there is no additional tax advantage to a variable annuity purchased through one of these plans, you may desire the variable annuities' other features such as guaranteed lifetime income payments or death benefits for use within these plans. How do I purchase the XTra Credit Eight Variable Annuity? See your financial advisor to complete an application. Your eligibility to purchase is based on your age and the size of your investment:
Product Maximum Age for Minimum Initial Initial Purchase Purchase Payment ------------------------------------------ XT8 75 $10,000 ------------------------------------------
The "Maximum Age for Initial Purchase" applies to the oldest owner as of the day we would issue the Annuity. If the Annuity is to be owned by an entity, the maximum age applies to the annuitant as of he day we would issue the Annuity. The availability and level of protection of certain optional benefits may also vary based on the age of the owner or annuitant on the issue date of the annuity, the date the benefit is elected, or the date of the owner's death. Please see the section entitled "Living Benefits" and "Death Benefit" for additional information on these benefits. We may allow you to purchase the Annuity with an amount lower than the "Minimum Initial Purchase Payment" if you establish an electronic funds transfer that would allow you to meet the minimum requirement within one year. You may make additional payments of at least $100 into your Annuity at any time, subject to maximums allowed by us and as provided by law. After you purchase your Annuity you will have usually ten days to examine it and cancel it if you change your mind for any reason (referred to as the "free look period"). The period of time and the amount returned to you is dictated by State law, and is stated on the front cover of your Annuity. You must cancel your Annuity in writing. See "What Are the Requirements for Purchasing One of the Annuities" for more detail. 15 Where should I invest my money? With the help of your financial advisor, you choose where to invest your money within the Annuity. You may choose from a variety of investment options ranging from conservative to aggressive. Certain optional benefits may limit your ability to invest in the investment options otherwise available to you under the Annuity. These investment options participate in mutual fund investments that are kept in a separate account from our other general assets. Although you may recognize some of the names of the money managers, these investment options are designed for variable annuities and are not the same mutual funds available to the general public. You can decide on a mix of investment options that suit your goals. Or, you can choose one of our investment options that participates in several mutual funds according to a specified goal such as balanced asset allocation, or capital growth asset allocation. If you select certain optional benefits, we may limit the investment options that you may elect. Each of the underlying mutual funds is described by its own prospectus, which you should read before investing. There is no assurance that any investment option will meet its investment objective. You may also allocate money to a fixed rate account that earns interest guaranteed by our general assets. We also offer programs to help discipline your investing, such as dollar cost averaging or automatic rebalancing. See "Investment Options," and "Managing Your Account Value." How can I receive income from my Annuity? You can receive income by taking withdrawals or electing annuity payments. If you take withdrawals, you should plan them carefully, because withdrawals may be subject to tax, and may be subject to a contingent deferred sales charge (discussed below). You may withdraw up to 10% of your investment each year without being subject to a contingent deferred sales charge. You may elect to receive income through annuity payments over your lifetime, also called "annuitization". This option may appeal to those who worry about outliving their Account Value through withdrawals. If you elect to receive annuity payments, you convert your Account Value into a stream of future payments. This means in most cases you no longer have an Account Value and therefore cannot make withdrawals. We offer different types of annuity options to meet your needs, and you can choose the benefits and costs that make sense for you. For example, some of our annuity options allow for withdrawals, and some provide a death benefit, while others guarantee payments for life without a death benefit or the ability to make withdrawals. See "Access to Account Value." Options for Guaranteed Lifetime Withdrawals. We offer several optional benefits for an additional fee that guarantee your ability to take withdrawals for life as a percentage of an initial guaranteed benefit base, even after your Account Value falls to zero. These benefits may appeal to you if you wish to maintain flexibility and control over your Account Value (instead of converting it to an annuity stream) and want the assurance of predictable income. If you withdraw more than the allowable amount during any year, your future level of guaranteed withdrawals decreases. As part of these benefits you are required to invest only in certain permitted investment options. Some of the benefits utilize a predetermined formula to help manage your guarantee through all market cycles. Please see the applicable optional benefits section a well as Appendix C, F and H for more information on each formula. These benefits contain detailed provisions, so please see the following sections of the Prospectus for complete details: . Highest Daily Lifetime 7 Plus . Spousal Highest Daily Lifetime 7 Plus . Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator . Highest Daily Lifetime 7 Plus with Beneficiary Income Option . Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option . Highest Daily Lifetime Seven* . Spousal Highest Daily Lifetime Seven* . Highest Daily Lifetime Seven with Lifetime Income Accelerator* . Highest Daily Lifetime Seven with Beneficiary Income Option* . Spousal Highest Daily Lifetime Seven with Beneficiary Income Option* * No longer available for new elections in a given state once the Highest Daily Lifetime 7 Plus version is approved. Options for Guaranteed Accumulation. We offer several optional benefits for an additional fee that guarantee your Account Value to a certain level after a period of years. As part of these benefits you are required to invest only in certain permitted investment options. Please see applicable optional benefits sections as well as the Appendices to this Prospectus for more information on each formula. These benefits contain detailed provisions, so please see the following sections of the Prospectus for complete details: . Guaranteed Return Option Plus 2008 . Highest Daily Guaranteed Return Option 16 What happens to my annuity upon death? You may name a beneficiary to receive the proceeds of your annuity upon your death. Your annuity must be distributed within the time periods required by the tax laws. Each of our annuities offers a basic death benefit. The basic death benefit provides your beneficiaries with the greater of your purchase payments less all proportional withdrawals or your value in the annuity at the time of death. We also offer optional death benefits for an additional charge: . Highest Anniversary Value Death Benefit: Offers the greater of the basic death benefit and a highest anniversary value of the annuity. . Combination 5% Roll-up and Highest Anniversary Value Death Benefit: Offers the greatest of the basic death benefit, the highest anniversary value death benefit described above, and a value assuming 5% growth of your investment adjusted for withdrawals. Each death benefit has certain age restrictions. Please see the "Death Benefit" section of the Prospectus for more information. There are other optional living and death benefits that we previously offered, but are not currently available. See the applicable section of this Prospectus for details. How do I receive credits? With XT8, we apply a credit to your Annuity each time you make a purchase payment during the first six (6) years. Because of the credits, the expenses of this Annuity may be higher than other annuities that do not offer credits. The amount of the credit depends on the year during which the purchase payment is made and the amount of your purchase payment:
CREDIT CREDIT (Cumulative (Cumulative Purchase Payments Purchase Payments ANNUITY YEAR $100,000 or Greater) Less than $100,000) ------------------------------------------------------ 1 8.00% 6.00% 2 6.00% 5.00% 3 4.00% 4.00% 4 3.00% 3.00% 5 2.00% 2.00% 6 1.00% 1.00% 7+ 0.00% 0.00% ------------------------------------------------------
Please note that during the first 10 years, the total based asset-based charges on the XT8 annuity are higher than many of our other annuities. In addition, the Contingent Deferred Sales Charge (CDSC) on the XT8 annuity is higher and is deducted for a longer period of time as compared to our other annuities. In general, we may take back credits applied within 12 months of death or a medically-related surrender. We may also take back credits if you return your annuity under the "free-look" provision. Please see the section entitled "Managing Your Account Value" for more information. What are the Annuity's Fees and Charges? Contingent Deferred Sales Charge: If you withdraw all or part of your annuity before the end of a period of years, we may deduct a contingent deferred sales charge, or "CDSC". The CDSC is calculated as a percentage of your purchase payment being withdrawn, and depends on how long you have held your Annuity. The CDSC is different depending on which annuity you purchase:
Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr. 9 Yr. 10 Yr. 11+ ------------------------------------------------------------------------- XT8 9.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -------------------------------------------------------------------------
Each year you may withdraw up to 10% of your purchase payments without the imposition of a CDSC. This free withdrawal feature does not apply when fully surrendering your annuity. We may also waive the CDSC under certain circumstances, such as for medically-related circumstances or taking required minimum distributions under a qualified contracts. Transfer Fee: You may make 20 transfers between investment options each year free of charge. After the 20th transfer, we will charge $10.00 for each transfer. We do not consider transfers made as part of any Dollar Cost Averaging, Automatic Rebalancing or asset allocation program when we count the twenty free transfers. All transfers made on the same day will be treated as one (1) transfer. Any transfers made as a result of the mathematical formula used with an optional benefit will not count towards the total transfers allowed. Annual Maintenance Fee: Until you start annuity payments, we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $35.00 or 2% of your Account Value. 17 Tax Charge: We may deduct a charge to reimburse us for taxes we may pay on premiums received in certain jurisdictions. The tax charge currently ranges up to 3 1/2% of your Purchase Payments or Account Value and is designed to approximate the taxes that we are required to pay. Insurance Charge: We deduct an Insurance Charge. It is an annual charge assessed on a daily basis. It is the combination of the Mortality & Expense Risk Charge and the Administration Charge. The charge is assessed against the daily assets allocated to the Sub-accounts and depends on which annuity you purchase:
--------------------------------------- FEE/CHARGE XT8 --------------------------------------- Mortality & Expense Risk Charge 1.60% --------------------------------------- Administration Charge 0.15% --------------------------------------- Total Insurance Charge 1.75% ---------------------------------------
Charges for Optional Benefits: If you elect to purchase certain optional benefits, we will deduct an additional charge. For some optional benefits, the charge is deducted from your Account Value allocated to the Sub-accounts. This charge is included in the daily calculation of the Unit Price for each Sub-account. For certain other optional benefits, such as Highest Daily Lifetime Seven, the charge is assessed against the Protected Withdrawal Value and taken out of the Sub-accounts periodically. Please refer to the section entitled "Summary of Contract Fees and Charges" for the list of charges for each optional benefit. Settlement Service Charge: If your beneficiary takes the death benefit under a Beneficiary Continuation Option, we deduct a Settlement Service Charge, although the Insurance Charge no longer applies. The charge is assessed daily against the average assets allocated to the Sub-accounts and is equal to an annual charge of 1.00% for non-qualified Annuities and 1.40% for qualified Annuities. Fees and expenses incurred by the Portfolios: Each Portfolio incurs total annual operating expenses comprised of an investment management fee, other expenses and any distribution and service (12b-1) fees that may apply. More detailed information about fees and expenses can be found in the prospectuses for the Portfolios. Please see the "Fees and Charges" section of the Prospectus for more information. Costs to Sell and Administer Our Variable Annuity: Your financial professional may receive a commission for selling one of our variable annuities to you. We may also pay fees to your financial professional's broker dealer firm to cover costs of marketing or administration. These commissions and fees may incent your financial professional to sell our variable annuity instead of one offered by another company. We also receive fees from the mutual fund companies that offer the investment options for administrative costs and marketing. These fees may influence our decision to offer one family of funds over another. If you have any questions you may speak with your financial professional or us. See "General Information". Other Information Please see the section entitled "General Information" for more information about our annuities, including legal information about our company, separate account, and underlying funds. 18 INVESTMENT OPTIONS WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS? Each variable investment option is a Sub-account of Prudential Annuities Life Assurance Corporation Variable Account B (see "What are Separate Accounts" for more detailed information). Each Sub-account invests exclusively in one Portfolio. You should carefully read the prospectus for any Portfolio in which you are interested. The Investment Objectives Policies chart below classifies each of the Portfolios based on our assessment of their investment style (as of the date of this Prospectus). The chart also provides a description of each Portfolio's investment objective (in italics) and a short, summary description of their key policies to assist you in determining which Portfolios may be of interest to you. There is no guarantee that any underlying Portfolio will meet its investment objective. Not all portfolios offered as Sub-accounts may be available depending on optional benefit selection, the applicable jurisdiction and selling firm. Thus, if you selected particular optional benefits, you would be precluded from investing in certain portfolios and therefore would not receive investment appreciation (or depreciation) affecting those Portfolios. The Portfolios that you select are your choice - we do not provide investment advice, and we do not recommend or endorse any particular Portfolio. You bear the investment risk for amounts allocated to the Portfolios. Please see the General Information section of this Prospectus, under the heading concerning "service fees" for a discussion of fees that we may receive from underlying mutual funds and /or their affiliates. The name of the advisor/sub-advisor for each Portfolio appears next to the description. Those Portfolios whose name includes the prefix "AST" are Portfolios of Advanced Series Trust. The investment managers for AST are AST Investment Services, Inc., a Prudential Financial Company, and Prudential Investments LLC, both of which are affiliated companies of Prudential Annuities. However, a sub-advisor, as noted below, is engaged to conduct day-to-day management. The Portfolios are not publicly traded mutual funds. They are only available as investment options in variable annuity contracts and variable life insurance policies issued by insurance companies, or in some cases, to participants in certain qualified retirement plans. However, some of the Portfolios available as Sub-accounts under the Annuities are managed by the same portfolio advisor or sub-advisor as a retail mutual fund of the same or similar name that the Portfolio may have been modeled after at its inception. Certain retail mutual funds may also have been modeled after a Portfolio. While the investment objective and policies of the retail mutual funds and the Portfolios may be substantially similar, the actual investments will differ to varying degrees. Differences in the performance of the funds can be expected, and in some cases could be substantial. You should not compare the performance of a publicly traded mutual fund with the performance of any similarly named Portfolio offered as a Sub-account. Details about the investment objectives, policies, risks, costs and management of the Portfolios are found in the prospectuses for the underlying mutual funds. Prospectuses are provided to investors in the Sub-accounts as required by federal securities laws. The current prospectus and statement of additional information for the underlying Portfolios can also be obtained by calling 1-888-PRU-2888. Stipulated Investment Options if you Elect Certain Optional Benefits As a condition to your participating in certain optional benefits, we limit the investment options to which you may allocate your Account Value. Broadly speaking, we offer two groups of "Permitted Sub-accounts". Under the first group (Group I), your allowable investment options are more limited, but you are not subject to mandatory quarterly re-balancing. Under the second group (Group II), you may allocate your Account Value between a broader range of investment options, but must participate in quarterly re-balancing. The set of tables immediately below describes the first category of permitted investment options. While those who do not participate in any optional benefit generally may invest in any of the investment options described in the Prospectus, only those who participate in the optional benefits listed in Group II below may participate in the second category (along with its attendant re-balancing requirement). This second category is called our "Optional Allocation and Rebalancing Program." If you participate in the Optional Allocation and Rebalancing Program, you may not participate in an Automatic Rebalancing Program. We may modify or terminate the Optional Allocation and Rebalancing Program at any time. Any such modification or termination will (i) be implemented only after we have notified you in advance, (ii) not affect the guarantees you had accrued under the optional benefit or your ability to continue to participate in those optional benefits, and (iii) not require you to transfer Account Value out of any Portfolio in which you participated immediately prior to the modification or termination. Group I: Allowable Benefit Allocations Optional Benefit Name* Allowable Benefit Allocations: Lifetime Five Income Benefit AST Academic Strategies Asset Spousal Lifetime Five Income Benefit Allocation Portfolio Highest Daily Lifetime Five Income AST Capital Growth Asset Allocation Benefit Portfolio Highest Daily Lifetime Seven Income AST Balanced Asset Allocation Benefit Portfolio Spousal Highest Daily Lifetime Seven AST Preservation Asset Allocation Income Benefit Portfolio Highest Daily Value Death Benefit AST First Trust Balanced Target Highest Daily Lifetime Seven with Portfolio Beneficiary Income AST First Trust Capital Appreciation Option Target Portfolio AST Focus Four Plus Portfolio AST Advanced Strategies Portfolio 19 Optional Benefit Name* Allowable Benefit Allocations: Spousal Highest Daily Lifetime Seven AST T. Rowe Price Asset Allocation with Beneficiary Income Option Portfolio Highest Daily Lifetime Seven with AST UBS Dynamic Alpha Strategy Lifetime Income Portfolio Accelerator AST Niemann Capital Growth Asset Highest Daily Lifetime 7 Plus Income Allocation Portfolio Benefit AST CLS Growth Asset Allocation Highest Daily Lifetime 7 Plus with Portfolio Beneficiary AST CLS Moderate Asset Allocation Income Option Portfolio Highest Daily Lifetime 7 Plus with AST Horizon Growth Asset Allocation Lifetime Portfolio Income Accelerator AST Horizon Moderate Asset Spousal Highest Daily Lifetime 7 Plus Allocation Portfolio Income Benefit AST Schroders Multi-Asset World Spousal Highest Daily Lifetime 7 Strategies Asset Plus with Beneficiary Income Option Allocation Portfolio Franklin Templeton VIP Founding Funds Allocation Fund ------------------------------------------------------------------------------ Optional Benefit Name* All investment options permitted, EXCEPT these: Combo 5% Rollup & HAV Death Benefit Value Line(R) Target 25 Guaranteed Minimum Income Benefit AIM V.I. Technology Guaranteed Minimum Withdrawal Benefit NASDAQ(R) Target 15 GRO PLUS 2008 Evergreen VA Growth Fund Highest Anniversary Value Death Benefit Highest Daily GRO - -------------------------------------- * Detailed Information regarding these optional benefits can be found in the "Living Benefits" and "Death Benefit" sections of this Prospectus. The following set of tables describes the second category (i.e., Group II below), under which: (a)you must allocate at least 20% of your Account Value to certain fixed income portfolios (currently, the AST PIMCO Total Return Bond Portfolio and the AST Western Asset Core Plus Bond Portfolio). (b)you may allocate up to 80% in equity and other portfolios listed in the table below. (c)on each benefit quarter (or the next Valuation Day, if the quarter-end is not a Valuation Day), we will automatically re-balance your Account Value, so that the percentages devoted to each Portfolio remain the same as those in effect on the immediately preceding quarter-end. Note that on the first quarter-end following your participation in the Optional Allocation and Rebalancing Benefit, we will re-balance your Account Value so that the percentages devoted to each Portfolio remain the same as those in effect when you began the Optional Allocation and Rebalancing Benefit. (d)between quarter-ends, you may re-allocate your Account Value among the investment options permitted within this category. If you reallocate, the next quarterly rebalancing will restore the percentages to those of your most recent reallocation. Group II: Optional Allocation & Rebalancing Program Optional Benefit Name Permitted Portfolios Highest Daily Lifetime Seven AST Academic Strategies Asset Spousal Highest Daily Lifetime Seven Allocation Highest Daily Lifetime Seven with AST Advanced Strategies Beneficiary Income Option AST Aggressive Asset Allocation Spousal Highest Daily Lifetime Seven AST AllianceBernstein Growth & Income with Beneficiary Income Option AST Balanced Asset Allocation Highest Daily Lifetime Seven with AST CLS Growth Asset Allocation Lifetime Income Accelerator AST CLS Moderate Asset Allocation Highest Daily Lifetime 7 Plus AST AllianceBernstein Core Value Spousal Highest Daily Lifetime 7 Plus AST American Century Income & Growth Highest Daily Lifetime 7 Plus with AST Capital Growth Asset Allocation Beneficiary Income Option AST Cohen & Steers Realty Spousal Highest Daily Lifetime 7 AST DeAM Large-Cap Value Plus with Beneficiary Income Option AST Federated Aggressive Growth Highest Daily Lifetime 7 Plus with AST First Trust Balanced Target Lifetime Income Accelerator AST First Trust Capital Appreciation Target AST Focus Four Plus AST Global Real Estate AST Goldman Sachs Concentrated Growth AST Goldman Sachs Mid-Cap Growth AST Goldman Sachs Small-Cap Value AST High Yield 20 Permitted Portfolios AST Horizon Growth Asset Allocation AST Horizon Moderate Asset Allocation AST International Growth AST International Value AST JPMorgan International Equity AST Large-Cap Value AST Lord Abbett Bond-Debenture AST Marsico Capital Growth AST MFS Global Equity AST MFS Growth AST Mid-Cap Value AST Money Market AST Neuberger Berman Mid-Cap Growth AST Neuberger Berman/LSV Mid-Cap Value AST Neuberger Berman Small-Cap Growth AST Niemann Capital Growth Asset Allocation AST PIMCO Limited Maturity Bond AST PIMCO Total Return Bond AST Preservation Asset Allocation AST QMA US Equity Alpha AST Schroders Multi-Asset World Strategies AST Small-Cap Growth AST Small-Cap Value AST T. Rowe Price Asset Allocation AST T. Rowe Price Global Bond AST T. Rowe Price Large-Cap Growth AST T. Rowe Price Natural Resources AST UBS Dynamic Alpha Strategy AST Western Asset Core Plus Bond Franklin Templeton VIP Founding Funds Allocation Fund ------------------------------------------------------------------------------ * Detailed Information regarding these optional benefits can be found in the "Living Benefits" and "Death Benefit" sections of this Prospectus. Certain optional living benefits (e.g., Highest Daily Lifetime 7 Plus) employ a pre-determined formula, under which money is transferred between your chosen variable sub-accounts and a bond portfolio (e.g., the AST Investment Grade Bond Portfolio). You should be aware that the operation of the formula could impact the expenses and performance of the variable sub-accounts used with the optional living benefits (the "Permitted Sub-accounts"). Specifically, because transfers to and from the Permitted Sub-accounts can be frequent and the amount transferred can vary, the Permitted Sub-accounts could experience the following effects, among others: (a) they may be compelled to hold a larger portion of assets in highly liquid securities than they otherwise would, which could diminish performance if the highly liquid securities underperform other securities (e.g., equities) that otherwise would have been held (b) they may experience higher portfolio turnover, which generally will increase the Permitted Sub-accounts' expenses and (c) if they are compelled by the formula to sell securities that are thinly-traded, such sales could have a significant impact on the price of such securities. Please consult the prospectus for the applicable fund for complete information about these effects. 21 ------------------------------------------------------------------------ STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------ ADVANCED SERIES TRUST ------------------------------------------------------------------------ ASSET AST Academic Strategies Asset AlphaSimplex ALLOCA Allocation Portfolio (formerly known Group, LLC; Credit TION as AST Balanced Asset Allocation Suisse Securities Portfolio): seeks long term capital (USA) LLC; First appreciation. The Portfolio is a Quadrant L.P.; multi- asset class fund that pursues Jennison Associates both top-down asset allocation LLC; Mellon strategies and bottom-up selection Capital of securities, investment managers, Management and mutual funds. Under normal Corporation; Pacific circumstances, approximately 60% of Investment the assets will be allocated to Management traditional asset classes (including Company LLC US and international equities and (PIMCO); bonds) and approximately 40% of the Prudential Bache assets will be allocated to Asset Management, nontraditional asset classes Incorporated; (including real estate, commodities, Quantitative and alternative strategies). Those Management percentages are subject to change at Associates LLC the discretion of the advisor. ------------------------------------------------------------------------ ASSET AST Advanced Strategies Portfolio: LSV Asset ALLOCA seeks a high level of absolute Management; TION return. The Portfolio invests in Marsico Capital traditional and non-traditional Management, LLC; investment strategies and by Pacific Investment investing in domestic and foreign Management equity and fixed income securities, Company LLC derivative instruments in exchange (PIMCO); T. Rowe traded funds. The asset allocation Price Associates, generally provides for an allotment Inc.; William Blair of 50% of the portfolio assets to a & Company, LLC; combination of domestic and Quantitative international equity strategies and Management the remainder in a combination of Associates LLC U.S. fixed income, hedged international bond and real return bonds. The manager will allocate the assets of the portfolio across different investment categories and subadvisors. ------------------------------------------------------------------------ ASSET AST Aggressive Asset Allocation Prudential ALLOCA Portfolio: seeks to obtain total Investments LLC; TION return consistent with its specified Quantitative level of risk. The Portfolio Management primarily invests its assets in a Associates LLC diversified portfolio of other mutual funds, the underlying portfolios, of the Advanced Series Trust and certain affiliated money market funds. Under normal market conditions, the Portfolio will devote approximately 100% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 92.5% to 100%) and the remainder of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 0% - 7.5%). The Portfolio is not limited to investing exclusively in shares of the underlying portfolios and may invest in securities and futures contracts, swap agreements and other financial and derivative instruments. ------------------------------------------------------------------------ LARGE AST AllianceBernstein Core Value AllianceBernstein CAP Portfolio: seeks long-term capital L.P. VALUE growth by investing primarily in common stocks. The subadviser expects that the majority of the Portfolio's assets will be invested in the common stocks of large companies that appear to be undervalued. Among other things, the Portfolio seeks to identify compelling buying opportunities created when companies are undervalued on the basis of investor reactions to near-term problems or circumstances even though their long-term prospects remain sound. The subadviser seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. ------------------------------------------------------------------------ 22 ---------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ---------------------------------------------------------------------- LARGE AST AllianceBernstein Growth & AllianceBernstein CAP Income Portfolio: seeks long-term L.P. VALUE growth of capital and income while attempting to avoid excessive fluctuations in market value. The Portfolio normally will invest in common stocks (and securities convertible into common stocks). The subadviser will take a value-oriented approach, in that it will try to keep the Portfolio's assets invested in securities that are selling at reasonable valuations in relation to their fundamental business prospects. ---------------------------------------------------------------------- LARGE AST American Century Income & Growth American Century CAP Portfolio: seeks capital growth with Investment VALUE current income as a secondary Management, Inc. objective. The Portfolio invests primarily in common stocks that offer potential for capital growth, and may, consistent with its investment objective, invest in stocks that offer potential for current income. The subadviser utilizes a quantitative management technique with a goal of building an equity portfolio that provides better returns than the S&P 500 Index without taking on significant additional risk and while attempting to create a dividend yield that will be greater than the S&P 500 Index. ---------------------------------------------------------------------- ASSET AST Balanced Asset Allocation Prudential ALLOCA Portfolio (formerly known as AST Investments LLC; TION Conservative Asset Allocation Quantitative Portfolio): seeks to obtain total Management return consistent with its specified Associates LLC level of risk. The Portfolio primarily invests its assets in a diversified portfolio of other mutual funds, the underlying portfolios, of the Advanced Series Trust and certain affiliated money market funds. Under normal market conditions, the Portfolio will devote approximately 60% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 52.5% to 67.5%, and 40% of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 32.5% to 47.5%). The Portfolio is not limited to investing exclusively in shares of the underlying portfolios and may invest in securities and futures contracts, swap agreements and other financial and derivative instruments. ---------------------------------------------------------------------- FIXED AST Bond Portfolio 2015: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2015. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. ---------------------------------------------------------------------- FIXED AST Bond Portfolio 2016: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2016. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. ---------------------------------------------------------------------- FIXED AST Bond Portfolio 2018: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2018. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. ---------------------------------------------------------------------- FIXED AST Bond Portfolio 2019: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2019. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. ---------------------------------------------------------------------- FIXED AST Bond Portfolio 2020: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2020. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. ---------------------------------------------------------------------- 23 ------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------- ASSET AST Capital Growth Asset Allocation Prudential ALLOCA Portfolio: seeks to obtain total Investments LLC; TION return consistent with its specified Quantitative level of risk. The Portfolio Management primarily invests its assets in a Associates LLC diversified portfolio of other mutual funds, the underlying portfolios, of the Advanced Series Trust and certain affiliated money market funds. Under normal market conditions, the Portfolio will devote approximately 75% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 67.5% to 80%), and 25% of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 20.0% to 32.5%). The Portfolio is not limited to investing exclusively in shares of the underlying portfolios and may invest in securities and futures contracts, swap agreements and other financial and derivative instruments. ------------------------------------------------------------------------- ASSET AST CLS Growth Asset Allocation CLS Investments ALLOCA Portfolio: seeks the highest LLC TION potential total return consistent with its specified level of risk tolerance. Under normal circumstances, at least 90% of the Portfolio's assets will be invested in other portfolios of Advanced Series Trust (the underlying portfolios) while no more than 10% of the Portfolio's assets may be invested in exchange traded funds (ETFs). Under normal market conditions, the Portfolio will devote from 60% to 80% of its net assets to underlying portfolios and ETFs investing primarily in equity securities, and from 20% to 40% of its net assets to underlying portfolios and ETFs investing primarily in debt securities and money market instruments. ------------------------------------------------------------------------- ASSET AST CLS Moderate Asset Allocation CLS Investments ALLOCA Portfolio: seeks the highest LLC TION potential total return consistent with its specified level of risk tolerance. Under normal circumstances, at least 90% of the Portfolio's assets will be invested in other portfolios of Advanced Series Trust (the underlying portfolios) while no more than 10% of the Portfolio's assets may be invested in exchange traded funds (ETFs). Under normal market conditions, the Portfolio will devote from 40% to 60% of its net assets to underlying portfolios and ETFs investing primarily in equity securities, and from 40% to 60% of its net assets to underlying portfolios and ETFs investing primarily in debt securities and money market instruments. ------------------------------------------------------------------------- SPECIALTY AST Cohen & Steers Realty Portfolio: Cohen & Steers seeks to maximize total return Capital through investment in real estate Management, Inc. securities. The Portfolio pursues its investment objective by investing, under normal circumstances, at least 80% of its net assets in common stocks and other equity securities issued by real estate companies, such as real estate investment trusts (REITs). Under normal circumstances, the Portfolio will invest substantially all of its assets in the equity securities of real estate companies, i.e., a company that derives at least 50% of its revenues from the ownership, construction, financing, management or sale of real estate or that has at least 50% of its assets in real estate. Real estate companies may include real estate investment trusts (REITs). ------------------------------------------------------------------------- LARGE AST DeAM Large-Cap Value Portfolio: Deutsche CAP seeks maximum growth of capital by Investment VALUE investing primarily in the value Management stocks of larger companies. The Americas, Inc. Portfolio pursues its objective, under normal market conditions, by primarily investing at least 80% of the value of its assets in the equity securities of large-sized companies included in the Russell 1000(R) Value Index. The subadviser employs an investment strategy designed to maintain a portfolio of equity securities which approximates the market risk of those stocks included in the Russell 1000(R) Value Index, but which attempts to outperform the Russell 1000(R) Value Index through active stock selection. ------------------------------------------------------------------------- SMALL AST Federated Aggressive Growth Federated Equity CAP Portfolio: seeks capital growth. The Management GROWTH Portfolio pursues its investment Company of objective by investing primarily in Pennsylvania/ the stocks of small companies that Federated Global are traded on national security Investment exchanges, NASDAQ stock exchange and Management Corp.; the over- the-counter-market. Small Federated MDTA companies will be defined as LLC companies with market capitalizations similar to companies in the Russell 2000 Growth and S&P 600 Small Cap Index. ------------------------------------------------------------------------- 24 --------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR --------------------------------------------------------------------------- ASSET AST First Trust Balanced Target First Trust Advisors ALLOCA Portfolio: seeks long-term capital L.P. TION growth balanced by current income. The Portfolio seeks to achieve its objective by investing approximately 65% in common stocks and approximately 35% in fixed income securities. The Portfolio allocates the equity portion of the portfolio across five uniquely specialized strategies - The Dow(R) Target Dividend, the Value Line(R) Target 25, the Global Dividend Target 15, the NYSE(R) International Target 25, and the Target Small Cap. Each strategy employs a quantitative approach by screening common stocks for certain attributes and/or using a multi-factor scoring system to select the common stocks. The fixed income allocation is determined by the Dow Jones Income strategy which utilizes certain screens to select bonds from the Dow Jones Corporate Bond Index or like-bonds not in the index. --------------------------------------------------------------------------- ASSET AST First Trust Capital Appreciation First Trust Advisors ALLOCA Target Portfolio: seeks long-term L.P. TION capital growth. The Portfolio seeks to achieve its objective by investing approximately 80% in common stocks and approximately 20% in fixed income securities. The portfolio allocates the equity portion of the portfolio across five uniquely specialized strategies - the Value Line(R) Target 25, the Global Dividend Target 15, the Target Small Cap, the Nasdaq(R) Target 15, and the NYSE(R) International Target 25. Each strategy employs a quantitative approach by screening common stocks for certain attributes and/or using a multi-factor scoring system to select the common stocks. The fixed income allocation is determined by the Dow Jones Income strategy which utilizes certain screens to select bonds from the Dow Jones Corporate Bond Index or like-bonds not in the index. --------------------------------------------------------------------------- ASSET AST Focus Four Plus Portfolio: seeks First Trust Advisors ALLOCA long-term capital growth. The L.P. TION Portfolio seeks to achieve its objective by investing approximately 75% in common stocks and approximately 25% in fixed-income securities. The Portfolio allocates the equity portion of the portfolio across four uniquely specialized strategies - The Dow(R) Target Dividend, the Value Line(R) Target 25, the NYSE(R) International Target 25, and the S&P Target SMid 60. Each strategy employs a quantitative approach by screening common stocks for certain attributes and/or using a multi-factor scoring system to select the common stocks. --------------------------------------------------------------------------- SPECIALTY AST Global Real Estate Portfolio: Prudential Real seeks capital appreciation and Estate Investors income. The Portfolio will normally invest at least 80% of its liquid assets (net assets plus any borrowing made for investment purposes) in equity-related securities of real estate companies. The Portfolio will invest in equity-related securities of real estate companies on a global basis and the Portfolio may invest up to 15% of its net assets in ownership interests in commercial real estate through investments in private real estate. --------------------------------------------------------------------------- LARGE AST Goldman Sachs Concentrated Goldman Sachs CAP Growth Portfolio: seeks long-term Asset Management, GROWTH growth of capital. The Portfolio L.P. will pursue its objective by investing primarily in equity securities of companies that the subadviser believes have the potential to achieve capital appreciation over the long-term. The Portfolio seeks to achieve its investment objective by investing, under normal circumstances, in approximately 30 - 45 companies that are considered by the subadviser to be positioned for long-term growth. --------------------------------------------------------------------------- MID CAP AST Goldman Sachs Mid-Cap Growth Goldman Sachs GROWTH Portfolio: seeks long-term capital Asset Management, growth. The Portfolio pursues its L.P. investment objective, by investing primarily in equity securities selected for their growth potential, and normally invests at least 80% of the value of its assets in medium-sized companies. Medium-sized companies are those whose market capitalizations (measured at the time of investment) fall within the range of companies in the Russell Mid-cap Growth Index. The subadviser seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. --------------------------------------------------------------------------- SMALL AST Goldman Sachs Small-Cap Value Goldman Sachs CAP Portfolio: seeks long-term capital Asset Management, VALUE appreciation. The Portfolio will L.P. seek its objective through investments primarily in equity securities that are believed to be undervalued in the marketplace. The Portfolio will invest, under normal circumstances, at least 80% of the value of its assets plus any borrowings for investment purposes in small capitalization companies. The 80% investment requirement applies at the time the Portfolio invests its assets. The Portfolio generally defines small capitalization companies as companies with market capitalizations that are within the range of the Russell 2000 Value Index at the time of purchase. --------------------------------------------------------------------------- 25 ------------------------------------------------------------------------ STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------ FIXED AST High Yield Portfolio: seeks Pacific Investment INCOME maximum total return, consistent Management with preservation of capital and Company LLC prudent investment management. The (PIMCO) Portfolio will invest, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) in non-investment grade high yield, fixed-income investments which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. Non-investment grade investments are financial instruments rated Ba or lower by a Moody's Investors Services, Inc. or equivalently rated by Standard Poor's Corporation, or Fitch, or, if unrated, determined by the subadviser to be of comparable quality. ------------------------------------------------------------------------ ASSET AST Horizon Growth Asset Allocation Horizon ALLOCA Portfolio: seeks the highest Investments, LLC TION potential total return consistent with its specified level of risk tolerance. Under normal circumstances, at least 90% of the Portfolio's assets will be invested in other portfolios of Advanced Series Trust (the underlying portfolios) while no more than 10% of the Portfolio's assets may be invested in exchange traded funds (ETFs). Under normal market conditions, the Portfolio will devote from 60% to 80% of its net assets to underlying portfolios and ETFs investing primarily in equity securities, and from 20% to 40% of its net assets to underlying portfolios and ETFs investing primarily in debt securities and money market instruments. ------------------------------------------------------------------------ ASSET AST Horizon Moderate Asset Horizon ALLOCA Allocation Portfolio: seeks the Investments, LLC TION highest potential total return consistent with its specified level of risk tolerance. Under normal circumstances, at least 90% of the Portfolio's assets will be invested in other portfolios of Advanced Series Trust (the underlying portfolios) while no more than 10% of the Portfolio's assets may be invested in exchange traded funds (ETFs). Under normal market conditions, the Portfolio will devote from 40% to 60% of its net assets to underlying portfolios and ETFs investing primarily in equity securities, and from 40% to 60% of its net assets to underlying portfolios and ETFs investing primarily in debt securities and money market instruments. ------------------------------------------------------------------------ INTER AST International Growth Portfolio: Marsico Capital NATIONAL seeks long-term capital growth. Management, LLC; EQUITY Under normal circumstances, the William Blair & Portfolio invests at least 80% of Company, LLC the value of its assets in securities of issuers that are economically tied to countries other than the United States. Although the Portfolio intends to invest at least 80% of its assets in the securities of issuers located outside the United States, it may at times invest in U.S. issuers and it may invest all of its assets in fewer than five countries or even a single country. The Portfolio looks primarily for stocks of companies whose earnings are growing at a faster rate than other companies or which offer attractive growth. ------------------------------------------------------------------------ INTER AST International Value Portfolio: LSV Asset NATIONAL seeks long-term capital Management; EQUITY appreciation. The Portfolio normally Thornburg invests at least 80% of the Investment Portfolio's assets in equity Management, Inc. securities. The Portfolio will invest at least 65% of its net assets in the equity securities of companies in at least three different countries, without limit as to the amount of assets that may be invested in a single country. ------------------------------------------------------------------------ FIXED AST Investment Grade Bond Portfolio: Prudential INCOME seeks the highest potential total Investment return consistent with its specified Management, Inc. level of risk tolerance to meet the parameters established to support the Highest Daily Lifetime Seven benefits and maintain liquidity to support changes in market conditions for a fixed duration (weighted average maturity) of about 6 years. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. ------------------------------------------------------------------------ INTER AST JPMorgan International Equity J.P. Morgan NATIONAL Portfolio: seeks long-term capital Investment EQUITY growth by investing in a diversified Management, Inc. portfolio of international equity securities. The Portfolio seeks to meet its objective by investing, under normal market conditions, at least 80% of its assets in a diversified portfolio of equity securities of companies located or operating in developed non-U.S. countries and emerging markets of the world. The equity securities will ordinarily be traded on a recognized foreign securities exchange or traded in a foreign over-the-counter market in the country where the issuer is principally based, but may also be traded in other countries including the United States. ------------------------------------------------------------------------ 26 ------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------- LARGE AST Large-Cap Value Portfolio: seeks Dreman Value CAP current income and long-term growth Management VALUE of income, as well as capital L.L.C.; Eaton appreciation. The Portfolio invests, Vance under normal circumstances, at least Management; 80% of its net assets in common Hotchkis and Wiley stocks of large capitalization Capital companies. Large capitalization Management LLC companies are those companies with market capitalizations within the market capitalization range of the Russell 1000 Value Index. ------------------------------------------------------------------------- FIXED AST Lord Abbett Bond-Debenture Lord, Abbett & Co. INCOME Portfolio: seeks high current income LLC and the opportunity for capital appreciation to produce a high total return. The Portfolio invests, under normal circumstances, at least 80% of the value of its assets in fixed income securities. The Portfolio allocates its assets principally among fixed income securities in four market sectors: U.S. investment grade securities, U.S. high yield securities, foreign securities (including emerging market securities) and convertible securities. Under normal circumstances, the Portfolio invests in each of the four sectors described above. However, the Portfolio may invest substantially all of its assets in any one sector at any time, subject to the limitation that at least 20% of the Portfolio's net assets must be invested in any combination of investment grade debt securities, U.S. Government securities and cash equivalents. The Portfolio may find good value in high yield securities, sometimes called "lower-rated bonds" or "junk bonds," and frequently may have more than half of its assets invested in those securities. The Portfolio may also make significant investments in mortgage-backed securities. Although the Portfolio expects to maintain a weighted average maturity in the range of five to twelve years, there are no maturity restrictions on the overall Portfolio or on individual securities. The Portfolio may invest up to 20% of its net assets in equity securities. The Portfolio may invest up to 20% of its net assets in foreign securities. ------------------------------------------------------------------------- LARGE AST Marsico Capital Growth Marsico Capital CAP Portfolio: seeks capital growth. Management, LLC GROWTH Income realization is not an investment objective and any income realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing primarily in common stocks of large companies that are selected for their growth potential. Large capitalization companies are companies with market capitalizations within the market capitalization range of the Russell 1000 Growth Index. In selecting investments for the Portfolio, the subadviser uses an approach that combines "top down" macroeconomic analysis with "bottom up" stock selection. The "top down" approach identifies sectors, industries and companies that may benefit from the trends the subadviser has observed. The subadviser then looks for individual companies with earnings growth potential that may not be recognized by the market at large, utilizing a "bottom up" stock selection process. The Portfolio will normally hold a core position of between 35 and 50 common stocks. The Portfolio may hold a limited number of additional common stocks at times when the Portfolio manager is accumulating new positions, phasing out existing or responding to exceptional market conditions. ------------------------------------------------------------------------- INTER AST MFS Global Equity Portfolio: Massachusetts NATIONAL seeks capital growth. Under normal Financial Services EQUITY circumstances the Portfolio invests Company at least 80% of its assets in equity securities. The Portfolio may invest in the securities of U.S. and foreign issuers (including issuers in emerging market countries). While the portfolio may invest its assets in companies of any size, the Portfolio generally focuses on companies with relatively large market capitalizations relative to the markets in which they are traded. ------------------------------------------------------------------------- LARGE AST MFS Growth Portfolio: seeks Massachusetts CAP long-term capital growth and future, Financial Services GROWTH rather than current income. Under Company normal market conditions, the Portfolio invests at least 80% of its net assets in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts. The subadviser uses a "bottom up" as opposed to a "top down" investment style in managing the Portfolio. ------------------------------------------------------------------------- 27 -------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR -------------------------------------------------------------------------- MID CAP AST Mid-Cap Value Portfolio: seeks EARNEST Partners VALUE to provide capital growth by LLC; WEDGE investing primarily in Capital mid-capitalization stocks that Management, LLP appear to be undervalued. The Portfolio generally invests, under normal circumstances, at least 80% of the value of its net assets in mid- capitalization companies. Mid-capitalization companies are generally those that have market capitalizations, at the time of purchase, within the market capitalization range of companies included in the Russell Midcap Value Index during the previous 12-months based on month-end data. -------------------------------------------------------------------------- FIXED AST Money Market Portfolio: seeks Prudential INCOME high current income while Investment maintaining high levels of Management, Inc. liquidity. The Portfolio invests in high-quality, short-term, U.S. dollar denominated corporate, bank and government obligations. The Portfolio will invest in securities which have effective maturities of not more than 397 days. -------------------------------------------------------------------------- MID CAP AST Neuberger Berman Mid-Cap Growth Neuberger Berman GROWTH Portfolio: seeks capital growth. Management LLC Under normal market conditions, the Portfolio invests at least 80% of its net assets in the common stocks of mid-capitalization companies. Mid-capitalization companies are those companies whose market capitalization is within the range of market capitalizations of companies in the Russell Midcap(R) Growth Index. Using fundamental research and quantitative analysis, the subadviser looks for fast-growing companies that are in new or rapidly evolving industries. The Portfolio may invest in foreign securities (including emerging markets securities). -------------------------------------------------------------------------- MID CAP AST Neuberger Berman/LSV Mid-Cap LSV Asset VALUE Value Portfolio (formerly known as Management; AST Neuberger Berman Mid-Cap Value Neuberger Berman Portfolio): seeks capital growth. Management LLC Under normal market conditions, the Portfolio invests at least 80% of its net assets in the common stocks of medium capitalization companies. For purposes of the Portfolio, companies with market capitalizations that fall within the range of the Russell Midcap(R) Index at the time of investment are considered medium capitalization companies. Some of the Portfolio's assets may be invested in the securities of large-cap companies as well as in small-cap companies. Under the Portfolio's value-oriented investment approach, the subadviser looks for well-managed companies whose stock prices are undervalued and that may rise in price before other investors realize their worth. -------------------------------------------------------------------------- SMALL AST Neuberger Berman Small-Cap Neuberger Berman CAP Growth Portfolio: seeks maximum Management LLC GROWTH growth of investors' capital from a portfolio of growth stocks of smaller companies. The Portfolio pursues its objective, under normal circumstances, by primarily investing at least 80% of its total assets in the equity securities of small-sized companies included in the Russell 2000 Growth(R) Index. -------------------------------------------------------------------------- ASSET AST Niemann Capital Growth Asset Neimann Capital ALLOCA Allocation Portfolio: seeks the Management Inc. TION highest potential total return consistent with its specified level of risk tolerance. Under normal circumstances, at least 90% of the Portfolio's assets will be invested in other portfolios of Advanced Series Trust (the underlying portfolios) while no more than 10% of the Portfolio's assets may be invested in exchange traded funds (ETFs). Under normal market conditions, the Portfolio will devote from 60% to 80% of its net assets to underlying portfolios and ETFs investing primarily in equity securities, and from 20% to 40% of its net assets to underlying portfolios and ETFs investing primarily in debt securities and money market instruments. -------------------------------------------------------------------------- INTER AST Parametric Emerging Markets Parametric Portfolio NATIONAL Equity Portfolio: seeks long-term Associates LLC EQUITY capital appreciation. The Portfolio normally invests at least 80% of its net assets in equity securities traded on the equity markets of emerging market countries, which are those considered to be developing. Emerging markets countries include countries in Asia, Latin America, the Middle East, Southern Europe, Eastern Europe, Africa and the region formerly comprising the Soviet Union. A company will be considered to be located in an emerging market country if it is domiciled in or derives more that 50% of its revenues or profits from emerging market countries. The Portfolio seeks to employ a top-down, disciplined and structured investment process that emphasizes broad exposure and diversification among emerging market countries, economic sectors and issuers. -------------------------------------------------------------------------- 28 ------------------------------------------------------------------------ STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------ FIXED AST PIMCO Limited Maturity Bond Pacific Investment INCOME Portfolio: seeks to maximize total Management return consistent with preservation Company LLC of capital and prudent investment (PIMCO) management. The Portfolio will invest, under normal circumstances, at least 80% of the value of its net assets in fixed- income investment instruments of varying maturities which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. ------------------------------------------------------------------------ FIXED AST PIMCO Total Return Bond Pacific Investment INCOME Portfolio: seeks to maximize total Management return consistent with preservation Company LLC of capital and prudent investment (PIMCO) management. The Portfolio will invest, under normal circumstances, at least 80% of the value of its net assets in fixed income investments, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. ------------------------------------------------------------------------ ASSET AST Preservation Asset Allocation Prudential ALLOCA Portfolio: seeks to obtain total Investments LLC; TION return consistent with its specified Quantitative level of risk. The Portfolio Management primarily invests its assets in a Associates LLC diversified portfolio of other mutual funds, the underlying portfolios, of the Advanced Series Trust and certain affiliated money market funds. Under normal market conditions, the Portfolio will devote approximately 35% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 27.5% to 42.5%), and 65% of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 57.5% to 72.5%. The Portfolio is not limited to investing exclusively in shares of the underlying portfolios and may invest in securities and futures contracts, swap agreements and other financial and derivative instruments. ------------------------------------------------------------------------ LARGE AST QMA US Equity Alpha Portfolio: Quantitative CAP seeks long term capital Management BLEND appreciation. The portfolio utilizes Associates LLC a long/short investment strategy and will normally invest at least 80% of its net assets plus borrowings in equity and equity related securities of US issuers. The benchmark index is the Russell 1000(R) which is comprised of stocks representing more than 90% of the market cap of the US market and includes the largest 1000 securities in the Russell 3000(R) index. ------------------------------------------------------------------------ ASSET AST Schroders Multi-Asset World Schroder ALLOCA Strategies (formerly known as AST Investment TION American Century Strategic Management North Allocation Portfolio): seeks America Inc. long-term capital appreciation through a global flexible asset allocation approach. This asset allocation approach entails investing in traditional asset classes, such as equity and fixed-income investments, and alternative asset classes, such as investments in real estate, commodities, currencies, private equity, and absolute return strategies. The sub-advisor seeks to emphasize the management of risk and volatility. Exposure to different asset classes and investment strategies will vary over time based upon the sub advisor's assessments of changing market, economic, financial and political factors and events. ------------------------------------------------------------------------ SMALL AST Small-Cap Growth Portfolio: Eagle Asset CAP seeks long-term capital growth. The Management, Inc. GROWTH Portfolio pursues its objective by investing, under normal circumstances, at least 80% of the value of its assets in small-capitalization companies. Small-capitalization companies are those companies with a market capitalization, at the time of purchase, no larger than the largest capitalized company included in the Russell 2000(R) Index at the time of the Portfolio's investment. ------------------------------------------------------------------------ SMALL AST Small-Cap Value Portfolio: seeks ClearBridge CAP to provide long-term capital growth Advisors, LLC; VALUE by investing primarily in Dreman Value small-capitalization stocks that Management appear to be undervalued. The L.L.C.; J.P. Morgan Portfolio invests, under normal Investment circumstances, at least 80% of the Management, Inc.; value of its net assets in small Lee Munder capitalization stocks. Small Investments, Ltd capitalization stocks are the stocks of companies with market capitalization that are within the market capitalization range of the Russell 2000(R) Value Index. ------------------------------------------------------------------------ 29 -------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR -------------------------------------------------------------------------- ASSET AST T. Rowe Price Asset Allocation T. Rowe Price ALLOCA Portfolio: seeks a high level of Associates, Inc. TION total return by investing primarily in a diversified portfolio of equity and fixed income securities. The Portfolio normally invests approximately 60% of its total assets in equity securities and 40% in fixed income securities. This mix may vary depending on the subadviser's outlook for the markets. The subadviser concentrates common stock investments in larger, more established companies, but the Portfolio may include small and medium-sized companies with good growth prospects. The fixed income portion of the Portfolio will be allocated among investment grade securities, high yield or "junk" bonds, emerging market securities, foreign high quality debt securities and cash reserves. -------------------------------------------------------------------------- FIXED AST T. Rowe Price Global Bond T. Rowe Price INCOME Portfolio: seeks to provide high International, Inc. current income and capital growth by investing in high-quality foreign and U.S. dollar-denominated bonds. The Portfolio will invest at least 80% of its total assets in fixed income securities. The Portfolio invests in all types of bonds, including those issued or guaranteed by U.S. or foreign governments or their agencies and by foreign authorities, provinces and municipalities as well as investment grade corporate bonds, mortgage and asset-backed securities, and high-yield bonds of U.S. and foreign issuers. The Portfolio generally invests in countries where the combination of fixed-income returns and currency exchange rates appears attractive, or, if the currency trend is unfavorable, where the subadviser believes that the currency risk can be minimized through hedging. The Portfolio may also invest up to 20% of its assets in the aggregate in below investment-grade, high-risk bonds ("junk bonds") and emerging market bonds. In addition, the Portfolio may invest up to 30% of its assets in mortgage-related (including mortgage dollar rolls and derivatives, such as collateralized mortgage obligations and stripped mortgage securities) and asset- backed securities. The Portfolio may invest in futures, swaps and other derivatives in keeping with its objective. -------------------------------------------------------------------------- LARGE AST T. Rowe Price Large-Cap Growth T. Rowe Price CAP Portfolio: seeks long-term growth of Associates, Inc. GROWTH capital by investing predominantly in the equity securities of a limited number of large, carefully selected, high-quality U.S. companies that are judged likely to achieve superior earnings growth. The Portfolio takes a growth approach to investment selection and normally invests at least 80% of its net assets in the common stocks of large companies. Large companies are defined as those whose market cap is larger than the median market cap of companies in the Russell 1000 Growth Index as of the time of purchase. -------------------------------------------------------------------------- SPECIALTY AST T. Rowe Price Natural Resources T. Rowe Price Portfolio: seeks long-term capital Associates, Inc. growth primarily through invest in the common stocks of companies that own or develop natural resources (such as energy products, precious metals and forest products) and other basic commodities. The Portfolio invests, under normal circumstances, at least 80% of the value of its assets in natural resource companies. The Portfolio may also invest in non-resource companies with the potential for growth. The Portfolio looks for companies that have the ability to expand production, to maintain superior exploration programs and production facilities, and the potential to accumulate new resources. Although at least 50% of Portfolio assets will be invested in U.S. securities, up to 50% of total assets also may be invested in foreign securities. -------------------------------------------------------------------------- ASSET AST UBS Dynamic Alpha Portfolio: UBS Global Asset ALLOCA seeks to maximize total return, Management TION consisting of capital appreciation (Americas) Inc. and current income. The Portfolio invests in securities and financial instruments to gain exposure to global equity, global fixed income and cash equivalent markets, including global currencies. The Portfolio may invest in equity and fixed income securities of issuers located within and outside the United States or in open-end investment companies advised by UBS Global Asset Management (Americas) Inc., the Portfolio's subadviser, to gain exposure to certain global equity and global fixed income markets. -------------------------------------------------------------------------- FIXED AST Western Asset Core Plus Bond Western Asset INCOME Portfolio: seeks to maximize total Management return, consistent with prudent Company investment management and liquidity needs, by investing to obtain its average specified duration. The Portfolio's current target average duration is generally 2.5 to 7 years. The Portfolio pursues this objective by investing in all major fixed income sectors with a bias towards non-Treasuries. -------------------------------------------------------------------------- 30 ------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------- AIM VARIABLE INSURANCE FUNDS ------------------------------------------------------------------------- MID CAP AIM Variable Insurance Funds - AIM Advisor: Invesco GROWTH V.I. Dynamics Fund - Series I Aim Advisors, Inc. shares: The investment objective is long-term capital growth. The Sub-advisor: Portfolio pursues its objective by Advisory entities normally investing at least 65% of affiliated with its assets in equity securities of Invesco Aim mid-capitalization companies that Advisors, Inc. are included in the Russell Midcap(R) Growth Index at the time of purchase. ------------------------------------------------------------------------- SPECIALTY AIM Variable Insurance Funds - AIM Advisor: Invesco V.I. Financial Services Fund - Aim Advisors, Inc. Series I shares: The investment objective is capital growth. The Sub-advisor: Portfolio normally invests at least Advisory entities 80% of its assets in equity affiliated with securities of issuers engaged Invesco Aim primarily in financial Advisors, Inc. services-related industries. ------------------------------------------------------------------------- SPECIALTY AIM Variable Insurance Funds - AIM Advisor: Invesco V.I. Global Health Care Fund - Aim Advisors, Inc. Series I shares: The investment objective is capital growth. The Sub-advisor: Portfolio normally invests at least Advisory entities 80% of its net assets in securities affiliated with of health care industry companies. Invesco Aim Advisors, Inc. ------------------------------------------------------------------------- SPECIALTY AIM Variable Insurance Funds - AIM Advisor: Invesco V.I. Technology Fund - Series I Aim Advisors, Inc. shares: The investment objective is capital growth. The Portfolio normally invests at least 80% of its assets in equity securities of issuers engaged primarily in the technology-related industries. ------------------------------------------------------------------------- EVERGREEN VARIABLE ANNUITY TRUST ------------------------------------------------------------------------- SMALL Evergreen VA Growth: seeks long-term Evergreen CAP capital growth. The Portfolio Investment GROWTH normally invests at least 75% of its Management assets in common stocks of small- Company, LLC and medium-sized companies (i.e., companies whose market capitalizations fall within the market capitalization range of the companies tracked by the Russell 2000(R) Growth Index, measured at the time of purchase). The remaining portion of the Portfolio's assets may be invested in companies of any size. The Portfolio's managers employ a growth-style of equity management and will generally seek to purchase stocks of companies that have demonstrated earnings growth potential which they believe is not yet reflected in the stock's market price. The Portfolio's managers consider potential earnings growth above the average earnings growth of companies included in the Russell 2000(R) Growth Index as a key factor in selecting investments. ------------------------------------------------------------------------- INTER Evergreen VA International Equity: Evergreen NATIONAL seeks long-term capital growth and Investment EQUITY secondarily, modest income. The Management Portfolio will normally invest at Company, LLC least 80% of its assets in equity securities issued by in the portfolio manager's opinion, established and quality non-U.S. companies located in countries with developed markets. The Portfolio may purchase securities across all market capitalizations. The Portfolio normally invests at least 65% of its assets in securities of companies in at least three countries (other than the U.S.). The Portfolio may also invest in emerging markets. The Portfolio's managers seek both growth and value opportunities. For growth investments, the Portfolio's manager seeks, among other things, good business models, good management and growth in cash flows. For value investments, the Portfolio's manager seeks, among other things, companies that are undervalued in the marketplace compared to their assets. The Portfolio normally intends to seek modest income from dividends paid by its equity holdings. Other than cash and cash equivalents, the Portfolio intends to invest substantially all of its assets in the securities of non-U.S. issuers. ------------------------------------------------------------------------- 31 --------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR --------------------------------------------------------------------------- SPECIALTY Evergreen VA Omega: seeks long-term Evergreen capital growth. The Portfolio Investment invests primarily, and under normal Management conditions substantially all of its Company, LLC assets, in common stocks of U.S. companies across any market capitalization. The Portfolio's manager employs a growth style of equity management that seeks to emphasize companies with cash flow growth, sustainable competitive advantages, returns on invested capital above their cost of capital and the ability to manage for profitable growth that can create long-term value for shareholders. --------------------------------------------------------------------------- FIRST DEFINED PORTFOLIO FUND, LLC --------------------------------------------------------------------------- SPECIALTY First Trust Target Focus Four First Trust Advisors Portfolio: seeks to provide L.P. above-average capital appreciation. The Portfolio seeks to achieve its objective by investing in the common stocks of companies which are selected by applying four separate uniquely specialized strategies (the "Focus Four Strategy"). The Focus Four Strategy adheres to a disciplined investment process that targets the following four strategies: The Dow(R) Target Dividend Strategy, Value Line(R) Target 25 Strategy, S&P Target SMid 60 Strategy, and NYSE(R) International Target 25 Strategy. --------------------------------------------------------------------------- SPECIALTY Global Dividend Target 15 Portfolio: First Trust Advisors seeks to provide above-average total L.P. return. The Portfolio seeks to achieve its objective by investing in common stocks issued by companies that are expected to provide income and to have the potential for capital appreciation. The Portfolio invests primarily in the common stocks of the companies which are components of the Dow Jones Industrial Average/sm/ ("DJIA/sm/"), the Financial Times Industrial Ordinary Share Index ("FT Index") and the Hang Seng Index. The Portfolio primarily consists of common stocks of the five companies with the lowest per share stock prices of the ten companies in each of the DJIA/sm/, FT Index and Hang Seng Index, respectively, that have the highest dividend yields in the respective index on or about the applicable stock selection date. Each security is initially equally weighted in the portfolio. --------------------------------------------------------------------------- SPECIALTY NASDAQ(R) Target 15 Portfolio: seeks First Trust Advisors to provide above-average total L.P. return. Beginning with the stocks in the NASDAQ-100 Index(R) on or about the applicable stock selection date, the Portfolio selects fifteen stocks based on a multi-factor model. A modified market capitalization approach is used to weight each security in the portfolio. --------------------------------------------------------------------------- SPECIALTY S&P(R) Target 24 Portfolio: seeks to First Trust Advisors provide above-average total return. L.P. Beginning with the stocks in the Standard & Poor's 500 Index ("S&P 500 Index"), on or about the applicable stock selection date, the Portfolio selects three stocks from each of the eight largest economic sectors of the S&P 500 Index. The twenty-four stocks are selected based on a multi-factor model and a modified market capitalization approach is used to weight each security in the portfolio. --------------------------------------------------------------------------- SPECIALTY Target Managed VIP Portfolio: seeks First Trust Advisors to provide above-average total L.P. return. The Portfolio seeks to achieve its objective by investing in common stocks of the companies that are identified based on six uniquely specialized strategies - The Dow(R) DART 5, the European Target 20, the NASDAQ(R) Target 15, the S&P(R) Target 24, the Target Small- Cap and the Value Line(R) Target 25. Each strategy employs a quantitative approach by screening common stocks for certain attributes and/or using a multi-factor scoring system to select the common stocks. --------------------------------------------------------------------------- SPECIALTY The Dow(R) Target Dividend First Trust Advisors Portfolio: seeks to provide L.P. above-average total return. The Portfolio seeks to achieve its objective by investing in common stocks issued by companies that are expected to provide income and to have the potential for capital appreciation. Beginning with the stocks in The Dow Jones Select Dividend Index/sm/, on or about the applicable stock selection date, the Portfolio selects twenty common stocks based on a multi-factor model. Each security is initially equally weighted in the portfolio. --------------------------------------------------------------------------- 32 ---------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ---------------------------------------------------------------------------- SPECIALTY The Dow(R) DART 10 Portfolio: seeks First Trust Advisors to provide above-average total L.P. return. The Portfolio seeks to achieve its objective by investing in common stocks issued by companies that are expected to provide income and to have the potential for capital appreciation. The Portfolio invests primarily in the common stocks of the ten companies in the DJIA that have the highest combined dividend yields and buyback ratios on or about the applicable stock selection date. Each security is initially equally weighted in the portfolio. ---------------------------------------------------------------------------- SPECIALTY Value Line(R) Target 25 Portfolio: First Trust Advisors seeks to provide above-average L.P. capital appreciation. The Portfolio seeks to achieve its objective by investing in 25 of the 100 common stocks that Value Line(R) gives a #1 ranking for Timelines/tm/ which have recently exhibited certain positive financial attributes. Value Line(R) ranks approximately 1,700 stocks of which 100 are given their #1 ranking for Timeliness(TM) which measures Value Line's view of their probable price performance during the next six to 12 months relative to the others. Beginning with the 100 stocks that Value Line(R) ranks #1 for Timeliness(TM), on or about the applicable stock selection date, the Portfolio selects twenty five stocks based on a multi-factor model. A modified market capitalization approach is used to weight each security in the portfolio. ---------------------------------------------------------------------------- FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST ---------------------------------------------------------------------------- MODERATE Franklin Templeton VIP Founding Franklin Templeton ALLOCA Funds Allocation Fund: Seeks capital Services, LLC TION appreciation, with income as a secondary goal. The Fund normally invests equal portions in Class 1 shares of Franklin Income Securities Fund; Mutual Shares Securities Fund; and Templeton Growth Securities Fund. ---------------------------------------------------------------------------- NATIONWIDE VARIABLE INSURANCE TRUST ---------------------------------------------------------------------------- INTER Gartmore NVIT Developing Markets Nationwide Fund NATIONAL Fund: seeks long-term capital Advisors/Gartmore EQUITY appreciation, under normal Global Partners conditions by investing at least 80% of the value of its net assets in equity securities of companies of any size based in the world's developing market countries. The Fund typically maintains investments in at least six countries at all times with no more than 35% of the value of its net assets invested in securities of any one country. ---------------------------------------------------------------------------- WELLS FARGO VARIABLE TRUST ---------------------------------------------------------------------------- LARGE Wells Fargo Advantage VT Equity Wells Fargo Funds CAP Income Fund: Seeks long-term capital Management, LLC, VALUE appreciation and dividend income. adviser; The Portfolio invests principally in Wells Capital equity securities of large- Management capitalization companies, which they Incorporated, define as companies with market sub-adviser capitalizations of $3 billion or more. ---------------------------------------------------------------------------- "Dow Jones Industrial Average/SM/", "DJIA/SM/", "Dow Industrials/SM/", "The Dow/SM/", and "The Dow 10/SM/", are service marks of Dow Jones & Company, Inc. ("Dow Jones") and have been licensed for use for certain purposes by First Trust Advisors L.P. ("First Trust"). The portfolios, including, and in particular the Target Managed VIP portfolio The Dow/SM/ DART 10 portfolio, and The Dow/SM/ Target Dividend Portfolio are not endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of investing in such products. "Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by First Trust on behalf of the S&P Target 24 Portfolio and the Target Managed VIP Portfolio. The Portfolios are not sponsored, endorsed, managed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Portfolio. "The Nasdaq 100(R)", "Nasdaq-100 Index(R)", "Nasdaq Stock Market(R)", and "Nasdaq(R)" are trade or service marks of The Nasdaq Stock Market, Inc. (which with its affiliates are the "Corporations") and have been licensed for use by First Trust. The Nasdaq Target 15 Portfolio and Target Managed VIP Portfolio have not been passed on by the Corporations as to its legality or suitability. The Nasdaq Target 15 Portfolio and Target Managed VIP Portfolio are not issued, endorsed, sponsored, managed, sold or promoted by the Corporations. The Corporations make no warranties and bear no liability with respect to the Nasdaq Target 15 Portfolio or the Target Managed VIP Portfolio. "Value Line(R)," "The Value Line Investment Survey," and "Value Line Timeliness/TM/ Ranking System" are registered trademarks of Value Line Securities, Inc. or Value Line Publishing, Inc. The Target Managed VIP(R) Portfolio and Value Line Target 25 Portfolio are not sponsored, recommended, sold or promoted by Value Line Publishing, Inc., Value Line, Inc. or Value Line Securities, Inc. ("Value Line"). Value Line makes no representation regarding the advisability of investing in the Portfolio. "Value Line Publishing, Inc.'s ("VLPI") only relationship to First Trust Advisors L.P. or the Portfolio is VLPI's licensing to First Trust Advisors L.P. of certain VLPI trademarks and trade names and the Value Line Timeliness Ranking System (the "System"), which is composed by VLPI without regard to First Trust 33 Advisors L.P., the Portfolio or any investor. First Trust Advisors, L.P. has sub-licensed certain VLPI trademarks and trade names to Prudential Investments LLC. VLPI has no obligation to take the needs of First Trust Advisors L.P., Prudential Investments LLC or any investor in the Portfolio into consideration in composing the System. The Portfolio's results may differ from the hypothetical or published results of the Value Line Timeliness Ranking System. VLPI is not responsible for, and has not participated in, the determination of the prices and composition of the Portfolio or the timing of the issuance for sale of the Portfolio or in the calculation of the equations by which the Portfolio is to be converted into cash. VLPI MAKES NO WARRANTY CONCERNING THE SYSTEM, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM USAGE OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE, AND VLPI MAKES NO WARRANTY AS TO THE POTENTIAL PROFITS OR ANY OTHER BENEFITS THAT MAY BE ACHIEVED BY USING THE SYSTEM OR ANY INFORMATION OR MATERIALS GENERATED THEREFROM. VLPI DOES NOT WARRANT THAT THE SYSTEM WILL MEET ANY REQUIREMENTS OR THAT IT WILL BE ACCURATE OR ERROR-FREE. VLPI ALSO DOES NOT GUARANTEE ANY USES, INFORMATION, DATA OR OTHER RESULTS GENERATED FROM THE SYSTEM. VLPI HAS NO OBLIGATION OR LIABILITY (I) IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE PORTFOLIO; OR (II) FOR ANY LOSS, DAMAGE, COST OR EXPENSE SUFFERED OR INCURRED BY ANY INVESTOR OR OTHER PERSON OR ENTITY IN CONNECTION WITH THE PORTFOLIO, AND IN NO EVENT SHALL VLPI BE LIABLE FOR ANY LOST PROFITS OR OTHER CONSEQUENTIAL, SPECIAL, PUNITIVE, INCIDENTAL, INDIRECT OR EXEMPLARY DAMAGES IN CONNECTION WITH THE PORTFOLIO." WHAT ARE THE FIXED ALLOCATIONS? The Fixed Allocations consist of the MVA Fixed Allocations, the DCA Fixed Rate Options used with our 6 or 12 Month Dollar Cost Averaging Program ("6 or 12 Month DCA Program"), the Fixed Allocations used with our dollar-cost averaging program, and (with respect to Highest Daily Lifetime Five only), the Benefit Fixed Rate Account. We describe the Benefit Fixed Rate Account in the section of the prospectus concerning Highest Daily Lifetime Five. We describe the Fixed Allocations used with our dollar cost averaging program outside of the 6 or 12 month DCA Program in the section entitled "Do You Offer Dollar Cost Averaging?" MVA Fixed Allocations. We offer MVA Fixed Allocations of different durations during the accumulation period. These "MVA Fixed Allocations" earn a guaranteed fixed rate of interest for a specified period of time, called the "Guarantee Period." In most states, we offer MVA Fixed Allocations with Guarantee Periods from 1 to 10 years. We may also offer special purpose MVA Fixed Allocations for use with certain optional investment programs. We guarantee the fixed rate for the entire Guarantee Period. However, for MVA Fixed Allocations, if you withdraw or transfer Account Value before the end of the Guarantee Period, we will adjust the value of your withdrawal or transfer based on a formula, called a "Market Value Adjustment." The Market Value Adjustment can either be positive or negative, depending on the movement of applicable interest rates payable on Strips of the appropriate duration. Please refer to the section entitled "How does the Market Value Adjustment Work?" for a description of the formula (including a description of Strips) along with examples of how it is calculated. You may allocate Account Value to more than one MVA Fixed Allocation at a time. MVA Fixed Allocations are not available in Washington, Nevada, North Dakota, Maryland and Vermont. Availability of MVA Fixed Allocations is subject to change and may differ by state and by the annuity product you purchase. Please call Prudential Annuities at 1-888-PRU-2888 to determine availability of MVA Fixed Allocations in your state and for your annuity product. You may not allocate Account Value to MVA Fixed Allocations if you have elected the following Optional Benefits: Lifetime Five Income Benefit, Spousal Lifetime Five Income Benefit, Highest Daily Lifetime Five Income Benefit, Highest Daily Lifetime Seven Income Benefit, Spousal Highest Daily Lifetime Seven Income Benefit, Highest Daily Value Death Benefit, Highest Daily Lifetime Seven with Beneficiary Income Option, Spousal Highest Daily Lifetime Seven with Beneficiary Income Option, Highest Daily Lifetime Seven with Lifetime Income Accelerator, GRO, GRO Plus, GRO Plus 2008, Highest Daily GRO, Highest Daily Lifetime 7 Plus Income Benefit, Spousal Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option, and Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator. The interest rate that we credit to the MVA Fixed Allocations may be reduced by an amount that corresponds to the asset-based charges assessed against the Sub-accounts. No specific fees or expenses are deducted when determining the rate we credit to an MVA Fixed Allocation. However, for some of the same reasons that we deduct the Insurance Charge against Account Value allocated to the Sub-accounts, we also take into consideration mortality, expense, administration, profit and other factors in determining the interest rates we credit to MVA Fixed Allocations. That is, the existence of those factors results in a reduction to the interest rate that we credit under the MVA Fixed Allocations. Any CDSC or Tax Charge applies to amounts that are taken from the Sub-accounts or the MVA Fixed Allocations. DCA Fixed Rate Options. In addition to Fixed Allocations that are subject to a Market Value Adjustment, we offer DCA Fixed Rate Options that are used with our 6 or 12 Month Dollar Cost Averaging Program ("6 or 12 Month DCA Program"), and are not subject to any MVA. Account Value allocated to the DCA Fixed Rate Options earns the declared rate of interest while it is transferred over a 6 month or 12 month period into the Sub-accounts that you have designated. Because the interest we credit is applied against a balance that declines as transfers are made periodically to the Sub-accounts, you do not earn interest on the full amount that you allocated initially to the DCA Fixed Rate Options. A dollar cost averaging program does not assure a profit, or protect against a loss. 34 FEES AND CHARGES The charges under the Annuity are designed to cover, in the aggregate, our direct and indirect costs of selling, administering and providing benefits under the Annuity. They are also designed, in the aggregate, to compensate us for the risks of loss we assume. If, as we expect, the charges that we collect from the Annuities exceed our total costs in connection with the Annuities, we will earn a profit. Otherwise we will incur a loss. For example, Prudential Annuities may make a profit on the Insurance Charge if, over time, the actual costs of providing the guaranteed insurance obligations under an Annuity are less than the amount we deduct for the Insurance Charge. To the extent we make a profit on the Insurance Charge, such profit may be used for any other corporate purpose, including payment of other expenses that Prudential Annuities incurs in promoting, distributing, issuing and administering an Annuity and to offset a portion of the costs associated with offering any Credits which are funded through Prudential Annuities' general account. The rates of certain of our charges have been set with reference to estimates of the amount of specific types of expenses or risks that we will incur. In most cases, this prospectus identifies such expenses or risks in the name of the charge; however, the fact that any charge bears the name of, or is designed primarily to defray a particular expense or risk does not mean that the amount we collect from that charge will never be more than the amount of such expense or risk, nor does it mean that we may not also be compensated for such expense or risk out of any other charges we are permitted to deduct by the terms of the Annuity. A portion of the proceeds that Prudential Annuities receives from charges that apply to the Sub-accounts may include amounts based on market appreciation of the Sub-account values including appreciation on amounts that represent any Credits. WHAT ARE THE CONTRACT FEES AND CHARGES? Contingent Deferred Sales Charge: We do not deduct a sales charge from Purchase Payments you make to your Annuity. However, we may deduct a CDSC if you surrender your Annuity or when you make a partial withdrawal. The CDSC reimburses us for expenses related to sales of the Annuity, including commissions, marketing materials and other promotional expenses. The CDSC is calculated as a percentage of your Purchase Payment being surrendered or withdrawn during the applicable Annuity Year. For purposes of calculating the CDSC, we consider the year following the Issue Date of your Annuity as Year 1. The amount of the CDSC decreases over time, measured from the Issue Date of the Annuity. The CDSC percentages are shown under "Summary of Contract Fees and Charges". If you purchase the Annuity and make a withdrawal that is subject to a CDSC, we may use part of that CDSC to recoup our costs of providing the Credit. However, we do not impose any CDSC on your withdrawal of a Credit amount. With respect to a partial withdrawal, we calculate the CDSC by assuming that any available free withdrawal amount is taken out first (see How Much Can I Withdraw as a Free Withdrawal?). If the free withdrawal amount is not sufficient, we then assume that withdrawals are taken from Purchase Payments that have not been previously withdrawn, on a first-in, first-out basis, and subsequently from any other Account Value in the Annuity. For purposes of calculating any applicable CDSC on a surrender, the Purchase Payments being withdrawn may be greater than your remaining Account Value or the amount of your withdrawal request. This is most likely to occur if you have made prior partial withdrawals or if your Account Value has declined in value due to negative market performance. In that scenario, we would determine the CDSC amount as the applicable percentage of the Purchase Payments being withdrawn, rather than as a percentage of the remaining Account Value or withdrawal request. Thus, the CDSC would be greater than if it were calculated as a percentage of remaining Account Value or withdrawal amount. We may waive any applicable CDSC under certain circumstances including certain medically-related circumstances or when taking a Minimum Distribution from an Annuity purchased as a "qualified" investment. Free Withdrawals, Medically-Related Surrenders and Minimum Distributions are each explained more fully in the section entitled "Access to Your Account Value". Transfer Fee: Currently, you may make twenty (20) free transfers between investment options each Annuity Year. We will charge $10.00 for each transfer after the twentieth in each Annuity Year. The fee will never be more than $15.00 for each transfer. We do not consider transfers made as part of a Dollar Cost Averaging, Automatic Rebalancing or asset allocation program when we count the twenty free transfers. All transfers made on the same day will be treated as one (1) transfer. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period are not subject to the Transfer Fee and are not counted toward the twenty free transfers. Similarly, transfers made under our 6 or 12 Month Dollar Cost Averaging Program ("6 or 12 Month DCA Program") and transfers made pursuant to a formula used with an optional benefit are not subject to the Transfer Fee and are not counted toward the twenty free transfers. We may reduce the number of free transfers allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee unless you make use of electronic means to transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. If you are enrolled in any program that does not permit transfer requests to be transmitted electronically, the Transfer Fee will not be waived. Annual Maintenance Fee: During the accumulation period we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $35.00 or 2% of your Account Value (including any amount in Fixed Allocations) whichever is less. This fee will be deducted annually on the anniversary of the Issue Date of your Annuity or, if you surrender your Annuity during the Annuity Year, the fee is deducted at the time of surrender. The fee is taken out only from the Sub-accounts. We do not impose the Annual Maintenance Fee 35 upon annuitization, the payment of a Death Benefit, or a medically-related full surrender. We may increase the Annual Maintenance Fee. However, any increase will only apply to Annuities issued after the date of the increase. For beneficiaries that elect the Beneficiary Continuation Option, the Annual Maintenance Fee is the lesser of $30 or 2% of Account Value. For a non-qualified Beneficiary Continuation Option, the fee is only applicable if the Account Value is less than $25,000 at the time the fee is assessed. Tax Charge: Several states and some municipalities charge premium taxes or similar taxes on annuities that we are required to pay. The amount of tax will vary from jurisdiction to jurisdiction and is subject to change. We pay the tax either when purchase payments are received, upon surrender or when the Account Value is applied under an annuity option. The tax charge is designed to approximate the taxes that we are required to pay and is assessed as a percentage of purchase payments, surrender value, or Account Value as applicable. The tax charge currently ranges up to 3 1/2%. We may assess a charge against the Sub-accounts and the Fixed Allocations equal to any taxes which may be imposed upon the separate accounts. We will pay company income taxes on the taxable corporate earnings created by this separate account product. While we may consider company income taxes when pricing our products, we do not currently include such income taxes in the tax charges you pay under the Annuity. We will periodically review the issue of charging for these taxes and may impose a charge in the future. In calculating our corporate income tax liability, we derive certain corporate income tax benefits associated with the investment of company assets, including separate account assets, which are treated as company assets under applicable income tax law. These benefits reduce our overall corporate income tax liability. Under current law, such benefits may include foreign tax credits and corporate dividends received deductions. We do not pass these tax benefits through to holders of the separate account annuity contracts because (i) the contract owners are not the owners of the assets generating these benefits under applicable income tax law and (ii) we do not currently include company income taxes in the tax charges you pay under the contract. Insurance Charge: We deduct an Insurance Charge daily. The charge is assessed against the daily assets allocated to the Sub-accounts and is equal to the amount indicated under "Summary of Contract Fees and Charges". The Insurance Charge is the combination of the Mortality & Expense Risk Charge and the Administration Charge. The Insurance Charge is intended to compensate Prudential Annuities for providing the insurance benefits under each Annuity, including each Annuity's basic Death Benefit that provides guaranteed benefits to your beneficiaries even if the market declines and the risk that persons we guarantee annuity payments to will live longer than our assumptions. The charge also covers administrative costs associated with providing the Annuity benefits, including preparation of the contract and prospectus, confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related expenses. Finally, the charge covers the risk that our assumptions about the mortality risks and expenses under each Annuity are incorrect and that we have agreed not to increase these charges over time despite our actual costs. We may increase the portion of the total Insurance Charge that is deducted for administrative costs; however, any increase will only apply to Annuities issued after the date of the increase. The Insurance Charge is not deducted against assets allocated to a Fixed Allocation. However, the amount we credit to Fixed Allocations or the DCA Fixed Rate Option may also reflect similar assumptions about the insurance guarantees provided under each Annuity and the administrative costs associated with providing the Annuity benefits. That is, the interest rate we credit to a Fixed Rate Option or the DCA Fixed Rate Option may be reduced to reflect those assumptions. Optional Benefits for which we assess a charge: If you elect to purchase certain optional benefits, we will deduct an additional charge. For some optional benefits, the charge is deducted from your Account Value allocated to the Sub-accounts. This charge is included in the daily calculation of the Unit Price for each Sub-account. For certain other optional benefits, such as Highest Daily Lifetime Seven, the charge is assessed against the Protected Withdrawal Value and taken out of the Sub-accounts, periodically. Please refer to the section entitled "Summary of Contract Fees and Charges" for the list of charges for each optional benefit. Settlement Service Charge: If your beneficiary takes the death benefit under a Beneficiary Continuation Option, we deduct a Settlement Service Charge, although the Insurance Charge no longer applies. The charge is assessed daily against the average assets allocated to the Sub-accounts and is equal to an annual charge of 1.00% for non-qualified Annuities and 1.40% for qualified Annuities. Fees and expenses incurred by the Portfolios: Each Portfolio incurs total annual operating expenses comprised of an investment management fee, other expenses and any distribution and service (12b-1) fees that may apply. These fees and expenses are reflected daily by each Portfolio before it provides Prudential Annuities with the net asset value as of the close of business each Valuation Day. More detailed information about fees and expenses can be found in the prospectuses for the Portfolios. WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS? No specific fees or expenses are deducted when determining the rate we credit to a Fixed Allocation. However, for some of the same reasons that we deduct the Insurance Charge against Account Value allocated to the Sub-accounts, we also take into consideration mortality, expense, administration, profit and other factors in determining the interest rates we credit to Fixed 36 Allocations. That is, the existence of those factors results in a reduction to the interest rate that we credit to the Fixed Allocations. Any CDSC or Tax Charge applies to amounts that are taken from the Sub-accounts or the Fixed Allocations. A Market Value Adjustment may also apply to transfers, certain withdrawals, surrender or annuitization from a Fixed Allocation. WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYMENT OPTION? If you select a fixed payment option, the amount of each fixed payment will depend on the Account Value of your Annuity when you elected to annuitize. There is no specific charge deducted from these payments; however, the amount of each annuity payment reflects assumptions about our insurance expenses. If you select a variable payment option that we may offer, then the amount of your benefits will reflect changes in the value of your Annuity and will be subject to charges that apply under the variable immediate annuity option. Also, a tax charge may apply (see "Tax Charge" above). Currently, we only offer fixed payment options. EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES We may reduce or eliminate certain fees and charges or alter the manner in which the particular fee or charge is deducted. For example, we may reduce the amount of any CDSC or the length of time it applies, reduce or eliminate the amount of the Annual Maintenance Fee or reduce the portion of the total Insurance Charge that is deducted as an Administration Charge. Generally, these types of changes will be based on a reduction to our sales, maintenance or administrative expenses due to the nature of the individual or group purchasing the Annuity. Some of the factors we might consider in making such a decision are: (a) the size and type of group; (b) the number of Annuities purchased by an Owner; (c) the amount of Purchase Payments or likelihood of additional Purchase Payments; (d) whether an annuity is reinstated pursuant to our rules; and/or (e) other transactions where sales, maintenance or administrative expenses are likely to be reduced. We will not discriminate unfairly between Annuity purchasers if and when we reduce any fees and charges. 37 PURCHASING YOUR ANNUITY WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY? Initial Purchase Payment: Unless we agree otherwise and subject to our rules, you must make a minimum initial Purchase Payment of $10,000. However, if you decide to make payments under a systematic investment or an electronic funds transfer program, we may accept a lower initial Purchase Payment provided that, within the first Annuity Year, your subsequent Purchase Payments plus your initial Purchase Payment total $10,000. Where allowed by law, we must approve any initial and additional Purchase Payments where the total amount of purchase payments equal $1,000,000 or more. We may apply certain limitations and/or restrictions on an Annuity as a condition of our acceptance, including limiting the liquidity features or the Death Benefit protection provided under an Annuity, limiting the right to make additional Purchase Payments, changing the number of transfers allowable under an Annuity or restricting the Sub-accounts or Fixed Allocations that are available. Other limitations and/or restrictions may apply. Applicable laws designed to counter terrorists and prevent money laundering might, in certain circumstances, require us to block a contract owner's ability to make certain transactions, and thereby refuse to accept Purchase Payments or requests for transfers, partial withdrawals, total withdrawals, death benefits, or income payments until instructions are received from the appropriate regulator. We also may be required to provide additional information about you and your Annuity to government regulators. Except as noted below, Purchase Payments must be submitted by check drawn on a U.S. bank, in U.S. dollars, and made payable to Prudential Annuities. Purchase Payments may also be submitted via 1035 exchange or direct transfer of funds. Under certain circumstances, Purchase Payments may be transmitted to Prudential Annuities via wiring funds through your Financial Professional's broker-dealer firm. Additional Purchase Payments may also be applied to your Annuity under an electronic funds transfer arrangement where you authorize us to deduct money directly from your bank account. We may reject any payment if it is received in an unacceptable form. Our acceptance of a check is subject to our ability to collect funds. Age Restrictions: Unless we agree otherwise and subject to our rules, the Owner (or Annuitant if entity owned) must not be older than a maximum issue age as of the Issue Date of the Annuity as follows: age 75. If an Annuity is owned jointly, the oldest of the Owners must not be older than the maximum issue age on the Issue Date. You should consider your need to access your Account Value and whether the Annuity's liquidity features will satisfy that need. If you take a distribution prior to age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. The availability and level of protection of certain optional benefits may vary based on the age of the Owner on the Issue Date of the Annuity or the date of the Owner's death. Owner, Annuitant and Beneficiary Designations: We will ask you to name the Owner(s), Annuitant and one or more Beneficiaries for your Annuity. . Owner: The Owner(s) holds all rights under the Annuity. You may name up to two Owners in which case all ownership rights are held jointly. Generally, joint owners are required to act jointly; however, if each owner provides us with an instruction that we find acceptable, we will permit each owner to act independently on behalf of both owners. All information and documents that we are required to send you will be sent to the first named owner. This Annuity does not provide a right of survivorship. Refer to the Glossary of Terms for a complete description of the term "Owner." . Annuitant: The Annuitant is the person upon whose life we continue to make annuity payments. You must name an Annuitant who is a natural person. We do not accept a designation of joint Annuitants during the accumulation period. In limited circumstances and where allowed by law, you may name one or more Contingent Annuitants. Generally, a Contingent Annuitant will become the Annuitant if the Annuitant dies before the Annuity Date. Please refer to the discussion of "Considerations for Contingent Annuitants" in the Tax Considerations section of the Prospectus. For Beneficiary Annuities, instead of an Annuitant there is a "Key Life" which is used to determine the annual required distributions. . Beneficiary: The Beneficiary is the person(s) or entity you name to receive the Death Benefit. Your Beneficiary Designation should be the exact name of your beneficiary, not only a reference to the beneficiary's relationship to you. If you use a designation of "surviving spouse," we will pay the Death Benefit to the individual that is your spouse at the time of your death (as defined under the federal tax laws and regulations). If no beneficiary is named the Death Benefit will be paid to you or your estate. For Beneficiary Annuities, instead of a Beneficiary, the term "Successor" is used. Your right to make certain designations may be limited if your Annuity is to be used as a "qualified" investment that is given beneficial tax treatment under the Code. You should seek competent tax advice on the income, estate and gift tax implications of your designations. 38 MANAGING YOUR ANNUITY MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS? You may change the Owner, Annuitant and Beneficiary Designations by sending us a request in writing in a form acceptable to us. Upon an ownership change, any automated investment or withdrawal programs will be canceled. The new owner must submit the applicable program enrollment if they wish to participate in such a program. Where allowed by law, such changes will be subject to our acceptance. Some of the changes we will not accept include, but are not limited to: . a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a spouse Beneficiary has become the Owner as a result of an Owner's death; . a new Annuitant subsequent to the Annuity Date; . for "non-qualified" investments, a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity; and . a change in Beneficiary if the Owner had previously made the designation irrevocable. There are also restrictions on designation changes when you have elected certain optional benefits. See the "Living Benefits" and "Death Benefits" sections of this Prospectus for any such restrictions. Spousal Designations If an Annuity is co-owned by spouses, we will assume that the sole primary Beneficiary is the surviving spouse that was named as the co-owner unless you elect an alternative Beneficiary Designation. Unless you elect an alternative Beneficiary Designation, upon the death of either spousal Owner, the surviving spouse may elect to assume ownership of the Annuity instead of taking the Death Benefit payment. The Death Benefit that would have been payable will be the new Account Value of the Annuity as of the date of due proof of death and any required proof of a spousal relationship. As of the date the assumption is effective, the surviving spouse will have all the rights and benefits that would be available under the Annuity to a new purchaser of the same attained age. For purposes of determining any future Death Benefit for the beneficiary of the surviving spouse, the new Account Value will be considered as the initial Purchase Payment. No CDSC will apply to the new Account Value. However, any additional Purchase Payments applied after the date the assumption is effective will be subject to all provisions of the Annuity, including the CDSC when applicable. Spousal assumption is also permitted, subject to our rules and regulatory approval, if the Annuity is held by a custodial account established to hold retirement assets for the benefit of the natural person Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code ("Code") (or any successor Code section thereto) ("Custodial Account") and, on the date of the Annuitant's death, the spouse of the Annuitant is (1) the Contingent Annuitant under the Annuity and (2) the beneficiary of the Custodial Account. The ability to continue the Annuity in this manner will result in the Annuity no longer qualifying for tax deferral under the Code. However, such tax deferral should result from the ownership of the Annuity by the Custodial Account. Please consult your tax or legal adviser. Spousal assumption is only permitted to spouses as defined by federal law. Contingent Annuitant Generally, if an Annuity is owned by an entity and the entity has named a Contingent Annuitant, the Contingent Annuitant will become the Annuitant upon the death of the Annuitant, and no Death Benefit is payable. Unless we agree otherwise, the Annuity is only eligible to have a Contingent Annuitant designation if the entity which owns the Annuity is (1) a plan described in Internal Revenue Code Section 72(s)(5)(A)(i) (or any successor Code section thereto); (2) an entity described in Code Section 72(u)(1) (or any successor Code section thereto); or (3) a Custodial Account, as described in the above section. Where the Annuity is held by a Custodial Account, the Contingent Annuitant will not automatically become the Annuitant upon the death of the Annuitant. Upon the death of the Annuitant, the Custodial Account will have the choice, subject to our rules, to either elect to receive the Death Benefit or elect to continue the Annuity. If the Custodial Account elects to receive the Death Benefit, the Account Value of the Annuity as of the date of due proof of death of the Annuitant will reflect the amount that would have been payable had a Death Benefit been paid. See the section above entitled "Spousal Designations" for more information about how the Annuity can be continued by a Custodial Account. MAY I RETURN MY ANNUITY IF I CHANGE MY MIND? If after purchasing your Annuity you change your mind and decide that you do not want it, you may return it to us within a certain period of time known as a right to cancel period. This is often referred to as a "free look." Depending on the state in which you purchased your Annuity and, in some states, if you purchased the Annuity as a replacement for a prior contract, the right to cancel period may be ten (10) days, or longer, measured from the time that you received your Annuity (the free look period for replacements typically is longer, such as 20 or 30 days). If you return your Annuity during the applicable period, we will refund your current Account Value plus any tax charge deducted, less any applicable federal and state income tax withholding and depending on your state's requirements, any applicable insurance charges deducted. The amount returned to you may be higher or lower than the Purchase Payment(s) applied during the right to cancel period and may be subject to a market value adjustment if it 39 was allocated to a MVA Fixed Allocation. If you return your Annuity, we will not return any XTra Credits we applied to your Annuity based on your Purchase Payments. MAY I MAKE ADDITIONAL PURCHASE PAYMENTS? Unless we agree otherwise and subject to our rules, the minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in our Systematic Investment Plan or a periodic Purchase Payment program. Purchase Payments made while you participate in an asset allocation program will be allocated in accordance with such benefit. Additional Purchase Payments may be made at anytime before the Annuity Date or prior to the Account Value being reduced to zero. MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT? You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your bank account and applying it to your Annuity. We call our electronic funds transfer program the "Systematic Investment Plan." Purchase Payments made through electronic funds transfer may only be allocated to the Sub-accounts when applied. Different allocation requirements may apply in connection with certain optional benefits. We may allow you to invest in your Annuity with a lower initial Purchase Payment, as long as you authorize payments through an electronic funds transfer that will equal at least the minimum Purchase Payment set forth above during the first 12 months of your Annuity. We may suspend or cancel electronic funds transfer privileges if sufficient funds are not available from the applicable financial institution on any date that a transaction is scheduled to occur. MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM? These types of programs are only available with certain types of qualified investments. If your employer sponsors such a program, we may agree to accept periodic Purchase Payments through a salary reduction program as long as the allocations are made only to Sub-accounts and the periodic Purchase Payments received in the first year total at least the minimum Purchase Payment set forth above. 40 MANAGING YOUR ACCOUNT VALUE HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED? (See "Valuing Your Investment" for a description of our procedure for pricing initial and subsequent Purchase Payments.) Initial Purchase Payment: Once we accept your application, we invest your Purchase Payment in your Annuity according to your instructions for allocating your Account Value. The Purchase Payment is your initial Purchase Payment minus any tax charges that may apply. You can allocate purchase payment to one or more Sub-accounts or available Fixed Allocations. Investment restrictions will apply if you elect certain available optional benefits. Subsequent Purchase Payments: Unless you participate in an asset allocation program, or unless you have provided us with other specific allocation instructions for one, more than one, or all subsequent Purchase Payments, we will allocate any additional Purchase Payments you make according to your initial Purchase Payment allocation instructions. If you so instruct us, we will allocate subsequent Purchase Payments according to any new allocation instructions. Unless you tell us otherwise, Purchase Payments made while you participate in an asset allocation program will be allocated in accordance with such program. HOW DO I RECEIVE CREDITS UNDER THE XT8 ANNUITY? We apply a "Credit" to your Annuity's Account Value each time you make a Purchase Payment during the first six (6) Annuity Years. The amount of the Credit is payable from our general account. The amount of the Credit depends on the Annuity Year in which the Purchase Payment(s) is made, and the amount of the Purchase Payment according to the table below:
CREDIT (Cumulative CREDIT Purchase Payments (Cumulative Purchase Payments ANNUITY YEAR $100,000 or Greater) Less than $100,000) ---------------------------------------------------------------- 1 8.00% 6.00% 2 6.00% 5.00% 3 4.00% 4.00% 4 3.00% 3.00% 5 2.00% 2.00% 6 1.00% 1.00% 7+ 0.00% 0.00% ----------------------------------------------------------------
HOW ARE CREDITS APPLIED TO ACCOUNT VALUE UNDER THE XT8 ANNUITY? Each Credit is allocated to your Account Value at the time the Purchase Payment is applied to your Account Value. The amount of the Credit is allocated to the investment options in the same ratio as the applicable Purchase Payment is applied. If your Annuity is being funded with an initial Purchase Payments that includes a transfer of assets, as we define through our administrative procedures, and the total initial Purchase Payment equals or exceeds $100,000, we will Credit you with the higher Credit described in the chart above. Examples of Applying Credits Initial Purchase Payment Assume you make an initial Purchase Payment of $75,000 and your Annuity is issued on January 2, 2009. Since the cumulative Purchase Payments are less than $100,000 and the contract is in the first Annuity Year, we would apply a 6% Credit to your Purchase Payment and allocate the amount of the Credit ($4500 = $75,000 X .060) to your Account Value in the proportion that your Purchase Payment is allocated. Initial Purchase Payment With Transfer of Assets Assume you make an initial Purchase Payment of $105,000 (which consists of a check for $75,000 and exchange paperwork indicating additional purchase payments of $30,000) and your Annuity is issued on January 2, 2009 with the receipt of the check for $75,000. On January 16, 2009 the remaining $30,000, as indicated by the exchange paperwork, is received. Since the cumulative Purchase Payments are greater than $100,000 and the contract is in the first Annuity Year, we would apply an 8% Credit to the January 2, 2009 portion of your Purchase Payment and allocate the amount of the Credit ($6,000= $75,000 x .08) to your Account Value on January 2, 2009 and we would apply an 8% Credit to the January 16, 2009 portion of your Purchase Payment and allocate the amount of the Credit ($2,400= $30,000 x .080) to your Account Value on January 16, 2009. Additional Purchase Payment in Annuity Year 1 Assume that you make an additional Purchase Payment of $30,000 on March 5, 2009. The cumulative Purchase Payments are greater than $100,000; therefore we would apply an 8.0% Credit to your March 5, 2009 Purchase Payment and allocate the amount of the Credit ($2400 = $30,000 X .08) to your Account Value. 41 Additional Purchase Payment in Annuity Year 6 Assume that you make an additional Purchase Payment of $25,000 on February 6, 2014. The cumulative Purchase Payments are greater than $100,000 and the contract is in the sixth year; therefore we would apply a 1.0% Credit to your Purchase Payment and allocate the amount of the Credit ($250 = $25,000 X .01) to your Account Value. Recapture of XTra Credits The amount of any XTra Credits applied to your Annuity Account Value can be taken back by Prudential Annuities. Specifically, if you elect to "free look" your Annuity, the amount returned to you will not include the amount of any XTra Credits. We obtained an exemptive order from the SEC that allows us to recapture the XTra Credit amounts under this Annuity (a) if you return the Annuity during the "free look" period or (b) if the XTra Credit amount was granted within 12 months immediately before a death that triggers payment of the Annuity's death benefit (if allowed by State law) or (c) if the XTra Credit amount was granted within 12 months immediately prior to your exercise of the medically-related surrender provision of the Annuity. We have determined not to recapture Credits under that order. Thus, we will not recapture Credits granted within 12 months prior to death or a medically-related surrender. General Information about Credits . We do not consider Credits to be "investment in the contract" for income tax purposes. . You may not withdraw the amount of any Credits under the Free Withdrawal provision. The Free Withdrawal provision only applies to withdrawals of Purchase Payments. ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS? During the accumulation period you may transfer Account Value between investment options subject to the restrictions outlined below. Transfers are not subject to taxation on any gain. We may require a minimum of $500 in each Sub-account you allocate Account Value to at the time of any allocation or transfer. If you request a transfer and, as a result of the transfer, there would be less than $500 in the Sub-account, we may transfer the remaining Account Value in the Sub-account pro-rata to the other investment options to which you transferred. You may not transfer Account Value to any Fixed Allocation used with a dollar cost averaging program or any DCA Fixed Rate Options. You may only allocate Purchase Payments to Fixed Allocations used with a dollar cost averaging program or the DCA Fixed Rate Options. Currently, we charge $10.00 for each transfer after the twentieth (20/th/) transfer in each Annuity Year. Transfers made as part of a Dollar Cost Averaging (including the 6 or 12 Month Dollar Cost Averaging Program), Automatic Rebalancing or asset allocation program do not count toward the twenty free transfer limit. Renewals or transfers of Account Value from a MVA Fixed Allocation at the end of its Guarantee Period are not subject to the transfer charge. We may reduce the number of free transfers allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee. We may also increase the Transfer Fee that we charge to $15.00 for each transfer after the number of free transfers has been used up. We may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. If enrolled in any program that does not permit transfer requests to be transmitted electronically, the Transfer Fee will not be waived. Once you have made 20 transfers among the Sub-accounts during an Annuity Year, we will accept any additional transfer request during that year only if the request is submitted to us in writing with an original signature and otherwise is in good order. For purposes of this 20 transfer limit, we (i) do not view a facsimile transmission as a "writing", (ii) will treat multiple transfer requests submitted on the same Valuation Day as a single transfer, and (iii) do not count any transfer that solely involves one of our systematic programs, such as asset allocation and automated withdrawals. Frequent transfers among Sub-accounts in response to short-term fluctuations in markets, sometimes called "market timing," can make it very difficult for a Portfolio manager to manage a Portfolio's investments. Frequent transfers may cause the Portfolio to hold more cash than otherwise necessary, disrupt management strategies, increase transaction costs, or affect performance. In light of the risks posed to Owners and other investors by frequent transfers, we reserve the right to limit the number of transfers in any Annuity Year for all existing or new Owners and to take the other actions discussed below. We also reserve the right to limit the number of transfers in any Annuity Year or to refuse any transfer request for an Owner or certain Owners if: (a) we believe that excessive transfer activity (as we define it) or a specific transfer request or group of transfer requests may have a detrimental effect on Unit Values or the share prices of the Portfolios; or (b) we are informed by a Portfolio (e.g., by the Portfolio's portfolio manager) that the purchase or redemption of shares in the Portfolio must be restricted because the Portfolio believes the transfer activity to which such purchase and redemption relates would have a detrimental effect on the share prices of the affected Portfolio. Without limiting the above, the most likely scenario where either of the above could occur would be if the aggregate amount of a trade or trades represented a relatively large proportion of the total assets of a particular Portfolio. In furtherance of our general authority to restrict transfers as described above, and without limiting other actions we may take in the future, we have adopted the following specific restrictions: . With respect to each Sub-account (other than the AST Money Market Sub-account), we track amounts exceeding a certain dollar threshold that were transferred into the Sub-account. If you transfer such amount into a particular Sub-account, and within 30 calendar days thereafter transfer (the "Transfer Out") all or a portion of that amount into another Sub-account, then 42 upon the Transfer Out, the former Sub-account becomes restricted (the "Restricted Sub-account"). Specifically, we will not permit subsequent transfers into the Restricted Sub-account for 90 calendar days after the Transfer Out if the Restricted Sub-account invests in a non-international Portfolio, or 180 calendar days after the Transfer Out if the Restricted Sub-account invests in an international Portfolio. For purposes of this rule, we (i) do not count transfers made in connection with one of our systematic programs, such as asset allocation and automated withdrawals and (ii) do not categorize as a transfer the first transfer that you make after the Issue Date, if you make that transfer within 30 calendar days after the Issue Date. Even if an amount becomes restricted under the foregoing rules, you are still free to redeem the amount from your Annuity at any time. . We reserve the right to effect exchanges on a delayed basis for all contracts. That is, we may price an exchange involving the Sub-accounts on the Valuation Day subsequent to the Valuation Day on which the exchange request was received. Before implementing such a practice, we would issue a separate written notice to Owners that explains the practice in detail. If we deny one or more transfer requests under the foregoing rules, we will inform you or your Financial Professional promptly of the circumstances concerning the denial. There are contract owners of different variable annuity contracts that are funded through the same Separate Account that are not subject to the above-referenced transfer restrictions and, therefore, might make more numerous and frequent transfers than contract owners who are subject to such limitations. Finally, there are contract owners of other variable annuity contracts or variable life contracts that are issued by Prudential Annuities as well as other insurance companies that have the same underlying mutual fund portfolios available to them. Since some contract owners are not subject to the same transfer restrictions, unfavorable consequences associated with such frequent trading within the underlying mutual fund (e.g., greater portfolio turnover, higher transaction costs, or performance or tax issues) may affect all contract owners. Similarly, while contracts managed by a Financial Professional or third party investment advisor are subject to the restrictions on transfers between investment options that are discussed above, if the advisor manages a number of contracts in the same fashion unfavorable consequences may be associated with management activity since it may involve the movement of a substantial portion of an underlying mutual fund's assets which may affect all contract owners invested in the affected options. Apart from such differences in transfer restrictions, we will apply these rules uniformly (including contracts managed by a Financial Professional or third party investment advisor), and will not waive a transfer restriction for any contract owner. Although our transfer restrictions are designed to prevent excessive transfers, they are not capable of preventing every potential occurrence of excessive transfer activity. The Portfolios have adopted their own policies and procedures with respect to excessive trading of their respective shares, and we reserve the right to enforce any such current or future policies and procedures. The prospectuses for the Portfolios describe any such policies and procedures, which may be more or less restrictive than the policies and procedures we have adopted. Under SEC rules, we are required to: (1) enter into a written agreement with each Portfolio or its principal underwriter or its transfer agent that obligates us to provide to the Portfolio promptly upon request certain information about the trading activity of individual contract owners (including an Annuity Owner's TIN number), and (2) execute instructions from the Portfolio to restrict or prohibit further purchases or transfers by specific contract owners who violate the excessive trading policies established by the Portfolio. In addition, you should be aware that some Portfolios may receive "omnibus" purchase and redemption orders from other insurance companies or intermediaries such as retirement plans. The omnibus orders reflect the aggregation and netting of multiple orders from individual owners of variable insurance contracts and/or individual retirement plan participants. The omnibus nature of these orders may limit the Portfolios in their ability to apply their excessive trading policies and procedures. In addition, the other insurance companies and/or retirement plans may have different policies and procedures or may not have any such policies and procedures because of contractual limitations. For these reasons, we cannot guarantee that the Portfolios (and thus contract owners) will not be harmed by transfer activity relating to other insurance companies and/or retirement plans that may invest in the Portfolios. A Portfolio also may assess a short term trading fee (redemption fee) in connection with a transfer out of the Sub-account investing in that Portfolio that occurs within a certain number of days following the date of allocation to the Sub-account. Each Portfolio determines the amount of the short term trading fee and when the fee is imposed. The fee is retained by or paid to the Portfolio and is not retained by us. The fee will be deducted from your Account Value, to the extent allowed by law. At present, no Portfolio has adopted a short-term trading fee. DO YOU OFFER DOLLAR COST AVERAGING? Yes. As discussed below, we offer Dollar Cost Averaging programs during the accumulation period. In general, Dollar Cost Averaging allows you to systematically transfer an amount periodically from one investment option to one or more other investment options. You can choose to transfer earnings only, principal plus earnings or a flat dollar amount. You may elect a Dollar Cost Averaging program that transfers amounts monthly, quarterly, semi-annually, or annually from Sub-accounts, or a program that transfers amounts monthly from Fixed Allocations or the DCA Fixed Rate Options. By investing amounts on a regular basis instead of investing the total amount at one time, Dollar Cost Averaging may decrease the effect of market fluctuation on the investment of your Purchase Payment. This may result in a lower average cost of units over time. However, there is no guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining market. We do not deduct a charge for participating in a Dollar Cost Averaging program. 43 You can Dollar Cost Average from Sub-accounts, the Fixed Allocations or the DCA Fixed Rate Options. Dollar Cost Averaging from Fixed Allocations is subject to a number of rules that include, but are not limited to the following: . You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3 years (except for the DCA Fixed Rate Options). . You may only Dollar Cost Average earnings or principal plus earnings. If transferring principal plus earnings, the program must be designed to last the entire Guarantee Period for the Fixed Allocation. . Dollar Cost Averaging transfers from Fixed Allocations are not subject to a Market Value Adjustment. NOTE: When a Dollar Cost Averaging program is established from a Fixed Allocation or a DCA Fixed Rate Option, the fixed rate of interest we credit to your Account Value is applied to a declining balance due to the transfers of Account Value to the Sub-accounts. This will reduce the effective rate of return on the Fixed Allocation or a DCA Fixed Rate Option over the Guarantee Period or the duration of the program, respectively. The Dollar Cost Averaging programs are not available if you have elected an automatic rebalancing program or an asset allocation program. Dollar Cost Averaging from Fixed Allocations also is not available if you elect certain optional benefits. Prudential Annuities originally offered specific Fixed Allocations with Guarantee Periods of 6 months or 12 months exclusively for use with a Dollar Cost Averaging program. Those 6 month/12 month Fixed Allocations were designed to automatically transfer Account Value in either 6 or 12 payments under a Dollar Cost Averaging program. Dollar Cost Averaging transfers commenced on the date the Fixed Allocation was established and then proceeded each month following until the entire principal amount plus earnings was transferred. Fixed Allocations could only be established with your initial Purchase Payment or additional Purchase Payments. You could not transfer existing Account Value to a Fixed Allocation. We discontinued offering these 6 and 12 month Fixed Allocations beginning on May 1, 2009. Under our current dollar cost averaging programs used with Fixed Allocations, Account Value allocated to the Fixed Allocation will be transferred to the Sub-accounts you choose. If you terminate the Dollar Cost Averaging program before the entire principal amount plus earnings has been transferred to the Sub-account(s), you must transfer all remaining Account Value to any other investment option. Unless you provide alternate instructions at the time you terminate the Dollar Cost Averaging program, Account Value will be transferred to the AST Money Market Sub-account. Transfers from Fixed Allocations as part of a Dollar Cost Averaging program are not subject to a Market Value Adjustment. However, a Market Value Adjustment will apply if you terminate the Dollar Cost Averaging program before the entire principal amount plus earnings has been transferred to the Sub-account(s). Please note that under the 6 or 12 Month DCA Program (described immediately below), no Market Value Adjustment applies. 6 OR 12 MONTH DOLLAR COST AVERAGING PROGRAM (THE "6 OR 12 MONTH DCA PROGRAM") The 6 or 12 Month DCA Program is available for contracts issued on and after May 1, 2009 (subject to applicable State approval). The program is subject to our rules at the time of election and may not be available in conjunction with other programs and benefits we make available. We may discontinue, modify or amend this program from time to time. Highest Daily Lifetime 7 Plus and Spousal Highest Daily Lifetime 7 Plus are the only optional living benefits and the Highest Anniversary Value death benefit and the Combination 5% Roll-up + HAV death benefit are the only death benefits you may participate in if you also participate in the 6 or 12 Month DCA Program, although you do not need to select any optional benefit to participate in the program. To participate in the 6 or 12 Month DCA Program, you must allocate at least a $2000 Purchase Payment to our DCA Fixed Rate Options. These DCA Fixed Rate Options are distinct from the Fixed Allocations described immediately above. Most notably, transfers out of a DCA Fixed Rate Option are never subject to a Market Value Adjustment. Dollar cost averaging does not assure a profit, or protect against a loss. The key features of this Program are as follows: . You may only allocate purchase payments to these DCA Fixed Rate Options. You may not transfer Account Value into this program. . As part of your election to participate in the 6 or 12 Month DCA Program, you specify whether the monthly transfers under the 6 or 12 Month DCA Program are to be made over a 6 month or 12 month period. We then set the monthly transfer amount, by dividing the Purchase Payment (including any associated credit) you have allocated to the DCA Fixed Rate Options by the number of months. For example, if you allocated $6000, and selected a 6 month DCA Program, we would transfer $1000 each month. We will adjust the monthly transfer amount if, during the transfer period, the amount allocated to the DCA Fixed Rate Options is reduced (e.g., due to the deduction of the applicable portion of the fee for an optional benefit, withdrawals or due to a transfer of Account Value out of the DCA Fixed Rate Options initiated by the mathematical formula used with Highest Daily Lifetime 7 Plus or Spousal Highest Daily Lifetime 7 Plus). In that event, we will re-calculate the amount of each remaining transfer by dividing the amount in the DCA Fixed Rate Option by the number of remaining transfers. If the recalculated transfer amount is below the minimum transfer required by the program, we will transfer the remaining amount from the DCA Fixed Rate Option on the next scheduled transfer and terminate the program. . Any withdrawals, transfers, or fees deducted from the DCA Fixed Rate Options will reduce the DCA Fixed Rate Options on a "last-in, first-out" basis. If you have only one 6 or 12 Month DCA Program in operation, withdrawals, transfers, or fees may be deducted from the DCA Fixed Rate Options associated with that Program. You may, however, have more than one 6 or 12 Month DCA Program operating at the same time (so long as any such additional 6 or 12 Month DCA Program 44 is of the same duration). For example, you may have more than one 6 month DCA Program running, but may not have a 6 month Program running simultaneously with a 12 month Program. If you have multiple 6 or 12 Month DCA Programs running, then the above reference to "last-in, first-out" means that amounts will be deducted first from the DCA Fixed Rate Options associated with the 6 or 12 Month DCA Program that was established most recently. . The first transfer under the Program occurs on the day you allocate a Purchase Payment to the DCA Fixed Rate Options (unless modified to comply with State law) and on each month following until the entire principal amount plus earnings is transferred. . We do not count transfers under the 6 or 12 Month DCA Program against the number of free transfers allowed under your Annuity. . The minimum transfer amount is $100, although we will not impose that requirement with respect to the final amount to be transferred under the Program. . If you are not participating in Highest Daily Lifetime 7 Plus or Spousal Highest Daily Lifetime 7 Plus, we will make transfers under the 6 or 12 month DCA Program to the Sub-accounts that you specified upon your election of the Program. If you are participating in any Highest Daily Lifetime 7 Plus benefit, we will allocate amounts transferred out of the DCA Fixed Rate Options in the following manner: (a) if you are participating in the Optional Allocation and Rebalancing Program, we will allocate to the Sub-accounts in accordance with the rules of that program (b) if you are not participating in the Optional Allocation and Rebalancing Program, we will make transfers under the Program to the Sub-accounts that you specified upon your election of the Program, provided those instructions comply with the allocation requirements for Highest Daily Lifetime 7 Plus or Spousal Highest Daily Lifetime 7 Plus and (c) whether or not you participate in the Optional Allocation and Rebalancing Program, no portion of our monthly transfer under the 6 or 12 Month DCA Program will be directed initially to the AST Investment Grade Bond Sub-account (although the DCA Fixed Rate Option is treated as a "Permitted Sub-account" for purposes of transfers to the AST Investment Grade Bond Sub-account under the asset transfer formula under the Highest Daily Lifetime 7 Plus benefits) (see below). . If you are participating in Highest Daily Lifetime 7 Plus or Spousal Highest Daily Lifetime 7 Plus and also are participating in the 6 or 12 Month DCA Program, and the formula under the benefit dictates a transfer from the Permitted Sub-accounts to the AST Investment Grade Bond Sub-account, then the amount to be transferred will be taken entirely from the Sub-accounts, provided there is sufficient Account Value in those Sub-accounts to meet the required transfer amount. Only if there is insufficient Account Value in those Sub-accounts will an amount be withdrawn from the DCA Fixed Rate Options associated with the 6 or 12 Month DCA Program. Amounts withdrawn from the DCA Fixed Rate Options under the formula will be taken on a last-in, first-out basis. . If you are participating in one of our automated withdrawal programs (e.g., Systematic Withdrawals), we may include within that withdrawal program amounts held within the DCA Fixed Rate Options. If you have elected any Highest Daily Lifetime 7 Plus benefit, any withdrawals will be taken on a pro-rata basis from your Sub-accounts and the DCA Fixed Rate Options. . We impose no fee for your participation in the 6 or 12 Month DCA Program. . You may cancel the DCA Program at any time. If you do, we will transfer any remaining amount held within the DCA Fixed Rate Options according to your instructions. If you do not provide any such instructions, we will transfer any remaining amount held in the DCA Fixed Rate Options on a pro rata basis to the Sub-accounts in which you are invested currently. If any such Sub-account is no longer available, we may allocate the amount that would have been applied to that Sub-account to the AST Money Market Sub-account. . You cannot utilize "rate lock" with the 6 or 12 Month DCA Program. The interest rate we credit under the program will be the rate on the date the purchase payment is allocated to the 6 or 12 Month DCA Program. . We credit interest to amounts held within the DCA Fixed Rate Options at the applicable declared rates. We credit such interest until the earliest of the following (a) the date the entire amount in the DCA Fixed Rate Option has been transferred out (b) the date the entire amount in the DCA Fixed Rate Option is withdrawn (c) the date as of which any death benefit payable is determined or (d) the Annuity Date. . The interest rate earned in a DCA Fixed Rate Option will be no less than the minimum guaranteed interest rate. We may, from time to time, declare new interest rates for new purchase payments that are higher than the minimum guaranteed interest rate. Please note that the interest rate that we apply under the 6 or 12 Month DCA Program is applied to a declining balance. Therefore, the amount of interest you receive will decrease as amounts are systematically transferred from the DCA Fixed Rate Option to the Sub-accounts, and the effective interest rate earned will therefore be less than the declared interest rate. . The 6 or 12 Month DCA Program may be referred to in your Rider and/or the Application as the "Enhanced Dollar Cost Averaging Program." NOTE: When a 6 or 12 Month DCA program is established from a DCA Fixed Rate Option, the fixed rate of interest we credit to your Account Value is applied to a declining balance due to the transfers of Account Value to the Sub-accounts (including any transfers under an optional benefit formula). This will reduce the effective rate of return on the DCA Fixed Rate Option. HOW DO THE FIXED ALLOCATIONS WORK? We credit a fixed interest rate to the Fixed Allocation throughout a set period of time called a "Guarantee Period." (Note that the discussion in this section of Guarantee Periods is not applicable to the Benefit Fixed Rate Account, and the DCA Fixed Rate Options). Fixed Allocations currently are offered with Guarantee Periods from 1 to 10 years. We may make Fixed Allocations of different durations available in the future, including Fixed Allocations offered exclusively for use with certain optional 45 investment programs. Fixed Allocations may not be available in all states and may not always be available for all Guarantee Periods depending on market factors and other considerations. The interest rate credited to a Fixed Allocation is the rate in effect when the Guarantee Period begins and does not change during the Guarantee Period. The rates are an effective annual rate of interest. We determine the interest rates for the various Guarantee Periods. At the time that we confirm your Fixed Allocation, we will advise you of the interest rate in effect and the date your Fixed Allocation matures. We may change the rates we credit new Fixed Allocations at any time. Any change in interest rate does not affect Fixed Allocations that were in effect before the date of the change. To inquire as to the current rates for Fixed Allocations, please call 1-888-PRU-2888. A Guarantee Period for a Fixed Allocation begins: . when all or part of a net Purchase Payment is allocated to that particular Guarantee Period; . upon transfer of any of your Account Value to a Fixed Allocation for that particular Guarantee Period; or . when you "renew" a Fixed Allocation by electing a new Guarantee Period. To the extent permitted by law, we may establish different interest rates for Fixed Allocations offered to a class of Owners who choose to participate in various optional investment programs we make available. This may include, but is not limited to, Owners who elect to use Fixed Allocations under a dollar cost averaging program (see "Do You Offer Dollar Cost Averaging?") or the Balanced Investment Program. Prudential Annuities may offer Fixed Allocations with Guarantee Periods of 3 months or 6 months exclusively for use as a short-term Fixed Allocation ("Short-term Fixed Allocations"). Short-term Fixed Allocations may only be established with your initial Purchase Payment or additional Purchase Payments. You may not transfer existing Account Value to a Short-term Fixed Allocation. We reserve the right to terminate offering these special purpose Fixed Allocations at any time. On the Maturity Date of the Short-term Fixed Allocation, the Account Value will be transferred to the Sub-account(s) you choose at the inception of the program. If no instructions are provided, such Account Value will be transferred to the AST Money Market Sub-account. Short-term Fixed Allocations may not be renewed on the Maturity Date. If you surrender the Annuity or transfer any Account Value from the Short-term Fixed Allocation to any other investment option before the end of the Guarantee Period, a Market Value Adjustment will apply. HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS? We do not have a specific formula for determining the fixed interest rates for Fixed Allocations. Generally the interest rates we offer for Fixed Allocations will reflect the investment returns available on the types of investments we make to support our fixed rate guarantees. These investment types may include cash, debt securities guaranteed by the United States government and its agencies and instrumentalities, money market instruments, corporate debt obligations of different durations, private placements, asset-backed obligations and municipal bonds. In determining rates we also consider factors such as the length of the Guarantee Period for the Fixed Allocation, regulatory and tax requirements, liquidity of the markets for the type of investments we make, commissions, administrative and investment expenses, our insurance risks in relation to the Fixed Allocations, general economic trends and competition. Some of these considerations are similar to those we consider in determining the Insurance Charge that we deduct from Account Value allocated to the Sub-accounts. For some of the same reasons that we deduct the Insurance Charge against the Account Value allocated to the Sub-accounts, we also take into consideration mortality, expense, administration, profit and other factors in determining the interest rates we credit to Fixed Allocations. That is, the existence of those factors results in a reduction to the interest rate that we credit under the MVA Fixed Allocations. We will credit interest on a new Fixed Allocation in an existing Annuity at a rate not less than the rate we are then crediting to Fixed Allocations for the same Guarantee Period selected by new Annuity purchasers in the same class. The interest rate we credit for a Fixed Allocation may be subject to a minimum. Please refer to the Statement of Additional Information. In certain states the interest rate may be subject to a minimum under state law or regulation. WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES? The "Maturity Date" for a MVA Fixed Allocation is the last day of the Guarantee Period (note that the discussion in this section of Guarantee Periods is not applicable to the Fixed Allocations used with a dollar cost averaging program, the Benefit Fixed Rate Account, and the DCA Fixed Rate Options). Before the Maturity Date, you may choose to renew the MVA Fixed Allocation for a new Guarantee Period of the same or different length or you may transfer all or part of that MVA Fixed Allocation's Account Value to another MVA Fixed Allocation or to one or more Sub-accounts. We will not charge a MVA if you choose to renew a Fixed Allocation on its Maturity Date or transfer the Account Value to one or more Sub-accounts. We will notify you before the end of the Guarantee Period about the fixed interest rates that we are currently crediting to all MVA Fixed Allocations that are being offered. The rates being credited to Fixed Allocations may change before the Maturity Date. 46 If you do not specify how you want a Fixed Allocation to be allocated on its Maturity Date, we will then transfer the Account Value in the Fixed Allocation to the AST Money Market Sub-account. You can then elect to allocate the Account Value to any of the Sub-accounts or to a new Fixed Allocation. DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS? Yes. During the accumulation period, we offer Automatic Rebalancing among the Sub-accounts you choose. You can choose to have your Account Value rebalanced monthly, quarterly, semi-annually, or annually. On the appropriate date, the Sub-accounts you chose are rebalanced to the allocation percentages you requested. With Automatic Rebalancing, we transfer the appropriate amount from the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return your allocations to the percentages you request. For example, over time the performance of the Sub-accounts will differ, causing your percentage allocations to shift. We also offer the Optional Allocation and Rebalancing Program, which is available if you elect one of the Highest Daily Lifetime Seven (or Plus) benefits. Any transfer to or from any Sub-account that is not part of your Automatic Rebalancing program, will be made; however, that Sub-account will not become part of your rebalancing program unless we receive instructions from you indicating that you would like such option to become part of the program. There is no minimum Account Value required to enroll in Automatic Rebalancing. All rebalancing transfers as part of an Automatic Rebalancing program are not included when counting the number of transfers each year toward the maximum number of free transfers. We do not deduct a charge for participating in an Automatic Rebalancing program. Participation in the Automatic Rebalancing program may be restricted if you are enrolled in certain other optional programs. Sub-accounts that are part of a Systematic Withdrawal program or Dollar Cost Averaging program will be excluded from an Automatic Rebalancing program. ARE ANY ASSET ALLOCATION PROGRAMS AVAILABLE? We currently do not offer any asset allocation programs for use with your Annuity. WHAT IS THE BALANCED INVESTMENT PROGRAM? We offer a balanced investment program where a portion of your Account Value is allocated to a Fixed Allocation and the remaining Account Value is allocated to the Sub-accounts that you select. When you enroll in the Balanced Investment Program, you choose the duration that you wish the program to last. This determines the duration of the Guarantee Period for the Fixed Allocation. Based on the fixed rate for the Guarantee Period chosen, we calculate the portion of your Account Value that must be allocated to the Fixed Allocation to grow to a specific "principal amount" (such as your initial Purchase Payment). We determine the amount based on the rates then in effect for the Guarantee Period you choose. If you continue the program until the end of the Guarantee Period and make no withdrawals or transfers, at the end of the Guarantee Period, the Fixed Allocation will have grown to equal the "principal amount". Withdrawals or transfers from the Fixed Allocation before the end of the Guarantee Period will terminate the program and may be subject to a Market Value Adjustment (which may be positive or negative). You can transfer the Account Value that is not allocated to the Fixed Allocation between any of the Sub-accounts available under your Annuity. Account Value you allocate to the Sub-accounts is subject to market fluctuations and may increase or decrease in value. We do not deduct a charge for participating in the Balanced Investment Program. Example Assume you invest $100,000. You choose a 10-year program and allocate a portion of your Account Value to a Fixed Allocation with a 10-year Guarantee Period. The rate for the 10-year Guarantee Period is 2.50%*. Based on the fixed interest rate for the Guarantee Period chosen, the factor is 0.781198 for determining how much of your Account Value will be allocated to the Fixed Allocation. That means that $78,120 will be allocated to the Fixed Allocation and the remaining Account Value ($21,880) will be allocated to the Sub-accounts. Assuming that you do not make any withdrawals or transfers from the Fixed Allocation, it will grow to $100,000 at the end of the Guarantee Period. Of course we cannot predict the value of the remaining Account Value that was allocated to the Sub-accounts. MAY I GIVE MY FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION INSTRUCTIONS? Yes. Subject to our rules, your Financial Professional may forward instructions regarding the allocation of your Account Value, and request financial transactions involving investment options. If your Financial Professional has this authority, we deem that all transactions that are directed by your Financial Professional with respect to your Annuity have been authorized by you. You must contact us immediately if and when you revoke such authority. We will not be responsible for acting on instructions from your Financial Professional until we receive notification of the revocation of such person's authority. We may also suspend, cancel or limit these privileges at any time. We will notify you if we do. * The rate in this example is hypothetical and may not reflect the current rate for Guarantee Periods of this duration. 47 MAY I AUTHORIZE MY THIRD PARTY INVESTMENT ADVISOR TO MANAGE MY ACCOUNT? Yes. You may engage your own investment advisor to manage your account. These investment advisors may be firms or persons who also are appointed by us, or whose affiliated broker-dealers are appointed by us, as authorized sellers of the Annuities. Even if this is the case, however, please note that the investment advisor you engage to provide advice and/or make transfers for you, is not acting on our behalf, but rather is acting on your behalf. We do not offer advice about how to allocate your Account Value under any circumstance. As such, we are not responsible for any recommendations such investment advisors make, any investment models or asset allocation programs they choose to follow or any specific transfers they make on your behalf. Please note that if you have engaged a third-party investment advisor to provide asset allocation services with respect to your Annuity, we may not allow you to elect an optional benefit that requires investment in an asset allocation Portfolio and/or that involves mandatory Account Value transfers (e.g. Highest Daily GRO). You will receive confirmations of transactions that affect your Annuity. It is your responsibility to arrange for the payment of the advisory fee charged by your investment advisor. Similarly, it is your responsibility to understand the advisory services provided by your investment advisor and the advisory fee charged for the services. We or an affiliate of ours may provide administrative support to licensed, registered Financial Professionals or Investment advisors who you authorize to make financial transactions on your behalf. We may require Financial Professionals or investment advisors, who are authorized by multiple contract owners to make financial transactions, to enter into an administrative agreement with Prudential Annuities as a condition of our accepting transactions on your behalf. The administrative agreement may impose limitations on the Financial Professional's or investment advisor's ability to request financial transactions on your behalf. These limitations are intended to minimize the detrimental impact of a Financial Professional who is in a position to transfer large amounts of money for multiple clients in a particular Portfolio or type of portfolio or to comply with specific restrictions or limitations imposed by a Portfolio(s) of Prudential Annuities. Please Note: Annuities where your Financial Professional or investment advisor has the authority to forward instruction on financial transactions are also subject to the restrictions on transfers between investment options that are discussed in the section entitled "ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?" Since transfer activity directed by a Financial Professional or third party investment adviser may result in unfavorable consequences to all contract owners invested in the affected options, we reserve the right to limit the investment options available to a particular Owner where such authority as described above has been given to a Financial Professional or investment advisor or impose other transfer restrictions we deem necessary. The administrative agreement may limit the available investment options, require advance notice of large transactions, or impose other trading limitations on your Financial Professional. Your Financial Professional will be informed of all such restrictions on an ongoing basis. We may also require that your Financial Professional transmit all financial transactions using the electronic trading functionality available through our Internet website (www.prudentialannuities.com). Limitations that we may impose on your Financial Professional or investment advisor under the terms of the administrative agreement do not apply to financial transactions requested by an Owner on their own behalf, except as otherwise described in this Prospectus. HOW DOES THE MARKET VALUE ADJUSTMENT WORK? If you transfer or withdraw Account Value from an MVA Fixed Allocation more than 30 days before the end of its Guarantee Period, we will adjust the value of your investment based on a formula, called a "Market Value Adjustment" or "MVA". The amount of any Market Value Adjustment can be either positive or negative, depending on the movement of a combination of Strip Yields on Strips and an Option-adjusted Spread (each as defined below) between the time that you purchase the Fixed Allocation and the time you make a transfer or withdrawal. The Market Value Adjustment formula compares the combination of Strip Yields for Strips and the Option-adjusted Spreads as of the date the Guarantee Period began with the combination of Strip Yields for Strips and the Option-adjusted Spreads as of the date the MVA is being calculated. . "Strips" are a form of security where ownership of the interest portion of United States Treasury securities are separated from ownership of the underlying principal amount or corpus. . "Strip Yields" are the yields payable on coupon Strips of United States Treasury securities. . "Option-adjusted Spread" is the difference between the yields on corporate debt securities (adjusted to disregard options on such securities) and government debt securities of comparable duration. We currently use the Merrill Lynch 1 to 10 year Investment Grade Corporate Bond Index of Option-adjusted Spreads. 48 MVA Formula The MVA formula is applied separately to each MVA Fixed Allocation to determine the Account Value of the Fixed Allocation on a particular date. The formula is as follows: [(1+I) / (1+J+0.0010)]/N/365/ where: I is the Strip Yield as of the start date of the Guarantee Period for coupon Strips maturing at the end of the applicable Guarantee Period plus the Option-adjusted Spread. If there are no Strips maturing at that time, we will use the Strip Yield for the Strips maturing as soon as possible after the Guarantee Period ends. J is the Strip Yield as of the date the MVA formula is being applied for coupon Strips maturing at the end of the applicable Guarantee Period plus the Option-adjusted Spread. If there are no Strips maturing at that time, we will use the Strip Yield for the Strips maturing as soon as possible after the Guarantee Period ends. N is the number of days remaining in the original Guarantee Period. If you surrender your Annuity under the right to cancel provision, the MVA formula is: [(1 + I)/(1 + J)]/N/365/ MVA Examples The following hypothetical examples show the effect of the MVA in determining Account Value. Assume the following: . You allocate $50,000 into a MVA Fixed Allocation (we refer to this as the "Allocation Date" in these examples) with a Guarantee Period of 5 years (we refer to this as the "Maturity Date" in these examples). . The Strip Yields for coupon Strips beginning on Allocation Date and maturing on Maturity Date plus the Option-adjusted Spread is 5.50% (I = 5.50%). . You make no withdrawals or transfers until you decide to withdraw the entire MVA Fixed Allocation after exactly three (3) years, at which point 730 days remain before the Maturity Date (N = 730). Example of Positive MVA Assume that at the time you request the withdrawal, the Strip Yields for Strips maturing on the Maturity Date plus the Option-adjusted Spread is 4.00% (J = 4.00%). Based on these assumptions, the MVA would be calculated as follows: MVA Factor = [(1+I)/(1+J+0.0010)]/N/365/ = [1.055/1.041]/2/ = 1.027078 Interim Value = $57,881.25 Account Value after MVA = Interim Value X MVA Factor = $59,448.56 Example of Negative MVA Assume that at the time you request the withdrawal, the Strip Yields for Strips maturing on the Maturity Date plus the Option-adjusted Spread is 7.00% (J = 7.00%). Based on these assumptions, the MVA would be calculated as follows: MVA Factor = [(1+I)/(1+J+0.0010)]/N/365/ = [1.055/1.071]/2/ = 0.970345 Interim Value = $57,881.25 Account Value after MVA = Interim Value X MVA Factor = $56,164.78. 49 ACCESS TO ACCOUNT VALUE WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME? During the accumulation period you can access your Account Value through partial withdrawals, Systematic Withdrawals, and where required for tax purposes, Required Minimum Distributions. You can also surrender your Annuity at any time. We may deduct a portion of the Account Value being withdrawn or surrendered as a CDSC, if applicable. If you surrender your Annuity, in addition to any CDSC, we may deduct the Annual Maintenance Fee, any Tax Charge that applies and the charge for any optional benefits. We may also apply a Market Value Adjustment to any MVA Fixed Allocations being withdrawn or surrendered. Certain amounts may be available to you each Annuity Year that are not subject to a CDSC. These are called "Free Withdrawals." Unless you notify us differently, withdrawals are taken pro-rata based on the Account Value in the investment options at the time we receive your withdrawal request. Each of these types of distributions is described more fully below. ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS? (For more information, see "Tax Considerations.") During the Accumulation Period A distribution during the accumulation period is deemed to come first from any "gain" in your Annuity and second as a return of your "tax basis", if any. Distributions from your Annuity are generally subject to ordinary income taxation on the amount of any investment gain unless the distribution qualifies as a non-taxable exchange or transfer. If you take a distribution prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. You may wish to consult a professional tax advisor for advice before requesting a distribution. During the Annuitization Period During the annuitization period, a portion of each annuity payment is taxed as ordinary income at the tax rate you are subject to at the time of the payment. The Code and regulations have "exclusionary rules" that we use to determine what portion of each annuity payment should be treated as a return of any tax basis you have in your Annuity. Once the tax basis in your Annuity has been distributed, the remaining annuity payments are taxable as ordinary income. The tax basis in your Annuity may be based on the tax-basis from a prior contract in the case of a 1035 exchange or other qualifying transfer. CAN I WITHDRAW A PORTION OF MY ANNUITY? Yes, you can make a withdrawal during the accumulation period. . To meet liquidity needs, you can withdraw a limited amount from your Annuity during each Annuity Year without application of any CDSC. We call this the "Free Withdrawal" amount. The Free Withdrawal amount is not available if you choose to surrender your Annuity. Amounts withdrawn as a Free Withdrawal do not reduce the amount of CDSC that may apply upon a subsequent withdrawal or surrender of your Annuity. After any partial withdrawal, your Annuity must have a Surrender Value of at least $1,000, or we may treat the partial withdrawal request as a request to fully surrender your Annuity. The minimum Free Withdrawal you may request is $100. . You can also make withdrawals in excess of the Free Withdrawal amount. The minimum partial withdrawal you may request is $100. To determine if a CDSC applies to partial withdrawals, we: 1. First determine what, if any, amounts qualify as a Free Withdrawal. These amounts are not subject to the CDSC. 2. Next determine what, if any, remaining amounts are withdrawals of Purchase Payments. Amounts in excess of the Free Withdrawal amount will be treated as withdrawals of Purchase Payments unless all Purchase Payments have been previously withdrawn. These amounts are subject to the CDSC. Purchase Payments are withdrawn on a first in, first out basis. 3. Withdraw any remaining amounts from any other Account Value. These amounts are not subject to the CDSC. You may request a withdrawal for an exact dollar amount after deduction of any CDSC that applies (called a "net withdrawal") or request a gross withdrawal from which we will deduct any CDSC that applies, resulting in less money being payable to you than the amount you requested. If you request a net withdrawal, the amount deducted from your Account Value to pay the CDSC may also be subject to a CDSC. Partial withdrawals may also be available following annuitization but only if you choose certain annuity payment options. (Note, however, that we do not permit commutation once annuity payments have commenced). To request the forms necessary to make a withdrawal from your Annuity, call 1-888-PRU-2888 or visit our Internet Website at www.prudentialannuities.com. 50 HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL? The maximum Free Withdrawal amount during each Annuity Year is equal to 10% of all Purchase Payments that are subject to a CDSC. Withdrawals made within an Annuity Year reduce the Free Withdrawal amount available for the remainder of the Annuity Year. If you do not make a withdrawal during an Annuity Year, you are not allowed to carry over the Free Withdrawal amount to the next Annuity Year. CAN I MAKE PERIODIC WITHDRAWALS FROM MY ANNUITY DURING THE ACCUMULATION PERIOD? Yes. We call these "Systematic Withdrawals." You can receive Systematic Withdrawals of earnings only or a flat dollar amount. Systematic Withdrawals may be subject to a CDSC. We will determine whether a CDSC applies and the amount in the same way as we would for a partial withdrawal. Systematic Withdrawals can be made from Account Value allocated to the Sub-accounts or certain Fixed Allocations. Generally, Systematic Withdrawals from Fixed Allocations are limited to earnings accrued after the program of Systematic Withdrawals begins, or payments of fixed dollar amounts that do not exceed such earnings. Systematic Withdrawals are available on a monthly, quarterly, semi-annual or annual basis. The minimum amount for each Systematic Withdrawal is $100. If any scheduled Systematic Withdrawal is for less than $100 (which may occur under a program that provides payment of an amount equal to the earnings in your Annuity for the period requested), we may postpone the withdrawal and add the expected amount to the amount that is to be withdrawn on the next scheduled Systematic Withdrawal. DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE? Yes. If your Annuity is used as a funding vehicle for certain retirement plans that receive special tax treatment under Sections 401, 403(b), 408 or 408A of the Code, Section 72(t) of the Code may provide an exception to the 10% penalty tax on distributions made prior to age 59 1/2 if you elect to receive distributions as a series of "substantially equal periodic payments". Distributions received under these provisions in any Annuity Year that exceed the maximum amount available as a free withdrawal will be subject to any applicable CDSC. We may apply a Market Value Adjustment to any Fixed Allocations. To request a program that complies with Sections 72(t), you must provide us with certain required information in writing on a form acceptable to us. We may require advance notice to allow us to calculate the amount of 72(t) withdrawals. The Surrender Value of your Annuity must be at least $20,000 before we will allow you to begin a program for withdrawals under Sections 72(t). The minimum amount for any such withdrawal is $100 and payments may be made monthly, quarterly, semi-annually or annually. You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means of receiving income payments before age 59 1/2 that are not subject to the 10% penalty. WHAT ARE REQUIRED MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM? (See "Tax Considerations" for a further discussion of Required Minimum Distributions.) Note that under the Worker, Retiree and Employee Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. For purposes of determining whether your withdrawal is subject to the Contingent Deferred Sales Charge, we will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount not subject to Contingent Deferred Sales Charge. Required Minimum Distributions are a type of Systematic Withdrawal we allow to meet distribution requirements under Sections 401, 403(b) or 408 of the Code. Required Minimum Distribution rules do not apply to Roth IRAs during the Owner's lifetime. Under the Code, you may be required to begin receiving periodic amounts from your Annuity. In such case, we will allow you to make Systematic Withdrawals in amounts that satisfy the Required Minimum Distribution rules under the Code. We do not assess a CDSC on Required Minimum Distributions from your Annuity if you are required by law to take such Required Minimum Distributions from your Annuity at the time it is taken. However, a CDSC (if applicable) may be assessed on that portion of a Systematic Withdrawal that is taken to satisfy the Required Minimum Distribution provisions in relation to other savings or investment plans under other qualified retirement plans not maintained with Prudential Annuities. However, no MVA may be assessed on a withdrawal taken to meet RMD requirements applicable to your Annuity. The amount of the Required Minimum Distribution for your particular situation may depend on other annuities, savings or investments. We will only calculate the amount of your Required Minimum Distribution based on the value of your Annuity. We require three (3) days advance written notice to calculate and process the amount of your payments. You may elect to have Required Minimum Distributions paid out monthly, quarterly, semi-annually or annually. The $100 minimum amount that applies to Systematic Withdrawals applies to monthly Required Minimum Distributions but does not apply to Required Minimum Distributions taken out on a quarterly, semi-annual or annual basis. 51 You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means of receiving income payments and satisfying the Required Minimum Distribution provisions under the Code. Annuitized payments are not suspended as Required Minimum Distributions for 2009. Please see "Highest Daily Lifetime 7 Plus" under the subsection "Required Minimum Distributions" for further information relating to Required Minimum Distributions if you own that benefit. CAN I SURRENDER MY ANNUITY FOR ITS VALUE? Yes. During the accumulation period you can surrender your Annuity at any time. Upon surrender, you will receive the Surrender Value. Upon surrender of your Annuity, you will no longer have any rights under the surrendered Annuity. For purposes of calculating any applicable CDSC on surrender, the Purchase Payments being withdrawn may be greater than your remaining Account Value or the amount of your withdrawal request. This is most likely to occur if you have made prior withdrawals under the Free Withdrawal provision or if your Account Value has declined in value due to negative market performance. In that scenario, we would determine the CDSC amount as the applicable percentage of the Purchase Payments being withdrawn, rather than as a percentage of the remaining Account Value or withdrawal request. Thus, the CDSC would be greater than if it were calculated as a percentage of remaining Account Value or withdrawal amount. We may apply a Market Value Adjustment to any MVA Fixed Allocations. Under certain annuity payment options, you may be allowed to surrender your Annuity for its then current value. To request the forms necessary to surrender your Annuity, call 1-888-PRU-2888 or visit our Internet Website at www.prudentialannuities.com. WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY? Where permitted by law, you may request to surrender all or part of your Annuity prior to the Annuity Date without application of any otherwise applicable CDSC upon occurrence of a medically-related "Contingency Event" as described below. We may apply a Market Value Adjustment to any MVA Fixed Allocations. If you request a full surrender, the amount payable will be your Account Value. This waiver of any applicable CDSC is subject to our rules in place at the time of your request, which currently include but are not limited to the following: . The Annuitant must have been named or any change of Annuitant must have been accepted by us, prior to the "Contingency Event" described below in order to qualify for a medically-related surrender; . the Annuitant must be alive as of the date we pay the proceeds of such surrender request; . if the Owner is one or more natural persons, all such Owners must also be alive at such time; . we must receive satisfactory proof of the Annuitant's confinement in a Medical Care Facility or Fatal Illness in writing on a form satisfactory to us; and . no additional Purchase Payments can be made to the Annuity. A "Contingency Event" occurs if the Annuitant is: . first confined in a "Medical Care Facility" while your Annuity is in force and remains confined for at least 90 days in a row; or . first diagnosed as having a "Fatal Illness" while your Annuity is in force. The definitions of "Medical Care Facility" and "Fatal Illness," as well as additional terms and conditions, are provided in your Annuity. This benefit is not available in Massachusetts. WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE? We currently make available annuity options that provide fixed annuity payments. Your Annuity provides certain fixed annuity payment options. We do not guarantee to continue to make available any other option other than the fixed annuity payment options set forth in your Annuity. Fixed options provide the same amount with each payment. Adjustable options provide a fixed payment that is periodically adjusted based on current interest rates. Please refer to the "Living Benefits" section below for a description of annuity options that are available when you elect one of the living benefits. For additional information on annuity payment options you may request a Statement of Additional Information. You may choose an Annuity Date, an annuity option and the frequency of annuity payments. You may change your choices before the Annuity Date under the terms of your contract. A maximum Annuity Date may be required by law or under the terms of your Annuity. The Annuity Date may depend on the annuity option you choose. Certain annuity options may not be available depending on the age of the Annuitant. See section below entitled "How and When Do I Choose the Annuity Payment Option?" 52 Certain of these annuity options may be available to Beneficiaries who choose to receive the Death Benefit proceeds as a series of payments instead of a lump sum payment. You may not annuitize within the first three Annuity Years. For Beneficiary Annuities, no annuity payments are available and all references to an Annuity Date are not applicable. Option 1 Payments for Life: Under this option, income is payable periodically until the death of the "Key Life". The "Key Life" (as used in this section) is the person or persons upon whose life annuity payments are based. No additional annuity payments are made after the death of the Key Life. Since no minimum number of payments is guaranteed, this option offers the largest amount of periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of the key life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. Under this option, you cannot make a partial or full surrender of the annuity. Option 2 Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two Key Lives, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the Key Lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. Under this option, you cannot make a partial or full surrender of the annuity. Option 3 Payments for Life with a Certain Period: Under this option, income is payable until the death of the Key Life. However, if the Key Life dies before the end of the period selected (5, 10 or 15 years), the remaining payments are paid to the Beneficiary until the end of such period. Under this option, you cannot make a partial or full surrender of the annuity. If this Annuity is issued as a Qualified Annuity contract and annuity payments begin after age 92, then this Option will be modified to permit a period certain that will end no later than the life expectancy of the annuitant defined under the IRS Required Minimum Distribution tables. Option 4 Fixed Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary until the end of such period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting this option. Under this option, you cannot make a partial or full surrender of the annuity. We may make different annuity payment options available in the future. We do not guarantee to continue to make available any other option other than the fixed annuity payment options set forth in your contract. HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION? Unless prohibited by law, we require that you elect either a life annuity or an annuity with a certain period of at least 5 years if any CDSC would apply were you to surrender your Annuity on the Annuity Date. Certain annuity payment options may not be available if your Annuity Date occurs during the period that a CDSC would apply. You have a right to choose your Annuity Date, provided it is no later than the maximum Annuity Date that may be required by law or under the terms of your Annuity. . Unless we agree otherwise, the Annuity Date you choose must be no later than the first day of the calendar month coinciding with or next following the later of the oldest Owner's or Annuitant's 95/th/ birthday, whichever occurs first, and the fifth anniversary of the Issue Date. . If you do not provide us with your Annuity Date, the maximum date as described above will be the default date; and, unless you instruct us otherwise, we will pay you the annuity payments and the annuity payments, where allowed by law, will be calculated on a fixed basis under Option 3, Payments for Life with 10 years certain. Please note that annuitization essentially involves converting your Account Value to an annuity payment stream, the length of which depends on the terms of the applicable annuity option. Thus, once annuity payments begin, your death benefit is determined solely under the terms of the applicable annuity payment option, and you no longer participate in any optional living benefit (unless you have annuitized under that benefit). HOW ARE ANNUITY PAYMENTS CALCULATED? Fixed Annuity Payments If you choose to receive fixed annuity payments, you will receive equal fixed-dollar payments throughout the period you select. The amount of the fixed payment will vary depending on the annuity payment option and payment frequency you select. Generally, 53 the first annuity payment is determined by multiplying the Account Value, minus any state premium taxes that may apply, by the factor determined from our table of annuity rates. The table of annuity rates differs based on the type of annuity chosen and the frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are derived from the a2000 Individual Annuity Mortality Table with an assumed interest rate of 3% per annum. Where required by law or regulation (e.g., Montana), such annuity table will have rates that do not differ according to the gender of the Key Life. Otherwise, the rates will differ according to the gender of the Key Life. Adjustable Annuity Payments We may make an adjustable annuity payment option available. Adjustable annuity payments are calculated similarly to fixed annuity payments except that on every fifth (5/th/) anniversary of receiving annuity payments, the annuity payment amount is adjusted upward or downward depending on the rate we are currently crediting to annuity payments. The adjustment in the annuity payment amount does not affect the duration of remaining annuity payments, only the amount of each payment. 54 LIVING BENEFITS DO YOU OFFER BENEFITS DESIGNED TO PROVIDE INVESTMENT PROTECTION FOR OWNERS WHILE THEY ARE ALIVE? Prudential Annuities offers different optional benefits, for an additional charge, that can provide investment protection for Owners while they are alive. Notwithstanding the additional protection provided under the optional Living Benefit, the additional cost has the impact of reducing net performance of the investment options. Each optional benefit offers a distinct type of guarantee, regardless of the performance of the Sub-accounts, that may be appropriate for you depending on the manner in which you intend to make use of your Annuity while you are alive. Depending on which optional benefit you choose, you can have flexibility to invest in the Sub-accounts while: . protecting a principal amount from decreases in value as of specified future dates due to investment performance; . taking withdrawals with a guarantee that you will be able to withdraw not less than a guaranteed benefit base over time; . guaranteeing a minimum amount of growth will be applied to your principal, if it is to be used as the basis for certain types of lifetime income payments or lifetime withdrawals; or . providing spousal continuation of certain benefits. The "living benefits" are as follows: Guaranteed Return Option Plus 2008 (GRO Plus 2008) Highest Daily Guaranteed Return Option (Highest Daily GRO) Guaranteed Minimum Withdrawal Benefit (GMWB) /1/ Guaranteed Minimum Income Benefit (GMIB) /1/ Lifetime Five Income Benefit and Spousal Lifetime Five Income Benefit /1/ Highest Daily Lifetime Five Income Benefit /1/ Highest Daily Lifetime Seven Income Benefit /2/ Spousal Highest Daily Lifetime Seven Income Benefit /2/ Spousal Highest Daily Lifetime Seven with Beneficiary Income Option Income Benefit /2/ Highest Daily Lifetime Seven with Beneficiary Income Option Income Benefit /2/ Highest Daily Lifetime Seven with Lifetime Income Accelerator Income Benefit /2/ Highest Daily Lifetime 7 Plus Income Benefit Spousal Highest Daily Lifetime 7 Plus Income Benefit Highest Daily Lifetime 7 Plus with Beneficiary Income Option Benefit Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator Benefit Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option Benefit (1)No longer available for new elections. (2)Not available for new elections if the corresponding Highest Daily Lifetime 7 Plus version is available in your state. Here is a general description of each kind of living benefit that exists under this Annuity: . Guaranteed Minimum Accumulation Benefits. The common characteristic of these benefits is that a specified amount of your annuity value is guaranteed at some point in the future. For example, under our Highest Daily GRO benefit, we make an initial guarantee that your annuity value on the day you start the benefit will not be any less ten years later. If your annuity value is less on that date, we use our own funds to give you the difference. Because the guarantee inherent in the guaranteed minimum accumulation benefit does not take effect until a specified number of years into the future, you should elect such a benefit only if your investment time horizon is of at least that duration. . Guaranteed Minimum Income Benefit or ("GMIB"). As discussed elsewhere in this Prospectus, you have the right under your Annuity to ask us to convert your accumulated annuity value into a series of annuity payments. Generally, the smaller the amount of your annuity value, the smaller the amount of your annuity payments. GMIB addresses this risk, by guaranteeing a certain amount of appreciation in the amount used to produce annuity payments. Thus, even if your annuity value goes down in value, GMIB guarantees that the amount we use to determine the amount of the annuity payments will go up in value by the prescribed amount. You should select GMIB only if you are prepared to delay your annuity payments for the required waiting period and if you anticipate needing annuity payments. This benefit is no longer available for new elections. . Guaranteed Minimum Withdrawal Benefit or ("GMWB"). This benefit is designed for someone who wants to access the annuity's value through withdrawals over time, rather than by annuitizing. This benefit guarantees that a specified amount will be available for withdrawal over time, even if the value of the annuity itself has declined. Please note that there is a maximum Annuity Date under your Annuity, by which date annuity payments must commence. This benefit is no longer available for new elections. . Lifetime Guaranteed Minimum Withdrawal Benefits. These benefits also are designed for someone who wants to access the annuity's value through withdrawals over time, rather than by annuitizing. These benefits differ, however, in that the withdrawal amounts are guaranteed for life (or until the second to die of spouses). The way that we establish the guaranteed amount that, in turn, determines the amount of the annual lifetime payments varies among these benefits. Under our Highest Daily Lifetime 7 Plus benefit, for example, the guaranteed amount generally is equal to your highest daily Account Value, appreciated at seven percent annually. Please note that there is a maximum Annuity Date under your Annuity, by which date annuity payments must commence. Certain of these benefits are no longer available for new elections. 55 Please refer to the benefit descriptions that follow for a complete description of the terms, conditions and limitations of each optional benefit. Investment restrictions apply if you elect certain optional living benefits. See the chart in the "Investment Options" section of the Prospectus for a list of investment options available and permitted with each benefit. You should consult with your Financial Professional to determine if any of these optional benefits may be appropriate for you based on your financial needs. There are many factors to consider, but we note that among them you may want to evaluate the tax implications of these different approaches to meeting your needs, both between these benefits and in comparison to other potential solutions to your needs (e.g., comparing the tax implications of the withdrawal benefit and annuity payments and comparing annuity benefits with benefits of other products). Termination of Existing Benefits and Election of New Benefits If you currently own an Annuity with an optional living benefit that is terminable, you may terminate the benefit rider and elect one of the currently available benefits, subject to availability of the benefit at that time and our then current rules. There is currently no waiting period (you may elect a new benefit beginning on the next Valuation Day) to elect any living benefit once a living benefit is terminated provided that the benefit being elected is available for election post-issue. We reserve the right to waive, change and/or further limit availability and election frequencies in the future. Check with your financial professional regarding the availability of re-electing or electing a benefit and any waiting period. The benefit you re-elect or elect may be more expensive than the benefit you are terminating. Note that once you terminate an existing benefit, you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. You should carefully consider whether terminating your existing benefit and electing a new benefit is appropriate for you. GUARANTEED RETURN OPTION PLUS 2008/SM/ (GRO Plus 2008)/SM/ You can elect this benefit on the Issue Date of your Annuity, or at any time thereafter (unless you previously participated in either this benefit or Highest Daily GRO, in which case your election must be on an Annuity Anniversary). GRO Plus 2008 is not available if you participate in any other optional living benefit. However, GRO Plus 2008 may be elected together with any optional death benefit, other than the Highest Daily Value Death Benefit. Under GRO Plus 2008, we guarantee that the Account Value on the date that the benefit is added to your Annuity (adjusted for subsequent Purchase Payments and withdrawals as detailed below) will not be any less than that original value on the seventh anniversary of benefit election and each anniversary thereafter. We refer to this initial guarantee as the "base guarantee." In addition to the base guarantee, GRO Plus 2008 offers the possibility of an enhanced guarantee. You may lock in an enhanced guarantee once per "benefit year" (i.e., a year beginning on the date you acquired the benefit and each anniversary thereafter) if your Account Value on the Valuation Day exceeds the amount of any outstanding base guarantee or enhanced guarantee. We guarantee that the Account Value locked-in by that enhanced guarantee will not be any less seven years later, and each anniversary of that date thereafter. In addition, you may elect an automatic enhanced guarantee feature under which, if Account Value on a benefit anniversary exceeds the highest existing guarantee by 7% or more, we guarantee that such Account Value will not be any less seven benefit anniversaries later and each benefit anniversary thereafter. You may maintain only one enhanced guarantee in addition to your base guarantee. Thus, when a new enhanced guarantee is created, it cancels any existing enhanced guarantee. However, the fact that an enhanced guarantee was effected automatically on a benefit anniversary does not prevent you from "manually" locking-in an enhanced guarantee during the ensuing benefit year. You may elect to terminate an enhanced guarantee without also terminating the base guarantee. If you do, any amounts held in the AST bond portfolio Sub-account with respect to that enhanced guarantee will be transferred to your other Sub-accounts in accordance with your current allocation instructions. Amounts held in an AST bond portfolio Sub-account with respect to the base guarantee will not be transferred as a result of the termination of an enhanced guarantee. Please note that whenever an enhanced guarantee is created, we reserve the right to increase your charge for GRO Plus 2008 if we have increased the charge for new elections of the benefit generally. You may not lock in an enhanced guarantee, either manually or through our optional automatic program, within seven years of the date by which annuity payments must commence under the terms of your Annuity (please see "How and When Do I Choose The Annuity Payment Option?" for further information on your maximum Annuity Date). The inability to lock in an enhanced guarantee referenced in the immediately preceding sentence also applies to a new Owner who has acquired the Annuity from the original Owner. In general, we refer to a date on which the Account Value is guaranteed to be present as the "maturity date". If the Account Value on the maturity date is less than the guaranteed amount, we will contribute funds from our general account to bring your Account Value up to the guaranteed amount. If the maturity date is not a Valuation Day, then we would contribute such an amount on the next Valuation Day. We will allocate any such amount to each Sub-account (other than the "Current AST bond portfolio Sub-account" described below) in accordance with your current allocations instructions. Regardless of whether we need to contribute funds at the end of a guarantee period, we will at that time transfer all amounts held within the Current AST bond portfolio Sub-account associated with the maturing guarantee to your other Sub-accounts, on a pro rata basis. If the entire Account Value is invested in an AST bond portfolio Sub-account, we will allocate according to your current allocation instructions. We increase both the base guarantee and any enhanced guarantee by the amount of each Purchase Payment (and associated credits) made subsequent to the date that the guarantee was established. For example, if the effective date of the benefit was January 1, 2009 and the Account Value was $100,000 on that date, then a $30,000 Purchase Payment made on March 30, 2010 would increase the base guarantee amount to $130,000. As illustrated in the examples below, additional Purchase Payments also increase an amount we refer to as the "dollar-for-dollar corridor." 56 The dollar-for-dollar corridor is equal to 5% of the base guarantee amount (i.e., 5% of the Account Value at benefit election). Thereafter, the dollar-for-dollar corridor is adjusted only for subsequent Purchase Payments (i.e., 5% of the Purchase Payment is added to the corridor amount) and "excess withdrawals" (as described below). Thus, the creation of any enhanced guarantee has no impact on the dollar-for-dollar corridor. Each "benefit year", withdrawals that you make that are equal to or less than the dollar-for-dollar corridor reduce both the amount of the dollar-for-dollar corridor for that benefit year plus the base guarantee amount and the amount of any enhanced guarantee by the exact amount of the withdrawal. However, if you withdraw more than the dollar-for-dollar corridor in a given benefit year, we use the portion of the withdrawal that exceeded the dollar-for-dollar corridor to effect a proportional reduction to both the dollar-for-dollar corridor itself and each guarantee amount. We calculate a proportional reduction by (i) identifying the amount of the withdrawal that exceeded the dollar-for-dollar corridor (the "excess withdrawal") (ii) subtracting the dollar-for-dollar amount from the Account Value prior to the withdrawal (iii) dividing the excess withdrawal by the amount in (ii), and (iv) reducing each guarantee amount, and the dollar-for-dollar corridor itself, by the percentage derived in (iii). See examples of this calculation below. Any partial withdrawals in payment of any third party investment advisory service will be treated as withdrawals, and will reduce each guarantee amount and the dollar-for-dollar corridor in the manner indicated above. EXAMPLES The following examples of dollar-for-dollar and proportional reductions assume that: 1.) the Issue Date and the effective date of the GRO Plus/SM/ 2008 benefit are October 13, 2008; 2.) an initial Purchase Payment of $250,000 (includes any Credits); 3.) a base guarantee amount of $250,000; and 4.) a dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for GRO Plus 2008 or other fees and charges. Example 1. Dollar-for-dollar reduction A $10,000 withdrawal is taken on November 29, 2008 (in the first Annuity Year). No prior withdrawals have been taken. As the amount withdrawn is less than the Dollar-for-dollar Limit: . The base guarantee amount is reduced by the amount withdrawn (i.e., by $10,000, from $250,000 to $240,000). . The remaining dollar-for-dollar limit ("Remaining Limit") for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $12,500 to $2,500). Example 2. Dollar-for-dollar and proportional reductions A second $10,000 withdrawal is taken on December 18, 2008 (still within the first Annuity Year). The Account Value immediately before the withdrawal is $180,000. As the amount withdrawn exceeds the Remaining Limit of $2,500 from Example 1: . the base guarantee amount is first reduced by the Remaining Limit (from $240,000 to $237,500); . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or $7,500). -- B is the Account Value less the Remaining Limit ($180,000 - $2,500, or $177,500). The resulting base guarantee amount is: $237,500 X (1 - $7,500 / $177,500), or $227,464.79. . The Remaining Limit is set to zero (0) for the balance of the first Annuity Year. The resulting dollar-for-dollar corridor for the next Annuity Year is calculated by multiplying the prior dollar-for-dollar corridor by the same ratio by which we reduce the Guarantee Amount above: $12,500 X (1 - $7,500 / $177,500), or $11,971.83. Key Feature - Allocation of Account Value GRO Plus 2008 uses a mathematical formula to help manage your guarantees through all market cycles. Because the formula is made part of your schedule supplement, the formula applicable to you may not be altered once you elect the benefit. However, subject to regulatory approval, we do reserve the right to amend the formula for newly-issued Annuities that elect GRO Plus 2008 and for existing Annuities that elect the benefit in the future. This required formula helps us manage our financial exposure under GRO Plus 2008, by moving assets out of certain Sub-accounts if dictated by the formula (see below). In essence, we seek to preserve the value of these assets, by transferring them to a more stable option (i.e., one or more specified bond portfolios of Advanced Series Trust). We refer to these bond portfolios collectively as the "AST bond portfolios." The formula also contemplates the transfer of assets from an AST bond portfolio to the other Sub-accounts in certain other scenarios. The formula itself is the same as that used for our Highest Daily GRO benefit, and is set forth in Appendix I to this prospectus. A summary description of each AST Bond Portfolio appears within the prospectus section entitled "What Are The Investment Objectives and Policies Of The Portfolios? Upon the initial transfer of your Account Value into an AST Bond Portfolio, we will send a prospectus for that Portfolio to you along with your confirmation. In addition, you can find a copy of the AST Bond Portfolio prospectus by going to www.prudentialannuities.com. Each AST bond portfolio is unique, in that its underlying investments generally mature at different times. For example, there would be an AST bond portfolio whose underlying investments generally mature in 2015, an AST bond portfolio whose underlying investments generally mature in 2016, and so forth. We will introduce new AST bond portfolios in subsequent years, to correspond 57 generally to the length of new guarantee periods that are created under this benefit (and the Highest Daily GRO benefit). If you have elected GRO Plus 2008, you may invest in an AST bond portfolio only by operation of the formula, and thus you may not allocate Purchase Payments to such a Portfolio. Please see this prospectus and the prospectus for the Advanced Series Trust for more information about each AST bond portfolio used with this benefit. Although we employ several AST bond portfolios for purposes of the benefit, the formula described in the next paragraph operates so that your Account Value may be allocated to only one AST bond portfolio Sub-account at one time. In the description of the formula in the next paragraph, we refer to the AST bond portfolio Sub-account in which you are invested immediately prior to any potential asset transfer as the "Current AST bond portfolio Sub-account." The formula may dictate that a transfer out of the Current AST Bond Portfolio Sub-account be made, or alternatively may mandate a transfer into another AST bond portfolio Sub-account. Any transfer into an AST bond portfolio Sub-account will be directed to the AST bond portfolio Sub-account associated with the "current liability" (we refer to that Sub-account as the "Transfer AST bond portfolio Sub-account"). Note that if the Current AST bond portfolio Sub-account is associated with the current liability, then that Sub-account would be the Transfer AST bond portfolio Sub-account, and we would simply transfer additional assets into the Sub-account if such a transfer is dictated by the formula. As indicated, the AST bond portfolios are employed with this benefit to help us mitigate the financial risks under our guarantee. Thus, in accordance with the formula, applicable to you under the benefit, we determine which AST bond portfolio your Account Value is transferred to, and under what circumstances a transfer is made. In general, the formula works as follows (please see Appendix I). On each Valuation Day, the formula automatically performs an analysis with respect to each guarantee amount that is outstanding. For each outstanding guarantee, the formula begins by determining the present value on that Valuation Day that, if appreciated at the applicable "discount rate", would equal the applicable guarantee amount on the maturity date. As detailed in the formula, the discount rate is an interest rate determined by taking a benchmark index used within the financial services industry and then reducing the rate determined by that index by a prescribed adjustment. Once selected, we do not change the applicable benchmark index (although we do reserve the right to use a new benchmark index if the original benchmark is discontinued). The greatest of each such present value is referred to as the "current liability" in the formula. The formula compares the current liability to the amount of your Account Value held within the Current AST bond portfolio Sub-account and to your Account Value held within the other Sub-accounts. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount held within your other Sub-accounts, exceeds an upper target value (currently, 0.85), then the formula will make a transfer into the Transfer AST bond portfolio Sub-account, in the amount dictated by the formula. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount within your other Sub-accounts, is less than a lower target value (currently, 0.79), then the formula will transfer Account Value within the Current AST bond portfolio Sub-account into the other Sub-accounts (other than the Transfer AST bond portfolio Sub-account), in the amount dictated by the formula. As discussed above, each Valuation Day, the formula analyzes the difference between your Account Value and your guarantees, as well as how long you have owned the benefit, and determines if any portion of your Account Value needs to be transferred into or out of the AST bond portfolio Sub-accounts (the "Bond Portfolios"). Therefore, at any given time, some, none, or all of your Account Value may be allocated to the Bond Portfolios. If your entire Account Value is transferred to the Bond Portfolios, then based on the way the formula operates, the formula will not transfer amounts out of the Bond Portfolios to the Sub-accounts and the entire Account Value would remain in the Bond Portfolios. If you make additional Purchase Payments to your Annuity, they will be allocated to the Sub-accounts according to your allocation instructions. Such additional Purchase Payments may or may not cause the formula to transfer money in or out of the Bond Portfolios. Once the Purchase Payments are allocated to your Annuity, they will also be subject to the formula, which may result in immediate transfers to or from the Bond Portfolios, if dictated by the formula. The amounts of any such transfers will vary, as dictated by the formula, and will depend on the factors listed below. The amount that is transferred to and from the Bond Portfolios pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . The difference between your Account Value and your Guarantee Amount(s); . The amount of time until the maturity of your Guarantee(s); . The amount invested in, and the performance of, the Permitted Sub-accounts; . The amount invested in, and the performance of, the Bond Portfolios; . The discount rate used to determine the present value of your Guarantee(s); . Additional Purchase Payments, if any, that you make to the Annuity; and . Withdrawals, if any, taken from the Annuity. Any amounts invested in the Bond Portfolios will affect your ability to participate in a subsequent recovery within the Permitted Sub-accounts. Conversely, the Account Value may be higher at the beginning of the recovery, e.g. more of the Account Value may have been protected from decline and volatility than it otherwise would have been had the benefit not been elected. The Bond Portfolios are available only with these benefits, and you may not allocate Purchase Payments and transfer Account Value to or from the Bond Portfolios. Transfers under the formula do not impact any guarantees under the benefit that have already been locked-in. 58 Election/Cancellation of the Benefit GRO Plus 2008 can be elected on the Issue Date of your Annuity, or at any time thereafter. You may elect GRO Plus 2008 only if the oldest of the Owner and Annuitant is 84 or younger on the date of election (80 or younger, in New York). If you currently participate in one of the original versions of GRO, you may terminate that benefit at any time and elect GRO Plus 2008. You may cancel the GRO Plus 2008 benefit at any time. You also can cancel an enhanced guarantee, but leave the base guarantee intact. Upon cancellation of GRO Plus 2008, we will transfer any Account Value that is held in an AST bond portfolio Sub-account to the other Sub-accounts, according to your current allocation instructions. GRO Plus 2008 will terminate automatically upon: (a) the death of the Owner or the Annuitant (in an entity owned contract), unless the Annuity is continued by the surviving spouse; (b) as of the date Account Value is applied to begin annuity payments; (c) as of the anniversary of benefit election that immediately precedes the contractually-mandated latest annuity date, or (d) upon full surrender of the Annuity. If you elect to terminate the benefit, GRO Plus 2008 will no longer provide any guarantees. The charge for the GRO Plus 2008 benefit will no longer be deducted from your Account Value upon termination of the benefit. If you wish, you may cancel the GRO Plus 2008 benefit. You may then elect either GRO Plus 2008 or Highest Daily GRO (or any other currently available living benefit) on any Valuation Day after you have cancelled the GRO Plus 2008 benefit, provided the request is received in good order (subject to state availability and in accordance with any applicable age requirements). Upon cancellation of the GRO Plus 2008 benefit, any Account Value allocated to the AST Bond Portfolio Sub-accounts used with the formula will be reallocated to the Permitted Sub-Accounts according to your most recent allocation instructions or, in absence of such instructions, pro rata. Upon your re-election of GRO Plus 2008 or election of Highest Daily GRO, Account Value may be transferred between the AST Bond Portfolio Sub-accounts and the Permitted Sub-accounts according to the formula (see "Key Feature - Allocation of Account Value" section for more details). It is possible that over time the formula could transfer some, all, or none of the Account Value to the AST Bond Portfolio Sub-accounts under the newly-elected benefit. You also should be aware that upon cancellation of the GRO Plus 2008 benefit, you will lose all guarantees that you had accumulated under the benefit. Thus, the guarantees under any newly-elected benefit will be based on your current Account Value. The benefit you elect or re-elect may be more expensive than the benefit you cancel. Once the GRO Plus 2008 benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the GRO Plus 2008 benefit provided that the benefit you are looking to elect is available on a post-issue basis. Special Considerations under GRO Plus 2008 This benefit is subject to certain rules and restrictions, including, but not limited to the following: . Upon inception of the benefit, 100% of your Account Value must be allocated to the permitted Sub-accounts. The permitted Sub-accounts are those described in the Investment Option section of the prospectus. No fixed interest rate allocations may be in effect as of the date that you elect to participate in the benefit. . You cannot participate in any dollar cost averaging benefit that transfers Account Value from a fixed interest rate option to a Sub-account. . Transfers between an AST bond portfolio Sub-account and your other Sub-accounts under the benefit will not count toward the maximum number of free transfers allowable under the Annuity. . Any amounts applied to your Account Value by us on a maturity date will not be treated as "investment in the contract" for income tax purposes. . As the time remaining until the applicable maturity date gradually decreases, the benefit may become increasingly sensitive to moves to an AST bond portfolio Sub-account. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Moreover, if you are invested in prohibited investment options and seek to acquire the benefit, we will ask you to reallocate to permitted investment options as a prerequisite to acquiring the benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. . If you elect this benefit, and in connection with that election you are required to reallocate to different investment options permitted under this benefit, then on the Valuation Day on which we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in the permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly-elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly-elected benefit will not arise until the close of business on the following Valuation Day. Charges under the Benefit We deduct a charge equal to 0.60% (0.35%, for elections prior to May 1, 2009) of the average daily net assets of the Sub-accounts for participation in the GRO Plus 2008 benefit. The annual charge is deducted daily. The charge is deducted to compensate us for: (a) the risk that your Account Value on a maturity date is less than the amount guaranteed and (b) administration of the benefit. We reserve the right to increase this fee for newly-issued contracts or new elections of the benefit. The charges will not exceed the maximum charges shown in the section of the prospectus entitled "Summary of Contract Fees and Charges." 59 HIGHEST DAILY GUARANTEED RETURN OPTION/SM/ (HD GRO)/SM/ You can elect this benefit on the Issue Date of your Annuity, or at any time thereafter (unless you previously participated in this benefit, in which case your election must be on an Annuity Anniversary). Highest Daily GRO is not available if you participate in any other living benefit. However, Highest Daily GRO may be elected together with any optional death benefit, other than the Highest Daily Value Death Benefit. Highest Daily GRO creates a series of separate guarantees, each of which is based on the highest Account Value attained on a day during the applicable time period. As each year of your participation in the benefit passes, we create a new guarantee. Each guarantee then remains in existence until the date on which it matures (unless the benefit terminates sooner). We refer to each date on which the specified Account Value is guaranteed as the "maturity date" for that guarantee. Highest Daily GRO will not create a guarantee if the maturity date of that guarantee would extend beyond the date by which annuity payments must commence under the terms of your Annuity. This is true even with respect to a new Owner who has acquired the Annuity from the original Owner. The guarantees provided by the benefit exist only on the applicable maturity date(s). However, due to the ongoing monitoring of your Account Value, and the transfer of Account Value to support our future guarantees, the benefit may provide some protection from significant Sub-account losses if you choose to surrender your Annuity or begin receiving annuity payments prior to a maturity date. For this same reason, the benefit may limit your ability to benefit from Sub-account increases while it is in effect. The initial guarantee is created on the day that the Highest Daily GRO benefit is added to your Annuity. We guarantee that your Account Value on the tenth anniversary of that day (we refer to each such anniversary as a "benefit anniversary") will not be less than your Account Value on the day that the Highest Daily GRO benefit was added to your Annuity. Each benefit anniversary thereafter, we create a new guarantee. With respect to each such subsequent guarantee, we identify the highest Account Value that occurred between the date of that benefit anniversary and the date on which Highest Daily GRO was added to your Annuity. We guarantee that your Account Value ten years after that benefit anniversary will be no less than the highest daily Account Value that occurred during that time period. The following example illustrates the time period over which we identify the highest daily Account Value for purposes of each subsequent guarantee under the benefit. If the date of benefit election were January 1, 2009, we would create a guarantee on January 1, 2012 based on the highest Account Value achieved between January 1, 2009 and January 1, 2012, and that guarantee would mature on January 1, 2022. As described below, we adjust each of the guarantee amounts for purchase payments and withdrawals. In general, we refer to a date on which the Account Value is guaranteed to be present as the "maturity date". If the Account Value on the maturity date is less than the guaranteed amount, we will contribute funds from our general account to bring your Account Value up to the guaranteed amount. If the maturity date is not a Valuation Day, then we would contribute such an amount on the next Valuation Day. We will allocate any such amount to each Sub-account (other than the "Current AST bond portfolio Sub-account" described below) in accordance with your current allocations instructions. Regardless of whether we need to contribute funds at the end of a guarantee period, we will at that time transfer all amounts held within the AST bond portfolio Sub-account associated with the maturing guarantee to your other Sub-accounts, on a pro rata basis. If the entire account value is invested in the AST bond portfolio Sub-account, we will allocate according to your current allocation instructions. We increase the amount of each guarantee that has not yet reached its maturity date, as well as the highest daily Account Value that we calculate to establish a guarantee, by the amount of each Purchase Payment (and associated Credits) made prior to the applicable maturity date. For example, if the effective date of the benefit was January 1, 2009, and there was an initial guaranteed amount that was set at $100,000 maturing January 1, 2019, and a second guaranteed amount that was set at $120,000 maturing January 1, 2020, then a $30,000 Purchase Payment made on March 30, 2010 would increase the guaranteed amounts to $130,000 and $150,000, respectively. As illustrated in the examples below, additional purchase payments also increase an amount we refer to as the "dollar-for-dollar corridor." We reflect the effect of withdrawals by reference to an amount called the "dollar-for-dollar corridor." The dollar-for-dollar corridor is set initially to equal 5% of the initial guaranteed amount (i.e., 5% of the Account Value at benefit election). Each "benefit year" (i.e., a year that begins on the date of election of Highest Daily GRO and each anniversary thereafter), withdrawals that you make that are equal to or less than the dollar-for-dollar corridor reduce (i) the amount of the dollar-for-dollar corridor for that benefit year (ii) the amount of each outstanding guarantee amount, and (iii) the highest daily Account Value that we calculate to establish a guarantee, by the exact amount of the withdrawal. However, if you withdraw more than the dollar-for-dollar corridor in a given benefit year, we use the portion of the withdrawal that exceeded the dollar-for-dollar corridor to effect a proportional reduction to both the dollar-for-dollar corridor itself and each outstanding guaranteed amount, as well as the highest daily Account Value that we calculate to establish a guarantee. We calculate a proportional reduction by (i) identifying the amount of the withdrawal that exceeded the dollar-for-dollar corridor (the "excess withdrawal") (ii) subtracting the dollar-for-dollar amount from the Account Value prior to the withdrawal (iii) dividing the excess withdrawal by the amount in (ii), and (iv) reducing each guaranteed amount, as well as the highest daily Account Value that we calculate to establish a guarantee and the dollar for dollar corridor itself, by the percentage derived in (iii). See examples of this calculation below. 60 Any partial withdrawals in payment of any third party investment advisory service will be treated as withdrawals, and will reduce each applicable guaranteed amount and the dollar-for-dollar corridor in the manner indicated above. EXAMPLES The following examples of dollar-for-dollar and proportional reductions assume that: 1.) the Issue Date and the effective date of the Highest Daily GRO benefit are October 13, 2008; 2.) an initial Purchase Payment of $250,000 (includes any Credits); 3.) an initial guarantee amount of $250,000; and 4.) a dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for Highest Daily GRO or other fees and charges. Example 1. Dollar-for-dollar reduction A $10,000 withdrawal is taken on November 29, 2008 (in the first Annuity Year). No prior withdrawals have been taken. As the amount withdrawn is less than the Dollar-for-dollar Limit: . The initial guarantee amount is reduced by the amount withdrawn (i.e., by $10,000, from $250,000 to $240,000). . The remaining dollar-for-dollar limit ("Remaining Limit") for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $12,500 to $2,500). Example 2. Dollar-for-dollar and proportional reductions A second $10,000 withdrawal is taken on December 18, 2008 (still within the first Annuity Year). The Account Value immediately before the withdrawal is $180,000. As the amount withdrawn exceeds the Remaining Limit of $2,500 from Example 1: . the initial guarantee amount is first reduced by the Remaining Limit (from $240,000 to $237,500); . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or $7,500). -- B is the Account Value less the Remaining Limit ($180,000 - $2,500, or $177,500). The resulting initial guarantee amount is: $237,500 X (1 - $7,500 / $177,500), or $227,464.79. . The Remaining Limit is set to zero (0) for the balance of the first Annuity Year. The resulting dollar-for-dollar corridor for the next Annuity Year is calculated by multiplying the prior dollar-for-dollar corridor by the same ratio by which we reduce the Guarantee Amount above: $12,500 X (1 - $7,500 / $177,500), or $11,971.83. Key Feature - Allocation of Account Value Highest Daily GRO uses a mathematical formula to help manage your guarantees through all market cycles. Because the formula is made part of your schedule supplement, the formula may not be altered. However, subject to any regulatory approval, we do reserve the right to amend the formula for newly-issued annuity contracts that elect Highest Daily GRO and for existing contracts that elect the benefit post-issue. This required formula helps us manage our financial exposure under Highest Daily GRO, by moving assets out of certain Sub-accounts in certain scenarios if dictated by the formula (see below). In essence, we seek to preserve the value of these assets, by transferring them to a more stable option (i.e., one of a specified group of bond portfolios within Advanced Series Trust) (collectively, the "AST Bond Portfolios"). The formula also contemplates the transfer of assets from the AST Bond Portfolios to the Permitted Sub-accounts in other scenarios. For purposes of operating the Highest Daily GRO formula, we have included as investment options within this Annuity several AST bond portfolios. Each AST bond portfolio is unique, in that its underlying investments generally mature at the same time as each outstanding maturity date that exists under the benefit. For example, there would be an AST bond portfolio whose underlying investments generally mature in 2018 (corresponding to all guarantees that mature in 2018), an AST Bond Portfolio whose underlying investments generally mature in 2019 (corresponding to all guarantees that mature in 2019), and so forth. We will introduce new AST bond portfolios in subsequent years, to correspond generally to the length of new guarantee periods that are created under this benefit. If you have elected Highest Daily GRO, you may invest in an AST bond portfolio only by operation of the formula, and thus you may not allocate Purchase Payments to, or transfer Account Value to or from, such a Portfolio. Please see this prospectus and the prospectus for the Advanced Series Trust for more information about each AST bond portfolio used with this benefit. A summary description of each AST Bond Portfolio appears within the prospectus section entitled "What Are The Investment Objectives and Policies Of The Portfolios?" Upon the initial transfer of your Account Value into an AST Bond Portfolio, we will send a prospectus for that Portfolio to you along with your confirmation. In addition, you can find a copy of the AST Bond Portfolio prospectus by going to www.prudentialannuities.com Although we employ several AST bond portfolios for purposes of the benefit, the formula described in the next paragraph operates so that your Account Value may be allocated to only one AST bond portfolio Sub-account at one time. In the description of the formula in the next paragraph, we refer to the AST bond portfolio Sub-account in which you are invested immediately prior to any potential asset transfer as the "Current AST bond portfolio Sub-account." The formula may dictate that a transfer out of the Current AST bond portfolio Sub-account be made, or alternatively may mandate a transfer into an AST bond portfolio Sub-account. Any 61 transfer into an AST bond portfolio Sub-account will be directed to the AST bond portfolio Sub-account associated with the "current liability" (we refer to that Sub-account as the "Transfer AST bond portfolio Sub-account"). Note that if the Current AST bond portfolio Sub-account is associated with the current liability, then that Sub-account would be the Transfer AST bond portfolio Sub-account, and we would simply transfer additional assets into the Sub-account if dictated by the formula. In general, the formula works as follows. On each Valuation Day, the formula automatically performs an analysis with respect to each guarantee that is outstanding. For each outstanding guarantee, the formula begins by determining the present value on that Valuation Day that, if appreciated at the applicable "discount rate", would equal the applicable guarantee amount on the maturity date. As detailed in the formula, the discount rate is an interest rate determined by taking a benchmark index used within the financial services industry and then reducing that interest rate by a prescribed adjustment. Once selected, we do not change the applicable benchmark index (although we do reserve the right to use a new benchmark index if the original benchmark is discontinued). The greatest of each such present value is referred to as the "current liability" in the formula. The formula compares the current liability to the amount of your Account Value held within the Current AST bond portfolio Sub-account and to your Account Value held within the other Sub-accounts. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount held within your other Sub-accounts, exceeds an upper target value (currently, 0.85), then the formula will make a transfer into the Transfer AST bond portfolio Sub-account, in the amount dictated by the formula. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount within your other Sub-accounts, is less than a lower target value (currently, 0.79), then the formula will transfer Account Value within the Current AST bond portfolio Sub-account into the other Sub-accounts (other than the Transfer AST bond portfolio Sub-account), in the amount dictated by the formula. As discussed above, each Valuation Day, the formula analyzes the difference between your Account Value and your guarantees, as well as how long you have owned the benefit, and determines if any portion of your Account Value needs to be transferred into or out of the AST bond portfolios. Therefore, at any given time, some, none, or all of your Account Value may be allocated to the AST bond portfolios. If your entire Account Value is transferred to the AST bond portfolios, then based on the way the formula operates, the formula will not transfer amounts out of the AST bond portfolios to the Sub-accounts and the entire Account Value would remain in the AST bond portfolios. If you make additional Purchase Payments to your Annuity, they will be allocated to the Sub-accounts according to your allocation instructions. Such additional Purchase Payments may or may not cause the formula to transfer money in or out of the AST bond portfolios. Once the Purchase Payments are allocated to your Annuity, they will also be subject to the formula, which may result in immediate transfers to or from the AST bond portfolios, if dictated by the formula. The amount that is transferred to and from the AST bond portfolios pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . The difference between your Account Value and your Guarantee Amount(s); . The amount of time until the maturity of your Guarantee(s); . The amount invested in, and the performance of, the Permitted Sub-accounts; . The amount invested in, and the performance of, the AST bond portfolios; . The discount rate used to determine the present value of your Guarantee(s); . Additional Purchase Payments, if any, that you make to the Annuity; and . Withdrawals, if any, taken from the Annuity. Any amounts invested in the AST bond portfolios will affect your ability to participate in a subsequent recovery within the Permitted Sub-accounts. Conversely, the Account Value may be higher at the beginning of the recovery, e.g. more of the Account Value may have been protected from decline and volatility than it otherwise would have been had the benefit not been elected. The AST bond portfolios are available only with these benefits, and you may not allocate Purchase Payments and transfer Account Value to or from the AST bond portfolios. Transfers do not impact any guarantees that have already been locked-in. Election/Cancellation of the Benefit Highest Daily GRO can be elected on the Issue Date of your Annuity, or at any time thereafter. You may elect Highest Daily GRO only if the oldest of the Owner and Annuitant is 84 or younger on the date of election (80 or younger, in New York). If you wish, you may cancel the Highest Daily GRO benefit. You may then elect either GRO Plus 2008 or Highest Daily GRO (or any other currently available living benefit, which is available to be added post issue) on any Valuation Day after you have cancelled the Highest Daily GRO benefit, provided the request is received in good order (subject to state availability and in accordance with any applicable age requirements). Upon cancellation of the Highest Daily GRO benefit, any Account Value allocated to the AST Bond Portfolio Sub-accounts used with the asset transfer formula will be reallocated to the Permitted Sub-Accounts according to your most recent allocation instructions or, in absence of such instructions, pro-rata. Upon your 62 re-election of GRO Plus 2008 or Highest Daily GRO, Account Value may be transferred between the AST Bond Portfolio Sub-accounts and the other Sub-accounts according to the formula (see "Key Feature - Allocation of Account Value" section for more details). It is possible that over time the formula could transfer some, all, or none of the Account Value to the AST Bond Portfolio Sub-accounts under the newly-elected benefit. You also should be aware that upon cancellation of the Highest Daily GRO benefit, you will lose all guarantees that you had accumulated under the benefit. Thus, the guarantees under your newly-elected benefit will be based on your current Account Value. The benefit you elect or re-elect may be more expensive than the benefit you cancel. Once the Highest Daily GRO benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Highest Daily GRO benefit provided that the benefit you are looking to elect is available on a post-issue basis. Highest Daily GRO will terminate automatically upon: (a) the death of the Owner or the Annuitant (in an entity owned contract), unless the Annuity is continued by the surviving spouse; (b) as of the date Account Value is applied to begin annuity payments; (c) as of the anniversary of benefit election that immediately precedes the contractually-mandated latest annuity date, or (d) upon full surrender of the Annuity. If you elect to terminate the benefit, Highest Daily GRO will no longer provide any guarantees. The charge for the Highest Daily GRO benefit will no longer be deducted from your Account Value upon termination of the benefit. Special Considerations under Highest Daily GRO This benefit is subject to certain rules and restrictions, including, but not limited to the following: . Upon inception of the benefit, 100% of your Account Value must be allocated to the Permitted Sub-accounts. The Permitted Sub-accounts are those described in the Investment Option section of this prospectus. No fixed interest rate allocations may be in effect as of the date that you elect to participate in the benefit. . You cannot participate in any dollar cost averaging benefit that transfers Account Value from a fixed interest rate option to a Sub-account. . Transfers from the other Sub-accounts to an AST bond portfolio Sub-account or from an AST bond portfolio Sub-account to the other Sub-accounts under the benefit will not count toward the maximum number of free transfers allowable under the Annuity. . Any amounts applied to your Account Value by us on a maturity date will not be treated as "investment in the contract" for income tax purposes. . As the time remaining until the applicable maturity date gradually decreases, the benefit may become increasingly sensitive to moves to an AST bond portfolio Sub-account. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Moreover, if you are invested in prohibited investment options and seek to acquire the benefit, we will ask you to reallocate to permitted investment options as a prerequisite to acquiring the benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. . If you elect this benefit, and in connection with that election you are required to reallocate to different investment options permitted under this benefit, then on the Valuation Day on which we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in the permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly-elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly-elected benefit will not arise until the close of business on the following Valuation Day. Charges under the Benefit We deduct an annual charge equal to 0.60% (0.35%, for elections prior to May 1, 2009) of the average daily net assets of the Sub-accounts (including each AST bond portfolio Sub-account) for participation in the Highest Daily GRO benefit. The charge is deducted daily. The charge is deducted to compensate us for: (a) the risk that your Account Value on the maturity date is less than the amount guaranteed and (b) administration of the benefit. We reserve the right to increase this fee for newly-issued contracts or new elections of the benefit. The charges will not exceed the maximum charges shown in the section of this prospectus entitled "Summary of Contract Fees and Charges." GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB) The Guaranteed Minimum Withdrawal Benefit is no longer available for new elections. The Guaranteed Minimum Withdrawal Benefit guarantees your ability to withdraw amounts equal to an initial principal value (called the "Protected Value"), regardless of the impact of Sub-account performance on your Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity and wish to ensure that Sub-account performance will not affect your ability to protect your principal. You are not required to make withdrawals as part of the benefit - the guarantee is not lost if you withdraw less than the maximum allowable amount of principal each year under the rules of the benefit. There is an additional charge if you elected the GMWB benefit; however, the charge may be waived under certain circumstances described below. 63 Key Feature - Protected Value The Protected Value is the total amount that we guarantee will be available to you through withdrawals from your Annuity and/or benefit payments, regardless of the impact of Sub-account performance on your Account Value. The Protected Value is reduced with each withdrawal you make until the Protected Value is reduced to zero. When the Protected Value is reduced to zero due to your withdrawals, the GMWB benefit terminates. Additionally, the Protected Value is used to determine the maximum annual amount that you can withdraw from your Annuity, called the Protected Annual Withdrawal Amount, without triggering an adjustment in the Protected Value on a proportional basis. The Protected Value is referred to as the "Benefit Base" in the rider we issue for this benefit. The Protected Value is determined as of the date you make your first withdrawal under your Annuity following your election of the GMWB benefit. The initial Protected Value is equal to the greater of (A) the Account Value on the date you elect the GMWB benefit, plus any additional purchase payments (plus any Credits applied to such purchase payments) before the date of your first withdrawal; or (B) the Account Value as of the date of the first withdrawal from your Annuity. The Protected Value may be enhanced by increases in your Account Value due to market performance during the period between your election of the GMWB benefit and the date of your first withdrawal. . If you elect the GMWB benefit at the time you purchase your Annuity, the Account Value will be your initial Purchase Payment (plus any Credits applied to such purchase payments). . If we offer the GMWB benefit to existing Annuity Owners, the Account Value on the anniversary of the Issue Date of your Annuity following your election of the GMWB benefit will be used to determine the initial Protected Value. . If you make additional purchase payments after your first withdrawal, the Protected Value will be increased by the amount of the additional Purchase Payment (plus any Credits applied to such purchase payments). You may elect to step-up your Protected Value if, due to positive market performance, your Account Value is greater than the Protected Value. You are eligible to step-up the Protected Value on or after the 5/th/ Annuity anniversary following the first withdrawal under the GMWB benefit. The Protected Value can be stepped up again on or after the 5/th/ Annuity anniversary following the preceding step-up. If you elect to step-up the Protected Value, you must do so during the 30-day period prior to your eligibility date. If you elect to step-up the Protected Value under the benefit, and on the date you elect to step-up, the charges under the GMWB benefit have changed for new purchasers, your benefit may be subject to the new charge going forward. Upon election of the step-up, we reset the Protected Value to be equal to the then current Account Value. For example, assume your initial Protected Value was $100,000 and you have made cumulative withdrawals of $40,000, reducing the Protected Value to $60,000. On the date you are eligible to step-up the Protected Value, your Account Value is equal to $75,000. You could elect to step-up the Protected Value to $75,000 on the date you are eligible. Upon election of the step-up, we also reset the Protected Annual Withdrawal Amount (discussed immediately below) to be equal to the greater of (A) the Protected Annual Withdrawal Amount immediately prior to the reset; and (B) 7% of the Protected Value immediately after the reset. Key Feature - Protected Annual Withdrawal Amount. The initial Protected Annual Withdrawal Amount is equal to 7% of the Protected Value. Under the GMWB benefit, if your cumulative withdrawals each Annuity Year are less than or equal to the Protected Annual Withdrawal Amount, your Protected Value will be reduced on a "dollar-for-dollar" basis (the Protected Value is reduced by the actual amount of the withdrawal, including any CDSC or MVA that may apply). Cumulative withdrawals in any Annuity Year that exceed the Protected Annual Withdrawal Amount trigger a proportional adjustment to both the Protected Value and the Protected Annual Withdrawal Amount, as described in the rider for this benefit (see the examples of this calculation below). The Protected Annual Withdrawal Amount is referred to as the "Maximum Annual Benefit" in the rider we issue for this benefit. The GMWB benefit does not affect your ability to make withdrawals under your Annuity or limit your ability to request withdrawals that exceed the Protected Annual Withdrawal Amount. You are not required to withdraw all or any portion of the Protected Annual Withdrawal Amount each Annuity Year. . If, cumulatively, you withdraw an amount less than the Protected Annual Withdrawal Amount in any Annuity Year, you cannot carry-over the unused portion of the Protected Annual Withdrawal Amount to subsequent Annuity Years. However, because the Protected Value is only reduced by the actual amount of withdrawals you make under these circumstances, any unused Protected Annual Withdrawal Amount may extend the period of time until the remaining Protected Value is reduced to zero. . Additional Purchase Payments will increase the Protected Annual Withdrawal Amount by 7% of the applicable Purchase Payment (and any Credits we apply to such Purchase Payments). . If the Protected Annual Withdrawal Amount after an adjustment exceeds the Protected Value, the Protected Annual Withdrawal Amount will be set equal to the Protected Value. The following examples of dollar-for dollar and proportional reductions and the reset of the Maximum Annual Benefit assume that: 1.) the Issue Date and the effective date of the GMWB benefit are October 13, 2005; 2.) an initial Purchase Payment of $250,000 64 (includes any Credits); 3.) a Protected Value of $250,000; and 4.) a Protected Annual Withdrawal Amount of $17,500 (7% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for GMWB or any other fees and charges. Example 1. Dollar-for-dollar reduction A $10,000 withdrawal is taken on November 13, 2005 (in the first Annuity Year). No prior withdrawals have been taken. As the amount withdrawn is less than the Protected Annual Withdrawal Amount: . The Protected Value is reduced by the amount withdrawn (i.e., by $10,000, from $250,000 to $240,000). . The remaining Protected Annual Withdrawal Amount for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $17,500 to $7,500). Example 2. Dollar-for-dollar and proportional reductions A second $10,000 withdrawal is taken on December 13, 2005 (still within the first Annuity Year). The Account Value immediately before the withdrawal is $220,000. As the amount withdrawn exceeds the remaining Protected Annual Withdrawal Amount of $7,500 from Example 1: . the Protected Value is first reduced by the remaining Protected Annual Withdrawal Amount (from $240,000 to $232,500); . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the remaining Protected Annual Withdrawal Amount ($10,000 - $7,500, or $2,500). -- B is the Account Value less the remaining Protected Annual Withdrawal Amount ($220,000 - $7,500, or $212,500). The resulting Protected Value is: $232,500 X (1 - $2,500 / $212,500), or $229,764.71. . the Protected Annual Withdrawal Amount is also reduced by the ratio of A to B: The resulting Protected Annual Withdrawal Amount is: $17,500 X (1 - $2,500 / $212,500), or $17,294.12. -- The remaining Protected Annual Withdrawal Amount is set to zero (0) for the balance of the first Annuity Year. Example 3. Reset of the Maximum Annual Benefit A $10,000 withdrawal is made on October 13, 2006 (second Annuity Year). The remaining Protected Annual Withdrawal Amount has been reset to the Protected Annual Withdrawal Amount of $17,294.12 from Example 2. As the amount withdrawn is less than the remaining Protected Annual Withdrawal Amount: . the Protected Value is reduced by the amount withdrawn (i.e., reduced by $10,000, from $229,764.71 to $219,764.71). . the remaining Protected Annual Withdrawal Amount for the balance of the second Annuity Year is also reduced by the amount withdrawn (from $17,294.12 to $7,294.12). BENEFITS UNDER GMWB . In addition to any withdrawals you make under the GMWB benefit, Sub-account performance may reduce your Account Value. If your Account Value is equal to zero, and you have not received all of your Protected Value in the form of withdrawals from your Annuity, we will continue to make payments equal to the remaining Protected Value in the form of fixed, periodic payments until the remainder of the Protected Value is paid, at which time the rider terminates. The fixed, periodic payments will each be equal to the Protected Annual Withdrawal Amount, except for the last payment which may be equal to the remaining Protected Value. We will determine the duration for which periodic payments will continue by dividing the Protected Value by the Protected Annual Withdrawal Amount. You will not have the right to make additional Purchase Payments or receive the remaining Protected Value in a lump sum. You can elect the frequency of payments, subject to our rules then in effect. . If the death benefit under your Annuity becomes payable before you have received all of your Protected Value in the form of withdrawals from your Annuity, your Beneficiary has the option to elect to receive the remaining Protected Value as an alternate death benefit payout in lieu of the amount payable under any other death benefit provided under your Annuity. The remaining Protected Value will be payable in the form of fixed, periodic payments. Your beneficiary can elect the frequency of payments, subject to our rules then in effect. We will determine the duration for which periodic payments will continue by dividing the Protected Value by the Protected Annual Withdrawal Amount. The Protected Value is not equal to the Account Value for purposes of the Annuity's other death benefit options. The GMWB benefit does not increase or decrease the amount otherwise payable under the Annuity's other death benefit options. Generally, the GMWB benefit would be of value to your Beneficiary only when the Protected Value at death exceeds any other amount available as a death benefit. . If you elect to begin receiving annuity payments before you have received all of your Protected Value in the form of withdrawals from your Annuity, an additional annuity payment option will be available that makes fixed annuity payments for a certain period, determined by dividing the Protected Value by the Protected Annual Withdrawal Amount. If you elect to receive annuity payments calculated in this manner, the assumed interest rate used to calculate such payments will be 0%, which is less than the assumed interest rate on other annuity payment options we offer. This 0% assumed interest rate results in lower annuity payments than what would have been paid if the assumed interest rate was higher than 0%. You can also elect 65 to terminate the GMWB benefit and begin receiving annuity payments based on your then current Account Value (not the remaining Protected Value) under any of the available annuity payment options. Other Important Considerations . Withdrawals under the GMWB benefit are subject to all of the terms and conditions of your Annuity, including any CDSC and MVA that may apply. . Withdrawals made while the GMWB benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under your Annuity. . The GMWB benefit does not directly affect your Annuity's Account Value or Surrender Value, but any withdrawal will decrease the Account Value by the amount of the withdrawal. If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the GMWB benefit. The GMWB benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Protected Value in the form of periodic benefit payments. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. Election of the Benefit The GMWB benefit is no longer available. We reserve the right to restrict the maximum amount of Protected Value that may be covered under the GMWB benefit under this Annuity or any other annuities that you own that are issued by Prudential Annuities or its affiliated companies. Termination of the Benefit The benefit terminates automatically when your Protected Value reaches zero based on your withdrawals. You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective. The benefit terminates upon your surrender of your Annuity, upon due proof of death (unless your surviving spouse elects to continue your Annuity and the GMWB benefit or your Beneficiary elects to receive the amounts payable under the GMWB benefit in lieu of the death benefit) or upon your election to begin receiving annuity payments. The charge for the GMWB benefit will no longer be deducted from your Account Value upon termination of the benefit. Charges under the Benefit . Currently, we deduct a charge equal to 0.35% of the average daily net assets of the Sub-accounts per year for the GMWB benefit. The annual charge is deducted daily. . If, during the seven years following the effective date of the benefit, you do not make any withdrawals, and do not make any additional Purchase Payments after a five-year period following the effective date of the benefit, the benefit will remain in effect; however, we will waive the annual charge going forward. If you make an additional Purchase Payment following the waiver of the annual charge, we will begin charging for the benefit. After year seven (7) following the effective date of the benefit, withdrawals will not cause a charge to be re-imposed. . If you elect to step-up the Protected Value under the benefit, and on the date you elect to step-up, the charges under the benefit have changed for new purchasers, your benefit may be subject to the new charge level for the benefit. Additional Tax Considerations for Qualified Contracts/Arrangements If you purchase an Annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the required minimum distribution rules under the Code provide that you begin receiving periodic amounts from your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than 5 percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Protected Annual Withdrawal Amount, which will cause us to recalculate the Protected Value and the Protected Annual Withdrawal Amount, resulting in a lower amount payable in future Annuity Years. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as required minimum distribution provisions under the tax law. GUARANTEED MINIMUM INCOME BENEFIT (GMIB) The Guaranteed Minimum Income Benefit is no longer available for new elections. The Guaranteed Minimum Income Benefit is an optional benefit that, after a seven-year waiting period, guarantees your ability to begin receiving income from your Annuity in the form of annuity payments based on a guaranteed minimum value (called the "Protected Income Value") that increases after the waiting period begins, regardless of the impact of Sub-account performance on 66 your Account Value. The benefit may be appropriate for you if you anticipate using your Annuity as a future source of periodic fixed income payments for the remainder of your life and wish to ensure that the basis upon which your income payments will be calculated will achieve at least a minimum amount despite fluctuations in market performance. There is an additional charge if you elected the GMIB benefit. Key Feature - Protected Income Value The Protected Income Value is the minimum amount that we guarantee will be available (net of any applicable tax charge), after a waiting period of at least seven years, as a basis to begin receiving fixed annuity payments. The Protected Income Value is initially established on the effective date of the GMIB benefit and is equal to your Account Value on such date. Currently, since the GMIB benefit may only be elected at issue, the effective date is the Issue Date of your Annuity. The Protected Income Value is increased daily based on an annual growth rate of 5%, subject to the limitations described below. The Protected Income Value is referred to as the "Protected Value" in the rider we issue for this benefit. The 5% annual growth rate is referred to as the "Roll-Up Percentage" in the rider we issue for this benefit. The Protected Income Value is subject to a limit of 200% (2X) of the sum of the Protected Income Value established on the effective date of the GMIB benefit, or the effective date of any step-up value, plus any additional Purchase Payments (and any Credit that is applied to such Purchase Payments) made after the waiting period begins ("Maximum Protected Income Value"), minus the sum of any reductions in the Protected Income Value due to withdrawals you make from your Annuity after the waiting period begins. . Subject to the maximum age/durational limits described immediately below, we will no longer increase the Protected Income Value by the 5% annual growth rate once you reach the Maximum Protected Income Value. However, we will increase the Protected Income Value by the amount of any additional Purchase Payments after you reach the Maximum Protected Income Value. Further, if you make withdrawals after you reach the Maximum Protected Income Value, we will reduce the Protected Income Value and the Maximum Protected Income Value by the proportional impact of the withdrawal on your Account Value. . Subject to the Maximum Protected Income Value, we will no longer increase the Protected Income Value by the 5% annual growth rate after the later of the anniversary date on or immediately following the Annuitant's 80/th/ birthday or the 7/th/ anniversary of the later of the effective date of the GMIB benefit or the effective date of the most recent step-up. However, we will increase the Protected Income Value by the amount of any additional Purchase Payments (and any Credit that is applied to such Purchase Payments). Further, if you make withdrawals after the Annuitant reaches the maximum age/duration limits, we will reduce the Protected Income Value and the Maximum Protected Income Value by the proportional impact of the withdrawal on your Account Value. . Subject to the Maximum Protected Income Value, if you make an additional Purchase Payment, we will increase the Protected Income Value by the amount of the Purchase Payment (and any Credit that is applied to such Purchase Payment) and will apply the 5% annual growth rate on the new amount from the date the Purchase Payment is applied. . As described below, after the waiting period begins, cumulative withdrawals each Annuity Year that are up to 5% of the Protected Income Value on the prior anniversary of your Annuity will reduce the Protected Income Value by the amount of the withdrawal. Cumulative withdrawals each Annuity Year in excess of 5% of the Protected Income Value on the prior anniversary of your Annuity will reduce the Protected Income Value proportionately. All withdrawals after the Maximum Protected Income Value is reached will reduce the Protected Income Value proportionately. The 5% annual growth rate will be applied to the reduced Protected Income Value from the date of the withdrawal. Stepping-Up the Protected Income Value - You may elect to "step-up" or "reset" your Protected Income Value if your Account Value is greater than the current Protected Income Value. Upon exercise of the step-up provision, your initial Protected Income Value will be reset equal to your current Account Value. From the date that you elect to step-up the Protected Income Value, we will apply the 5% annual growth rate to the stepped-up Protected Income Value, as described above. You can exercise the step-up provision twice while the GMIB benefit is in effect, and only while the Annuitant is less than age 76. . A new seven-year waiting period will be established upon the effective date of your election to step-up the Protected Income Value. You cannot exercise your right to begin receiving annuity payments under the GMIB benefit until the end of the new waiting period. In light of this waiting period upon resets, it is not recommended that you reset your GMIB if the required beginning date under IRS minimum distribution requirements would commence during the 7 year waiting period. See "Tax Considerations" section in this prospectus for additional information on IRS requirements. . The Maximum Protected Income Value will be reset as of the effective date of any step-up. The new Maximum Protected Income Value will be equal to 200% of the sum of the Protected Income Value as of the effective date of the step-up plus any subsequent Purchase Payments (and any Credit that is applied to such Purchase Payments), minus the impact of any withdrawals after the date of the step-up. . When determining the guaranteed annuity purchase rates for annuity payments under the GMIB benefit, we will apply such rates based on the number of years since the most recent step-up. . If you elect to step-up the Protected Income Value under the benefit, and on the date you elect to step-up, the charges under the GMIB benefit have changed for new purchasers, your benefit may be subject to the new charge going forward. . A step-up will increase the dollar for dollar limit on the anniversary of the Issue Date of the Annuity following such step-up. 67 Impact of Withdrawals on the Protected Income Value - Cumulative withdrawals each Annuity Year up to 5% of the Protected Income Value will reduce the Protected Income Value on a "dollar-for-dollar" basis (the Protected Income Value is reduced by the actual amount of the withdrawal). Cumulative withdrawals in any Annuity Year in excess of 5% of the Protected Income Value will reduce the Protected Income Value proportionately (see the examples of this calculation below). The 5% annual withdrawal amount is determined on each anniversary of the Issue Date (or on the Issue Date for the first Annuity Year) and applies to any withdrawals during the Annuity Year. This means that the amount available for withdrawals each Annuity Year on a "dollar-for-dollar" basis is adjusted on each Annuity anniversary to reflect changes in the Protected Income Value during the prior Annuity Year. The following examples of dollar-for-dollar and proportional reductions assume that: 1.) the Issue Date and the effective date of the GMIB benefit are October 13, 2005; 2.) an initial Purchase Payment of $250,000 (includes any Credits); 3.) an initial Protected Income Value of $250,000; and 4.) a dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for GMIB or any other fees and charges. Example 1. Dollar-for-dollar reduction A $10,000 withdrawal is taken on November 13, 2005 (in the first Annuity Year). No prior withdrawals have been taken. Immediately prior to the withdrawal, the Protected Income Value is $251,038.10 (the initial value accumulated for 31 days at an annual effective rate of 5%). As the amount withdrawn is less than the dollar-for-dollar limit: . The Protected Income Value is reduced by the amount withdrawn (i.e., by $10,000, from $251,038.10 to $241,038.10). . The remaining dollar-for-dollar limit ("Remaining Limit") for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $12,500 to $2,500). Example 2. Dollar-for-dollar and proportional reductions A second $10,000 withdrawal is taken on December 13, 2005 (still within the first Annuity Year). Immediately before the withdrawal, the Account Value is $220,000 and the Protected Income Value is $242,006.64. As the amount withdrawn exceeds the Remaining Limit of $2,500 from Example 1: . the Protected Income Value is first reduced by the Remaining Limit (from $242,006.64 to $239,506.64); . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or $7,500). -- B is the Account Value less the Remaining Limit ($220,000 - $2,500, or $217,500). The resulting Protected Income Value is: $239,506.64 X (1 - $7,500 / $217,500), or $231,247.79. . The Remaining Limit is set to zero (0) for the balance of the first Annuity Year. Example 3. Reset of the Dollar-for-dollar Limit A $10,000 withdrawal is made on the first anniversary of the Issue Date, October 13, 2006 (second Annuity Year). Prior to the withdrawal, the Protected Income Value is $240,838.37. The Remaining Limit is reset to 5% of this amount, or $12,041.92. As the amount withdrawn is less than the dollar-for-dollar limit: . the Protected Income Value is reduced by the amount withdrawn (i.e., reduced by $10,000, from $240,838.37 to $230,838.37). . the Remaining Limit for the balance of the second Annuity Year is also reduced by the amount withdrawn (from $12,041.92 to $2,041.92). Key Feature - GMIB Annuity Payments You can elect to apply the Protected Income Value to one of the available GMIB Annuity Payment Options on any anniversary date following the initial waiting period, or any subsequent waiting period established upon your election to step-up the Protected Income Value. Once you have completed the waiting period, you will have a 30-day period each year, after the Annuity anniversary, during which you may elect to begin receiving annuity payments under one of the available GMIB Annuity Payment Options. You must elect one of the GMIB Annuity Payment Options by the anniversary of the Annuity's Issue Date on or immediately following the Annuitant's or your 95/th/ birthday (whichever is sooner), except for Annuities used as a funding vehicle for an IRA, SEP IRA or 403(b), in which case you must elect one of the GMIB Annuity Payment Options by the anniversary of the Annuity's Issue Date on or immediately following the Annuitant's 92/nd/ birthday. Your Annuity or state law may require you to begin receiving annuity payments at an earlier date. The amount of each GMIB Annuity Payment will be determined based on the age and, where permitted by law, sex of the Annuitant by applying the Protected Income Value (net of any applicable tax charge that may be due) to the GMIB Annuity Payment Option you choose. We use special annuity purchase rates to calculate the amount of each payment due under the GMIB Annuity Payment Options. These special rates for the GMIB Annuity Payment Options are calculated using an assumed interest rate factor that provides for lower growth in the value applied to produce annuity payments than if you elected an annuity payment 68 option that is not part of the GMIB benefit. These special rates also are calculated using other factors such as "age setbacks" (use of an age lower than the Annuitant's actual age) that result in lower payments than would result if you elected an annuity payment option that is not part of the GMIB benefit. Use of an age setback entails a longer assumed life for the Annuitant which in turn results in lower annuity payments. On the date that you elect to begin receiving GMIB Annuity Payments, we guarantee that your payments will be calculated based on your Account Value and our then current annuity purchase rates if the payment amount calculated on this basis would be higher than it would be based on the Protected Income Value and the special GMIB annuity purchase rates. GMIB Annuity Payment Option 1 - Payments for Life with a Certain Period Under this option, monthly annuity payments will be made until the death of the Annuitant. If the Annuitant dies before having received 120 monthly annuity payments, the remainder of the 120 monthly annuity payments will be made to the Beneficiary. GMIB Annuity Payment Option 2 - Payments for Joint Lives with a Certain Period Under this option, monthly annuity payments will be made until the death of both the Annuitant and the Joint Annuitant. If the Annuitant and the Joint Annuitant die before having received 120 monthly annuity payments, the remainder of the 120 monthly annuity payments will be made to the Beneficiary. . If the Annuitant dies first, we will continue to make payments until the later of the death of the Joint Annuitant and the end of the period certain. However, if the Joint Annuitant is still receiving annuity payments following the end of the certain period, we will reduce the amount of each subsequent payment to 50% of the original payment amount. . If the Joint Annuitant dies first, we will continue to make payments until the later of the death of the Annuitant and the end of the period certain. You cannot withdraw your Account Value or the Protected Income Value under either GMIB Annuity Payment Option once annuity payments have begun. We may make other payout frequencies available, such as quarterly, semi-annually or annually. Other Important Considerations You should note that GMIB is designed to provide a type of insurance that serves as a safety net only in the event your Account Value declines significantly due to negative investment performance. If your Account Value is not significantly affected by negative investment performance, it is unlikely that the purchase of the GMIB will result in your receiving larger annuity payments than if you had not purchased GMIB. This is because the assumptions that we use in computing the GMIB, such as the annuity purchase rates, (which include assumptions as to age-setbacks and assumed interest rates), are more conservative than the assumptions that we use in computing annuity payout options outside of GMIB. Therefore, you may generate higher income payments if you were to annuitize a lower Account Value at the current annuity purchase rates, than if you were to annuitize under the GMIB with a higher Protected Value than your Account Value but, at the annuity purchase rates guaranteed under the GMIB. The GMIB benefit does not directly affect an Annuity's Account Value, Surrender Value or the amount payable under either the basic Death Benefit provision of the Annuity or any optional Death Benefit provision. If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Income Value. The Protected Income Value is only applicable if you elect to begin receiving annuity payments under one of the GMIB annuity options after the waiting period. . Each Annuity offers other annuity payment options that you can elect which do not impose an additional charge, but which do not offer to guarantee a minimum value on which to make annuity payments. . Where allowed by law, we reserve the right to limit subsequent Purchase Payments if we determine, at our sole discretion, that based on the timing of your Purchase Payments and withdrawals, your Protected Income Value is increasing in ways we did not intend. In determining whether to limit Purchase Payments, we will look at Purchase Payments which are disproportionately larger than your initial Purchase Payment and other actions that may artificially increase the Protected Income Value. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. . If you change the Annuitant after the effective date of the GMIB benefit, the period of time during which we will apply the 5% annual growth rate may be changed based on the age of the new Annuitant. If the new Annuitant would not be eligible to elect the GMIB benefit based on his or her age at the time of the change, then the GMIB benefit will terminate. . Annuity payments made under the GMIB benefit are subject to the same tax treatment as any other annuity payment. . At the time you elect to begin receiving annuity payments under the GMIB benefit or under any other annuity payment option we make available, the protection provided by an Annuity's basic Death Benefit or any optional Death Benefit provision you elected will no longer apply. Election of the Benefit The GMIB benefit is no longer available. The Annuitant must have been age 75 or less as of the effective date of the GMIB benefit. 69 Termination of the Benefit The GMIB benefit cannot be terminated by the Owner once elected. The GMIB benefit automatically terminates as of the date your Annuity is fully surrendered, on the date the Death Benefit is payable to your Beneficiary (unless your surviving spouse elects to continue your Annuity), or on the date that your Account Value is transferred to begin making annuity payments. The GMIB benefit may also be terminated if you designate a new Annuitant who would not be eligible to elect the GMIB benefit based on his or her age at the time of the change. Upon termination of the GMIB benefit we will deduct the charge from your Account Value for the portion of the Annuity Year since the prior anniversary of the Annuity's Issue Date (or the Issue Date if in the first Annuity Year). Charges under the Benefit Currently, we deduct a charge equal to 0.50% per year of the average Protected Income Value for the period the charge applies. Because the charge is calculated based on the average Protected Income Value, it does not increase or decrease based on changes to the Annuity's Account Value due to market performance. The dollar amount you pay each year will increase in any year the Protected Income Value increases, and it will decrease in any year the Protected Income Value decreases due to withdrawal, irrespective of whether your Account Value increases or decreases. The charge is deducted annually in arrears each Annuity Year on the anniversary of the Issue Date of an Annuity. We deduct the amount of the charge pro-rata from the Account Value allocated to the Sub-accounts and the Fixed Allocations. No MVA will apply to Account Value deducted from a Fixed Allocation. If you surrender your Annuity, begin receiving annuity payments under the GMIB benefit or any other annuity payment option we make available during an Annuity Year, or the GMIB benefit terminates, we will deduct the charge for the portion of the Annuity Year since the prior anniversary of the Annuity's Issue Date (or the Issue Date if in the first Annuity Year). No charge applies after the Annuity Date. LIFETIME FIVE/SM/ INCOME BENEFIT (LIFETIME FIVE)/SM/ The Lifetime Five Income Benefit is no longer being offered. Lifetime Five could be elected only where the Annuitant and the Owner were the same person or, if the Annuity Owner is an entity, where there was only one Annuitant. The Annuitant must be at least 45 years old when the benefit is elected. The Lifetime Five Income Benefit was not available if you elected any other optional living benefit. As long as your Lifetime Five Income Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available option(s) with this benefit. The benefit guarantees your ability to withdraw amounts equal to a percentage of an initial principal value (called the "Protected Withdrawal Value"), regardless of the impact of market performance on your Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. There are two options - one is designed to provide an annual withdrawal amount for life (the "Life Income Benefit") and the other is designed to provide a greater annual withdrawal amount as long as there is Protected Withdrawal Value (adjusted as described below) (the "Withdrawal Benefit"). If there is no Protected Withdrawal Value, the withdrawal benefit will be zero. You do not choose between these two options; each option will continue to be available as long as your Annuity has an Account Value and the Lifetime Five is in effect. Certain benefits under Lifetime Five may remain in effect even if the Account Value of your Annuity is zero. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity and wish to ensure that market performance will not affect your ability to receive annual payments. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to determine the amount of each annual payment under the Life Income Benefit and the Withdrawal Benefit. The initial Protected Withdrawal Value is determined as of the date you make your first withdrawal under your Annuity following your election of Lifetime Five. The initial Protected Withdrawal Value is equal to the greater of (A) the Account Value on the date you elect Lifetime Five, plus any additional Purchase Payments, as applicable, each growing at 5% per year from the date of your election of the benefit, or application of the Purchase Payment to your Annuity until the date of your first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier (B) the Account Value on the date of the first withdrawal from your Annuity, prior to the withdrawal, and (C) the highest Account Value on each Annuity anniversary, plus subsequent Purchase Payments prior to the first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier. With respect to (A) and (C) above, after the 10/th/ anniversary of the benefit effective date, each value is increased by the amount of any subsequent Purchase Payments. Credits are added to Purchase Payments for purposes of calculating the Protected Withdrawal Value, the Annual Income Amount and the Annual Withdrawal Amount (see below for a description of Annual Income Amount and Annual Withdrawal Amount). . If you elect the Lifetime Five benefit at the time you purchase your Annuity, the Account Value will be your initial Purchase Payment. 70 . For existing Owners who are electing the Lifetime Five benefit, the Account Value on the date of your election of the Lifetime Five benefit will be used to determine the initial Protected Withdrawal Value. . If you make additional Purchase Payments after your first withdrawal, the Protected Withdrawal Value will be increased by the amount of each additional Purchase Payment. The Protected Withdrawal Value is reduced each time a withdrawal is made on a dollar-for-dollar basis up to 7% per Annuity Year of the Protected Withdrawal Value and on the greater of a dollar-for-dollar basis or a pro rata basis for withdrawals in an Annuity Year in excess of that amount until the Protected Withdrawal Value is reduced to zero. At that point the Annual Withdrawal Amount will be zero until such time (if any) as the Annuity reflects a Protected Withdrawal Value (for example, due to a step-up or additional Purchase Payments being made into the Annuity). Step-Up of the Protected Withdrawal Value You may elect to step-up your Protected Withdrawal Value if, due to positive market performance, your Account Value is greater than the Protected Withdrawal Value. . You are eligible to step-up the Protected Withdrawal Value on or after the 1/st/ anniversary of the first withdrawal under the Lifetime Five benefit. . The Protected Withdrawal Value can be stepped up again on or after the 1/st/ anniversary of the preceding step-up. If you elect to step-up the Protected Withdrawal Value under the benefit, and on the date you elect to step-up, the charges under the Lifetime Five benefit have changed for new purchasers, your benefit may be subject to the new charge at the time of step-up. Upon election of the step-up, we increase the Protected Withdrawal Value to be equal to the then current Account Value. For example, assume your initial Protected Withdrawal Value was $100,000 and you have made cumulative withdrawals of $40,000, reducing the Protected Withdrawal Value to $60,000. On the date you are eligible to step-up the Protected Withdrawal Value, your Account Value is equal to $75,000. You could elect to step-up the Protected Withdrawal Value to $75,000 on the date you are eligible. If your current Annual Income Amount and Annual Withdrawal Amount are less than they would be if we did not reflect the step-up in Protected Withdrawal Value, then we will increase these amounts to reflect the step-up as described below. An optional automatic step-up ("Auto Step-Up") feature is available for this benefit. This feature may be elected at the time the benefit is elected or at any time while the benefit is in force. If you elected the Lifetime Five benefit and have also elected the Auto Step-Up feature: . the first Auto Step-Up opportunity will occur on the 1/st/ Annuity Anniversary that is at least one year after the later of (1) the date of the first withdrawal under the Lifetime Five benefit or (2) the most recent step-up . your Protected Withdrawal Value will only be stepped-up if 5% of the Account Value is greater than the Annual Income Amount by any amount . if at the time of the first Auto Step-Up opportunity, 5% of the Account Value is not greater than the Annual Income Amount, an Auto Step-Up opportunity will occur on each successive Annuity Anniversary until a step-up occurs . once a step-up occurs, the next Auto Step-Up opportunity will occur on the 1/st/ Annuity Anniversary that is at least one year after the most recent step-up If on the date that we implement an Auto Step-Up to your Protected Withdrawal Value, the charge for Lifetime Five has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Subject to our rules and restrictions, you will still be permitted to manually step-up the Protected Withdrawal Value even if you elect the Auto Step-Up feature. Key Feature - Annual Income Amount under the Life Income Benefit The initial Annual Income Amount is equal to 5% of the initial Protected Withdrawal Value. Under the Lifetime Five benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. A withdrawal can be considered Excess Income under the Life Income Benefit even though it does not exceed the Annual Withdrawal Amount under the Withdrawal Benefit. When you elect a step-up (or an auto step-up is effected), your Annual Income Amount increases to equal 5% of your Account Value after the step-up if such amount is greater than your Annual Income Amount. Your Annual Income Amount also increases if you make additional Purchase Payments. The amount of the increase is equal to 5% of any additional Purchase Payments (and any associated Credit). Any increase will be added to your Annual Income Amount beginning on the day that the step-up is effective or the Purchase Payment is made. A determination of whether you have exceeded your Annual Income Amount is made at the time of each withdrawal; therefore a subsequent increase in the Annual 71 Income Amount will not offset the effect of a withdrawal that exceeded the Annual Income Amount at the time the withdrawal was made. Key Feature - Annual Withdrawal Amount under the Withdrawal Benefit The initial Annual Withdrawal Amount is equal to 7% of the initial Protected Withdrawal Value. Under the Lifetime Five benefit, if your cumulative withdrawals each Annuity Year are less than or equal to the Annual Withdrawal Amount, your Protected Withdrawal Value will be reduced on a dollar-for-dollar basis. If your cumulative withdrawals are in excess of the Annual Withdrawal Amount ("Excess Withdrawal"), your Annual Withdrawal Amount will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Withdrawal to the Account Value immediately prior to such withdrawal (see the examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. When you elect a step-up (or an auto step-up is effected), your Annual Withdrawal Amount increases to equal 7% of your Account Value after the step-up if such amount is greater than your Annual Withdrawal Amount. Your Annual Withdrawal Amount also increases if you make additional Purchase Payments. The amount of the increase is equal to 7% of any additional Purchase Payments (and any associated Credit). A determination of whether you have exceeded your Annual Withdrawal Amount is made at the time of each withdrawal; therefore, a subsequent increase in the Annual Withdrawal Amount will not offset the effect of a withdrawal that exceeded the Annual Withdrawal Amount at the time the withdrawal was made. The Lifetime Five benefit does not affect your ability to make withdrawals under your Annuity or limit your ability to request withdrawals that exceed the Annual Income Amount and the Annual Withdrawal Amount. You are not required to withdraw all or any portion of the Annual Withdrawal Amount or Annual Income Amount in each Annuity Year. . If, cumulatively, you withdraw an amount less than the Annual Withdrawal Amount under the Withdrawal Benefit in any Annuity Year, you cannot carry-over the unused portion of the Annual Withdrawal Amount to subsequent Annuity Years. However, because the Protected Withdrawal Value is only reduced by the actual amount of withdrawals you make under these circumstances, any unused Annual Withdrawal Amount may extend the period of time until the remaining Protected Withdrawal Value is reduced to zero. . If, cumulatively, you withdraw an amount less than the Annual Income Amount under the Life Income Benefit in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. However, because the Protected Withdrawal Value is only reduced by the actual amount of withdrawals you make under these circumstances, any unused Annual Income Amount may extend the period of time until the remaining Protected Withdrawal Value is reduced to zero. Examples of Withdrawals The following examples of dollar-for-dollar and proportional reductions of the Protected Withdrawal Value, Annual Withdrawal Amount and Annual Income Amount assume: 1.) the Issue Date and the Effective Date of the Lifetime Five benefit are February 1, 2005; 2.) an initial Purchase Payment of $250,000; 3.) the Account Value on February 1, 2006 is equal to $265,000; and 4.) the first withdrawal occurs on March 1, 2006 when the Account Value is equal to $263,000. The values set forth here are purely hypothetical, and do not reflect the charge for Lifetime Five or any other fees and charges. The initial Protected Withdrawal Value is calculated as the greatest of (a), (b) and (c): (a)Purchase payment accumulated at 5% per year from February 1, 2005 until March 1, 2006 (393 days) = $250,000 X 1.05/(393/365)/ = $263,484.33 (b)Account Value on March 1, 2006 (the date of the first withdrawal) = $263,000 (c)Account Value on February 1, 2006 (the first Annuity Anniversary) = $265,000 Therefore, the initial Protected Withdrawal Value is equal to $265,000. The Annual Withdrawal Amount is equal to $18,550 under the Withdrawal Benefit (7% of $265,000). The Annual Income Amount is equal to $13,250 under the Life Income Benefit (5% of $265,000). Example 1. Dollar-for-dollar reduction If $10,000 was withdrawn (less than both the Annual Income Amount and the Annual Withdrawal Amount) on March 1, 2006, then the following values would result: . Remaining Annual Withdrawal Amount for current Annuity Year = $18,550 - $10,000 = $8,550. Annual Withdrawal Amount for future Annuity Years remains at $18,550. . Remaining Annual Income Amount for current Annuity Year = $13,250 - $10,000 = $3,250. Annual Income Amount for future Annuity Years remains at $13,250. . Protected Withdrawal Value is reduced by $10,000 from $265,000 to $255,000 72 Example 2. Dollar-for-dollar and proportional reductions (a)If $15,000 was withdrawn (more than the Annual Income Amount but less than the Annual Withdrawal Amount) on March 1, 2006, then the following values would result: . Remaining Annual Withdrawal Amount for current Annuity Year = $18,550 - $15,000 = $3,550. Annual Withdrawal Amount for future Annuity Years remains at $18,550 . Remaining Annual Income Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Income Amount ($15,000 - $13,250 = $1,750) reduces Annual Income Amount for future Annuity Years. . Reduction to Annual Income Amount = Excess Income/Account Value before Excess Income X Annual Income Amount = $1,750/($263,000 - $13,250) X $13,250 = $93 Annual Income Amount for future Annuity Years = $13,250 - $93 = $13,157 . Protected Withdrawal Value is reduced by $15,000 from $265,000 to $250,000 (b)If $25,000 was withdrawn (more than both the Annual Income Amount and the Annual Withdrawal Amount) on March 1, 2006, then the following values would result: . Remaining Annual Withdrawal Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Withdrawal Amount ($25,000 - $18,550 = $6,450) reduces Annual Withdrawal Amount for future Annuity Years. . Reduction to Annual Withdrawal Amount = Excess Withdrawal/Account Value before Excess Withdrawal X Annual Withdrawal Amount = $6,450/($263,000 - $18,550) X $18,550 = $489 Annual Withdrawal Amount for future Annuity Years = $18,550 - $489 = $18,061 . Remaining Annual Income Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Income Amount ($25,000 - $13,250 = $11,750) reduces Annual Income Amount for future Annuity Years. . Reduction to Annual Income Amount = Excess Income/Account Value before Excess Income X Annual Income Amount = $11,750/($263,000 - $13,250) X $13,250 = $623. Annual Income Amount for future Annuity Years = $13,250 - $623 = $12,627 . Protected Withdrawal Value is first reduced by the Annual Withdrawal Amount ($18,550) from $265,000 to $246,450. It is further reduced by the greater of a dollar-for-dollar reduction or a proportional reduction. Dollar-for-dollar reduction = $25,000 - $18,550 = $6,450 . Proportional reduction = Excess Withdrawal/Account Value before Excess Withdrawal X Protected Withdrawal Value = $6,450/($263,000 - $18,550) X $246,450 = $6,503 Protected Withdrawal Value = $246,450 - max {$6,450, $6,503} = $239,947 Benefits Under the Lifetime Five Benefit . If your Account Value is equal to zero, and the cumulative withdrawals in the current Annuity Year are greater than the Annual Withdrawal Amount, the Lifetime Five benefit will terminate. To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount and amounts are still payable under both the Life Income Benefit and the Withdrawal Benefit, you will be given the choice of receiving the payments under the Life Income Benefit or under the Withdrawal Benefit. Thus, in that scenario, the remaining amounts under the Life Income Benefit and the Withdrawal Benefit would be payable even though your Account Value was reduced to zero. Once you make this election we will make an additional payment for that Annuity Year equal to either the remaining Annual Income Amount or Annual Withdrawal Amount for the Annuity Year, if any, depending on the option you choose. In subsequent Annuity Years we make payments that equal either the Annual Income Amount or the Annual Withdrawal Amount as described in this Prospectus. You will not be able to change the option after your election and no further Purchase Payments will be accepted under your Annuity. If you do not make an election, we will pay you annually under the Life Income Benefit. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount but less than or equal to the Annual Withdrawal Amount and amounts are still payable under the Withdrawal Benefit, you will receive the payments under the Withdrawal Benefit. In the year of a withdrawal that reduced your Account Value to zero, we will make an additional payment to equal any remaining Annual Withdrawal Amount and make payments equal to the Annual Withdrawal Amount in each subsequent year (until the Protected Withdrawal Value is depleted). Once your Account Value equals zero no further Purchase Payments will be accepted under your Annuity. 73 . If annuity payments are to begin under the terms of your Annuity or if you decide to begin receiving annuity payments and there is any Annual Income Amount due in subsequent Annuity Years or any remaining Protected Withdrawal Value, you can elect one of the following three options: (1)apply your Account Value to any annuity option available; or (2)request that, as of the date annuity payments are to begin, we make annuity payments each year equal to the Annual Income Amount. We make such annuity payments until the Annuitant's death; or (3)request that, as of the date annuity payments are to begin, we pay out any remaining Protected Withdrawal Value as annuity payments. Each year such annuity payments will equal the Annual Withdrawal Amount or the remaining Protected Withdrawal Value if less. We make such annuity payments until the earlier of the Annuitant's death or the date the Protected Withdrawal Value is depleted. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a single life fixed annuity with five payments certain using the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such annuity payments will be the greater of: (1)the present value of future Annual Income Amount payments. Such present value will be calculated using the greater of the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will determine a Protected Withdrawal Value and calculate an Annual Income Amount and an Annual Withdrawal Amount as if you made your first withdrawal on the date the annuity payments are to begin. Other Important Considerations . Withdrawals under the Lifetime Five benefit are subject to all of the terms and conditions of your Annuity, including any applicable CDSC. . Withdrawals made while the Lifetime Five benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under your Annuity. The Lifetime Five benefit does not directly affect your Annuity's Account Value or Surrender Value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Withdrawal Value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Lifetime Five benefit. The Lifetime Five benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Protected Withdrawal Value or Annual Income Amount in the form of periodic benefit payments. . In general, you must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly-adopted requirements. Subsequent to any change in requirements, transfers of Account Value and allocation of additional Purchase Payments may be subject to the new investment limitations. Election of the Benefit We no longer permit elections of Lifetime Five. If you wish, you may cancel the Lifetime Five benefit. You may then elect Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator, Spousal Highest Daily Lifetime 7 Plus, or Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option (or any other currently available living benefit) on the Valuation Day after you have cancelled the Lifetime Five benefit provided, the request is received in good order (subject to state availability and in accordance with any applicable age requirements). Once the Lifetime Five benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Lifetime Five benefit provided that the benefit you are looking to elect is available on a post- issue basis. If you cancel Lifetime Five, you lose all guarantees under the benefit and will lose any guarantees under the new benefit based on your Account Value. Any such new benefit may be more expensive. Termination of the Benefit The benefit terminates automatically when your Protected Withdrawal Value and Annual Income Amount equal zero. You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective. The benefit terminates upon your surrender of your Annuity, upon the death of the Annuitant, upon a change in ownership of your Annuity that changes the tax identification number of the Owner, upon change in 74 the Annuitant or upon your election to begin receiving annuity payments. While you may terminate your benefit at any time, we may not terminate the benefit other than in the circumstances listed above. The charge for the Lifetime Five benefit will no longer be deducted from your Account Value upon termination of the benefit. Additional Tax Considerations If you purchase an Annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the Owner's lifetime. The amount required under the Code may exceed the Annual Withdrawal Amount and the Annual Income Amount, which will cause us to increase the Annual Income Amount and the Annual Withdrawal Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. Any such payments will reduce your Protected Withdrawal Value. In addition, the amount and duration of payments under the annuity payment and Death Benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of this Prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. SPOUSAL LIFETIME FIVE/SM/ INCOME BENEFIT (SPOUSAL LIFETIME FIVE)/SM/ The Spousal Lifetime Five benefit is no longer being offered. Spousal Lifetime Five must have been elected based on two Designated Lives, as described below. Each Designated Life must have been at least 55 years old when the benefit was elected. The Spousal Lifetime Five benefit was not available if you elected any other optional living benefit or optional death benefit. As long as your Spousal Lifetime Five Income Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available option(s) with this benefit. The benefit guarantees until the later death of two natural persons that are each other's spouses at the time of election of Spousal Lifetime Five and at the first death of one of them (the "Designated Lives", each a "Designated Life") the ability to withdraw an annual amount ("Spousal Life Income Benefit") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of market performance on the Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. The Spousal Life Income Benefit may remain in effect even if the Account Value of the Annuity is zero. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, wish to ensure that market performance will not affect your ability to receive annual payments, and wish either spouse to be able to continue the Spousal Life Income Benefit after the death of the first. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. Key Feature - Initial Protected Withdrawal Value The Protected Withdrawal Value is used to determine the amount of each annual payment under the Spousal Life Income Benefit. The initial Protected Withdrawal Value is determined as of the date you make your first withdrawal under the Annuity following your election of Spousal Lifetime Five. The initial Protected Withdrawal Value is equal to the greater of (A) the Account Value on the date you elect Spousal Lifetime Five, plus any additional Purchase Payments as applicable, each growing at 5% per year from the date of your election of the benefit, or application of the Purchase Payment to your Annuity, until the date of your first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier (B) the Account Value on the date of the first withdrawal from your Annuity, prior to the withdrawal, and (C) the highest Account Value on each Annuity anniversary, plus subsequent Purchase Payments prior to the first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier. With respect to (A) and (C) above, after the 10/th/ anniversary of the benefit effective date, each value is increased by the amount of any subsequent Purchase Payments. Credits are added to Purchase Payments for purposes of calculating the Protected Withdrawal Value and the Annual Income Amount (see below for a description of Annual Income Amount). Key Feature - Annual Income Amount under the Spousal Lifetime Five Income Benefit The initial Annual Income Amount is equal to 5% of the initial Protected Withdrawal Value. Under the Spousal Lifetime Five benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not 75 reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount under the Spousal Life Income Benefit in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. The Spousal Lifetime Five benefit does not affect your ability to make withdrawals under your Annuity or limit your ability to request withdrawals that exceed the Annual Income Amount. Step-Up of Annual Income Amount You may elect to step-up your Annual Income Amount if, due to positive market performance, 5% of your Account Value is greater than the Annual Income Amount. You are eligible to step-up the Annual Income Amount on or after the 1/st/ anniversary of the first withdrawal under the Spousal Lifetime Five benefit. The Annual Income Amount can be stepped up again on or after the 1/st/ anniversary of the preceding step-up. If you elect to step-up the Annual Income Amount under the benefit, and on the date you elect to step-up, the charges under the Spousal Lifetime Five benefit have changed for new purchasers, your benefit may be subject to the new charge at the time of such step-up. When you elect a step-up, your Annual Income Amount increases to equal 5% of your Account Value after the step-up. Your Annual Income Amount also increases if you make additional Purchase Payments. The amount of the increase is equal to 5% of any additional Purchase Payments (plus any Credit). Any increase will be added to your Annual Income Amount beginning on the day that the step-up is effective or the Purchase Payment is made. A determination of whether you have exceeded your Annual Income Amount is made at the time of each withdrawal; therefore a subsequent increase in the Annual Income Amount will not offset the effect of a withdrawal that exceeded the Annual Income Amount at the time the withdrawal was made. An optional automatic step-up ("Auto Step-Up") feature is available for this benefit. This feature may be elected at the time the benefit is elected or at any time while the benefit is in force. If you elect this feature, the first Auto Step-Up opportunity will occur on the 1/st/ Annuity Anniversary that is at least one year after the later of (1) the date of the first withdrawal under the Spousal Lifetime Five benefit or (2) the most recent step-up. At this time, your Annual Income Amount will be stepped-up if 5% of your Account Value is greater than the Annual Income Amount by any amount. If 5% of the Account Value does not exceed the Annual Income Amount, then an Auto Step-Up opportunity will occur on each successive Annuity Anniversary until a step-up occurs. Once a step-up occurs, the next Auto Step-Up opportunity will occur on the 1/st/ Annuity Anniversary that is at least 1 year after the most recent step-up. If, on the date that we implement an Auto Step-Up to your Annual Income Amount, the charge for Spousal Lifetime Five has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Subject to our rules and restrictions, you will still be permitted to manually step-up the Annual Income Amount even if you elect the Auto Step-Up feature. Examples of withdrawals and step-up The following examples of dollar-for-dollar and proportional reductions and the step-up of the Annual Income Amount assume: 1.) the Issue Date and the Effective Date of the Spousal Lifetime Five benefit are February 1, 2005; 2.) an initial Purchase Payment of $250,000; 3.) the Account Value on February 1, 2006 is equal to $265,000; 4.) the first withdrawal occurs on March 1, 2006 when the Account Value is equal to $263,000; and 5.) the Account Value on February 1, 2010 is equal to $280,000. The values set forth here are purely hypothetical, and do not reflect the charge for the Spousal Lifetime Five or any other fees and charges. The initial Protected Withdrawal Value is calculated as the greatest of (a), (b) and (c): (a)Purchase payment accumulated at 5% per year from February 1, 2005 until March 1, 2006 (393 days) = $250,000 X 1.05/(393/365)/ = $263,484.33 (b)Account Value on March 1, 2006 (the date of the first withdrawal) = $263,000 (c)Account Value on February 1, 2006 (the first Annuity Anniversary) = $265,000 Therefore, the initial Protected Withdrawal Value is equal to $265,000. The Annual Income Amount is equal to $13,250 under the Spousal Life Income Benefit (5% of $265,000). Example 1. Dollar-for-dollar reduction If $10,000 was withdrawn (less than the Annual Income Amount) on March 1, 2006, then the following values would result: . Remaining Annual Income Amount for current Annuity Year = $13,250 - $10,000 = $3,250. . Annual Income Amount for future Annuity Years remains at $13,250 Example 2. Dollar-for-dollar and proportional reductions If $15,000 was withdrawn (more than the Annual Income Amount) on March 1, 2006, then the following values would result: . Remaining Annual Income Amount for current Annuity Year = $0 76 . Excess of withdrawal over the Annual Income Amount ($15,000 - $13,250 $1,750) reduces Annual Income Amount for future Annuity Years. . Reduction to Annual Income Amount = Excess Income/Account Value before Excess Income X Annual Income Amount = $1,750/($263,000 - $13,250) X $13,250 = $93. Annual Income Amount for future Annuity Years = $13,250 - $93 = $13,157 Example 3. Step-up of the Annual Income Amount If a step-up of the Annual Income Amount is requested on February 1, 2010 or the Auto Step-Up feature was elected, the step-up would occur because 5% of the Account Value, which is $14,000 (5% of $280,000), is greater than the Annual Income Amount of $13,250. The new Annual Income Amount will be equal to $14,000. BENEFITS UNDER THE SPOUSAL LIFETIME FIVE BENEFIT To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount and amounts are still payable under the Spousal Life Income Benefit, we will make an additional payment for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year, if any. Thus, in that scenario, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this Prospectus. No further Purchase Payments will be accepted under your Annuity. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Spousal Life Income Benefit terminates and no additional payments will be made. . If annuity payments are to begin under the terms of your Annuity or if you decide to begin receiving annuity payments and there is any Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any annuity option available; or (2)request that, as of the date annuity payments are to begin, we make annuity payments each year equal to the Annual Income Amount. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a joint and survivor or single (as applicable) life fixed annuity with five payments certain using the same basis that is used to calculate the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such annuity payments will be the greater of: (1)the present value of future Annual Income Amount payments. Such present value will be calculated using the same basis that is used to calculate the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will determine an initial Protected Withdrawal Value and calculate an Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. Other Important Considerations . Withdrawals under the Spousal Lifetime Five benefit are subject to all of the terms and conditions of the Annuity, including any CDSC. . Withdrawals made while the Spousal Lifetime Five benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Spousal Lifetime Five benefit does not directly affect the Annuity's Account Value or Surrender Value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Withdrawal Value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Spousal Lifetime Five benefit. The Spousal Lifetime Five benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . In general, you must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly-adopted requirements. Subsequent to any change in requirements, transfers of Account Value and allocation of additional Purchase Payments may be subject to the new investment limitations. 77 . There may be circumstances where you will continue to be charged the full amount for the Spousal Lifetime Five benefit even when the benefit is only providing a guarantee of income based on one life with no survivorship. . In order for the Surviving Designated Life to continue the Spousal Lifetime Five benefit upon the death of an owner, the Designated Life must elect to assume ownership of the Annuity under the spousal continuation option. When the Annuity is owned by a Custodial Account, in order for Spousal Lifetime Five to be continued after the death of the first Designated Life (the Annuitant), the Custodial Account must elect to continue the Annuity and the second Designated Life (the Contingent Annuitant) will be named as the new Annuitant. See "Spousal Designations", and "Spousal Assumption of Annuity" in this Prospectus. Election of and Designations under the Benefit We no longer permit elections of Spousal Lifetime Five - whether for those who currently participate in Spousal Lifetime Five or for those who are buying an Annuity for the first time. If you wish, you may cancel the Spousal Lifetime Five benefit. You may then elect Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator, Spousal Highest Daily Lifetime 7 Plus, or Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option (or any other currently available living benefit) on the Valuation Day after have you cancelled the Spousal Lifetime Five benefit, provided the request is received in good order (subject to state availability and any applicable age requirements). Once the Spousal Lifetime Five benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Spousal Lifetime Five benefit provided that the benefit you are looking to elect is available on a post-issue basis. If you cancel the benefit, you lose all guarantees under the benefit, and your guarantee under any new benefit you elect will be based on your Account Value at that time. Spousal Lifetime Five could only be elected based on two Designated Lives. Designated Lives must be natural persons who are each other's spouses at the time of election of the benefit and at the death of the first of the Designated Lives to die. Spousal Lifetime Five only could be elected where the Owner, Annuitant, and Beneficiary designations are as follows: . One Annuity Owner, where the Annuitant and the Owner are the same person and the beneficiary is the Owner's spouse. The Owner/Annuitant and the beneficiary each must be at least 59 1/2 years old at the time of election; or . Co-Annuity Owners, where the Owners are each other's spouses. The beneficiary designation must be the surviving spouse, or the spouses named equally. One of the owners must be the Annuitant. Each Owner must each be at least 59 1/2 years old at the time of election; or . One Annuity Owner, where the Owner is a custodial account established to hold retirement assets for the benefit of the Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code (or any successor Code section thereto) ("Custodial Account"), the beneficiary is the Custodial Account, and the spouse of the Annuitant is the Contingent Annuitant. Both the Annuitant and the Contingent Annuitant each must be at least 59 1/2 years old at the time of election. We do not permit a change of Owner under this benefit, except as follows: (a)if one Owner dies and the surviving spousal Owner assumes the Annuity or (b)if the Annuity initially is co-owned, but thereafter the Owner who is not the Annuitant is removed as Owner. We permit changes of beneficiary under this benefit. If the Designated Lives divorce, the Spousal Lifetime Five benefit may not be divided as part of the divorce settlement or judgment. Nor may the divorcing spouse who retains ownership of the Annuity appoint a new Designated Life upon re-marriage. Termination of the Benefit The benefit terminates automatically when your Annual Income Amount equals zero. You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective. The benefit terminates upon your surrender of the Annuity, upon the first Designated Life to die if the Annuity is not continued, upon the second Designated Life to die or upon your election to begin receiving annuity payments. The charge for the Spousal Lifetime Five benefit will no longer be deducted from your Account Value upon termination of the benefit. Additional Tax Considerations If you purchase an Annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or an employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than 5 percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the Owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. Any such payments will reduce your Protected Withdrawal Value. In addition, the amount and duration of payments under the annuity payment and Death Benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. 78 Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. HIGHEST DAILY LIFETIME FIVE/SM/ INCOME BENEFIT (HD5)/SM/ The Highest Daily Lifetime Five benefit is no longer offered for new elections. The income benefit under Highest Daily Lifetime Five currently is based on a single "designated life" who is at least 55 years old on the date that the benefit is acquired. The Highest Daily Lifetime Five Benefit was not available if you elected any other optional living benefit, although you may elect any optional death benefit. Any DCA Program that transfers Account Value from a Fixed Allocation is also not available as Fixed Allocations are not permitted with the benefit. As long as your Highest Daily Lifetime Five Benefit is in effect, you must allocate your Account Value in accordance with the then-permitted and available investment option(s) with this benefit. The benefit that guarantees until the death of the single designated life the ability to withdraw an annual amount (the "Total Annual Income Amount") equal to a percentage of an initial principal value (the "Total Protected Withdrawal Value") regardless of the impact of Sub-account performance on the Account Value, subject to our rules regarding the timing and amount of withdrawals. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, and wish to ensure that Sub-account performance will not affect your ability to receive annual payments. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer program in order to participate in Highest Daily Lifetime Five, and in Appendix C to this Prospectus, we set forth the formula under which we make those asset transfers. As discussed below, a key component of Highest Daily Lifetime Five is the Total Protected Withdrawal Value, which is an amount that is distinct from Account Value. Because each of the Total Protected Withdrawal Value and Total Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for Account Value to fall to zero, even though the Total Annual Income Amount remains. You are guaranteed to be able to withdraw the Total Annual Income Amount for the rest of your life, provided that you have not made "excess withdrawals." Excess withdrawals, as discussed below, will reduce your Total Annual Income Amount. Thus, you could experience a scenario in which your Account Value was zero, and, due to your excess withdrawals, your Total Annual Income Amount also was reduced to zero. In that scenario, no further amount would be payable under Highest Daily Lifetime Five. Key Feature - Total Protected Withdrawal Value The Total Protected Withdrawal Value is used to determine the amount of the annual payments under Highest Daily Lifetime Five. The Total Protected Withdrawal Value is equal to the greater of the Protected Withdrawal Value and any Enhanced Protected Withdrawal Value that may exist. We describe how we determine Enhanced Protected Withdrawal Value, and when we begin to calculate it, below. If you do not meet the conditions described below for obtaining Enhanced Protected Withdrawal Value then Total Protected Withdrawal Value is simply equal to Protected Withdrawal Value. The Protected Withdrawal Value initially is equal to the Account Value on the date that you elect Highest Daily Lifetime Five. On each Valuation Day thereafter, until the earlier of the first withdrawal or ten years after the date of your election of the benefit, we recalculate the Protected Withdrawal Value. Specifically, on each such Valuation Day (the "Current Valuation Day"), the Protected Withdrawal Value is equal to the greater of: . the Protected Withdrawal Value for the immediately preceding Valuation Day (the "Prior Valuation Day"), appreciated at the daily equivalent of 5% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any Purchase Payment (including any associated credit) made on the Current Valuation Day; and . the Account Value. If you have not made a withdrawal prior to the tenth anniversary of the date you elected Highest Daily Lifetime Five (which we refer to as the "Tenth Anniversary"), we will continue to calculate a Protected Withdrawal Value. On or after the Tenth Anniversary and up until the date of the first withdrawal, your Protected Withdrawal Value is equal to the greater of the Protected Withdrawal Value on the Tenth Anniversary or your Account Value. The Enhanced Protected Withdrawal Value is only calculated if you do not take a withdrawal prior to the Tenth Anniversary. Thus, if you do take a withdrawal prior to the Tenth Anniversary, you are not eligible to receive Enhanced Protected Withdrawal Value. 79 If so, then on or after the Tenth Anniversary up until the date of the first withdrawal, the Enhanced Protected Withdrawal Value is equal to the sum of: (a)200% of the Account Value on the date you elected Highest Daily Lifetime Five; (b)200% of all Purchase Payments (and any associated Credits) made during the one-year period after the date you elected Highest Daily Lifetime Five; and (c)100% of all Purchase Payments (and any associated Credits) made more than one year after the date you elected Highest Daily Lifetime Five, but prior to the date of your first withdrawal. We cease these daily calculations of the Protected Withdrawal Value and Enhanced Protected Withdrawal Value (and therefore, the Total Protected Withdrawal Value) when you make your first withdrawal. However, as discussed below, subsequent Purchase Payments (and any associated Credits) will increase the Total Annual Income Amount, while "excess" withdrawals (as described below) may decrease the Total Annual Income Amount. Key Feature - Total Annual Income Amount under the Highest Daily Lifetime Five Benefit The initial Total Annual Income Amount is equal to 5% of the Total Protected Withdrawal Value. For purposes of the mathematical formula described below, we also calculate a Highest Daily Annual Income Amount, which is initially equal to 5% of the Protected Withdrawal Value. Under the Highest Daily Lifetime Five benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Total Annual Income Amount, they will not reduce your Total Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Total Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Total Annual Income Amount ("Excess Income"), your Total Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. A Purchase Payment that you make will increase the then-existing Total Annual Income Amount and Highest Daily Annual Income Amount by an amount equal to 5% of the Purchase Payment (including the amount of any associated Credits). An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as part of this benefit. As detailed in this paragraph, the Highest Quarterly Auto Step-Up feature can result in a larger Total Annual Income Amount if your Account Value increases subsequent to your first withdrawal. We begin examining the Account Value for purposes of this feature starting with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on the Valuation Days corresponding to the end of each quarter that (i) is based on your Annuity Year, rather than a calendar year; (ii) is subsequent to the first withdrawal; and (iii) falls within the immediately preceding Annuity Year. If the end of any such quarter falls on a holiday or a weekend, we use the next Valuation Day. We multiply each of those quarterly Account Values by 5%, adjust each such quarterly value for subsequent withdrawals and Purchase Payments, and then select the highest of those values. If the highest of those values exceeds the existing Total Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Total Annual Income Amount intact. In later years, (i.e., after the first Annuity Anniversary after the first withdrawal) we determine whether an automatic step-up should occur on each Annuity Anniversary, by performing a similar examination of the Account Values on the end of the four immediately preceding quarters. If, on the date that we implement a Highest Quarterly Auto Step-Up to your Total Annual Income Amount, the charge for Highest Daily Lifetime Five has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Highest Daily Lifetime Five upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. The Highest Daily Lifetime Five benefit does not affect your ability to make withdrawals under your annuity, or limit your ability to request withdrawals that exceed the Total Annual Income Amount. Under Highest Daily Lifetime Five, if your cumulative withdrawals in an Annuity Year are less than or equal to the Total Annual Income Amount, they will not reduce your Total Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Total Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Total Annual Income Amount in any Annuity Year, you cannot carry-over the unused portion of the Total Annual Income Amount to subsequent Annuity Years. Examples of dollar-for-dollar and proportional reductions, and the Highest Quarterly Auto Step-Up are set forth below. The values depicted here are purely hypothetical, and do not reflect the charges for the Highest Daily Lifetime Five benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2006. . The Highest Daily Lifetime Five benefit is elected on March 5, 2007. 80 Dollar-for-dollar reductions On May 2, 2007, the Total Protected Withdrawal Value is $120,000, resulting in a Total Annual Income Amount of $6,000 (5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Total Annual Income Amount for that Annuity Year (up to and including December 1, 2007) is $3,500. This is the result of a dollar-for-dollar reduction of the Total Annual Income Amount - $6,000 less $2,500 = $3,500. Proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on August 6, 2007 and the Account Value at the time of this withdrawal is $110,000. The first $3,500 of this withdrawal reduces the Total Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount - $1,500 - reduces the Total Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there were other withdrawals in that Annuity Year, each would result in another proportional reduction to the Total Annual Income Amount). Here is the calculation: Account Value before withdrawal $110,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $106,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $106,500.00 Ratio 1.41% Total Annual Income Amount $ 6,000.00 Less ratio of 1.41% $ 84.51 Total Annual Income Amount for future Annuity Years $ 5,915.49
Highest Quarterly Auto Step-Up On each Annuity Anniversary date, the Total Annual Income Amount is stepped-up if 5% of the highest quarterly value since your first withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional Purchase Payments, is higher than the Total Annual Income Amount, adjusted for excess withdrawals and additional Purchase Payments (plus any Credit). Continuing the same example as above, the Total Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces this amount to $5,915.49 for future years (see above). For the next Annuity Year, the Total Annual Income Amount will be stepped-up if 5% of the highest quarterly Account Value, adjusted for withdrawals, is higher than $5,915.49. Here are the calculations for determining the quarterly values. Only the June 1 value is being adjusted for excess withdrawals as the September 1 and December 1 Valuation Days occur after the excess withdrawal on August 6.
Highest Quarterly Value (adjusted with Adjusted Total Annual withdrawal and Purchase Income Amount (5% of the Date* Account value Payments)** Highest Quarterly Value) ----- ------------- ----------------------- ------------------------ June 1, 2007 $118,000.00 $118,000.00 $5,900.00 August 6, 2007 $110,000.00 $112,885.55 $5,644.28 September 1, 2007 $112,000.00 $112,885.55 $5,644.28 December 1, 2007 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly valuation dates are every three months thereafter - March 1, June 1, September 1, and December 1. In this example, we do not use the March 1 date as the first withdrawal took place after March 1. The Annuity Anniversary Date of December 1 is considered the fourth and final quarterly valuation date for the year. ** In this example, the first quarterly value after the first withdrawal is $118,000 on June 1, yielding an adjusted Total Annual Income Amount of $5,900.00. This amount is adjusted on August 6 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $118,000 on June 1 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Total Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $114,500 before the excess withdrawal. . This amount ($114,500) is further reduced by 1.41% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Quarterly Value of $112,885.55. The adjusted Total Annual Income Amount is carried forward to the next quarterly anniversary date of September 1. At this time, we compare this amount to 5% of the Account Value on September 1. Since the June 1 adjusted Total Annual Income Amount of $5,644.28 is higher than $5,600.00 (5% of $112,000), we continue to carry $5,644.28 forward to the next and final quarterly anniversary date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,644.28, the adjusted Total Annual Income Amount is reset to $5,950.00. 81 In this example, 5% of the December 1 value yields the highest amount of $ 5,950.00. Since this amount is higher than the current year's Total Annual Income Amount of $5,915.49 adjusted for excess withdrawals, the Total Annual Income Amount for the next Annuity Year, starting on December 2, 2007 and continuing through December 1, 2008, will be stepped-up to $5,950.00. Benefits Under the Highest Daily Lifetime Five Benefit . To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Total Annual Income Amount and amounts are still payable under Highest Daily Lifetime Five, we will make an additional payment, if any, for that Annuity Year equal to the remaining Total Annual Income Amount for the Annuity Year. Thus, in that scenario, the remaining Total Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Total Annual Income Amount as described in this section. We will make payments until the death of the single designated life. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Total Annual Income Amount, the Highest Daily Lifetime Five benefit terminates, and no additional payments will be made. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is a Total Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Total Annual Income Amount. We will make payments until the death of the single designated life. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments in the form of a single life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Total Annual Income Amount payments. Such present value will be calculated using the greater of the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will calculate the Total Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. . Please note that if your Annuity has a maximum Annuity Date requirement, payments that we make under this benefit as of that date will be treated as annuity payments. Other Important Considerations . Withdrawals under the Highest Daily Lifetime Five benefit are subject to all of the terms and conditions of the Annuity, including any CDSC. . Withdrawals made while the Highest Daily Lifetime Five Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Highest Daily Lifetime Five Benefit does not directly affect the Account Value or surrender value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity you will receive the current surrender value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Highest Daily Lifetime Five benefit. The Highest Daily Lifetime Five benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Total Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the Permitted Sub-accounts. However, the formula component of the benefit as described below may transfer Account Value to the Benefit Fixed Rate Account as of the effective date of the benefit in some circumstances. . You cannot allocate Purchase Payments or transfer Account Value to or from a Fixed Allocation if you elect this benefit. . Transfers to and from the Sub-accounts and the Benefit Fixed Rate Account triggered by the formula component of the benefit will not count toward the maximum number of free transfers allowable under an Annuity. . In general, you must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the Highest Daily Lifetime Five benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly-adopted requirements. Subsequent to any change in requirements, transfers of Account Value and allocation of additional Purchase Payments may be subject to the new investment limitations. . The charge for Highest Daily Lifetime Five is 0.60% annually, assessed against the average daily net assets of the Sub-accounts and as a reduction to the interest rate credited under the Benefit Fixed Rate Account. This charge is in addition to any other fees under the annuity. 82 Election of and Designations under the Benefit For Highest Daily Lifetime Five, there must be either a single Owner who is the same as the Annuitant, or if the Annuity is entity-owned, there must be a single natural person Annuitant. In either case, the Annuitant must be at least 55 years old. Any change of the Annuitant under the Annuity will result in cancellation of Highest Daily Lifetime Five. Similarly, any change of Owner will result in cancellation of Highest Daily Lifetime Five, except if (a) the new Owner has the same taxpayer identification number as the previous owner (b) both the new Owner and previous Owner are entities or (c) the previous Owner is a natural person and the new Owner is an entity. We no longer permit elections of Highest Daily Lifetime Five. If you wish, you may cancel the Highest Daily Lifetime Five benefit. You may then elect Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator, Spousal Highest Daily Lifetime 7 Plus, or Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option (or any other currently available living benefit) on the Valuation Day after you have cancelled the Highest Daily Lifetime Five benefit, provided the request is received in good order (subject to state availability and any applicable age requirements). Upon cancellation of the Highest Daily Lifetime Five benefit, any Account Value allocated to the Benefit Fixed Rate Account used with the asset transfer formula will be reallocated to the Permitted Sub-Accounts according to your most recent allocation instructions or, in absence of such instructions, pro-rata. Once the Highest Daily Lifetime Five benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Highest Daily Lifetime Five benefit provided that the benefit you are looking to elect is available on a post-issue basis. If you cancel the benefit, you lose all guarantees under the benefit, and your guarantee under any new benefit you elect will be based on your Account Value at that time. Any such new benefit may be more expensive. Termination of the Benefit You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election will apply as described above. The benefit terminates: (i) upon your termination of the benefit (ii) upon your surrender of the Annuity (iii) upon your election to begin receiving annuity payments (iv) upon the death of the Annuitant (v) if both the Account Value and Total Annual Income Amount equal zero or (vi) if you fail to meet our requirements for issuing the benefit. If you terminate the benefit, you will lose the Protected Withdrawal Value, Annual Income Amount, as well as any Enhanced Protected Withdrawal Value and Return of Principal Guarantees. If you cancel the benefit, you lose all guarantees under the benefit, and your guarantee under any new benefit you elect will be based on your Account Value at that time. Upon termination of Highest Daily Lifetime Five, we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the Benefit Fixed Rate Account (as defined below) to your variable investment options, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). Upon termination, we may limit or prohibit investment in the Fixed Allocations. Return of Principal Guarantee If you have not made a withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: (a)your Account Value on the day that you elected Highest Daily Lifetime Five; and (b)the sum of each Purchase Payment you made (including any Credits) during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of our variable investment options and the Benefit Fixed Rate Account (described below), in the same proportion that each such investment option bears to your total Account Value, immediately prior to the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Total Protected Withdrawal Value, your death benefit, or the amount of any other or optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. This potential addition to Account Value is available only if you have elected Highest Daily Lifetime Five and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. Mathematical Formula Component of Highest Daily Lifetime Five As indicated above, we limit the sub-accounts to which you may allocate Account Value if you elect Highest Daily Lifetime Five. For purposes of this benefit, we refer to those permitted sub-accounts as the "Permitted Sub-accounts". As a requirement of 83 participating in Highest Daily Lifetime Five, we require that you participate in our mathematical formula under which we may transfer Account Value between the Permitted Sub-accounts and a fixed interest rate account that is part of our general account (the "Benefit Fixed Rate Account"). This required formula helps us manage our financial exposure under the benefit, by moving assets to a more stable option (i.e., the Benefit Fixed Rate Account). We determine whether to make a transfer, and the amount of any transfer, under a non-discretionary formula, discussed below. The Benefit Fixed Rate Account is available only with this benefit, and thus you may not allocate Purchase Payments to or transfer Account Value to or from the Benefit Fixed Rate Account. The interest rate that we pay with respect to the Benefit Fixed Rate Account is reduced by an amount that corresponds generally to the charge that we assess against your variable Sub-accounts for Highest Daily Lifetime Five. The Benefit Fixed Rate Account is not subject to the Investment Company Act of 1940 or the Securities Act of 1933. Under the formula component of Highest Daily Lifetime Five, we monitor your Account Value daily and, if necessary, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the Benefit Fixed Rate Account. Any transfer would be made in accordance with the formula, which is set forth in the schedule supplement to the endorsement for this benefit (and also appears in the Appendices to this Prospectus). Speaking generally, the formula, which we apply each Valuation Day, operates as follows. The formula starts by identifying your Protected Withdrawal Value for that day and then multiplies that figure by 5%, to produce a projected (i.e., hypothetical) Highest Daily Annual Income Amount. Then, using our actuarial tables, we produce an estimate of the total amount we would target in our allocation model, based on the projected Highest Daily Annual Income Amount each year for the rest of your life. In the formula, we refer to that value as the "Target Value" or "L". If you have already made a withdrawal, your projected Annual Income Amount (and thus your Target Value) would take into account any automatic step-up that was scheduled to occur according to the step-up formula described above. Next, the formula subtracts from the Target Value the amount held within the Benefit Fixed Rate Account on that day, and divides that difference by the amount held within the Permitted Sub-accounts. That ratio, which essentially isolates the amount of your Target Value that is not offset by amounts held within the Benefit Fixed Rate Account, is called the "Target Ratio" or "r". If the Target Ratio exceeds a certain percentage (currently 83%) it means essentially that too much Target Value is not offset by assets within the Benefit Fixed Rate Account, and therefore we will transfer an amount from your Permitted Sub-accounts to the Benefit Fixed Rate Account. Conversely, if the Target Ratio falls below a certain percentage (currently 77%), then a transfer from the Benefit Fixed Rate Account to the Permitted Sub-accounts would occur. Note that the formula is calculated with reference to the Highest Daily Annual Income Amount, rather than with reference to the Annual Income Amount. If you elect the new mathematical formula, see the discussion below regarding the 90% cap. As you can glean from the formula, poor investment performance of your Account Value may result in a transfer of a portion of your variable Account Value to the Benefit Fixed Rate Account, because such poor investment performance will tend to increase the Target Ratio. Moreover, "flat" investment returns of your Account Value over a period of time also could result in the transfer of your Account Value to the Benefit Fixed Rate Account. Because the amount allocated to the Benefit Fixed Rate Account and the amount allocated to the Permitted Sub-accounts each is a variable in the formula, the investment performance of each affects whether a transfer occurs for your Annuity. In deciding how much to transfer, we use another formula, which essentially seeks to re-balance amounts held in the Permitted Sub-accounts and the Benefit Fixed Rate Account so that the Target Ratio meets a target, which currently is equal to 80%. Once you elect Highest Daily Lifetime Five, the ratios we use will be fixed. For newly issued annuities that elect Highest Daily Lifetime Five and existing annuities that elect Highest Daily Lifetime Five, however, we reserve the right to change the ratios. While you are not notified when the formula dictates a transfer, you will receive a confirmation statement indicating the transfer of a portion of your Account Value either to or from the Benefit Fixed Rate Account. The formula is designed primarily to mitigate the financial risks that we incur in providing the guarantee under Highest Daily Lifetime Five. Depending on the results of the formula calculation, we may, on any day: . Not make any transfer between the Permitted Sub-accounts and the Benefit Fixed Rate Account; or . If a portion of your Account Value was previously allocated to the Benefit Fixed Rate Account, transfer all or a portion of those amounts to the Permitted Sub-accounts, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). Amounts taken out of the Benefit Fixed Rate Account will be withdrawn for this purpose on a last-in, first-out basis (an amount renewed into a new guarantee period under the Benefit Fixed Rate Account will be deemed a new investment for purposes of this last-in, first-out rule); or . Transfer all or a portion of your Account Value in the Permitted Sub-accounts pro-rata to the Benefit Fixed Rate Account. The interest that you earn on such transferred amount will be equal to the annual rate that we have set for that day, and we will credit the daily equivalent of that annual interest until the earlier of one year from the date of the transfer or the date that such amount in the Benefit Fixed Rate Account is transferred back to the Permitted Sub-accounts. Therefore, at any given time, some, none, or all of your Account Value may be allocated to the Benefit Fixed Rate Account. If your entire Account Value is transferred to the Benefit Fixed Rate Account, then based on the way the formula operates, the formula will not transfer amounts out of the Benefit Fixed Rate Account to the Permitted Sub-accounts and the entire Account Value would 84 remain in the Benefit Rate Fixed Account. If you make additional Purchase Payments to your Annuity, they will be allocated to the Sub-accounts according to your allocation instructions. Such additional Purchase Payments may or may not cause the formula to transfer money in or out of the Benefit Fixed Rate Account. Once the Purchase Payments are allocated to your Annuity, they will also be subject to the formula, which may result in immediate transfers to or from the Benefit Fixed Rate Account, if dictated by the formula. The amounts of any such transfer will vary, as dictated by the formula, and will depend on the factors listed below. The amount that is transferred to and from the Benefit Fixed Rate Account pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . How long you have owned Highest Daily Lifetime Five; . The performance of the Permitted Sub-accounts you have chosen; . The performance of the Benefit Fixed Rate Account (i.e., the amount of interest credited to the Benefit Fixed Rate Account); . The amount allocated to each of the Permitted Sub-accounts you have chosen; . The amount allocated to the Benefit Fixed Rate Account; . Additional Purchase Payments, if any, you make to your Annuity; . Withdrawals, if any, you take from your Annuity (withdrawals are taken pro rata from your Account Value). Any Account Value in the Benefit Fixed Rate Account will not be available to participate in the investment experience of the Permitted Sub-accounts if there is a recovery until it is moved out of the Benefit Fixed Rate Account. The more of your Account Value allocated to the Benefit Fixed Rate Account under the formula, the greater the impact of the performance of the Benefit Fixed Rate Account (i.e., the amount of interest credited to the Benefit Fixed Rate Account) in determining whether (and how much) of your Account Value is transferred back to the Permitted Sub-accounts. Further, it is possible under the formula, that if a significant portion your Account Value is allocated to the Benefit Fixed Rate Account and that Account has good performance but the performance of your Permitted Sub-accounts is negative, that the formula might transfer your Account Value to the Permitted Sub-accounts. Thus, the converse is true too (the more you have allocated to the Permitted Sub-accounts, the greater the impact of the performance of those Sub-accounts will have on any transfer to the Benefit Fixed Rate Account). Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than 5 percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Total Annual Income Amount, which will cause us to increase the Total Annual Income Amount in any Annuity Year that Required Minimum Distributions due from your Annuity that are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Please note, however, that any withdrawal you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive Enhanced Protected Withdrawal Value and an amount under the Return of Principal Guarantee. Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. However, we do note that if you participate in Highest Daily Lifetime Five through a non-qualified annuity, and your annuity has received Enhanced Protected Withdrawal Value and/or an additional amount under the Return of Principal Guarantee, as with all withdrawals, once all Purchase Payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Optional 90% Cap Rule Feature for the Formula Under Highest Daily Lifetime Five. If you currently participate in the Highest Daily Lifetime Five Income Benefit, you can elect this feature which utilizes a new mathematical formula. The new formula is described below and will (if you elect it) replace the "Transfer Calculation" portion of the mathematical formula currently used in connection with your benefit on a prospective basis. There is no cost to adding this feature to your Annuity. This election may only be made once and may not be revoked once elected. This feature is available subject to state approval. The new formula is found in Appendix C (page C-2). 85 Under the new formula, the formula will not execute a transfer to the Benefit Fixed Rate Account that results in more than 90% of your Account Value being allocated to the Benefit Fixed Rate Account ("90% cap" or "90% cap rule"). Thus, on any Valuation Day, if the formula would require a transfer into the Benefit Fixed Rate Account that would result in more than 90% of the Account Value being allocated to the Benefit Fixed Rate Account, only the amount that results in exactly 90% of the Account Value being allocated to the Benefit Fixed Rate Account will be transferred. Additionally, future transfers into the Benefit Fixed Rate Account will not be made (regardless of the performance of the Benefit Fixed Rate Account and the Permitted Sub-accounts) at least until there is first a transfer out of the Benefit Fixed Rate Account. Once this transfer occurs out of the Benefit Fixed Rate Account, future amounts may be transferred to or from the Benefit Fixed Rate Account if dictated by the formula (subject to the 90% cap). At no time will the formula make a transfer to the Benefit Fixed Rate Account that results in greater than 90% of your Account Value being allocated to the Benefit Fixed Rate Account. However, it is possible that, due to the investment performance of your allocations in the Benefit Fixed Rate Account and your allocations in the Permitted Sub-accounts you have selected, your Account Value could be more than 90% invested in the Benefit Fixed Rate Account. If you make additional purchase payments to your Annuity while the 90% cap is in effect, the formula will not transfer any of such additional purchase payments to the Benefit Fixed Rate Account at least until there is first a transfer out of the Benefit Fixed Rate Account, regardless of how much of your Account Value is in the Permitted Sub-accounts. This means that there could be scenarios under which, because of the additional purchase payments you make, less than 90% of your entire Account Value is allocated to the Benefit Fixed Rate Account, and the formula will still not transfer any of your Account Value to the Benefit Fixed Rate Account (at least until there is first a transfer out of the Benefit Fixed Rate Account). For example: . March 19, 2009 - a transfer is made to the Benefit Fixed Rate Account that results in the 90% cap being met and now $90,000 is allocated to the Benefit Fixed Rate Account and $10,000 is allocated to the Permitted Sub-accounts. . March 20, 2009 - you make an additional purchase payment of $10,000. No transfers have been made from the Benefit Fixed Rate Account to the Permitted Sub-accounts since the cap went into effect on March 19, 2009. . As of March 20, 2009 (and at least until first a transfer is made out of the Benefit Fixed Rate Account under the formula) - the $10,000 payment is allocated to the Permitted Sub-accounts and now you have 82% in the Benefit Fixed Rate Account and 18% in the Permitted Sub-accounts (such that $20,000 is allocated to the Permitted Sub-accounts and $90,000 is allocated to the Benefit Fixed Rate Account). . Once there is a transfer out of the Benefit Fixed Rate Account (of any amount), the formula will operate as described above, meaning that the formula could transfer amounts to or from the Benefit Fixed Rate Account if dictated by the formula (subject to the 90% cap). Under the operation of the formula, the 90% cap may come into existence and may be removed multiple times while you participate in the benefit. We will continue to monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the Benefit Fixed Rate Account as dictated by the formula. Once you elect this feature, the new transfer formula described above and set forth in Appendix F will be the formula for your Annuity. In the event that more than ninety percent (90%) of your Account Value is allocated to the Benefit Fixed Rate Account and you have elected this feature, up to ten percent (10%) of your Account Value currently allocated to the Benefit Fixed Rate Account will be transferred to your Permitted Sub-accounts, such that after the transfer, 90% of your Account Value on the date of the transfer is in the Benefit Fixed Rate Account. The transfer to the Permitted Sub-accounts will be based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). Amounts taken out of the Benefit Fixed Rate Account will be withdrawn for this purpose on a last-in, first-out basis (an amount renewed into a new guarantee period under the Benefit Fixed Rate Account will be deemed a new investment for purposes of this last-in, first-out rule). It is possible that additional transfers might occur after this initial transfer if dictated by the formula. The amounts of such additional transfer(s) will vary. Once the 90% cap rule is met, future transfers into the Benefit Fixed Rate Account will not be made (regardless of the performance of the Benefit Fixed Rate Account and the Permitted Sub-accounts) at least until there is a first transfer out of the Benefit Fixed Rate Account. Once this transfer occurs out of the Benefit Fixed Rate Account, future amounts may be transferred to or from the Benefit Fixed Rate Account if dictated by the formula. Important Considerations When Electing the New Formula: . At any given time, some, most or none of your Account Value may be allocated to the Benefit Fixed Rate Account. . Please be aware that because of the way the new 90% cap formula operates, it is possible that more than or less than 90% of your Account Value may be allocated to the Benefit Fixed Rate Account. . Because the charge for Highest Daily Lifetime Five is assessed against the average daily net assets of the Sub-accounts, that charge will be assessed against all assets transferred into the Permitted Sub-accounts. . If this feature is elected, any Account Value transferred to the Permitted Sub-accounts is subject to the investment performance of those Sub-accounts. Your Account Value can go up or down depending of the performance of the Permitted Sub-accounts you select. 86 HIGHEST DAILY LIFETIME SEVEN/SM/ INCOME BENEFIT (HD 7)/SM/ The income benefit under Highest Daily Lifetime Seven currently is based on a single "designated life" who is at least 55 years old on the date that the benefit is acquired. The Highest Daily Lifetime Seven Benefit is not available if you elect any other optional living benefit, although you may elect any optional death benefit other than the Highest Daily Value death benefit or the Plus40 Life Insurance Rider. As long as your Highest Daily Lifetime Seven Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. For a more detailed description of the permitted investment options, see the Investment options section of this prospectus. Highest Daily Lifetime Seven is only available in those states that have not yet approved Highest Daily Lifetime Seven Plus. We offer a benefit that guarantees until the death of the single designated life the ability to withdraw an annual amount (the "Annual Income Amount") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of market performance on the Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, and wish to ensure that market performance will not affect your ability to receive annual payments. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer benefit in order to participate in Highest Daily Lifetime Seven, and in Appendix J to this prospectus, we set forth the formula under which we make those asset transfers. As discussed below, a key component of Highest Daily Lifetime Seven is the Protected Withdrawal Value. Because each of the Protected Withdrawal Value and Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for the Account Value to fall to zero, even though the Annual Income Amount remains. You are guaranteed to be able to withdraw the Annual Income Amount for the rest of your life, provided that you have not made "excess withdrawals." Excess withdrawals, as discussed below, will reduce your Annual Income Amount. Thus, you could experience a scenario in which your Account Value was zero, and, due to your excess withdrawals, your Annual Income Amount also was reduced to zero. In that scenario, no further amount would be payable under Highest Daily Lifetime Seven. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to calculate the initial Annual Income Amount. On the effective date of the benefit, the Protected Withdrawal Value is equal to your Account Value. On each Valuation Day thereafter, until the earlier of the tenth anniversary of benefit election (the "Tenth Anniversary Date") or the date of the first withdrawal, the Protected Withdrawal Value is equal to the "Periodic Value" described in the next paragraph. The "Periodic Value" initially is equal to the Account Value on the effective date of the benefit. On each Valuation Day thereafter, until the earlier of the first withdrawal or the Tenth Anniversary Date, we recalculate the Periodic Value. We stop determining the Periodic Value upon the earlier of your first withdrawal after the effective date of the benefit or the Tenth Anniversary Date. On each Valuation Day (the "Current Valuation Day"), the Periodic Value is equal to the greater of: (1)the Periodic Value for the immediately preceding business day (the "Prior Valuation Day") appreciated at the daily equivalent of 7% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any adjusted Purchase Payment made on the Current Valuation Day; and (2)the Account Value. If you make a withdrawal prior to the Tenth Anniversary Date, the Protected Withdrawal Value on the date of the withdrawal is equal to the greatest of: (a)the Account Value; or (b)the Periodic Value on the date of the withdrawal. If you have not made a withdrawal on or before the Tenth Anniversary Date, your Protected Withdrawal Value subsequent to the Tenth Anniversary Date is equal to the greatest of: (1)the Account Value; or (2)the Periodic Value on the Tenth Anniversary Date, increased for subsequent adjusted Purchase Payments; or (3)the sum of: (a)200% of the Account Value on the effective date of the benefit; (b)200% of all adjusted Purchase Payments made within one year after the effective date of the benefit; and (c)all adjusted Purchase Payments made after one year following the effective date of the benefit up to the date of the first withdrawal. 87 On and after the date of your first withdrawal, your Protected Withdrawal Value is increased by the amount of any subsequent Purchase Payments, is reduced by withdrawals, including your first withdrawal (as described below), and is increased if you qualify for a step-up (as described below). Irrespective of these calculations, your Protected Withdrawal Value will always be at least equal to your Account Value. Key Feature - Annual Income Amount under the Highest Daily Lifetime Seven Benefit The Annual Income Amount is equal to a specified percentage of the Protected Withdrawal Value. The percentage depends on the age of the Annuitant on the date of the first withdrawal after election of the benefit. The percentages are: 5% for ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. Under the Highest Daily Lifetime Seven benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Withdrawals of any amount up to and including the Annual Income Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the same ratio as the reduction to the Annual Income Amount. A Purchase Payment that you make will (i) increase the then-existing Annual Income Amount by an amount equal to a percentage of the Purchase Payment (including the amount of any associated Credits) based on the age of the Annuitant at the time of the first withdrawal (the percentages are: 5% for ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older) and (ii) increase the Protected Withdrawal Value by the amount of the Purchase Payment (including the amount of any associated Credits). An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as part of this benefit. As detailed in this paragraph, the Highest Quarterly Auto Step-Up feature can result in a larger Annual Income Amount if your Account Value increases subsequent to your first withdrawal. We begin examining the Account Value for purposes of the Highest Quarterly Step-Up starting with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on the Valuation Days corresponding to the end of each quarter that (i) is based on your Annuity Year, rather than a calendar year; (ii) is subsequent to the first withdrawal; and (iii) falls within the immediately preceding Annuity Year. If the end of any such quarter falls on a holiday or a weekend, we use the next Valuation Day. Having identified each of those quarter-end Account Values, we then multiply each such value by a percentage that varies based on the age of the Annuitant on the Annuity Anniversary as of which the step-up would occur. The percentages are 5% for ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. Thus, we multiply each quarterly value by the applicable percentage, adjust each such quarterly value for subsequent withdrawals and Purchase Payments, and then select the highest of those values. If the highest of those values exceeds the existing Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Annual Income Amount intact. In later years, (i.e., after the first Annuity Anniversary after the first withdrawal) we determine whether an automatic step-up should occur on each Annuity Anniversary, by performing a similar examination of the Account Values on the end of the four immediately preceding quarters. At the time that we increase your Annual Income Amount, we also increase your Protected Withdrawal Value to equal the highest quarterly value upon which your step-up was based. If, on the date that we implement a Highest Quarterly Auto Step-Up to your Annual Income Amount, the charge for Highest Daily Lifetime Seven has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Highest Daily Lifetime Seven upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. The Highest Daily Lifetime Seven benefit does not affect your ability to make withdrawals under your Annuity, or limit your ability to request withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime Seven, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. Examples of dollar-for-dollar and proportional reductions, and the Highest Quarterly Auto Step-Up are set forth below. The values depicted here are purely hypothetical, and do not reflect the charges for the Highest Daily Lifetime Seven benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2007 . The Highest Daily Lifetime Seven benefit is elected on March 5, 2008 . The Annuitant was 70 years old when he/she elected the Highest Daily Lifetime Seven benefit. 88 Dollar-for-dollar reductions On May 2, 2008, the Protected Withdrawal Value is $120,000, resulting in an Annual Income Amount of $6,000 (since the Annuitant is younger than 75 at the time of the 1/st/ withdrawal, the Annual Income Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Annual Income Amount for that Annuity Year (up to and including December 1, 2008) is $3,500. This is the result of a dollar-for-dollar reduction of the Annual Income Amount-$6,000 less $2,500 = $3,500. Proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on August 6, 2008 and the Account Value at the time of this withdrawal is $110,000. The first $3,500 of this withdrawal reduces the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount - $1,500 - reduces the Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there were other withdrawals in that Annuity Year, each would result in another proportional reduction to the Annual Income Amount). Here is the calculation: Account Value before withdrawal $110,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $106,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $106,500.00 Ratio 1.41% Annual Income Amount $ 6,000.00 Less ratio of 1.41% $ 84.51 Annual Income Amount for future Annuity Years $ 5,915.49
Highest Quarterly Auto Step-Up On each Annuity Anniversary date, the Annual Income Amount is stepped-up if the appropriate percentage (based on the Annuitant's age on the Annuity Anniversary) of the highest quarterly value since your first withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional Purchase Payments, is higher than the Annual Income Amount, adjusted for excess withdrawals and additional Purchase Payments (plus any Credits). Continuing the same example as above, the Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces this amount to $5,915.49 for future years (see above). For the next Annuity Year, the Annual Income Amount will be stepped-up if 5% (since the youngest Designated Life is younger than 75 on the date of the potential step-up) of the highest quarterly Account Value adjusted for withdrawals, is higher than $5,915.49. Here are the calculations for determining the quarterly values. Only the June 1 value is being adjusted for excess withdrawals as the September 1 and December 1 Valuation Days occur after the excess withdrawal on August 6.
Highest Quarterly Value (adjusted with Adjusted Annual Income withdrawal and Purchase Amount (5% of the Date* Account value Payments)** Highest Quarterly Value) ----- ------------- ----------------------- ------------------------ June 1, 2008 $118,000.00 $118,000.00 $5,900.00 August 6, 2008 $110,000.00 $112,885.55 $5,644.28 September 1, 2008 $112,000.00 $112,885.55 $5,644.28 December 1, 2008 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly valuation dates are every three months thereafter - March 1, June 1, September 1, and December 1. In this example, we do not use the March 1 date as the first withdrawal took place after March 1. The Annuity Anniversary Date of December 1 is considered the fourth and final quarterly valuation date for the year. ** In this example, the first quarterly value after the first withdrawal is $118,000 on June 1, yielding an adjusted Annual Income Amount of $5,900.00. This amount is adjusted on August 6 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $118,000 on June 1 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $114,500 before the excess withdrawal. . This amount ($114,500) is further reduced by 1.41% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Quarterly Value of $112,885.55. . The adjusted Annual Income Amount is carried forward to the next quarterly anniversary date of September 1. At this time, we compare this amount to 5% of the Account Value on September 1. Since the June 1 adjusted Annual Income Amount of $5,644.28 is higher than $5,600.00 (5% of $112,000), we continue to carry $5,644.28 forward to the next and final quarterly anniversary date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,644.28, the adjusted Annual Income Amount is reset to $5,950.00. 89 In this example, 5% of the December 1 value yields the highest amount of $5,950.00. Since this amount is higher than the current year's Annual Income Amount of $5,915.49 adjusted for excess withdrawals, the Annual Income Amount for the next Annuity Year, starting on December 2, 2008 and continuing through December 1, 2009, will be stepped-up to $5,950.00. Benefits Under the Highest Daily Lifetime Seven Benefit . To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount or as a result of the fee that we assess for Highest Daily Lifetime Seven, and amounts are still payable under Highest Daily Lifetime Seven, we will make an additional payment, if any, for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year. Thus, in that scenario, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section. We will make payments until the death of the single designated life. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Highest Daily Lifetime Seven benefit terminates, and no additional payments are made. However, if a withdrawal in the latter scenario was taken to meet required minimum distribution requirements under the Annuity, then the benefit will not terminate, and we will continue to pay the Annual Income Amount in the form of a fixed annuity. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is a Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Annual Income Amount. We will make payments until the death of the single designated life. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments in the form of a single life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Annual Income Amount payments. Such present value will be calculated using the greater of the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will calculate the Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. . Please note that payments that we make under this benefit after the Annuity Anniversary coinciding with or next following the annuitant's 95/th/ birthday will be treated as annuity payments. Other Important Considerations . Withdrawals under the Highest Daily Lifetime Seven benefit are subject to all of the terms and conditions of the Annuity, including any CDSC that may apply. Note that if your withdrawal of the Annual Income Amount in a given Annuity Year exceeds the applicable free withdrawal amount under the Annuity (but is not considered Excess Income), we will not impose any CDSC on the amount of that withdrawal. However, we may impose a CDSC on the portion of a withdrawal that is deemed Excess Income. . Withdrawals made while the Highest Daily Lifetime Seven Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Highest Daily Lifetime Seven Benefit does not directly affect the Account Value or surrender value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity you will receive the current surrender value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Highest Daily Lifetime Seven benefit. The Highest Daily Lifetime Seven benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the permitted Sub-accounts. . You cannot allocate Purchase Payments or transfer Account Value to or from the AST Investment Grade Bond Portfolio Sub-account (see description below) if you elect this benefit. A summary description of the AST Investment Grade Bond Portfolio appears within the Prospectus section entitled "What Are The Investment Objectives and Policies of The Portfolios?". Upon the initial transfer of your Account Value into the AST Investment Grade Bond Portfolio, we will send a prospectus for that Portfolio to you, along with your confirmation. In addition, you can find a copy of the AST Investment Grade Bond Portfolio prospectus by going to www.prudentialannuities.com. 90 . Transfers to and from the elected Sub-accounts and an AST Investment Grade Bond Portfolio Sub-account triggered by the mathematical formula component of the benefit will not count toward the maximum number of free transfers allowable under an Annuity. . You must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the Highest Daily Lifetime Seven benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly adopted requirements. Subject to any change in requirements, transfer of Account Value and allocation of additional Purchase Payments may be subject to new investment limitations. . If you elect this benefit, and in connection with that election you are required to reallocate to different investment options permitted under this benefit, then on the Valuation Day on which we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly-elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly-elected benefit will not arise until the close of business on the following Valuation Day. . The fee for Highest Daily Lifetime Seven is 0.60% annually of the Protected Withdrawal Value. We deduct this fee at the end of each quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.15% of the Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Portfolio Sub-account. Since this fee is based on the Protected Withdrawal Value the fee for Highest Daily Lifetime Seven may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described above. Election of and Designations under the Benefit For Highest Daily Lifetime Seven, there must be either a single Owner who is the same as the Annuitant, or if the Annuity is entity owned, there must be a single natural person Annuitant. In either case, the Annuitant must be at least 55 years old. Any change of the Annuitant under the Annuity will result in cancellation of Highest Daily Lifetime Seven. Similarly, any change of Owner will result in cancellation of Highest Daily Lifetime Seven, except if (a) the new Owner has the same taxpayer identification number as the previous owner (b) ownership is transferred from a custodian to the Annuitant, or vice versa or (c) ownership is transferred from one entity to another entity. If you wish, you may cancel any Highest Daily Lifetime Seven benefit. You may then elect Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator, Spousal Highest Daily Lifetime 7 Plus, or Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option (or any other currently available living benefit) on the Valuation Day after you have cancelled the Highest Daily Lifetime Seven benefit, provided the request is received in good order (subject to state availability and any applicable age requirements). Upon cancellation of any Highest Daily Lifetime Seven benefit, any Account Value allocated to the AST Investment Grade Bond Portfolio Sub-account used with the formula will be reallocated to the Permitted Sub-Accounts according to your most recent allocation instructions or, in absence of such instructions, pro rata. You should be aware that upon termination of Highest Daily Lifetime Seven, you will lose the Protected Withdrawal Value (including the Tenth Anniversary Date Guarantee), Annual Income Amount, and the Return of Principal Guarantee that you had accumulated under the benefit. Thus, the initial guarantees under any newly-elected benefit will be based on your current Account Value at the time you elect a new benefit. Once the Highest Daily Lifetime Seven benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Highest Daily Lifetime Seven benefit provided that the benefit you are looking to elect is available on a post-issue basis. If you cancel the benefit, you lose all guarantees under the benefit, and your guarantee under any new benefit you elect will be based on your Account Value at that time. Any such new benefit may be more expensive. Return of Principal Guarantee If you have not made a withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: a) your Account Value on the day that you elected Highest Daily Lifetime Seven; and b) the sum of each Purchase Payment you made (including any Credits) during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this 91 provision will be allocated to each of your variable investment options (including the bond Sub-account used with this benefit), in the same proportion that each such Sub-account bears to your total Account Value, immediately before the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Protected Withdrawal Value, your death benefit, or the amount of any optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. This potential addition to Account Value is available only if you have elected Highest Daily Lifetime Seven and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. Termination of the Benefit You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election will apply as described above. The benefit terminates: (i) upon your termination of the benefit (ii) upon your surrender of the Annuity (iii) upon your election to begin receiving annuity payments (although if you have elected to the Annual Income Amount in the form of Annuity payments, we will continue to pay the Annual Income Amount) (iv) upon the death of the Annuitant (v) if both the Account Value and Annual Income Amount equal zero or (vi) if you cease to meet our requirements for issuing the benefit (see Elections and Designations under the Benefit). Upon termination of Highest Daily Lifetime Seven other than upon the death of the Annuitant, we impose any accrued fee for the benefit (i.e., the fee for the pro-rated portion of the year since the fee was last assessed), and thereafter we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the AST Investment Grade Bond Portfolio Sub-account to your variable investment options, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). Mathematical Formula Component of Highest Daily Lifetime Seven As indicated above, we limit the Sub-accounts to which you may allocate Account Value if you elect Highest Daily Lifetime Seven. For purposes of the benefit, we refer to those permitted Sub-accounts as the "Permitted Sub-accounts". As a requirement of participating in Highest Daily Lifetime Seven, we require that you participate in our mathematical formula, under which we may transfer Account Value between the Permitted Sub-accounts and a specified bond fund within the Advanced Series Trust (the "AST Investment Grade Bond Sub-account"). We determine whether to make a transfer, and the amount of any transfer, under a non-discretionary formula, discussed below. The AST Investment Grade Bond Sub-account is available only with this benefit, and thus you may not allocate Purchase Payments to the AST Investment Grade Bond Sub-account. Under the formula component of Highest Daily Lifetime Seven, we monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account. Any transfer would be made in accordance with a formula, which is set forth Appendix F to this Prospectus. Speaking generally, the formula, which we apply each Valuation Day, operates as follows. The formula starts by identifying an income basis for that day and then multiplies that figure by 5%, to produce a projected (i.e., hypothetical) income amount. Note that we use 5% in the formula, irrespective of the Annuitant's attained age. Then we produce an estimate of the total amount we would target in our allocation model, based on the projected income amount and factors set forth in the formula. In the formula, we refer to that value as the "Target Value" or "L". If you have already made a withdrawal, your projected income amount (and thus your Target Value) would take into account any automatic step-up, any subsequent purchase payments, and any excess withdrawals. Next, the formula subtracts from the Target Value the amount held within the AST Investment Grade Bond Sub-account on that day, and divides that difference by the amount held within the Permitted Sub-accounts. That ratio, which essentially isolates the amount of your Target Value that is not offset by amounts held within the AST Investment Grade Bond Sub-account, is called the "Target Ratio" or "r". If the Target Ratio exceeds a certain percentage (currently 83%), it means essentially that too much Target Value is not offset by assets within the AST Investment Grade Bond Sub-account, and therefore we will transfer an amount from your Permitted Sub-accounts to the AST Investment Grade Bond Sub-account. Conversely, if the Target Ratio falls below a certain percentage (currently 77%), then a transfer from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts would occur. If you elect the new formula (90% Cap Rule), see the discussion below. As you can glean from the formula, poor investment performance of your Account Value may result in a transfer of a portion of your variable Account Value to the AST Investment Grade Bond Sub-account because such poor investment performance will tend to increase the Target Ratio. Moreover, "flat" investment returns of your Account Value over a period of time also could result in the transfer of your Account Value from the Permitted Sub-accounts to the AST Investment Grade Bond Sub-account. Because the amount allocated to the AST Investment Grade Bond Sub-account and the amount allocated to the Permitted Sub-accounts each is a variable in the formula, the investment performance of each affects whether a transfer occurs for your Annuity. In deciding how much to transfer, we use another formula, which essentially seeks to re-balance amounts held in the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account so that the Target Ratio meets a target, which currently is equal to 80%. Once you 92 elect Highest Daily Lifetime Seven, the ratios we use will be fixed. For newly-issued Annuities that elect Highest Daily Lifetime Seven and existing Annuities that elect Highest Daily Lifetime Seven, however, we reserve the right, subject to any required regulatory approval, to change the ratios. While you are not notified when your Annuity reaches a reallocation trigger, you will receive a confirmation statement indicating the transfer of a portion of your Account Value either to or from the AST Investment Grade Bond Sub-account. The formula by which the reallocation triggers operate is designed primarily to mitigate the financial risks that we incur in providing the guarantee under Highest Daily Lifetime Seven. Depending on the results of the calculation relative to the reallocation triggers, we may, on any day: . Not make any transfer between the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account; or . If a portion of your Account Value was previously allocated to the AST Investment Grade Bond Sub-account, transfer all or a portion of those amounts to the Permitted Sub-accounts, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options); or . Transfer all or a portion of your Account Value in the Permitted Sub-accounts pro rata to the AST Investment Grade Bond Sub-account. Therefore, at any given time, some, none, or all of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. If your entire Account Value is transferred to the AST Investment Grade Bond Sub-account, then based on the way the formula operates, the formula will not transfer amounts out of the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts and the entire Account Value would remain in the AST Investment Grade Bond Sub-account. If you make additional Purchase Payments to your Annuity, they will be allocated to the Sub-accounts according to your allocation instructions. Such additional Purchase Payments may or may not cause the formula to transfer money in or out of the AST Investment Grade Bond Sub-account. Once the Purchase Payments are allocated to your Annuity, they will also be subject to the formula, which may result in immediate transfers to or from the AST Investment Grade Bond Sub-accounts, if dictated by the formula. The amounts of any such transfers will vary (and in some instances, could be large), as dictated by the formula, and will depend on the factors listed below. The amount that is transferred to and from the AST Investment Grade Bond Sub-account pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . How long you have owned Highest Daily Lifetime Seven; . The performance of the Permitted Sub-accounts you have chosen; . The performance of the AST Investment Grade Bond Sub-account; . The amount allocated to each of the Permitted Sub-accounts you have chosen; . The amount allocated to the AST Investment Grade Bond Sub-account; . Additional Purchase Payments, if any, you make to your Annuity; . Withdrawals, if any, you take from your Annuity (withdrawals are taken pro rata from your Account Value). Any Account Value in the AST Investment Grade Bond Sub-account will not be available to participate in the investment experience of the Permitted Sub-accounts if there is a recovery until it is moved out of the AST Investment Grade Bond Sub-account. The more of your Account Value allocated to the AST Investment Grade Bond Sub-account under the formula, the greater the impact of the performance of that Sub-account in determining whether (and how much) of your Account Value is transferred back to the Permitted Sub-accounts. Further, it is possible under the formula, that if a significant portion your Account Value is allocated to the AST Investment Grade Bond Sub-account and that Sub-account has good performance but the performance of your Permitted Sub-accounts is negative, that the formula might transfer your Account Value to the Permitted Sub-accounts. Thus, the converse is true too (the more you have allocated to the Permitted Sub-accounts, the greater the impact of the performance of those Sub-accounts will have on any transfer to the AST Investment Grade Bond Sub-account). Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do 93 not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Please note, however, that any withdrawal you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive the Return of Principal Guarantee and the guaranteed amount described above under "Key Feature - Protected Withdrawal Value". Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. However, we do note that if you participate in Highest Daily Lifetime Seven through a non-qualified annuity, as with all withdrawals, once all Purchase Payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Highest Daily Lifetime Seven/SM/ with Beneficiary Income Option There is an optional death benefit feature under this benefit, the amount of which is linked to your Annual Income Amount. We refer to this optional death benefit as the Beneficiary Income Option or ("BIO"). You may choose Highest Daily Lifetime Seven without also selecting the Beneficiary Income Option death benefit. You must elect the Beneficiary Income Option death benefit at the time you elect Highest Daily Lifetime Seven. Highest Daily Lifetime Seven with Beneficiary Income Option is only available in states that have not yet approved Highest Daily Lifetime 7 Plus with Beneficiary Income Option. If you terminate your Highest Daily Lifetime Seven benefit to elect the Highest Daily Lifetime Seven with Beneficiary Income Option benefit, you will lose the guarantees that you had accumulated under your Highest Daily Lifetime Seven benefit and will begin new guarantees under the Highest Daily Lifetime Seven with BIO benefit based on the Account Value as of the date the new benefit becomes active. This benefit may be elected, provided that all owners and beneficiaries are natural persons or an agent acting for a natural person. If you elect this death benefit, you may not elect any other optional benefit. You may elect the Beneficiary Income Option death benefit so long as the Annuitant is no older than age 75 at the time of election. For purposes of this optional death benefit, we calculate the Annual Income Amount and Protected Withdrawal Value in the same manner that we do under Highest Daily Lifetime Seven itself . Because the fee for this benefit is based on the Protected Withdrawal Value, the fee for Highest Daily Lifetime Seven with the Beneficiary Income Option may be greater than it would have been based on the Account Value alone. Upon a death that triggers payment of a death benefit under the Annuity, we identify the following amounts: (a) the amount of the basic death benefit under the Annuity (b) the Protected Withdrawal Value and (c) the Annual Income Amount. If there were no withdrawals prior to the date of death, then we calculate the Protected Withdrawal Value for purposes of this death benefit as of the date of death, and we calculate the Annual Income Amount as if there were a withdrawal on the date of death. If there were withdrawals prior to the date of death, then we set the Protected Withdrawal Value and Annual Income Amount for purposes of this death benefit as of the date that we receive due proof of death. If there is one beneficiary, he/she must choose to receive either the basic death benefit (in a lump sum or other permitted form of distribution) or the Beneficiary Income Option death benefit (in the form of periodic payments of the Annual Income Amount - such payments may be annual or at other intervals that we permit). If there are multiple beneficiaries, each beneficiary is presented with the same choice. Thus, each beneficiary can choose to take his/her portion of either (a) the basic death benefit or (b) the Beneficiary Income Option death benefit. In order to receive the Beneficiary Income Option death benefit, each beneficiary's share of the death benefit proceeds must be allocated as a percentage of the total death benefit to be paid. We allow a beneficiary who has opted to receive the Annual Income Amount to designate another beneficiary, who would receive any remaining payments upon the former beneficiary's death. Note also that the final payment, exhausting the Protected Withdrawal Value, may be less than the Annual Income Amount. Here is an example to illustrate how the death benefit may be paid: . Assume that (i) the basic death benefit is $50,000, the Protected Withdrawal Value is $100,000, and the Annual Income Amount is $5,000; (ii) there are two beneficiaries (the first designated to receive 75% of the death benefit and the second designated to receive 25% of the death benefit); (iii) the first beneficiary chooses to receive his/her portion of the death benefit in the form of the Annual Income Amount, and the second beneficiary chooses to receive his/her portion of the death benefit with reference to the basic death benefit. . Under those assumptions, the first beneficiary will be paid a pro-rated portion of the Annual Income Amount for 20 years (the 20 year pay out period is derived from the $5,000 Annual Income Amount, paid each year until it exhausts the entire $100,000 Protected Withdrawal Value). The pro-rated portion of the Annual Income Amount, equal to $3,750 annually (i.e., the first beneficiary's 75% share multiplied by $5000), is then paid each year for the 20 year period. Payment of $3,750 for 20 years results in total payments of $75,000 (i.e., the first beneficiary's 75% share of the $100,000 Protected Withdrawal Value). 94 The second beneficiary would receive 25% of the basic death benefit amount (or $12,500). If you elect to terminate Highest Daily Lifetime Seven with Beneficiary Income Option, both Highest Daily Lifetime Seven and that death benefit option will be terminated. You may not terminate the death benefit option without terminating the entire benefit. If you terminate Highest Daily Lifetime Seven with Beneficiary Income Option, your ability to elect other optional living benefits will be affected as indicated in the "Election and Designations under the Benefit" section, above. Highest Daily Lifetime Seven/SM/ with Lifetime Income Accelerator There is another version of Highest Daily Lifetime Seven that we call Highest Daily Lifetime Seven with Lifetime Income Accelerator ("Highest Daily Lifetime Seven with LIA"). Highest Daily Lifetime Seven with Lifetime Income Accelerator is only available in states where Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator is not yet approved. Highest Daily Lifetime Seven with LIA is offered as an alternative to other lifetime withdrawal options. If you elect this benefit, you may not elect any other optional benefit. The income benefit under Highest Daily Lifetime Seven with LIA currently is based on a single "designated life" who is between the ages of 55 and 75 on the date that the benefit is elected. If you terminate your Highest Daily Lifetime Seven Benefit to elect the Highest Daily Lifetime Seven with LIA benefit, you will lose the guarantees that you had accumulated under your Highest Daily Lifetime Seven benefit and will begin the new guarantees under the Highest Daily Lifetime Seven benefit with LIA based on the account value as of the date the new benefit becomes active. Highest Daily Lifetime Seven with LIA is not long-term care insurance and should not be purchased as a substitute for long-term care insurance. The income you receive through the Lifetime Income Accelerator may be used for any purpose, and it may or may not be sufficient to address expenses you may incur for long-term care. You should seek professional advice to determine your financial needs for long-term care. Highest Daily Lifetime Seven with LIA guarantees, until the death of the single designated life, the ability to withdraw an amount equal to double the Annual Income Amount (which we refer to as the "LIA Amount") if you meet the conditions set forth below. If you choose the Highest Daily Lifetime Seven with LIA, the maximum charge is 2.00% of Protected Withdrawal Value ("PWV") annually. We deduct the current charge (0.95% of PWV) at the end of each quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.2375% of the Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Portfolio Sub-account. Since this fee is based on the protected withdrawal value, the fee for Highest Daily Lifetime Seven with LIA may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described below. If this benefit is being elected on an Annuity held as a 403 (b) plan, then in addition to meeting the eligibility requirements listed below for the LIA Amount you must separately qualify for distributions from the 403 (b) plan itself. You may choose Highest Daily Lifetime Seven without also electing LIA, however you may not elect LIA without Highest Daily Lifetime Seven. All terms and conditions of Highest Daily Lifetime Seven apply to this version of the benefit, except as described herein. Currently, if you elect Highest Daily Lifetime Seven with LIA and subsequently terminate the benefit, you will be able to re-elect Highest Daily Lifetime Seven with LIA but all conditions of the benefit described below must be met, and you may be subject to a waiting period until you can elect this or another lifetime withdrawal benefit. Eligibility Requirements for LIA Amount. Both a waiting period of 36 months, from the benefit effective date, and an elimination period of 120 days, from the date of notification that one or both of the requirements described immediately below have been met, apply before you can become eligible for the LIA Amount. Assuming the 36 month waiting period has been met and we have received the notification referenced in the immediately preceding sentence, the LIA amount would be available for withdrawal on the Valuation Day immediately after the 120/th/ day. The waiting period and the elimination period may run concurrently. In addition to satisfying the waiting and elimination period, either or both of the following requirements ("LIA conditions") must be met. It is not necessary to meet both conditions: (1)The designated life is confined to a qualified nursing facility. A qualified nursing facility is a facility operated pursuant to law or any state licensed facility providing medically necessary in-patient care which is prescribed by a licensed physician in writing and based on physical limitations which prohibit daily living in a non-institutional setting. (2)The designated life is unable to perform two or more basic abilities of caring for oneself or "activities of daily living." We define these basic abilities as: i. Eating: Feeding oneself by getting food into the body from a receptacle (such as a plate, cup or table) or by a feeding tube or intravenously. ii.Dressing: Putting on and taking off all items of clothing and any necessary braces, fasteners or artificial limbs. iii.Bathing: Washing oneself by sponge bath; or in either a tub or shower, including the task of getting into or out of the tub or shower. 95 iv.Toileting: Getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene. v. Transferring: Moving into or out of a bed, chair or wheelchair. vi.Continence: Maintaining control of bowel or bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform personal hygiene (including caring for catheter or colostomy bag). You must notify us when the LIA conditions have been met. If, when we receive such notification, there are more than 120 days remaining until the end of the waiting period described above, you will not be eligible for the LIA Amount. If there are 120 days or less remaining until the end of the waiting period when we receive notification that the LIA conditions are met, we will determine eligibility for the LIA Amount through our then current administrative process, which may include, but is not limited to, documentation verifying the LIA conditions and/or an assessment by a third party of our choice. Such assessment may be in person and we will assume any costs associated with the aforementioned assessment. Once eligibility is determined, the LIA Amount is equal to double the Annual Income Amount as described in this prospectus under the Highest Daily Lifetime Seven Benefit. Additionally, we will reassess your eligibility on an annual basis although your LIA benefit for the year that immediately precedes our reassessment will not be affected if it is determined that you are no longer eligible. Your first reassessment may occur in the same year as your initial assessment. If we determine you are no longer eligible to receive the LIA Amount, upon the next Annuity Anniversary the Annual Income Amount would replace the LIA Amount. There is no limit on the number of times you can become eligible for the LIA Amount, however, each time would require the completion of the 120-day elimination period, notification that the designated life meets the LIA conditions, and determination, through our then current administrative process, that you are eligible for the LIA Amount, each as described above. You should also keep in mind that, at the time you are experiencing the LIA conditions that would qualify you for the LIA Amount, you may also be experiencing other disabilities that could impede your ability to conduct your affairs. You may wish to consult with a legal advisor to determine whether you should authorize a fiduciary who could notify us if you meet the LIA conditions and apply for the benefit. LIA amount at the first Withdrawal. If your first withdrawal subsequent to election of Highest Daily Lifetime Seven with LIA occurs while you are eligible for the LIA Amount, the available LIA Amount is equal to double the Annual Income Amount. LIA amount after the First Withdrawal. If you become eligible for the LIA Amount after you have taken your first withdrawal, the available LIA amount for the current and subsequent Annuity Years is equal to double the then current Annual Income Amount, however the available LIA amount in the current Annuity Year is reduced by any withdrawals that have been taken in the current Annuity Year. Cumulative withdrawals in an Annuity Year which are less than or equal to the LIA Amount (when eligible for the LIA amount) will not reduce your LIA Amount in subsequent Annuity Years, but any such withdrawals will reduce the LIA Amount on a dollar-for-dollar basis in that Annuity Year. Withdrawals In Excess of the LIA amount. If your cumulative withdrawals in an Annuity Year are in excess of the LIA Amount when you are eligible ("Excess Withdrawal"), your LIA Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the excess portion of the withdrawal to the Account Value immediately prior to the Excess Withdrawal. Reductions include the actual amount of the withdrawal, including any CDSC that may apply. Withdrawals of any amount up to and including the LIA Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Excess Withdrawals will reduce the Protected Withdrawal Value by the same ratio as the reduction to the LIA Amount. Any withdrawals that are less than or equal to the LIA amount (when eligible) but in excess of the free withdrawal amount available under this Annuity will not incur a CDSC. Withdrawals are not required. However, subsequent to the first withdrawal, the LIA Amount is not increased in subsequent Annuity Years if you decide not to take a withdrawal in an Annuity Year or take withdrawals in an Annuity Year that in total are less than the LIA Amount. Purchase Payments. If you are eligible for the LIA Amount as described under "Eligibility Requirements for LIA Amount" and you make an additional Purchase Payment, we will increase your LIA Amount by double the amount we add to your Annual Income Amount. Step Ups. If your Annual Income Amount is stepped up, your LIA Amount will be stepped up to equal double the stepped up Annual Income Amount. Guarantee Payments. If your Account Value is reduced to zero as a result of cumulative withdrawals that are equal to or less than the LIA Amount, or as a result of the fee that we assess for Highest Daily Lifetime Seven with LIA, and there is still a LIA Amount available, we will make an additional payment for that Annuity Year equal to the remaining LIA Amount. Thus, in that scenario, the remaining LIA Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the LIA Amount as described in this section. We will make payments until the death of the single 96 designated life. Should the designated life no longer qualify for the LIA amount (as described under "Eligibility Requirements for LIA Amount" above), the Annual Income Amount would continue to be available. Subsequent eligibility for the LIA Amount would require the completion of the 120 day elimination period as well as meeting the LIA conditions listed above under "Eligibility Requirements for LIA Amount". To the extent that cumulative withdrawals in the current Annuity Year that reduce your Account Value to zero are more than the LIA Amount (except in the case of required minimum distributions), Highest Daily Lifetime Seven with LIA terminates, and no additional payments are made. Annuity Options. In addition to the Highest Daily Lifetime Seven Annuity Options described above, after the 10/th/ benefit anniversary you may also request that we make annuity payments each year equal to the Annual Income Amount. In any year that you are eligible for the LIA Amount, we make annuity payments equal to the LIA Amount. If you would receive a greater payment by applying your Account Value to receive payments for life under your Annuity, we will pay the greater amount. Prior to the 10/th/ benefit anniversary this option is not available. We will continue to make payments until the death of the Designated Life. If this option is elected, the Annual Income Amount and LIA Amount will not increase after annuity payments have begun. If you elect Highest Daily Lifetime Seven with LIA, and never meet the eligibility requirements you will not receive any additional payments based on the LIA Amount. Optional 90% Cap Rule Feature for Formula for Highest Daily Lifetime Seven If you currently own an Annuity and have elected the Highest Daily Lifetime Seven Income Benefit (including Highest Daily Lifetime Seven with Beneficiary Income Option and Highest Daily Lifetime Seven with Lifetime Income Accelerator) or Spousal Highest Daily Lifetime Seven Income Benefit (including Spousal Highest Daily Lifetime Seven with Beneficiary Income Option), you can elect this feature (subject to state approval) which utilizes a new mathematical formula. The new formula is described below and will replace the "Transfer Calculation" portion of the mathematical formula currently used in connection with your benefit on a prospective basis. This election may only be made once and may not be revoked once elected. The new mathematical formula is added to Appendix F. Under the new formula, the formula will not execute a transfer to the AST Investment Grade Bond Sub-account that results in more than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account ("90% cap" or "90% Cap Rule"). Thus, on any Valuation Day, if the formula would require a transfer to the AST Investment Grade Bond Sub-account that would result in more than 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account, only the amount that results in exactly 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account will be transferred. Additionally, future transfers into the AST Investment Grade Bond Sub-account will not be made (regardless of the performance of the AST Investment Grade Bond Sub-account and the Permitted Sub-accounts) at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. Once this transfer occurs out of the AST Investment Grade Bond Sub-account, future amounts may be transferred to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). At no time will the formula make a transfer to the AST Investment Grade Bond Sub-account that results in greater than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account. However, it is possible that, due to the investment performance of your allocations in the AST Investment Grade Bond Sub-account and your allocations in the Permitted Sub-accounts you have selected, your Account Value could be more than 90% invested in the AST Investment Grade Bond Sub-account. If you make additional purchase payments to your Annuity while the 90% cap is in effect, the formula will not transfer any of such additional purchase payments to the AST Investment Grade Bond Sub-account at least until there is first a transfer out of the AST Investment Grade Bond Sub-account, regardless of how much of your Account Value is in the Permitted Sub-accounts. This means that there could be scenarios under which, because of the additional purchase payments you make, less than 90% of your entire Account Value is allocated to the AST Investment Grade Bond Sub-account, and the formula will still not transfer any of your Account Value to the AST Investment Grade Bond Sub-account (at least until there is first a transfer out of the AST Investment Grade Bond Sub-account). For example, . March 19, 2009 - a transfer is made that results in the 90% cap being met and now $90,000 is allocated to the AST Investment Grade Bond Sub-account and $10,000 is allocated to the Permitted Sub-accounts. . March 20, 2009 - you make an additional purchase payment of $10,000. No transfers have been made from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts since the cap went into effect on March 19, 2009. . As of March 20, 2009 (and at least until first a transfer is made out of the AST Investment Grade Bond Sub-account under the formula) - the $10,000 payment is allocated to the Permitted Sub-accounts and now you have 82% in the AST Investment Grade Bond Sub-account and 18% in the Permitted Sub-accounts (such that $20,000 is allocated to the Permitted Sub-accounts and $90,000 is allocated to the AST Investment Grade Bond Sub-account). . Once there is a transfer out of the AST Investment Grade Bond Sub-account (of any amount), the formula will operate as described above, meaning that the formula could transfer amounts to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). 97 Under the operation of the formula, the 90% cap may come into existence and may be removed multiple times while you participate in the benefit. We will continue to monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account as dictated by the formula. Once you elect this feature, the new transfer formula described above and set forth in Appendix F will be the formula for your Annuity. In the event that more than ninety percent (90%) of your Account Value is allocated to the AST Investment Grade Bond Sub-account and you have elected this feature, up to ten percent (10%) of your Account Value currently allocated to the AST Investment Grade Bond Sub-account will be transferred to your Permitted Sub-accounts, such that after the transfer, 90% of your Account Value on the date of the transfer is in the AST Investment Grade Bond Sub-account. The transfer to the Permitted Sub-accounts will be based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). It is possible that additional transfers might occur after this initial transfer if dictated by the formula. The amounts of such additional transfer(s) will vary. If on the date this feature is elected 100% of your Account Value is allocated to the AST Investment Grade Bond Sub-account, a transfer of an amount equal to 10% of your Account Value will be made to your Permitted Sub-accounts. It is possible that an additional transfer to the permitted Sub-accounts could occur following the Valuation Day, and in some instances (based on the formula) this additional transfer could be large. Once the 90% cap rule is met, future transfers into the AST Investment Grade Bond Sub-account will not be made (regardless of the performance of the AST Investment Grade Bond Sub-account and the Permitted Sub-accounts) at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. Once this transfer occurs out of the AST Investment Grade Bond Sub-account, future amounts may be transferred to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). Important Consideration When Electing the New Formula: . At any given time, some, most or none of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. . Please be aware that because of the way the 90% cap formula operates, it is possible that more than or less than 90% of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. . If this feature is elected, any Account Value transferred to the Permitted Sub-accounts is subject to the investment performance of those Sub-accounts. Your Account Value can go up or down depending of the performance of the Permitted Sub-accounts you select. SPOUSAL HIGHEST DAILY LIFETIME SEVEN/SM/ INCOME BENEFIT (SHD7)/SM/ Spousal Highest Daily Lifetime Seven is the spousal version of Highest Daily Lifetime Seven. Spousal Highest Daily Lifetime Seven is only available in those states that have not yet approved Spousal Highest Daily Lifetime 7 Plus. Spousal Highest Daily Lifetime Seven must be elected based on two Designated Lives, as described below. Each Designated Life must be at least 59 1/2 years old when the benefit is elected. Spousal Highest Daily Lifetime Seven is not available if you elect any other optional living benefit or optional death benefit. As long as your Spousal Highest Daily Lifetime Seven Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. For a more detailed description of permitted investment options, see the Investment options section of this prospectus. The benefit that guarantees until the later death of two natural persons who are each other's spouses at the time of election of the benefit and at the first death of one of them (the "Designated Lives", and each, a "Designated Life") the ability to withdraw an annual amount (the "Annual Income Amount") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of market performance on the Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, wish to ensure that market performance will not affect your ability to receive annual payments, and wish either spouse to be able to continue the Spousal Highest Daily Lifetime Seven benefit after the death of the first spouse. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer benefit in order to participate in Spousal Highest Daily Lifetime Seven, and in Appendix J to this prospectus, we set forth the formula under which we make those asset transfers. As discussed below, a key component of Spousal Highest Daily Lifetime Seven is the Protected Withdrawal Value. Because each of the Protected Withdrawal Value and Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for the Account Value to fall to zero, even though the Annual Income Amount remains. You are guaranteed to be able to withdraw the Annual Income Amount until the death of the second Designated Life, provided that there have not been "excess withdrawals." Excess withdrawals, as discussed below, will reduce your Annual Income Amount. Thus, you could experience a scenario in which your Account Value was zero, and, due to your excess withdrawals, your Annual Income Amount also was reduced to zero. In that scenario, no further amount would be payable under Spousal Highest Daily Lifetime Seven. 98 Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to calculate the initial Annual Income Amount. On the effective date of the benefit, the Protected Withdrawal Value is equal to your Account Value. On each Valuation Day thereafter, until the earlier of the tenth anniversary of benefit election (the "Tenth Anniversary Date") or the date of the first withdrawal, the Protected Withdrawal Value is equal to the "Periodic Value" described in the next paragraph. The "Periodic Value" initially is equal to the Account Value on the effective date of the benefit. On each Valuation Day thereafter, until the earlier of the first withdrawal or the Tenth Anniversary Date, we recalculate the Periodic Value. We stop determining the Periodic Value upon the earlier of your first withdrawal after the effective date of the benefit or the Tenth Anniversary Date. On each Valuation Day (the "Current Valuation Day"), the Periodic Value is equal to the greater of: (1)the Periodic Value for the immediately preceding business day (the "Prior Valuation Day") appreciated at the daily equivalent of 7% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any adjusted Purchase Payment made on the Current Valuation Day; and (2)the Account Value. If you make a withdrawal prior to the Tenth Anniversary Date, the Protected Withdrawal Value on the date of the withdrawal is equal to the greatest of: (1)the Account Value; or (2)the Periodic Value on the date of the withdrawal. If you have not made a withdrawal on or before the Tenth Anniversary Date, your Protected Withdrawal Value subsequent to the Tenth Anniversary Date is equal to the greatest of: (1)the Account Value; or (2)the Periodic Value on the Tenth Anniversary Date, increased for subsequent adjusted Purchase Payments; or (3)the sum of: (a)200% of the Account Value on the effective date of the benefit; (b)200% of all adjusted Purchase Payments made within one year after the effective date of the benefit; and (c)all adjusted Purchase Payments made after one year following the effective date of the benefit up to the date of the first withdrawal. On and after the date of your first withdrawal, your Protected Withdrawal Value is increased by the amount of any subsequent Purchase Payments, is reduced by withdrawals, including your first withdrawal (as described below), and is increased if you qualify for a step-up (as described below). Irrespective of these calculations, your Protected Withdrawal Value will always be at least equal to your Account Value. Key Feature - Annual Income Amount under the Spousal Highest Daily Lifetime Seven Benefit The Annual Income Amount is equal to a specified percentage of the Protected Withdrawal Value. The percentage depends on the age of the youngest Designated Life on the date of the first withdrawal after election of the benefit. The percentages are: 5% for ages 79 and younger, 6% for ages 80 to 84, 7% for ages 85 to 89, and 8% for ages 90 and older. We use the age of the youngest Designated Life even if that Designated Life is no longer a participant under the Annuity due to death or divorce. Under the Spousal Highest Daily Lifetime Seven benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Withdrawals of any amount up to and including the Annual Income Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the same ratio as the reduction to the Annual Income Amount. A Purchase Payment that you make will (i) increase the then-existing Annual Income Amount by an amount equal to a percentage of the Purchase Payment (including the amount of any associated Credits) based on the age of the Annuitant at the time of the first withdrawal (the percentages are: 5% for ages 79 and younger, 6% for ages 80-84, 7% for ages 85-89, and 8% for ages 90 and older) and (ii) increase the Protected Withdrawal Value by the amount of the Purchase Payment (including the amount of any associated Credits). An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as part of this benefit. As detailed in this paragraph, the Highest Quarterly Auto Step-Up feature can result in a larger Annual Income Amount if your Account Value increases 99 subsequent to your first withdrawal. We begin examining the Account Value for purposes of the Highest Quarterly Step-Up starting with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on the Valuation Days corresponding to the end of each quarter that (i) is based on your Annuity Year, rather than a calendar year; (ii) is subsequent to the first withdrawal; and (iii) falls within the immediately preceding Annuity Year. If the end of any such quarter falls on a holiday or a weekend, we use the next Valuation Day. Having identified each of those quarter-end Account Values, we then multiply each such value by a percentage that varies based on the age of the youngest Designated Life on the Annuity Anniversary as of which the step-up would occur. The percentages are 5% for ages 79 and younger, 6% for ages 80-84, 7% for ages 85-89, and 8% for ages 90 and older. Thus, we multiply each quarterly value by the applicable percentage, adjust each such quarterly value for subsequent withdrawals and Purchase Payments, and then select the highest of those values. If the highest of those values exceeds the existing Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Annual Income Amount intact. In later years, (i.e., after the first Annuity Anniversary after the first withdrawal) we determine whether an automatic step-up should occur on each Annuity Anniversary, by performing a similar examination of the Account Values on the end of the four immediately preceding quarters. At the time that we increase your Annual Income Amount, we also increase your Protected Withdrawal Value to equal the highest quarterly value upon which your step-up was based. If, on the date that we implement a Highest Quarterly Auto Step-Up to your Annual Income Amount, the charge for Spousal Highest Daily Lifetime Seven has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Spousal Highest Daily Lifetime Seven upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. The Spousal Highest Daily Lifetime Seven benefit does not affect your ability to make withdrawals under your annuity, or limit your ability to request withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily Lifetime Seven, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. Examples of dollar-for-dollar and proportional reductions, and the Highest Quarterly Auto Step-Up are set forth below. The values depicted here are purely hypothetical, and do not reflect the charges for the Spousal Highest Daily Lifetime Seven benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2007 . The Spousal Highest Daily Lifetime Seven benefit is elected on March 5, 2008. . The youngest Designated Life was 70 years old when he/she elected the Spousal Highest Daily Lifetime Seven benefit. Dollar-for-dollar reductions On May 2, 2008, the Protected Withdrawal Value is $120,000, resulting in an Annual Income Amount of $6,000 (since the youngest Designated Life is younger than 80 at the time of the 1/st/ withdrawal, the Annual Income Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Annual Income Amount for that Annuity Year (up to and including December 1, 2008) is $3,500. This is the result of a dollar-for-dollar reduction of the Annual Income Amount - $6,000 less $2,500 = $3,500. Proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on August 6, 2008 and the Account Value at the time of this withdrawal is $110,000. The first $3,500 of this withdrawal reduces the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount - $1,500 - reduces the Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there were other withdrawals in that Annuity Year, each would result in another proportional reduction to the Annual Income Amount). 100 Here is the calculation: Account Value before withdrawal $110,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $106,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $106,500.00 Ratio 1.41% Annual Income Amount $ 6,000.00 Less ratio of 1.41% $ 84.51 Annual Income Amount for future Annuity Years $ 5,915.49
Highest Quarterly Auto Step-Up On each Annuity Anniversary date, the Annual Income Amount is stepped-up if the appropriate percentage (based on the youngest Designated Life's age on the Annuity Anniversary) of the highest quarterly value since your first withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional Purchase Payments, is higher than the Annual Income Amount, adjusted for excess withdrawals and additional Purchase Payments (plus any Credits). Continuing the same example as above, the Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces this amount to $5,915.49 for future years (see above). For the next Annuity Year, the Annual Income Amount will be stepped-up if 5% (since the youngest Designated Life is younger than 80 on the date of the potential step-up) of the highest quarterly Account Value adjusted for withdrawals, is higher than $5,915.49. Here are the calculations for determining the quarterly values. Only the June 1 value is being adjusted for excess withdrawals as the September 1 and December 1 Valuation Days occur after the excess withdrawal on August 6.
Highest Quarterly Value (adjusted with Adjusted Annual withdrawal and Purchase Income Amount (5% of the Date* Account value Payments)** Highest Quarterly Value) ----- ------------- ----------------------- ------------------------ June 1, 2008 $118,000.00 $118,000.00 $5,900.00 August 6, 2008 $110,000.00 $112,885.55 $5,644.28 September 1, 2008 $112,000.00 $112,885.55 $5,644.28 December 1, 2008 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly valuation dates are every three months thereafter - March 1, June 1, September 1, and December 1. In this example, we do not use the March 1 date as the first withdrawal took place after March 1. The Annuity Anniversary Date of December 1 is considered the fourth and final quarterly valuation date for the year. ** In this example, the first quarterly value after the first withdrawal is $118,000 on June 1, yielding an adjusted Annual Income Amount of $5,900.00. This amount is adjusted on August 6 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $118,000 on June 1 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Total Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $114,500 before the excess withdrawal. . This amount ($114,500) is further reduced by 1.41% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Quarterly Value of $112,885.55. The adjusted Annual Income Amount is carried forward to the next quarterly anniversary date of September 1. At this time, we compare this amount to 5% of the Account Value on September 1. Since the June 1 adjusted Annual Income Amount of $5,644.28 is higher than $5,600.00 (5% of $112,000), we continue to carry $5,644.28 forward to the next and final quarterly anniversary date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,644.28, the adjusted Annual Income Amount is reset to $5,950.00. In this example, 5% of the December 1 value yields the highest amount of $5,950.00. Since this amount is higher than the current year's Annual Income Amount of $5,915.49 adjusted for excess withdrawals, the Annual Income Amount for the next Annuity Year, starting on December 2, 2008 and continuing through December 1, 2009, will be stepped-up to $5,950.00. Benefits Under the Spousal Highest Daily Lifetime Seven Benefit . To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount or as a result of the fee that we assess for Spousal Highest Daily Lifetime Seven, and amounts are still payable under Spousal Highest Daily Lifetime Seven, we will make an additional payment, if any, for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year. Thus, in that scenario, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section. We will make payments until the death of the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. To the extent that cumulative withdrawals in the current Annuity 101 Year that reduced your Account Value to zero are more than the Annual Income Amount, the Spousal Highest Daily Lifetime Seven benefit terminates, and no additional payments will be made. However, if a withdrawal in the latter scenario was taken to meet required minimum distribution requirements under the Annuity, then the benefit will not terminate, and we will continue to pay the Annual Income Amount in the form of a fixed annuity. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is a Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Annual Income Amount. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. If, due to death of a Designated Life or divorce prior to annuitization, only a single Designated Life remains, then Annuity payments will be made as a life annuity for the lifetime of the Designated Life. We must receive your request in a form acceptable to us at our office. In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a joint and survivor or single (as applicable) life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Annual Income Amount payments. Such present value will be calculated using the greater of the joint and survivor or single (as applicable) life fixed annuity rates then currently available or the joint and survivor or single (as applicable) life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will calculate the Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. . Please note that payments that we make under this benefit after the Annuity Anniversary coinciding with or next following the older of the owner or Annuitant's 95/th/ birthday, will be treated as annuity payments. Other Important Considerations . Withdrawals under the Spousal Highest Daily Lifetime Seven benefit are subject to all of the terms and conditions of the Annuity, including any CDSC that may apply. Note that if your withdrawal of the Annual Income Amount in a given Annuity Year exceeds the applicable free withdrawal amount under the Annuity (but is not considered Excess Income), we will not impose any CDSC on the amount of that withdrawal. However, we may impose a CDSC on the portion of a withdrawal that is deemed Excess Income. . Withdrawals made while the Spousal Highest Daily Lifetime Seven Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Spousal Highest Daily Lifetime Seven Benefit does not directly affect the Account Value or surrender value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity you will receive the current surrender value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Spousal Highest Daily Lifetime Seven benefit. The Spousal Highest Daily Lifetime Seven benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the permitted Sub-accounts. . You cannot allocate Purchase Payments or transfer Account Value to or from the AST Investment Grade Bond Portfolio Sub-account (as described below) if you elect this benefit. A summary description of the AST Investment Grade Bond Portfolio appears within the prospectus section entitled "What Are The Investment Objectives and Policies of The Portfolios?". Upon the initial transfer of your Account Value into the AST Investment Grade Bond Portfolio, we will send a prospectus for that Portfolio to you, along with your confirmation. In addition, you can find a copy of the AST Investment Grade Bond Portfolio prospectus by going to www.prudentialannuities.com. . You can make withdrawals from your Annuity without purchasing the Spousal Highest Daily Lifetime Seven benefit. The Spousal Highest Daily Lifetime Seven benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Transfers to and from the elected Sub-accounts and the AST Investment Grade Bond Portfolio Sub-account triggered by the mathematical formula component of the benefit will not count toward the maximum number of free transfers allowable under an Annuity. . You must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the Spousal Highest Daily Lifetime Seven benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to 102 new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly adopted requirements. Subject to any change in requirements, transfers of Account Value and allocation of Additional Purchase Payments may be subject to new investment limitations. . If you elect this benefit, and in connection with that election you are required to reallocate to different investment options permitted under this benefit, then on the Valuation Day on which we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly-elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly-elected benefit will not arise until the close of business on the following Valuation Day. . The fee for Spousal Highest Daily Lifetime Seven is 0.75% annually of the Protected Withdrawal Value. We deduct this fee at the end of each quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.1875% of the Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Sub-account. Since this fee is based on the Protected Withdrawal Value, the fee for Spousal Highest Daily Lifetime Seven may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described above. Election of and Designations under the Benefit. Spousal Highest Daily Lifetime Seven can only be elected based on two Designated Lives. Designated Lives must be natural persons who are each other's spouses at the time of election of the benefit and at the death of the first of the Designated Lives to die. Currently, Spousal Highest Daily Lifetime Seven only may be elected where the Owner, Annuitant, and Beneficiary designations are as follows: . One Annuity Owner, where the Annuitant and the Owner are the same person and the beneficiary is the Owner's spouse. The Owner/Annuitant and the beneficiary each must be at least 59 1/2 years old at the time of election; or . Co-Annuity Owners, where the Owners are each other's spouses. The beneficiary designation must be the surviving spouse, or the spouses named equally. One of the owners must be the Annuitant. Each Owner must each be at least 59 1/2 years old at the time of election; or . One Annuity Owner, where the Owner is a custodial account established to hold retirement assets for the benefit of the Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code (or any successor Code section thereto) ("Custodial Account"), the beneficiary is the Custodial Account, and the spouse of the Annuitant is the Contingent Annuitant. Both the Annuitant and the Contingent Annuitant each must be at least 59 1/2 years old at the time of election. We do not permit a change of Owner under this benefit, except as follows: (a)if one Owner dies and the surviving spousal Owner assumes the Annuity or (b)if the Annuity initially is co-owned, but thereafter the Owner who is not the Annuitant is removed as Owner. We permit changes of beneficiary under this benefit. If the Designated Lives divorce, the Spousal Highest Daily Lifetime Seven benefit may not be divided as part of the divorce settlement or judgment. Nor may the divorcing spouse who retains ownership of the Annuity appoint a new Designated Life upon re-marriage. If you wish, you may cancel any Spousal Highest Daily Lifetime Seven benefit. You may then elect Spousal Highest Daily Lifetime 7 Plus, Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, or Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator (or any other currently available living benefit) on any Valuation Day after you have cancelled the Spousal Highest Daily Lifetime Seven benefit, provided the request is received in good order (subject to state availability and any applicable age requirements). Upon cancellation of any Spousal Highest Daily Lifetime Seven benefit, any Account Value allocated to the AST Investment Grade Bond Portfolio Sub-account used with the asset transfer formula will be reallocated to the Permitted Sub-Accounts according to your most recent allocation instruction or in absence of such instruction, pro-rata. You should be aware that upon termination of Spousal Highest Daily Lifetime Seven, you will lose the Protected Withdrawal Value (including the Tenth Anniversary Date Guarantee), Annual Income Amount, and the Return of Principal Guarantee that you had accumulated under the benefit. Thus, the initial guarantees under any newly-elected benefit will be based on your current Account Value. Once the Spousal Highest Daily Lifetime Seven benefit is cancelled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Spousal Highest Daily Lifetime Seven benefit provided that the benefit you are looking to elect is available on a post-issue basis. Any such new benefit may be more expensive. Return of Principal Guarantee If you have not made a withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: a) your Account Value on the day that you elected Spousal Highest Daily Lifetime Seven; and b) the sum of each Purchase Payment you made (including any Credits) during the one-year period after you elected the benefit. 103 If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of your variable investment options (including the a bond Sub-account used with this benefit), in the same proportion that each such Sub-account bears to your total Account Value, immediately before the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Protected Withdrawal Value, your death benefit, or the amount of any optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. This potential addition to Account Value is available only if you have elected Spousal Highest Daily Lifetime Seven and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. Termination of the Benefit You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election will apply as described above. The benefit terminates: (i) if upon the death of the first Designated Life, the surviving Designated Life opts to take the death benefit under the Annuity (thus, the benefit does not terminate solely because of the death of the first Designated Life) (ii) upon the death of the second Designated Life, (iii) upon your termination of the benefit (although if you have elected to take annuity payments in the form of the Annual Income Amount, we will continue to pay the Annual Income Amount) (iv) upon your surrender of the Annuity (v) upon your election to begin receiving annuity payments (vi) if both the Account Value and Annual Income Amount equal zero or (vii) if you cease to meet our requirements for issuing the benefit (see Election of and Designations under the Benefit). Upon termination of Spousal Highest Daily Lifetime Seven other than upon death of a Designated Life, we impose any accrued fee for the benefit (i.e., the fee for the pro-rated portion of the year since the fee was last assessed), and thereafter we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the AST Investment Grade Bond Portfolio Sub-account (as defined below) to your variable investment options, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). Mathematical Formula Component of Spousal Highest Daily Lifetime Seven As indicated above, we limit the Sub-accounts to which you may allocate Account Value if you elect Spousal Highest Daily Lifetime Seven. For purposes of the benefit, we refer to those permitted Sub-accounts as the "Permitted Sub-accounts". As a requirement of participating in Spousal Highest Daily Lifetime Seven, we require that you participate in our specialized formula, under which we may transfer Account Value between the Permitted Sub-accounts and a specified bond fund within the Advanced Series Trust (the "AST Investment Grade Bond Sub-account"). We determine whether to make a transfer, and the amount of any transfer, under a non-discretionary formula, discussed below. The AST Investment Grade Bond Sub-account is available only with this benefit, and thus you may not allocate Purchase Payments to the AST Investment Grade Bond Sub-account. Under the formula component of Spousal Highest Daily Lifetime Seven, we monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account. Any transfer would be made in accordance with a formula, which is set forth in the Appendices to this prospectus. Speaking generally, the formula, which we apply each Valuation Day, operates as follows. The formula starts by identifying an income basis for that day and then multiplies that figure by 5%, to produce a projected (i.e., hypothetical) income amount. Note that we use 5% in the formula, irrespective of the Annuitant's attained age. Then we produce an estimate of the total amount we would target in our allocation model, based on the projected income amount and factors set forth in the formula. In the formula, we refer to that value as the "Target Value" or "L". If you have already made a withdrawal, your projected income amount (and thus your Target Value) would take into account any automatic step-up, any subsequent purchase payments, and any excess withdrawals. Next, the formula subtracts from the Target Value the amount held within the AST Investment Grade Bond Sub-account on that day, and divides that difference by the amount held within the Permitted Sub-accounts. That ratio, which essentially isolates the amount of your Target Value that is not offset by amounts held within the AST Investment Grade Bond Sub-account, is called the "Target Ratio" or "r". If the Target Ratio exceeds a certain percentage (currently 83%), it means essentially that too much Target Value is not offset by assets within the AST Investment Grade Bond Sub-account, and therefore we will transfer an amount from your Permitted Sub-accounts to the AST Investment Grade Bond Sub-account. Conversely, if the Target Ratio falls below a certain percentage (currently 77%), then a transfer from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts would occur. If you elect the new formula (90% Cap Rule), see the discussion below. As you can glean from the formula, poor investment performance of your Account Value may result in a transfer of a portion of your variable Account Value to the AST Investment Grade Bond Sub-account because such poor investment performance will tend to increase the Target Ratio. Moreover, "flat" investment returns of your Account Value over a period of time also could result in the transfer of your Account Value from the Permitted Sub-accounts to the AST Investment Grade Bond Sub-account. Because the amount allocated to the AST Investment Grade Bond Sub-account and the amount allocated to the Permitted Sub-accounts each is a variable in the formula, the investment performance of each affects whether a transfer occurs for your Annuity. In deciding how 104 much to transfer, we use another formula, which essentially seeks to re-balance amounts held in the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account so that the Target Ratio meets a target, which currently is equal to 80%. Once you elect Spousal Highest Daily Lifetime Seven, the ratios we use will be fixed. For newly-issued Annuities that elect Spousal Highest Daily Lifetime Seven and existing Annuities that elect Spousal Highest Daily Lifetime Seven, however, we reserve the right, subject to regulatory approval, to change the ratios. While you are not notified when your Annuity reaches a reallocation trigger, you will receive a confirmation statement indicating the transfer of a portion of your Account Value either to or from the AST Investment Grade Bond Sub-account. The formula by which the reallocation trigger operates is designed primarily to mitigate the financial risks that we incur in providing the guarantee under Spousal Highest Daily Lifetime Seven. Depending on the results of the calculation relative to the reallocation triggers, we may, on any day: . Not make any transfer between the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account; or . If a portion of your Account Value was previously allocated to the AST Investment Grade Bond Sub-account, transfer all or a portion of those amounts to the Permitted Sub-accounts, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options); or . Transfer all or a portion of your Account Value in the Permitted Sub-accounts pro-rata to the AST Investment Grade Bond Sub-account. Therefore, at any given time, some, none, or all of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. If your entire Account Value is transferred to the AST Investment Grade Bond Sub-account, then based on the way the formula operates, the formula will not transfer amounts out of the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts and the entire Account Value would remain in the AST Investment Grade Bond Sub-account. If you make additional Purchase Payments to your Annuity, they will be allocated to the Sub-accounts according to your allocation instructions. Such additional Purchase Payments may or may not cause the formula to transfer money in or out of the AST Investment Grade Bond Sub-account. Once the Purchase Payments are allocated to your Annuity, they will also be subject to the formula, which may result in immediate transfers to or from the AST Investment Grade Bond Sub-accounts, if dictated by the formula. The amount of any such transfers will vary (and in some instances could be large) as dictated by the formula, and will depend on the factors listed below. The amount that is transferred to and from the AST Investment Grade Bond Sub-account pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . How long you have owned Spousal Highest Daily Lifetime Seven; . The performance of the Permitted Sub-accounts you have chosen; . The performance of the AST Investment Grade Bond Sub-account; . The amount you have allocated to each of the Permitted Sub-accounts you have chosen; . The amount you have allocated to the AST Investment Grade Bond Sub-account; . Additional Purchase Payments, if any, you make to your Annuity; . Withdrawals, if any, you take from your Annuity (withdrawals are taken pro rata from your Account Value). Any Account Value in the AST Investment Grade Bond Sub-account will not be available to participate in the investment experience of the Permitted Sub-accounts if there is a recovery until it is moved out of the AST Investment Grade Bond Sub-account. The more of your Account Value allocated to the AST Investment Grade Bond Sub-account under the formula, the greater the impact of the performance of that Sub-account in determining whether (and how much) of your Account Value is transferred back to the Permitted Sub-accounts. Further, it is possible under the formula, that if a significant portion your Account Value is allocated to the AST Investment Grade Bond Sub-account and that Sub-account has good performance but the performance of your Permitted Sub-accounts is negative, that the formula might transfer your Account Value to the Permitted Sub-accounts. Thus, the converse is true too (the more you have allocated to the Permitted Sub-accounts, the greater the impact of the performance of those Sub-accounts will have on any transfer to the AST Investment Grade Bond Sub-account). Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in 105 any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Please note, however, that any withdrawal you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive the Return of Principal Guarantee and the guaranteed amount described above under "Key Feature - Protected Withdrawal Value". Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this benefit here. However, we do note that if you participate in Spousal Highest Daily Lifetime Seven through a non-qualified annuity, as with all withdrawals, once all Purchase Payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Spousal Highest Daily Lifetime Seven/SM/ with Beneficiary Income Option There is an optional death benefit feature under this benefit, the amount of which is linked to your Annual Income Amount. You may choose Spousal Highest Daily Lifetime Seven without also selecting the Beneficiary Income Option death benefit ("BIO"). If you elect Spousal Highest Daily Lifetime Seven without the Beneficiary Income Option and would like to add this feature later, you must terminate the Spousal Highest Daily Lifetime Seven benefit and elect the Spousal Highest Daily Lifetime Seven with Beneficiary Income Option. Spousal Highest Daily Lifetime Seven with Beneficiary Income Option is only available in those states where Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option is not yet approved. If you terminate your Spousal Highest Daily Lifetime Seven benefit to elect the Spousal Highest Daily Lifetime Seven with Beneficiary Income Option benefit, you will lose all guarantees under the Spousal Highest Daily Lifetime Seven benefit, and will begin new guarantees under the Spousal Highest Daily Lifetime Seven with BIO based on the Account Value as of the date the new benefit becomes active. If you elect the Beneficiary Income Option death benefit, you may not elect any other optional benefit. You may elect the Beneficiary Income Option death benefit so long as each Designated Life is no older than age 75 at the time of election. This death benefit is not transferable in the event of a divorce, nor may the benefit be split in accordance with any divorce proceedings or similar instrument of separation. Since this fee is based on the Protected Withdrawal Value, the fee for Spousal Highest Daily Lifetime Seven with BIO may be greater than it would have been, had it been based on the Account Value alone. For purposes of the Beneficiary Income Option death benefit, we calculate the Annual Income Amount and Protected Withdrawal Value in the same manner that we do under Spousal Highest Daily Lifetime Seven itself. Upon the first death of a Designated Life, no amount is payable under the Beneficiary Income Option death benefit. Upon the second death of a Designated Life, we identify the following amounts: (a) the amount of the base death benefit under the Annuity (b) the Protected Withdrawal Value and (c) the Annual Income Amount. If there were no withdrawals prior to the date of death, then we calculate the Protected Withdrawal Value for purposes of this death benefit as of the date of death, and we calculate the Annual Income Amount as if there were a withdrawal on the date of death. If there were withdrawals prior to the date of death, then we set the Protected Withdrawal Value and Annual Income Amount for purposes of this death benefit as of the date that we receive due proof of death. If there is one beneficiary, he/she must choose to receive either the base death benefit (in a lump sum or other permitted form of distribution) or the Beneficiary Income Option death benefit (in the form of annual payment of the Annual Income Amount - such payments may be annual or at other intervals that we permit). If there are multiple beneficiaries, each beneficiary is presented with the same choice. Thus, each beneficiary can choose to take his/her portion of either (a) the basic death benefit or (b) the Beneficiary Income Option death benefit. In order to receive the Beneficiary Income Option death benefit, each beneficiary's share of the death benefit proceeds must be allocated as a percentage of the total death benefit to be paid. We allow a beneficiary who has opted to receive the Annual Income Amount to designate another beneficiary, who would receive any remaining payments upon the former beneficiary's death. Note also that the final payment, exhausting the Protected Withdrawal Value, may be less than the Annual Income Amount. Here is an example to illustrate how the death benefit may be paid: . Assume that (i) the basic death benefit is $50,000, the Protected Withdrawal Value is $100,000, and the Annual Income Amount is $5,000; (ii) there are two beneficiaries (the first designated to receive 75% of the death benefit and the second designated to receive 25% of the death benefit); (iii) the first beneficiary chooses to receive his/her portion of the death benefit in the form of the Annual Income Amount, and the second beneficiary chooses to receive his/her portion of the death benefit with reference to the basic death benefit. . Under those assumptions, the first beneficiary will be paid a pro-rated portion of the Annual Income Amount for 20 years (the 20 year pay out period is derived from the $5,000 Annual Income Amount, paid each year until it exhausts the entire $100,000 Protected Withdrawal Value). 106 The pro-rated portion of the Annual Income Amount equal to $3,750 (i.e., the first beneficiary's 75% share multiplied by $5,000) is then paid each year for the 20 year period. Payment of $3,750 for 20 years results in total payments of $75,000 (i.e., the first beneficiary's 75% share of the $100,000 Protected Withdrawal Value). The second beneficiary would receive 25% of the basic death benefit amount (or $12,500). If you elect to terminate Spousal Highest Daily Lifetime Seven with Beneficiary Income Option, both Spousal Highest Daily Lifetime Seven and that death benefit option will be terminated. You may not terminate the death benefit option without terminating the entire benefit. If you terminate Spousal Highest Daily Lifetime Seven with Beneficiary Income Option, your ability to elect other optional living benefits will be affected as indicated in the "Election of and Designations under the Benefit" section, above. Optional 90% Cap Rule Feature for the Formula for Spousal Highest Daily Lifetime Seven If you currently own an Annuity and have elected Spousal Highest Daily Lifetime Seven Income Benefit (including Spousal Highest Daily Lifetime Seven with Beneficiary Income Option), you can elect this feature which utilizes a new mathematical formula. The new formula is described below and will replace the "Transfer Calculation" portion of the formula currently used in connection with your benefit on a prospective basis. This election may only be made once and may not be revoked once elected. The new formula appears in Appendix F of this prospectus. Under the new formula, the formula will not execute a transfer to the AST Investment Grade Bond Sub-account that results in more than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account ("90% cap"). Thus, on any Valuation Day, if the formula would require a transfer to the AST Investment Grade Bond Sub-account that would result in more than 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account, only the amount that results in exactly 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account will be transferred. Additionally, future transfers into the AST Investment Grade Bond Sub-account will not be made (regardless of the performance of the AST Investment Grade Bond Sub-account and the Permitted Sub-accounts) at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. Once this transfer occurs out of the AST Investment Grade Bond Sub-account, future amounts may be transferred to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). At no time will the formula make a transfer to the AST Investment Grade Bond Sub-account that results in greater than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account. However, it is possible that, due to the investment performance of your allocations in the AST Investment Grade Bond Sub-account and your allocations in the Permitted Sub-accounts you have selected, your Account Value could be more than 90% invested in the AST Investment Grade Bond Sub-account. If you make additional purchase payments to your Annuity while the 90% cap is in effect, the formula will not transfer any of such additional purchase payments to the AST Investment Grade Bond Sub-account at least until there is first a transfer out of the AST Investment Grade Bond Sub-account, regardless of how much of your Account Value is in the Permitted Sub-accounts. This means that there could be scenarios under which, because of the additional purchase payments you make, less than 90% of your entire Account Value is allocated to the AST Investment Grade Bond Sub-account, and the formula will still not transfer any of your Account Value to the AST Investment Grade Bond Sub-account (at least until there is first a transfer out of the AST Investment Grade Bond Sub-account). For example, . March 19, 2009 - a transfer is made that results in the 90% cap being met and now $90,000 is allocated to the AST Investment Grade Bond Sub-account and $10,000 is allocated to the Permitted Sub-accounts. . March 20, 2009 - you make an additional purchase payment of $10,000. No transfers have been made from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts since the cap went into effect on March 19, 2009. . As of March 20, 2009 (and at least until first a transfer is made out of the AST Investment Grade Bond Sub-account under the formula) - the $10,000 payment is allocated to the Permitted Sub-accounts and now you have 82% in the AST Investment Grade Bond Sub-account and 18% in the Permitted Sub-accounts (such that $20,000 is allocated to the Permitted Sub-accounts and $90,000 is allocated to the AST Investment Grade Bond Sub-account). . Once there is a transfer out of the AST Investment Grade Bond Sub-account (of any amount), the formula will operate as described above, meaning that the formula could transfer amounts to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). Under the operation of the formula, the 90% cap may come into existence and may be removed multiple times while you participate in the benefit. We will continue to monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account as dictated by the formula. Once you elect this feature, the new transfer formula described above and set forth in Appendix F will be the formula for your Annuity. In the event that more than ninety percent (90%) of your Account Value is allocated to the AST Investment Grade Bond Sub-account and you have elected this feature, up to ten percent (10%) of your Account Value currently allocated to the AST 107 Investment Grade Bond Sub-account will be transferred to your Permitted Sub-accounts, such that after the transfer, 90% of your Account Value on the date of the transfer is in the AST Investment Grade Bond Sub-account. The transfer to the Permitted Sub-accounts will be based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). It is possible that additional transfers might occur after this initial transfer if dictated by the formula. The amounts of such additional transfer(s) will vary. If on the date this feature is elected 100% of your Account Value is allocated to the AST Investment Grade Bond Sub-account, a transfer of an amount equal to 10% of your Account Value will be made to your Permitted Sub-accounts. It is possible that an additional transfer to the permitted Sub-accounts could occur following the Valuation Day, and in some instances (based on the formula) this additional transfer could be large. Once the 90% cap rule is met, future transfers into the AST Investment Grade Bond Sub-account will not be made (regardless of the performance of the AST Investment Grade Bond Sub-account and the Permitted Sub-accounts) at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. Once this transfer occurs out of the AST Investment Grade Bond Sub-account, future amounts may be transferred to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). Important Consideration When Electing The New Formula: . At any given time, some, most or none of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. . Please be aware that because of the way the 90% cap formula operates, it is possible that more than or less than 90% of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. . If this feature is elected, any Account Value transferred to the Permitted Sub-accounts is subject to the investment performance of those Sub-accounts. Your Account Value can go up or down depending of the performance of the Permitted Sub-accounts you select. HIGHEST DAILY LIFETIME 7 PLUS/SM/ INCOME BENEFIT (HD 7 Plus)/SM/ Highest Daily Lifetime 7 Plus is offered as a replacement to Highest Daily Lifetime Seven in those jurisdictions where we have received regulatory approval. Currently, if you elect Highest Daily Lifetime 7 Plus and subsequently terminate the benefit, you may elect another lifetime withdrawal benefit, subject to our current rules. See "Election of and Designations under the Benefit" and "Termination of Existing Benefits and Election of New Benefits" below for details. Please note that if you terminate Highest Daily Lifetime 7 Plus and elect another lifetime benefit, you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. The income benefit under Highest Daily Lifetime 7 Plus currently is based on a single "designated life" who is at least 45 years old on the date that the benefit is acquired. The Highest Daily Lifetime 7 Plus Benefit is not available if you elect any other optional living benefit, although you may elect any optional death benefit other than the Plus 40 life insurance rider and Highest Daily Value death benefit. As long as your Highest Daily Lifetime 7 Plus Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. For a more detailed description of the permitted investment options, see the "Investment Options" section in this prospectus. We offer a benefit that guarantees until the death of the single designated life (the Annuitant) the ability to withdraw an annual amount (the "Annual Income Amount") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of Sub-account performance on the Account Value, subject to our rules regarding the timing and amount of withdrawals. You are guaranteed to be able to withdraw the Annual Income Amount for the rest of your life ("Lifetime Withdrawals"), provided that you have not made "excess withdrawals" that have resulted in your Account Value being reduced to zero. We also permit you to make a one-time Non-Lifetime Withdrawal from your Annuity prior to taking Lifetime Withdrawals under the benefit. Highest Daily Lifetime 7 Plus may be appropriate if you intend to make periodic withdrawals from your Annuity, and wish to ensure that Sub-account performance will not affect your ability to receive annual payments. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer program in order to participate in Highest Daily Lifetime 7 Plus. Although you are guaranteed the ability to withdraw your Annual Income Amount for life even if your Account Value falls to zero, if you take an excess withdrawal that brings your Account Value to zero, it is possible that your Annual Income Amount could also fall to zero. In that scenario, no further amount would be payable under the Highest Daily Lifetime 7 Plus benefit. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to calculate the initial Annual Income Amount. The Protected Withdrawal Value is separate from your Account Value and not available as cash or a lump sum. On the effective date of the benefit, the Protected Withdrawal Value is equal to your Account Value. On each Valuation Day thereafter until the date of your first Lifetime Withdrawal (excluding any Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is equal to the "Periodic Value" described in the next paragraphs. 108 The "Periodic Value" initially is equal to the Account Value on the effective date of the benefit. On each Valuation Day thereafter until the first Lifetime Withdrawal, we recalculate the Periodic Value. We stop determining the Periodic Value upon your first Lifetime Withdrawal after the effective date of the benefit. On each Valuation Day (the "Current Valuation Day"), the Periodic Value is equal to the greater of: (1)the Periodic Value for the immediately preceding business day (the "Prior Valuation Day") appreciated at the daily equivalent of 7% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any adjusted Purchase Payment made on the Current Valuation Day (the Periodic Value is proportionally reduced for any Non-Lifetime Withdrawal); and (2)the Account Value. If you have not made a Lifetime Withdrawal on or before the 10/th/, 20/th/, or 25/th/ Anniversary of the effective date of the benefit, your Periodic Value on the 10/th/, 20/th/, or 25/th/ Anniversary of the benefit effective date is equal to the greater of: (1)the Periodic Value described above or, (2)the sum of (a), (b) and (c) below (proportionally reduced for any Non-Lifetime Withdrawals): (a)200% (on the 10/th/ anniversary), 400% (on the 20/th/ anniversary) or 600% (on the 25/th/ anniversary) of the Account Value on the effective date of the benefit; (b)200% (on the 10/th/ anniversary), 400% (on the 20/th/ anniversary) or 600% (on the 25/th/ anniversary) of all adjusted Purchase Payments made within one year following the effective date of the benefit; and (c)all adjusted Purchase Payments made after one year following the effective date of the benefit. If you elect Highest Daily Lifetime 7 Plus with Beneficiary Income Option ("BIO") (see below), we will stop determining the Periodic Value (as described above) on the earlier of your first Lifetime Withdrawal after the effective date of the benefit or the Tenth Anniversary of the effective date of the benefit ("Tenth Anniversary"). This means that under the Highest Daily Lifetime 7 Plus with BIO benefit you will not be eligible for the guaranteed minimum Periodic Values described above on the 20/th/ and 25/th/ Anniversary of the Benefit Effective Date. On and after the date of your first Lifetime Withdrawal, your Protected Withdrawal Value is increased by the amount of any subsequent Purchase Payments, is reduced by withdrawals, including your first Lifetime Withdrawal (as described below), and may be increased if you qualify for a step-up (as described below). Return of Principal Guarantee If you have not made a Lifetime Withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: a) your Account Value on the day that you elected Highest Daily Lifetime 7 Plus proportionally reduced for any Non-Lifetime Withdrawal; and b) the sum of each Purchase Payment proportionally reduced for any subsequent Non-Lifetime Withdrawal (including the amount of any associated Credits) you made during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of your variable investment options (including the AST Investment Grade Bond Sub-account), in the same proportion that each such Sub-account bears to your total Account Value, immediately before the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Protected Withdrawal Value, your death benefit, or the amount of any optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. Because the amount is added to Account Value, it will also be subject to each charge under your Annuity based on Account Value. This potential addition to Account Value is available only if you have elected Highest Daily Lifetime 7 Plus and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal (other than a Non-Lifetime Withdrawal) prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. The Return of Principal Guarantee is referred to as the Guaranteed Minimum Account Value Credit in the benefit rider. Key Feature - Annual Income Amount under the Highest Daily Lifetime 7 Plus Benefit The Annual Income Amount is equal to a specified percentage of the Protected Withdrawal Value. The percentage initially depends on the age of the Annuitant on the date of the first Lifetime Withdrawal after election of the benefit. The percentages are: 4% for ages 45 - less than 59 1/2, 5% for ages 59 1/2 - 74, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. Under the Highest Daily Lifetime 7 Plus benefit, if your cumulative Lifetime Withdrawals in an Annuity Year are less than or 109 equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative Lifetime Withdrawals in an Annuity Year are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions for this Annuity that comply with our rules) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions are based on the actual amount of the withdrawal, including any CDSC that may apply. Lifetime Withdrawals of any amount up to and including the Annual Income Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the same ratio as the reduction to the Annual Income Amount. Note that if your withdrawal of the Annual Income Amount in a given Annuity Year exceeds the applicable free withdrawal amount under the Annuity (but is not considered Excess Income), we will not impose any CDSC on the amount of that withdrawal. You may use the Systematic Withdrawal program to make withdrawals of the Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime Withdrawal under this benefit. Any Purchase Payment that you make subsequent to the election of Highest Daily Lifetime 7 Plus will (i) increase the then-existing Annual Income Amount by an amount equal to a percentage of the Purchase Payment (including the amount of any associated Credits) based on the age of the Annuitant at the time of the first Lifetime Withdrawal (the percentages are: 4% for ages 45 - less than 59 1/2, 5% for ages 59 1/2 - 74, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older) and (ii) increase the Protected Withdrawal Value by the amount of the Purchase Payment (including the amount of any associated Credits). Highest Daily Auto Step-Up An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest Daily Lifetime 7 Plus. As detailed in this paragraph, the Highest Daily Auto Step-Up feature can result in a larger Annual Income Amount subsequent to your first Lifetime Withdrawal. The Highest Daily Auto Step-Up starts with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first Lifetime Withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on each Valuation Day within the immediately preceding Annuity Year after your first Lifetime Withdrawal. Having identified the highest daily value (after all daily values have been adjusted for subsequent purchase payments and withdrawals), we then multiply that value by a percentage that varies based on the age of the Annuitant on the Annuity Anniversary as of which the step-up would occur. The percentages are: 4% for ages 45 - less than 59 1/2, 5% for ages 59 1/2-74, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. If that value exceeds the existing Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Annual Income Amount intact. The Account Value on the Annuity Anniversary is considered the last daily step-up value of the Annuity Year. All daily valuations and annual step-ups will only occur on a Valuation Day. In later years (i.e., after the first Annuity Anniversary after the first Lifetime Withdrawal), we determine whether an automatic step-up should occur on each Annuity Anniversary, by performing a similar examination of the Account Values that occurred on Valuation Days during the year. At the time that we increase your Annual Income Amount, we also increase your Protected Withdrawal Value to equal the highest daily value upon which your step-up was based only if that results in an increase to the Protected Withdrawal Value. Your Protected Withdrawal Value will never be decreased as a result of an income step-up. If, on the date that we implement a Highest Daily Auto Step-Up to your Annual Income Amount, the charge for Highest Daily Lifetime 7 Plus has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Highest Daily Lifetime 7 Plus upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. If you establish a Systematic Withdrawal program, we will not automatically increase the withdrawal amount when there is an increase to the Annual Income Amount. The Highest Daily Lifetime 7 Plus benefit does not affect your ability to make withdrawals under your Annuity, or limit your ability to request withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime 7 Plus, if your cumulative Lifetime Withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount in any Annuity Year, you cannot carry over the unused portion of the Annual Income Amount to subsequent Annuity Years. Because each of the Protected Withdrawal Value and Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for the Account Value to fall to zero, even though the Annual Income Amount remains. 110 Examples of dollar-for-dollar and proportional reductions, and the Highest Daily Auto Step-Up are set forth below. The values shown here are purely hypothetical, and do not reflect the charges for the Highest Daily Lifetime 7 Plus benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2008 . The Highest Daily Lifetime 7 Plus benefit is elected on March 5, 2009 . The Annuitant was 70 years old when he/she elected the Highest Daily Lifetime 7 Plus benefit. Example of dollar-for-dollar reductions On November 24, 2009, the Protected Withdrawal Value is $120,000, resulting in an Annual Income Amount of $6,000 (since the Annuitant is between the ages of 59 1/2 and 74 at the time of the first Lifetime Withdrawal, the Annual Income Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Annual Income Amount for that Annuity Year (up to and including December 1, 2009) is $3,500. This is the result of a dollar-for-dollar reduction of the Annual Income Amount ($6,000 less $2,500 = $3,500). Example of proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on November 27, 2009 and the Account Value at the time and immediately prior to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount of $1,500 - reduces the Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there are other future withdrawals in that Annuity Year, each would result in another proportional reduction to the Annual Income Amount). Here is the calculation: Account Value before Lifetime Withdrawal $118,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $114,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $114,500.00 Ratio 1.31% Annual Income Amount $ 6,000.00 Less ratio of 1.31% $ 78.60 Annual Income Amount for future Annuity Years $ 5,921.40
Example of highest daily auto step-up On each Annuity Anniversary date, the Annual Income Amount is stepped-up if the appropriate percentage (based on the Annuitant's age on the Annuity Anniversary) of the highest daily value since your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional Purchase Payments, is higher than the Annual Income Amount, adjusted for excess withdrawals and additional Purchase Payments (including the amount of any associated Credits). Continuing the same example as above, the Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on November 27 reduces the amount to $5,921.40 for future years (see above). For the next Annuity Year, the Annual Income Amount will be stepped up if 5% (since the designated life is between 59 1/2 and 74 on the date of the potential step-up) of the highest daily Account Value adjusted for withdrawals and Purchase Payments (including the amount of any associated Credits), is higher than $5,921.40. Here are the calculations for determining the daily values. Only the November 25 value is being adjusted for excess withdrawals as the November 30 and December 1 Valuation Days occur after the excess withdrawal on November 27.
Highest Daily Value (adjusted with Adjusted Annual withdrawal and Purchase Income Amount (5% of the Date* Account value Payments)** Highest Daily Value) ----- ------------- ----------------------- ------------------------ November 25, 2009 $119,000.00 $ 119,000.00 $5,950.00 November 26, 2009 Thanksgiving Day November 27, 2009 $113,000.00 $ 113,986.95 $5,699.35 November 30, 2009 $113,000.00 $ 113,986.95 $5,699.35 December 01, 2009 $119,000.00 $ 119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The Valuation Dates are every day following the first Lifetime Withdrawal. In subsequent Annuity Years Valuation Dates will be every day following the Annuity Anniversary. The Annuity Anniversary Date of December 1 is considered the final Valuation Date for the Annuity Year. 111 ** In this example, the first daily value after the first Lifetime Withdrawal is $119,000 on November 25, resulting in an adjusted Annual Income Amount of $5,950.00. This amount is adjusted on November 27 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $119,000 on November 25 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $115,500 before the excess withdrawal. . This amount ($115,500) is further reduced by 1.31% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Daily Value of $113,986.95. . The adjusted Annual Income Amount is carried forward to the next Valuation Date of November 30. At this time, we compare this amount to 5% of the Account Value on November 30. Since the November 27 adjusted Annual Income Amount of $5,699.35 is higher than $5,650.00 (5% of $113,000), we continue to carry $5,699.35 forward to the next and final Valuation Date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,699.35, the adjusted Annual Income Amount is reset to $5,950.00. In this example, 5% of the December 1 value results in the highest amount of $5,950.00. Since this amount is higher than the current year's Annual Income Amount of $5,921.40 adjusted for excess withdrawals, the Annual Income Amount for the next Annuity Year, starting on December 2, 2009 and continuing through December 1, 2010, will be stepped-up to $5,950.00. Non-Lifetime Withdrawal Feature You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal") under Highest Daily Lifetime 7 Plus. It is an optional feature of the benefit that you can only elect at the time of your first withdrawal. The amount of the Non-Lifetime Withdrawal cannot be more than the amount that would cause the Annuity to be taken below the minimum Surrender Value after a withdrawal for your Annuity. This Non-Lifetime Withdrawal will not establish your initial Annual Income Amount and the Periodic Value described above will continue to be calculated. However, the total amount of the withdrawal will proportionally reduce all guarantees associated with the Highest Daily Lifetime 7 Plus benefit. You must tell us if your withdrawal is intended to be the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under the Highest Daily Lifetime 7 Plus benefit. If you don't elect the Non-Lifetime Withdrawal, the first withdrawal you make will be the first Lifetime Withdrawal that establishes your Protected Withdrawal Value and Annual Income Amount. Once you elect to take the Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may be taken. The Non-Lifetime Withdrawal will proportionally reduce the Protected Withdrawal Value, the Return of Principal guarantee, and the Periodic Value guarantees on the tenth, twentieth and twenty-fifth anniversaries of the benefit effective date, described above, by the percentage the total withdrawal amount (including any applicable CDSC) represents of the then current Account Value immediately prior to the withdrawal. If you are participating in a Systematic Withdrawal program, the first withdrawal under the program cannot be classified as the Non-Lifetime Withdrawal. The first partial withdrawal in payment of any third party investment advisory service from your Annuity also cannot be classified as the Non-Lifetime Withdrawal. Example - Non-Lifetime Withdrawal (proportional reduction) This example is purely hypothetical and does not reflect the charges for the benefit or any other fees and charges. It is intended to illustrate the proportional reduction of the Non-Lifetime Withdrawal under this benefit. Assume the following: . The Issue Date is December 1, 2008 . The Highest Daily Lifetime 7 Plus benefit is elected on March 5, 2009 . The Account Value at benefit election was $105,000 . The Annuitant was 70 years old when he/she elected the Highest Daily Lifetime 7 Plus benefit. . No previous withdrawals have been taken under the Highest Daily Lifetime 7 Plus benefit. On May 2, 2009, the Protected Withdrawal Value is $125,000, the 10/th/ benefit year minimum Periodic Value guarantee is $210,000, the 10/th/ benefit year Return of Principal guarantee is $105,000, the 20/th/ benefit year minimum Periodic Value guarantee is $420,000, the 25/th/ benefit year minimum Periodic Value guarantee is $630,000 and the Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on May 2, 2009 and is designated as a Non-Lifetime Withdrawal, all guarantees associated with the Highest Daily Lifetime 7 Plus benefit will be reduced by the ratio the total withdrawal amount represents of the Account Value just prior to the withdrawal being taken. 112 Here is the calculation: Withdrawal Amount divided by $ 15,000 Account Value before withdrawal $120,000 Equals ratio 12.5% All guarantees will be reduced by the above ratio (12.5%) Protected Withdrawal Value $109,375 10/th/ benefit year Return of Principal $ 91,875 10/th/ benefit year Minimum Periodic Value $183,750 20/th/ benefit year Minimum Periodic Value $367,500 25/th/ benefit year Minimum Periodic Value $551,250
Benefits Under Highest Daily Lifetime 7 Plus . To the extent that your Account Value was reduced to zero as a result of cumulative Lifetime Withdrawals in an Annuity Year that are less than or equal to the Annual Income Amount or as a result of the fee that we assess for Highest Daily Lifetime 7 Plus, and amounts are still payable under Highest Daily Lifetime 7 Plus, we will make an additional payment, if any, for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year. If you have not begun taking Lifetime Withdrawals and your Account Value is reduced to zero as a result of the fee we assess for Highest Daily Lifetime 7 Plus, we will calculate the Annual Income Amount as if you made your first Lifetime Withdrawal on the date the Account Value was reduced to zero and Lifetime Withdrawals will begin on the next Annuity anniversary. If this were to occur, you are not permitted to make additional purchase payments to your Annuity. Thus, in these scenarios, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section. We will make payments until the death of the single designated life. To the extent that cumulative withdrawals in the Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Highest Daily Lifetime 7 Plus benefit terminates, and no additional payments are made. However, if a withdrawal in the latter scenario was taken to satisfy a required minimum distribution under the Annuity, then the benefit will not terminate, and we will continue to pay the Annual Income Amount in subsequent Annuity Years until the death of the Designated Life. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is an Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Annual Income Amount. If this option is elected, the Annual Income Amount will not increase after annuity payments have begun. We will make payments until the death of the single Designated Life. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments in the form of a single life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Annual Income Amount payments. Such present value will be calculated using the greater of the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no Lifetime Withdrawal was ever taken, we will calculate the Annual Income Amount as if you made your first Lifetime Withdrawal on the date the annuity payments are to begin. . Please note that payments that we make under this benefit after the Annuity Anniversary coinciding with or next following the annuitant's 95/th/ birthday will be treated as annuity payments. Other Important Considerations . Withdrawals under the Highest Daily Lifetime 7 Plus benefit are subject to all of the terms and conditions of the Annuity, including any applicable CDSC for the Non-Lifetime Withdrawal as well as withdrawals that exceed the Annual Income Amount. . Withdrawals made while the Highest Daily Lifetime 7 Plus Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Any withdrawals made under the benefit will be taken pro-rata from the Sub-accounts (including the AST Investment Grade Bond Sub-account) and the DCA Fixed Rate Options (if you are participating in the 6 or 12 Month DCA Program). Withdrawals from the DCA Fixed Rate Options will be taken on a last-in, first-out basis. 113 . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Highest Daily Lifetime 7 Plus benefit. The Highest Daily Lifetime 7 Plus benefit provides a guarantee that if your Account Value is reduced to zero (subject to our rules regarding time and amount of withdrawals), you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the Permitted Sub-accounts. . You cannot allocate Purchase Payments or transfer Account Value to or from the AST Investment Grade Bond Portfolio Sub-account (see description below) if you elect this benefit. A summary description of the AST Investment Grade Bond Portfolio appears within the prospectus section entitled "What Are The Investment Objectives and Policies of The Portfolios?". Upon the initial transfer of your Account Value into the AST Investment Grade Bond Portfolio, we will send a prospectus for that Portfolio to you, along with your confirmation statement. In addition, you can find a copy of the AST Investment Grade Bond Portfolio prospectus by going to www.prudentialannuities.com. . Transfers to and from the elected Sub-accounts and the AST Investment Grade Bond Portfolio Sub-account triggered by the Highest Daily Lifetime 7 Plus asset transfer program will not count toward the maximum number of free transfers allowable under an Annuity. . You must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the Highest Daily Lifetime 7 Plus benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly adopted requirements. Subject to any change in requirements, transfer of Account Value and allocation of additional purchase payments may be subject to new investment limitations. . If you elect this benefit and in connection with that election, you are required to reallocate to permitted investment options, then on the Valuation Day we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in the permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly-elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly-elected benefit will not arise until the close of business on the following Valuation Day. . The maximum charge for Highest Daily Lifetime 7 Plus is 1.50% annually of the greater of Account Value and the Protected Withdrawal Value (PWV). The current charge is 0.75% annually of the greater of Account Value and the Protected Withdrawal Value. We deduct this fee at the end of each benefit quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.1875% of the greater of the prior day's Account Value or the prior day's Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Portfolio Sub-account and the DCA Fixed Rate Option (if applicable). Since this fee is based on the greater of the Account Value or the Protected Withdrawal Value, the fee for Highest Daily Lifetime 7 Plus may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the Account Value at the benefit quarter, we will charge the remainder of the Account Value for the benefit and continue the benefit as described above. Election of and Designations under the Benefit For Highest Daily Lifetime 7 Plus, there must be either a single Owner who is the same as the Annuitant, or if the Annuity is entity owned, there must be a single natural person Annuitant. In either case, the Annuitant must be at least 45 years old. Any change of the Annuitant under the Annuity will result in cancellation of Highest Daily Lifetime 7 Plus. Similarly, any change of Owner will result in cancellation of Highest Daily Lifetime 7 Plus, except if (a) the new Owner has the same taxpayer identification number as the previous owner, (b) ownership is transferred from a custodian to the Annuitant, or vice versa or (c) ownership is transferred from one entity to another entity that is satisfactory to us. Highest Daily Lifetime 7 Plus can be elected at the time that you purchase your Annuity or after the Issue Date, subject to our eligibility rules and restrictions. If you elect Highest Daily Lifetime 7 Plus and terminate it, you can re-elect it, subject to our current rules. Additionally, if you currently own an Annuity with a living benefit, you may terminate your existing benefit rider and elect any available benefits, subject to our current rules. Please note that if you terminate a living benefit and elect a new living benefit, you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. We reserve the right to waive, change and/or further limit the election frequency in the future. Termination of the Benefit You may terminate Highest Daily Lifetime 7 Plus at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election may apply. The benefit automatically terminates: (i) upon your termination of the benefit, (ii) upon your surrender of the Annuity, (iii) upon your election to begin receiving annuity payments (although if you have elected to receive the Annual Income Amount in the form of Annuity payments, we will continue to pay the Annual Income Amount), (iv) upon our receipt of due proof of the death of the 114 Annuitant, (v) if both the Account Value and Annual Income Amount equal zero, or (vi) if you cease to meet our requirements as described in Elections of and Designations under the Benefit". Upon termination of Highest Daily Lifetime 7 Plus other than upon the death of the Annuitant, we impose any accrued fee for the benefit (i.e., the fee for the pro-rated portion of the year since the fee was last assessed), and thereafter we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the AST Investment Grade Bond Portfolio Sub-account to your variable investment options, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). If a surviving spouse elects to continue the Annuity, the Highest Daily Lifetime 7 Plus benefit terminates. The spouse may elect the benefit subject to the restrictions discussed above. How Highest Daily Lifetime 7 Plus Transfers Account Value Between Your Permitted Sub-accounts and the AST Investment Grade Bond Sub-Account As indicated above, we limit the Sub-accounts to which you may allocate Account Value if you elect Highest Daily Lifetime 7 Plus. For purposes of this benefit, we refer to those permitted investment options as the "Permitted Sub-accounts". If your annuity was issued on or after May 1, 2009 (subject to regulatory approval), you may also choose to allocate purchase payments while this program is in effect to DCA Fixed Rate Options utilized with our 6 or 12 Month Dollar Cost Averaging Program ("6 or 12 Month DCA Program"). If you are participating in Highest Daily Lifetime 7 Plus and also are participating in the 6 or 12 Month DCA Program, and the formula under the benefit dictates a transfer from the Permitted Sub-accounts to the AST Investment Grade Bond Sub-account, then the amount to be transferred will be taken entirely from the Sub-accounts, provided there is sufficient Account Value in those Sub-accounts to meet the required transfer amount. Only if there is insufficient Account Value in those Sub-accounts will an amount be withdrawn from the DCA Fixed Rate Options. Amounts withdrawn from the DCA Fixed Rate Options under the formula will be taken on a last-in, first-out basis. For purposes of the discussion below concerning transfers from the Permitted Sub-accounts to the AST Investment Grade Bond Sub-account, amounts held within the DCA Fixed Rate Options are included within the term "Permitted Sub-Accounts". Thus, amounts may be transferred from the DCA Fixed Rate Options in the circumstances described above and in the section of this prospectus entitled 6 or 12 Month Dollar Cost Averaging Program. Any transfer dictated by the formula out of the AST Investment Grade Bond Sub-account will be transferred to the Permitted Sub-accounts, not including the DCA Fixed Rate Options. An integral part of Highest Daily Lifetime 7 Plus is the pre-determined mathematical formula used to transfer Account Value between the Permitted Sub-Accounts and a specified bond fund within the Advanced Series Trust (the "AST Investment Grade Bond Sub-Account"). The AST Investment Grade Bond Sub-account is available only with this benefit, and thus you may not allocate Purchase Payments to or make transfers to or from the AST Investment Grade Bond Sub-account. The mathematical formula monitors your Account Value daily and, if dictated by the formula, systematically transfers amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account. The formula is set forth in Appendix H. Speaking generally, the formula, which is applied each Valuation Day, operates as follows. The formula starts by identifying an income basis for that day and then multiplies that figure by 5%, to produce a projected (i.e., hypothetical) income amount. Note that 5% is used in the formula, irrespective of the Annuitant's attained age. Then it produces an estimate of the total amount targeted in our allocation model, based on the projected income amount and factors set forth in the formula. In the formula, we refer to that value as the "Target Value" or "L". If you have already made a withdrawal, your projected income amount (and thus your Target Value) would take into account any automatic step-up, any subsequent Purchase Payments, and any excess withdrawals. Next, the formula subtracts from the Target Value the amount held within the AST Investment Grade Bond Sub-account on that day, and divides that difference by the amount held within the Permitted Sub-accounts including any amounts allocated to DCA Fixed Rate Options. That ratio, which essentially isolates the amount of your Target Value that is not offset by amounts held within the AST Investment Grade Bond Sub-account, is called the "Target Ratio" or "r". If, on each of three consecutive Valuation Days, the Target Ratio is greater than 83% but less than or equal to 84.5%, the formula will, on such third Valuation Day, make a transfer from the Permitted Sub-accounts in which you are invested (subject to the 90% cap discussed below) to the AST Investment Grade Bond Sub-account. As discussed above if all or a portion of your Account Value is allocated to one or more DCA Fixed Rate Options at the time a transfer to the AST Investment Grade Bond Sub-account is required under the formula, we will first look to process the transfer from the Permitted Sub-accounts. If the amount allocated to the Permitted Sub-accounts is insufficient to satisfy the transfer, then any remaining amounts will be transferred from the DCA Fixed Rate Options on a "last-in, first-out" basis. Once a transfer is made, the three consecutive Valuation Days begin again. If, however, on any Valuation Day, the Target Ratio is above 84.5%, it will make a transfer from the Permitted Sub-accounts (subject to the 90% cap) to the AST Investment Grade Bond Sub-account (as described above). If the Target Ratio falls below 78% on any Valuation Day, then a transfer from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts will occur. The formula will not execute a transfer to the AST Investment Grade Bond Sub-account that results in more than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account ("90% cap"). Thus, on any Valuation Day, if the 115 formula would require a transfer to the AST Investment Grade Bond Sub-account that would result in more than 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account, only the amount that results in exactly 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account will be transferred. Additionally, future transfers into the AST Investment Grade Bond Sub-account will not be made (regardless of the performance of the AST Investment Grade Bond Sub-account and the Permitted Sub-accounts) at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. Once this transfer occurs out of the AST Investment Grade Bond Sub-account, future amounts may be transferred to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). At no time will the formula make a transfer to the AST Investment Grade Bond Sub-account that results in greater than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account. However, it is possible that, due to the investment performance of your allocations in the AST Investment Grade Bond Sub-account and your allocations in the Permitted Sub-accounts you have selected, your Account Value could be more than 90% invested in the AST Investment Grade Bond Sub-account. If you make additional purchase payments to your Annuity while the 90% cap is in effect, the formula will not transfer any of such additional purchase payments to the AST Investment Grade Bond Sub-account at least until there is first a transfer out of the AST Investment Grade Bond Sub-account, regardless of how much of your Account Value is in the Permitted Sub-accounts. This means that there could be scenarios under which, because of the additional purchase payments you make, less than 90% of your entire Account Value is allocated to the AST Investment Grade Bond Sub-account, and the formula will still not transfer any of your Account Value to the AST Investment Grade Bond Sub-account (at least until there is first a transfer out of the AST Investment Grade Bond Sub-account). For example, . March 19, 2009 - a transfer is made to the AST Investment Grade Bond Sub-account that results in the 90% cap being met and now $90,000 is allocated to the AST Investment Grade Bond Sub-account and $10,000 is allocated to the Permitted Sub-accounts. . March 20, 2009 - you make an additional purchase payment of $10,000. No transfers have been made from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts since the cap went into effect on March 19, 2009. . On March 20, 2009 (and at least until first a transfer is made out of the AST Investment Grade Bond Sub-account under the formula) - the $10,000 payment is allocated to the Permitted Sub-accounts and on this date you have 82% in the AST Investment Grade Bond Sub-account and 18% in the Permitted Sub-accounts (such that $20,000 is allocated to the Permitted Sub-accounts and $90,000 to the AST Investment Grade Bond Sub-account). . Once there is a transfer out of the AST Investment Grade Bond Sub-account (of any amount), the formula will operate as described above, meaning that the formula could transfer amounts to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). Under the operation of the formula, the 90% cap may come into existence and be removed multiple times while you participate in the benefit. We will continue to monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account as dictated by the formula. As you can glean from the formula, poor or flat investment performance of your Account Value may result in a transfer of a portion of your Account Value in the Permitted Sub-accounts to the AST Investment Grade Bond Sub-account because such poor investment performance will tend to increase the Target Ratio. Because the amount allocated to the AST Investment Grade Bond Sub-account and the amount allocated to the Permitted Sub-accounts each is a variable in the formula, the investment performance of each affects whether a transfer occurs for your Annuity. In deciding how much to transfer, we use another formula, which essentially seeks to re-balance amounts held in the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account so that the Target Ratio meets a target, which currently is equal to 80%. Once you elect Highest Daily Lifetime 7 Plus, the values we use to compare to the Target Ratio will be fixed. For newly-issued Annuities that elect Highest Daily Lifetime 7 Plus and existing Annuities that elect Highest Daily Lifetime 7 Plus in the future, however, we reserve the right to change such values. Additionally, on each monthly Annuity Anniversary (if the monthly Annuity Anniversary does not fall on a Valuation Day, the next Valuation Day will be used), following all of the above described daily calculations, a transfer may be made from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts. Any such transfer will be based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). This transfer will automatically occur provided that the Target Ratio, as described above, would be less than 83% after the transfer. The formula will not execute a transfer if the Target Ratio after this transfer would occur would be greater than or equal to 83%. The amount of the transfer will be equal to the lesser of: a) The total value of all your Account Value in the AST Investment Grade Bond Sub-account, or b) An amount equal to 5% of your total Account Value. 116 While you are not notified when your Annuity reaches a transfer trigger under the formula, you will receive a confirmation statement indicating the transfer of a portion of your Account Value either to or from the AST Investment Grade Bond Sub-account. The formula by which the transfer operates is designed primarily to mitigate some of the financial risks that we incur in providing the guarantee under Highest Daily Lifetime 7 Plus. Depending on the results of the calculations of the formula, we may, on any Valuation Day: . Not make any transfer between the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account; or . If a portion of your Account Value was previously allocated to the AST Investment Grade Bond Sub-account, transfer all or a portion of those amounts to the Permitted Sub-accounts, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). ; or . Transfer a portion of your Account Value in the Permitted Sub-accounts pro rata to the AST Investment Grade Bond Sub-account. The amount and timing of transfers to and from the AST Investment Grade Bond Sub-account pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . The difference between your Account Value and your Protected Withdrawal Value; . How long you have owned Highest Daily Lifetime 7 Plus or Spousal Highest Daily Lifetime 7 Plus; . The performance of the Permitted Sub-accounts you have chosen; . The performance of the AST Investment Grade Bond Sub-account; . The amount allocated to each of the Permitted Sub-accounts you have chosen; . The amount allocated to the AST Investment Grade Bond Sub-account; . Additional Purchase Payments, if any, you make to your Annuity; and . Withdrawals, if any, you take from your Annuity (withdrawals are taken pro rata from your Account Value). At any given time, some, most or none of your Account Value will be allocated to the AST Investment Grade Bond Sub-account, as dictated by the formula. The more of your Account Value allocated to the AST Investment Grade Bond Sub-account under the formula, the greater the impact of the performance of that Sub-account in determining whether (and how much) your Account Value is transferred back to the Permitted Sub-accounts. Further, it is possible under the formula that, if a significant portion of your Account Value is allocated to the AST Investment Grade Bond Sub-account and that Sub-account has good performance but the performance of your Permitted Sub-accounts is negative, that the formula might transfer your Account Value to the Permitted Sub-accounts. Similarly, the more you have allocated to the Permitted Sub-accounts, the greater the impact of the performance of those Permitted Sub-accounts will have on any transfer to the AST Investment Grade Bond Sub-account. If you make additional Purchase Payments to your Annuity, they will be allocated according to your allocation instructions. Once they are allocated to your Annuity, they will also be subject to the formula described above and therefore may be transferred to the AST Investment Grade Bond Portfolio, if dictated by the formula. Any Account Value in the AST Investment Grade Bond Sub-account will not be available to participate in the investment experience of the Permitted Sub-accounts regardless of whether there is a subsequent Sub-account decline or recovery until it is transferred out of the AST Investment Grade Bond Sub-account. Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the required minimum distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that required minimum distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as required minimum distribution provisions under the tax law. Please note, however, that any withdrawal (except the Non-Lifetime Withdrawal) you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive the Return of Principal Guarantee and the guaranteed amount described above under "Key Feature - Protected Withdrawal Value". Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. 117 As indicated, withdrawals made while this benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this benefit here. However, we do note that if you participate in Highest Daily Lifetime 7 Plus through a non-qualified annuity, as with all withdrawals, once all Purchase Payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Highest Daily Lifetime 7 Plus/SM/ with Beneficiary Income Option We offer an optional death benefit feature under Highest Daily Lifetime 7 Plus, the amount of which is linked to your Annual Income Amount. We refer to this optional death benefit as the Beneficiary Income Option or BIO. This version is only being made available in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. You may choose Highest Daily Lifetime 7 Plus with or without also selecting the Beneficiary Income Option death benefit. However, you may not elect the Beneficiary Income Option without Highest Daily Lifetime 7 Plus and you must elect the Beneficiary Income Option death benefit at the time you elect Highest Daily Lifetime 7 Plus. If you elect Highest Daily Lifetime 7 Plus without the Beneficiary Income Option and would like to add the feature later, you must terminate the Highest Daily Lifetime 7 Plus benefit and elect the Highest Daily Lifetime 7 Plus with Beneficiary Income Option (subject to availability and benefit re-election provisions). Please note that if you terminate Highest Daily Lifetime 7 Plus and elect the Highest Daily Lifetime 7 Plus with BIO you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. As long as your Highest Daily Lifetime 7 Plus with Beneficiary Income Option is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. This benefit may be elected, provided that all owners and beneficiaries are natural persons or an agent acting for a natural person. If you elect this death benefit, you may not elect any other optional benefit. You may elect the Beneficiary Income Option death benefit so long as the Annuitant is no older than age 75 at the time of election and meet the Highest Daily Lifetime 7 Plus age requirements. For purposes of this optional death benefit, we calculate the Annual Income Amount and Protected Withdrawal Value in the same manner that we do under Highest Daily Lifetime 7 Plus itself. However, we will stop determining the Periodic Value (as described above) on the earlier of your first Lifetime Withdrawal after the effective date of the benefit or the Tenth Anniversary Date. This means that under the Highest Daily Lifetime 7 Plus with BIO benefit you will not be eligible for the guaranteed minimum Periodic Values described above on the 20/th/ and 25/th/ Anniversary of the Benefit Effective Date. If you choose the Highest Daily Lifetime 7 Plus with BIO, the maximum charge is 2.00% of the greater of Account Value and the Protected Withdrawal Value ("PWV") annually. The current charge is 1.10% annually of the greater of the Account Value and the PWV. We deduct this charge at the end of each benefit quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.275% of the greater of the prior day's Account Value or the prior day's Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Sub-account. Because the fee for this benefit is based on the greater of the Account Value or the Protected Withdrawal Value, the fee for Highest Daily Lifetime 7 Plus with the Beneficiary Income Option may be greater than it would have been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero and, continue the benefit as described below. Upon a death that triggers payment of a death benefit under the Annuity, we identify the following amounts: (a) the amount of the basic death benefit under the Annuity, (b) the Protected Withdrawal Value, and (c) the Annual Income Amount. If there were no Lifetime Withdrawals prior to the date of death, then we calculate the Protected Withdrawal Value for purposes of this death benefit as of the date of death, and we calculate the Annual Income Amount as if there were a withdrawal on the date of death. If there were Lifetime Withdrawals prior to the date of death, then we set the Protected Withdrawal Value and Annual Income Amount for purposes of this death benefit as of the date that we receive due proof of death. If there is one beneficiary, he/she must choose to receive either the basic death benefit (in a lump sum or other permitted form of distribution) or the Beneficiary Income Option death benefit (in the form of periodic payments of the Annual Income Amount - such payments may be annual or at other intervals that we permit). If there are multiple beneficiaries, each beneficiary is presented with the same choice. Each beneficiary can choose to take his/her portion of either (a) the basic death benefit, or (b) the Beneficiary Income Option death benefit. In order to receive the Beneficiary Income Option death benefit, each beneficiary's share of the death benefit proceeds must be allocated as a percentage of the total death benefit to be paid. We allow a beneficiary who has opted to receive the Annual Income Amount to designate another beneficiary, who would receive any remaining payments upon the former beneficiary's death. Note also that the final payment, exhausting the Protected Withdrawal Value, may be less than the Annual Income Amount. Here is an example to illustrate how the death benefit may be paid: . Assume that (i) the basic death benefit is $50,000, the Protected Withdrawal Value is $100,000, and the Annual Income Amount is $5,000; (ii) there are two beneficiaries (the first designated to receive 75% of the death benefit and the second 118 designated to receive 25% of the death benefit); (iii) the first beneficiary chooses to receive his/her portion of the death benefit in the form of the Annual Income Amount, and the second beneficiary chooses to receive his/her portion of the death benefit with reference to the basic death benefit. . Under those assumptions, the first beneficiary will be paid a pro-rated portion of the Annual Income Amount for 20 years (the 20 year pay out period is derived from the $5,000 Annual Income Amount, paid each year until it exhausts the entire $100,000 Protected Withdrawal Value). The pro-rated portion of the Annual Income Amount, equal to $3,750 annually (i.e., the first beneficiary's 75% share multiplied by $5,000), is then paid each year for the 20 year period. Payment of $3,750 for 20 years results in total payments of $75,000 (i.e., the first beneficiary's 75% share of the $100,000 Protected Withdrawal Value). The second beneficiary would receive 25% of the basic death benefit amount (or $12,500). If you elect to terminate Highest Daily Lifetime 7 Plus with Beneficiary Income Option, both Highest Daily Lifetime 7 Plus and that death benefit option will be terminated. You may not terminate the death benefit option without terminating the entire benefit. If you terminate Highest Daily Lifetime 7 Plus with Beneficiary Income Option, your ability to elect other optional living benefits will be affected as indicated in the "Election of and Designations under the Benefit" section above. Highest Daily Lifetime 7 Plus/SM/ with Lifetime Income Accelerator We offer another version of Highest Daily Lifetime 7 Plus that we call Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator ("Highest Daily Lifetime 7 Plus with LIA"). This version is only being offered in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. You may choose Highest Daily Lifetime 7 Plus with or without also electing LIA, however you may not elect LIA without Highest Daily Lifetime 7 Plus and you must elect the LIA benefit at the time you elect Highest Daily Lifetime 7 Plus. If you elect Highest Daily Lifetime 7 Plus without LIA and would like to add the feature later, you must terminate the Highest Daily Lifetime 7 Plus benefit and elect the Highest Daily Lifetime 7 Plus with LIA (subject to availability and benefit re-election provisions). Please note that if you terminate Highest Daily Lifetime 7 Plus and elect the Highest Daily Lifetime 7 Plus with LIA you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. Highest Daily Lifetime 7 Plus with LIA is offered as an alternative to other lifetime withdrawal options. If you elect this benefit, you may not elect any other optional benefit. As long as your Highest Daily Lifetime 7 Plus with LIA benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. The income benefit under Highest Daily Lifetime 7 Plus with LIA currently is based on a single "designated life" who is between the ages of 45 and 75 on the date that the benefit is elected. All terms and conditions of Highest Daily Lifetime 7 Plus apply to this version of the benefit, except as described herein. Highest Daily Lifetime 7 Plus with LIA is not long-term care insurance and should not be purchased as a substitute for long-term care insurance. The income you receive through the Lifetime Income Accelerator may be used for any purpose, and it may or may not be sufficient to address expenses you may incur for long-term care. You should seek professional advice to determine your financial needs for long-term care. Highest Daily Lifetime 7 Plus with LIA guarantees, until the death of the single designated life, the ability to withdraw an amount equal to double the Annual Income Amount (which we refer to as the "LIA Amount") if you meet the conditions set forth below. If you choose the Highest Daily Lifetime 7 Plus with LIA, the maximum charge is 2.00% of the greater of Account Value and the Protected Withdrawal Value ("PWV") annually. The current charge is 1.10% annually of the greater of Account Value and the PWV. We deduct this charge at the end of each benefit quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.275% of the greater of the prior day's Account Value, or the prior day's Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Sub-account. Since this fee is based on the greater of Account Value or the Protected Withdrawal Value, the fee for Highest Daily Lifetime 7 Plus with LIA may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described below. If this benefit is being elected on an Annuity held as a 403(b) plan, then in addition to meeting the eligibility requirements listed below for the LIA Amount you must separately qualify for distributions from the 403(b) plan itself. Eligibility Requirements for LIA Amount. Both a waiting period of 36 months from the benefit effective date, and an elimination period of 120 days from the date of notification that one or both of the requirements described immediately below have been met, apply before you can become eligible for the LIA Amount. Assuming the 36 month waiting period has been met and we have received the notification referenced in the immediately preceding sentence, the LIA amount would be available for withdrawal on the Valuation Day immediately after the 120/th/ day. The waiting period and the elimination period may run concurrently. In addition to satisfying the waiting and elimination period, at least one of the following requirements ("LIA conditions") must be met. 119 (1)The designated life is confined to a qualified nursing facility. A qualified nursing facility is a facility operated pursuant to law or any state licensed facility providing medically necessary in-patient care which is prescribed by a licensed physician in writing and based on physical limitations which prohibit daily living in a non-institutional setting. (2)The designated life is unable to perform two or more basic abilities of caring for oneself or "activities of daily living." We define these basic abilities as: i. Eating: Feeding oneself by getting food into the body from a receptacle (such as a plate, cup or table) or by a feeding tube or intravenously. ii.Dressing: Putting on and taking off all items of clothing and any necessary braces, fasteners or artificial limbs. iii.Bathing: Washing oneself by sponge bath; or in either a tub or shower, including the task of getting into or out of the tub or shower. iv.Toileting: Getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene. v. Transferring: Moving into or out of a bed, chair or wheelchair. vi.Continence: Maintaining control of bowel or bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform personal hygiene (including caring for catheter or colostomy bag). You must notify us when the LIA conditions have been met. If, when we receive such notification, there are more than 120 days remaining until the end of the waiting period described above, you will not be eligible for the LIA Amount. If there are 120 days or less remaining until the end of the waiting period when we receive notification that the LIA conditions are met, we will determine eligibility for the LIA Amount through our then current administrative process, which may include, but is not limited to, documentation verifying the LIA conditions and/or an assessment by a third party of our choice. Such assessment may be in person and we will assume any costs associated with the aforementioned assessment. Once eligibility is determined, the LIA Amount is equal to double the Annual Income Amount as described above under the Highest Daily Lifetime 7 Plus benefit. Additionally, once eligibility is determined, we will reassess your eligibility on an annual basis although your LIA benefit for the year that immediately precedes our reassessment will not be affected if it is determined that you are no longer eligible. Your first reassessment may occur in the same year as your initial assessment. If we determine that you are no longer eligible to receive the LIA Amount, upon the next Annuity Anniversary the Annual Income Amount would replace the LIA Amount. There is no limit on the number of times you can become eligible for the LIA Amount, however, each time would require the completion of the 120-day elimination period, notification that the designated life meets the LIA conditions, and determination, through our then current administrative process, that you are eligible for the LIA Amount, each as described above. LIA amount at the first Lifetime Withdrawal. If your first Lifetime Withdrawal subsequent to election of Highest Daily Lifetime 7 Plus with LIA occurs while you are eligible for the LIA Amount, the available LIA Amount is equal to double the Annual Income Amount. LIA amount after the first Lifetime Withdrawal. If you become eligible for the LIA Amount after you have taken your first Lifetime Withdrawal, the available LIA amount for the current and subsequent Annuity Years is equal to double the then current Annual Income Amount, however the available LIA amount in the current Annuity Year is reduced by any Lifetime Withdrawals that have been taken in the current Annuity Year. Cumulative Lifetime Withdrawals in an Annuity Year which are less than or equal to the LIA Amount (when eligible for the LIA amount) will not reduce your LIA Amount in subsequent Annuity Years, but any such withdrawals will reduce the LIA Amount on a dollar-for-dollar basis in that Annuity Year. Withdrawals In Excess of the LIA amount. If your cumulative Lifetime Withdrawals in an Annuity Year are in excess of the LIA Amount when you are eligible ("Excess Withdrawal"), your LIA Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the excess portion of the withdrawal to the Account Value immediately prior to the Excess Withdrawal. Reductions include the actual amount of the withdrawal, including any CDSC that may apply. Withdrawals of any amount (excluding the Non-Lifetime Withdrawal) up to and including the LIA Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Excess Withdrawals will reduce the Protected Withdrawal Value by the same ratio as the reduction to the LIA Amount. Any withdrawals that are less than or equal to the LIA amount (when eligible) but in excess of the free withdrawal amount available under this Annuity will not incur a CDSC. Withdrawals are not required. However, subsequent to the first Lifetime Withdrawal, the LIA Amount is not increased in subsequent Annuity Years if you decide not to take a withdrawal in an Annuity Year or take withdrawals in an Annuity Year that in total are less than the LIA Amount. Purchase Payments. If you are eligible for the LIA Amount as described under "Eligibility Requirements for LIA Amount" and you make an additional Purchase Payment, we will increase your LIA Amount by double the amount we add to your Annual Income Amount. Step Ups. If your Annual Income Amount is stepped up, your LIA Amount will be stepped up to equal double the stepped up Annual Income Amount. 120 Guarantee Payments. If your Account Value is reduced to zero as a result of cumulative withdrawals that are equal to or less than the LIA Amount when you are eligible, or as a result of the fee that we assess for Highest Daily Lifetime 7 Plus with LIA, and there is still a LIA Amount available, we will make an additional payment for that Annuity Year equal to the remaining LIA Amount. If you have not begun taking Lifetime Withdrawals and your Account Value is reduced to zero as a result of the fee we assess for Highest Daily Lifetime 7 Plus with LIA, we will calculate the Annual Income Amount and any LIA amount if you are eligible, as if you made your first Lifetime Withdrawal on the date the Account Value was reduced to zero and Lifetime Withdrawals will begin on the next Annuity Anniversary. If this were to occur, you are not permitted to make additional purchase payments to your Annuity. Thus, in these scenarios, the remaining LIA Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the LIA Amount as described in this section. We will make payments until the death of the single designated life. Should the designated life no longer qualify for the LIA amount (as described under "Eligibility Requirements for LIA Amount" above), the Annual Income Amount would continue to be available. Subsequent eligibility for the LIA Amount would require the completion of the 120 day elimination period as well as meeting the LIA conditions listed above under "Eligibility Requirements for LIA Amount". To the extent that cumulative withdrawals in the current Annuity Year that reduce your Account Value to zero are more than the LIA Amount (except in the case of required minimum distributions), Highest Daily Lifetime 7 Plus with LIA terminates, and no additional payments are made. Annuity Options. In addition to the Highest Daily Lifetime 7 Plus Annuity Options described above, after the Tenth Anniversary you may also request that we make annuity payments each year equal to the Annual Income Amount. In any year that you are eligible for the LIA Amount, we make annuity payments equal to the LIA Amount. If you would receive a greater payment by applying your Account Value to receive payments for life under your Annuity, we will pay the greater amount. Annuitization prior to the Tenth Anniversary will forfeit any present or future LIA amounts. We will continue to make payments until the death of the Designated Life. If this option is elected, the Annual Income Amount and LIA Amount will not increase after annuity payments have begun. If you elect Highest Daily Lifetime 7 Plus with LIA, and never meet the eligibility requirements you will not receive any additional payments based on the LIA Amount. SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS/SM/ INCOME BENEFIT (SHD7 Plus)/SM/ Spousal Highest Daily Lifetime 7 Plus is the spousal version of Highest Daily Lifetime 7 Plus. This version is only being offered in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. Currently, if you elect Spousal Highest Daily Lifetime 7 Plus and subsequently terminate the benefit, you may elect another lifetime withdrawal benefit, subject to our current rules. See "Termination of Existing Benefits and Election New Benefits". Please note that if you terminate Spousal Highest Daily Lifetime 7 Plus and elect another benefit, you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. Spousal Highest Daily Lifetime 7 Plus must be elected based on two Designated Lives, as described below. The youngest Designated Life must be at least 50 years old and the oldest Designated Life must be at least 55 years old when the benefit is elected. Spousal Highest Daily Lifetime 7 Plus is not available if you elect any other optional benefit. As long as your Spousal Highest Daily Lifetime 7 Plus Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. For a more detailed description of permitted investment options, see the "Investment Options" section in this prospectus. We offer a benefit that guarantees until the later death of two natural persons who are each other's spouses at the time of election of the benefit and at the first death of one of them (the "Designated Lives", and each, a "Designated Life") the ability to withdraw an annual amount (the "Annual Income Amount") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of Sub-account performance on the Account Value, subject to our rules regarding the timing and amount of withdrawals. You are guaranteed to be able to withdraw the Annual Income Amount for the lives of the Designated Lives ("Lifetime Withdrawals") provided you have not made "excess withdrawals" that have resulted in your Account Value being reduced to zero. We also permit a one-time Non-Lifetime Withdrawal from your Annuity prior to taking Lifetime Withdrawals under the benefit. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, wish to ensure that Sub-account performance will not affect your ability to receive annual payments, and wish either spouse to be able to continue the Spousal Highest Daily Lifetime 7 Plus benefit after the death of the first spouse. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer program in order to participate in Spousal Highest Daily Lifetime 7 Plus. Although you are guaranteed the ability to withdraw your Annual Income Amount for life even if your Account Value falls to zero, if you take an excess withdrawal that brings your Account Value to zero, it is possible that your Annual Income Amount could also fall to zero. In that scenario, no further amount would be payable under Spousal Highest Daily Lifetime 7 Plus. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to calculate the initial Annual Income Amount. The Protected Withdrawal Value is separate from your Account Value and not available as cash or a lump sum. On the effective date of the benefit, the Protected 121 Withdrawal Value is equal to your Account Value. On each Valuation Day thereafter until the date of your first Lifetime Withdrawal (excluding any Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is equal to the "Periodic Value" described in the next paragraph. The "Periodic Value" initially is equal to the Account Value on the effective date of the benefit. On each Valuation Day thereafter until the first Lifetime Withdrawal, we recalculate the Periodic Value. We stop determining the Periodic Value upon your first Lifetime Withdrawal after the effective date of the benefit. On each Valuation Day (the "Current Valuation Day"), the Periodic Value is equal to the greater of: (1)the Periodic Value for the immediately preceding business day (the "Prior Valuation Day") appreciated at the daily equivalent of 7% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any adjusted Purchase Payment made on the Current Valuation Day (the Periodic Value is proportionally reduced for any Non-Lifetime Withdrawal); and (2)the Account Value. If you have not made a Lifetime Withdrawal on or before the 10/th/, 20/th/, or 25/th/ Anniversary of the effective date of the benefit, your Periodic Value on the 10/th/, 20/th/, or 25/th/ Anniversary of the benefit effective date is equal to the greater of: (1)the Periodic Value described above or, (2)the sum of (a), (b) and (c) (proportionally reduced for any Non-Lifetime Withdrawal): (a)200% (on the 10/th/ anniversary), 400% (on the 20/th/ anniversary) or 600% (on the 25/th/ anniversary) of the Account Value on the effective date of the benefit; (b)200% (on the 10/th/ anniversary), 400% (on the 20/th/ anniversary) or 600% (on the 25/th/ anniversary) of all adjusted Purchase Payments made within one year following the effective date of the benefit; and (c)All adjusted Purchase Payments made after one year following the effective date of the benefit. If you elect Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option ("BIO") (see below), we will stop determining the Periodic Value (as described above) on the earlier of your first Lifetime Withdrawal after the effective date of the benefit or the Tenth Anniversary of the effective date of the benefit ("Tenth Anniversary"). This means that under the Spousal Highest Daily Lifetime 7 Plus with BIO benefit you will not be eligible for the guaranteed minimum Periodic Values described above on the 20/th/ and 25/th/ Anniversary of the Benefit Effective Date. On and after the date of your first Lifetime Withdrawal, your Protected Withdrawal Value is increased by the amount of any subsequent Purchase Payments, is reduced by withdrawals, including your first Lifetime Withdrawal (as described below), and may be increased if you qualify for a step-up (as described below). Return of Principal Guarantee If you have not made a Lifetime Withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: a) your Account Value on the day that you elected Spousal Highest Daily Lifetime 7 Plus proportionally reduced for any Non-Lifetime Withdrawal; and b) the sum of each Purchase Payment proportionally reduced for any subsequent Non-Lifetime Withdrawal (including the amount of any associated Credits) you made during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of your variable investment options (including the AST Investment Grade Bond Sub-account used with this benefit), in the same proportion that each such Sub-account bears to your total Account Value, immediately before the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Protected Withdrawal Value, your death benefit, or the amount of any optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. Because the amount is added to your Account Value, it will also be subject to each charge under your Annuity based on Account Value. This potential addition to Account Value is available only if you have elected Spousal Highest Daily Lifetime 7 Plus and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal, including a required minimum distribution, (other than a Non-Lifetime Withdrawal) prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. The Return of Principal Guarantee is referred to as the Guaranteed Minimum Account Value Credit in the benefit rider. 122 Key Feature - Annual Income Amount under the Spousal Highest Daily Lifetime 7 Plus Benefit The Annual Income Amount is equal to a specified percentage of the Protected Withdrawal Value. The percentage initially depends on the age of the youngest Designated Life on the date of the first Lifetime Withdrawal after election of the benefit. The percentages are: 4% for ages 50 - less than 59 1/2, 5% for ages 59 1/2 - 79, 6% for ages 80 to 84, 7% for ages 85 to 89, and 8% for ages 90 and older. We use the age of the youngest Designated Life even if that Designated Life is no longer a participant under the Annuity due to death or divorce. Under the Spousal Highest Daily Lifetime 7 Plus benefit, if your cumulative Lifetime Withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative Lifetime Withdrawals in an Annuity Year are in excess of the Annual Income Amount for any Annuity Year ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions for this Annuity that comply with our rules) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions are based on the actual amount of the withdrawal, including any CDSC that may apply. Lifetime Withdrawals of any amount up to and including the Annual Income Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the same ratio as the reduction to the Annual Income Amount. Note that if your withdrawal of the Annual Income Amount in a given Annuity Year exceeds the applicable free withdrawal amount under the Annuity (but is not considered Excess Income), we will not impose any CDSC on the amount of that withdrawal. You may use the Systematic Withdrawal program to make withdrawals of the Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime Withdrawal under this benefit. Any Purchase Payment that you make subsequent to the election of Spousal Highest Daily Lifetime 7 Plus will (i) increase the then-existing Annual Income Amount by an amount equal to a percentage of the Purchase Payment (including the amount of any associated Credit) based on the age of the younger Annuitant at the time of the first Lifetime Withdrawal (the percentages are: 4% for ages 50 - less than 59 1/2, 5% for ages 59 1/2 - 79, 6% for ages 80-84, 7% for ages 85-89, and 8% for ages 90 and older), and (ii) increase the Protected Withdrawal Value by the amount of the Purchase Payment (including the amount of any associated Credit). Highest Daily Auto Step-Up An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature can result in a larger Annual Income Amount subsequent to your first Lifetime Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first Lifetime Withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on each Valuation Day within the immediately preceding Annuity Year after your first Lifetime Withdrawal. Having identified the highest daily value (after all daily values have been adjusted for subsequent purchase payments and withdrawals), we then multiply that value by a percentage that varies based on the age of the youngest Designated Life on the Annuity Anniversary as of which the step-up would occur. The percentages are 4% for ages 50 - less than 59 1/2, 5% for ages 59 1/2 - 79, 6% for ages 80-84, 7% for ages 85-89, and 8% for ages 90 and older. If that value exceeds the existing Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Annual Income Amount intact. The Account Value on the Annuity Anniversary is considered the last daily step-up value of the Annuity Year. In later years (i.e., after the first Annuity Anniversary after the first Lifetime Withdrawal), we determine whether an automatic step-up should occur on each Annuity Anniversary by performing a similar examination of the Account Values that occurred on Valuation Days during the year. At the time that we increase your Annual Income Amount, we also increase your Protected Withdrawal Value to equal the highest daily value upon which your step-up was based only if that results in an increase to the Protected Withdrawal Value. Your Protected Withdrawal Value will never be decreased as a result of an income step-up. If, on the date that we implement a Highest Daily Auto Step-Up to your Annual Income Amount, the charge for Spousal Highest Daily Lifetime 7 Plus has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Spousal Highest Daily Lifetime 7 Plus upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. If you establish a Systematic Withdrawal program, we will not automatically increase the withdrawal amount when there is an increase to the Annual Income Amount. The Spousal Highest Daily Lifetime 7 Plus benefit does not affect your ability to make withdrawals under your Annuity, or limit your ability to request withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily Lifetime 7 Plus, if your cumulative Lifetime Withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. 123 If, cumulatively, you withdraw an amount less than the Annual Income Amount in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. Because each of the Protected Withdrawal Value and Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for the Account Value to fall to zero, even though the Annual Income Amount remains. Examples of dollar-for-dollar and proportional reductions, and the Highest Daily Auto Step-Up are set forth below. The values shown here are purely hypothetical, and do not reflect the charges for the Spousal Highest Daily Lifetime 7 Plus benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2008 . The Spousal Highest Daily Lifetime 7 Plus benefit is elected on March 5, 2009 . The younger Designated Life was 70 years old when he/she elected the Spousal Highest Daily Lifetime 7 Plus benefit. Example of dollar-for-dollar reductions On November 24, 2009, the Protected Withdrawal Value is $120,000, resulting in an Annual Income Amount of $6,000 (since the youngest designated life is between the ages of 59 1/2 and 79 at the time of the first Lifetime Withdrawal, the Annual Income Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Annual Income Amount for that Annuity Year (up to and including December 1, 2009) is $3,500. This is the result of a dollar-for-dollar reduction of the Annual Income Amount ($6,000 less $2,500 = $3,500). Example of proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on November 27, 2009 and the Account Value at the time and immediately prior to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount of $1,500 - reduces the Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there were other withdrawals in that Annuity Year, each would result in another proportional reduction to the Annual Income Amount). Here is the calculation: Account Value before Lifetime Withdrawal $118,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $114,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $114,500.00 Ratio 1.31% Annual Income Amount $ 6,000.00 Less ratio of 1.31% $ 78.60 Annual Income Amount for future Annuity Years $ 5,921.40
Example of highest daily auto step-up On each Annuity Anniversary date, the Annual Income Amount is stepped-up if the appropriate percentage (based on the youngest Designated Life's age on the Annuity Anniversary) of the highest daily value since your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional Purchase Payments, is higher than the Annual Income Amount, adjusted for excess withdrawals and additional Purchase Payments (including the amount of any associated Credits). Continuing the same example as above, the Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on November 27 reduces the amount to $5,921.40 for future years (see above). For the next Annuity Year, the Annual Income Amount will be stepped up if 5% (since the youngest Designated Life is between 59 1/2 and 79 on the date of the potential step-up) of the highest daily Account Value adjusted for withdrawals and Purchase Payments (including credits), is higher than $5921.40. Here are the calculations for determining the daily values. Only the November 25 value is being adjusted for excess withdrawals as the November 30 and December 1 Valuation Days occur after the excess withdrawal on November 27.
Highest Daily Value (adjusted with Adjusted Annual Income withdrawal and Purchase Amount (5% of the Date* Account value Payments)** Highest Daily Value) ----- ------------- ----------------------- ---------------------- November 25, 2009 $119,000.00 $ 119,000.00 $5,950.00 November 26, 2009 Thanksgiving Day November 27, 2009 $113,000.00 $ 113,986.95 $5,699.35 November 30, 2009 $113,000.00 $ 113,986.95 $5,699.35 December 01, 2009 $119,000.00 $ 119,000.00 $5,950.00
124 * In this example, the Annuity Anniversary date is December 1. The Valuation Dates are every day following the first Lifetime Withdrawal. In subsequent Annuity Years Valuation Dates will be every day following the Annuity Anniversary. The Annuity Anniversary Date of December 1 is considered the final Valuation Date for the Annuity Year. ** In this example, the first daily value after the first Lifetime Withdrawal is $119,000 on November 25, resulting in an adjusted Annual Income Amount of $5,950.00. This amount is adjusted on November 27 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $119,000 on November 25 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $115,500 before the excess withdrawal. . This amount ($115,500) is further reduced by 1.31% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Daily Value of $113,986.95. . The adjusted Annual Income Amount is carried forward to the next Valuation Date of November 30. At this time, we compare this amount to 5% of the Account Value on November 30. Since the November 27 adjusted Annual Income Amount of $5,699.35 is higher than $5,650.00 (5% of $113,000), we continue to carry $5,699.35 forward to the next and final Valuation Date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,699.35, the adjusted Annual Income Amount is reset to $5,950.00. In this example, 5% of the December 1 value results in the highest amount of $5,950.00. Since this amount is higher than the current year's Annual Income Amount of $5,921.40 adjusted for excess withdrawals, the Annual Income Amount for the next Annuity Year, starting on December 2, 2009 and continuing through December 1, 2010, will be stepped-up to $5,950.00. Non-Lifetime Withdrawal Feature You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal") under Spousal Highest Daily Lifetime 7 Plus. It is an optional feature of the benefit that you can only elect at the time of your first withdrawal. The amount of the Non-Lifetime Withdrawal cannot be more than the amount that would cause the Annuity to be taken below the minimum Surrender Value after a withdrawal for your Annuity. This Non-Lifetime Withdrawal will not establish our initial Annual Income Amount and the Periodic Value above will continue to be calculated. However, the total amount of the withdrawal will proportionally reduce all guarantees associated with the Spousal Highest Daily Lifetime 7 Plus benefit. You must tell us if your withdrawal is intended to be the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under the Spousal Highest Daily Lifetime 7 Plus benefit. If you don't elect the Non-Lifetime Withdrawal, the first withdrawal you make will be the first Lifetime Withdrawal that establishes your Protected Withdrawal Value and Annual Income Amount. Once you elect the Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime withdrawals may be taken. The Non-Lifetime Withdrawal will proportionally reduce the Protected Withdrawal Value, the Return of Principal guarantee and the Periodic Value guarantees on the tenth, twentieth and twenty-fifth anniversaries of the benefit effective date, described above, by the percentage the total withdrawal amount (including any applicable CDSC) represents of the then current Account Value immediately prior to the time of the withdrawal. If you are participating in a Systematic Withdrawal program, the first withdrawal under the program cannot be classified as the Non-Lifetime Withdrawal. The first partial withdrawal in payment of any third party investment advisory service from your Annuity also cannot be classified as the Non-Lifetime Withdrawal. Example - Non-Lifetime Withdrawal (proportional reduction) This example is purely hypothetical and does not reflect the charges for the benefit or any other fees and charges. It is intended to illustrate the proportional reduction of the Non-Lifetime Withdrawal under this benefit. Assume the following: . The Issue Date is December 1, 2008 . The Spousal Highest Daily Lifetime 7 Plus benefit is elected on March 5, 2009 . The Account Value at benefit election was $105,000 . The younger Designated Life was 70 years old when he/she elected the Spousal Highest Daily Lifetime 7 Plus benefit. . No previous withdrawals have been taken under the Spousal Highest Daily Lifetime 7 Plus benefit. On May 2, 2009, the Protected Withdrawal Value is $125,000, the 10/th/ benefit year minimum Periodic Value guarantee is $210,000, the 10/th/ benefit year Return of Principal guarantee is $105,000, the 20/th/ benefit year minimum Periodic Value guarantee is $420,000, the 25/th/ benefit year minimum Periodic Value guarantee is $630,000 and the Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on May 2, 2009 and is designated as a Non-Lifetime Withdrawal, all guarantees associated with the Spousal Highest Daily Lifetime 7 Plus benefit will be reduced by the ratio the total withdrawal amount represents of the Account Value just prior to the withdrawal being taken. 125 Here is the calculation: Withdrawal Amount divided by $ 15,000 Account Value before withdrawal $120,000 Equals ratio 12.5% All guarantees will be reduced by the above ratio (12.5%) Protected Withdrawal Value $109,375 10/th/ benefit year Return of Principal $ 91,875 10/th/ benefit year Minimum Periodic Value $183,750 20/th/ benefit year Minimum Periodic Value $367,500 25/th/ benefit year Minimum Periodic Value $551,250
Required Minimum Distributions Withdrawals that exceed the Annual Income Amount, but which you are required to take as a required minimum distribution for this Annuity, will not reduce the Annual Income Amount for future years. No additional Annual Income Amounts will be available in an Annuity Year due to required minimum distributions unless the required minimum distribution amount is greater than the Annual Income Amount. Any withdrawal you take that exceeds the Annual Income Amount in Annuity Years that your required minimum distribution amount is not greater than the Annual Income Amount will be treated as an Excess Withdrawal under the benefit. If the required minimum distribution (as calculated by us for your Annuity and not previously withdrawn in the current calendar year) is greater than the Annual Income Amount, an amount equal to the remaining Annual Income Amount plus the difference between the required minimum distribution amount not previously withdrawn in the current calendar year and the Annual Income Amount will be available in the current Annuity Year without it being considered an excess withdrawal. In the event that a required minimum distribution is calculated in a calendar year that crosses more than one Annuity Year and you choose to satisfy the entire required minimum distribution for that calendar year in the next Annuity Year, the distribution taken in the next Annuity Year will reduce your Annual Income Amount in that Annuity Year on a dollar for dollar basis. If the required minimum distribution not taken in the prior Annuity Year is greater than the Annual Income Amount as guaranteed by the benefit in the current Annuity Year, the total required minimum distribution amount may be taken without being treated as an excess withdrawal. Example - required minimum distributions The following example is purely hypothetical and is intended to illustrate a scenario in which the required minimum distribution amount in a given Annuity Year is greater than the Annual Income Amount. Annual Income Amount = $5,000 Remaining Annual Income Amount = $3,000 Required Minimum Distribution = $6,000 The amount you may withdraw in the current Annuity Year without it being treated as an Excess Withdrawal is $4,000. ($3,000 + ($6,000 - $5,000) = $4,000). If the $4,000 withdrawal is taken, the remaining Annual Income Amount will be zero and the remaining required minimum distribution amount of $2,000 may be taken in the subsequent Annuity Year (when your Annual Income Amount is reset to $5,000) without proportionally reducing all guarantees associated with the Spousal Highest Daily Lifetime 7 Plus benefit as described above. The amount you may withdraw in the subsequent Annuity Year if you choose not to satisfy the required minimum distribution in the current Annuity Year (assuming the Annual Income Amount in the subsequent Annuity Year is $5,000) without being treated as an Excess Withdrawal is $6,000. This withdrawal must comply with all IRS guidelines in order to satisfy the required minimum distribution for the current calendar year. Benefits Under Spousal Highest Daily Lifetime 7 Plus . To the extent that your Account Value was reduced to zero as a result of cumulative Lifetime Withdrawals in an Annuity Year that are equal to or less than the Annual Income Amount or as a result of the fee that we assess for Spousal Highest Daily Lifetime 7 Plus, and amounts are still payable under Spousal Highest Daily Lifetime 7 Plus, we will make an additional payment, if any, for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year. If you have not begun taking Lifetime Withdrawals and your Account Value is reduced to zero as a result of the fee we assess for Spousal Highest Daily Lifetime 7 Plus, we will calculate the Annual Income Amount as if you made your first Lifetime Withdrawal on the date the Account Value was reduced to zero and Lifetime Withdrawals will begin on the next Annuity Anniversary. If this were to occur, you are not permitted to make additional purchase payments to your Annuity. Thus, in these scenarios, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section. We will make payments 126 until the death of the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. To the extent that cumulative withdrawals in the Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Spousal Highest Daily Lifetime 7 Plus benefit terminates, and no additional payments will be made. However, if a withdrawal in the latter scenario was taken to satisfy a required minimum distribution under the Annuity the benefit will not terminate, and we will continue to pay the Annual Income Amount in subsequent Annuity Years until the death of the second Designated Life provided the Designated lives were spouses at the death of the first Designated Life. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is an Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Annual Income Amount. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. If, due to death of a Designated Life or divorce prior to annuitization, only a single Designated Life remains, then Annuity payments will be made as a life annuity for the lifetime of the Designated Life. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a joint and survivor or single (as applicable) life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Annual Income Amount payments. Such present value will be calculated using the greater of the joint and survivor or single (as applicable) life fixed annuity rates then currently available or the joint and survivor or single (as applicable) life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no Lifetime Withdrawal was ever taken, we will calculate the Annual Income Amount as if you made your first Lifetime Withdrawal on the date the annuity payments are to begin. . Please note that payments that we make under this benefit after the Annuity Anniversary coinciding with or next following the older of the owner or Annuitant's 95/th/ birthday will be treated as annuity payments. Other Important Considerations . Withdrawals under the Spousal Highest Daily Lifetime 7 Plus benefit are subject to all of the terms and conditions of the Annuity, including any applicable CDSC for the Non-Lifetime Withdrawal as well as withdrawals that exceed the Annual Income Amount. . Withdrawals made while the Spousal Highest Daily Lifetime 7 Plus benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Any withdrawals made under the benefit will be taken pro-rata from the Sub-accounts (including the AST Investment Grade Bond Sub-account) and the DCA Fixed Rate Options (if you are participating in the 6 or 12 Month DCA Program). Withdrawals from the DCA Fixed Rate Options will be taken on a last-in, first-out basis. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Spousal Highest Daily Lifetime 7 Plus benefit. The Spousal Highest Daily Lifetime 7 Plus benefit provides a guarantee that if your Account Value is reduced to zero (subject to program rules regarding the timing and amount of withdrawals), you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the Permitted Sub-accounts. . You cannot allocate Purchase Payments or transfer Account Value to or from the AST Investment Grade Bond Portfolio Sub-account (as described below) if you elect this benefit. A summary description of the AST Investment Grade Bond Portfolio appears in the prospectus section entitled "What Are The Investment Objectives and Policies of The Portfolios?". Upon the initial transfer of your Account Value into the AST Investment Grade Bond Portfolio, we will send a prospectus for that Portfolio to you, along with your confirmation statement. In addition, you can find a copy of the AST Investment Grade Bond Portfolio prospectus by going to www.prudentialannuities.com. . You can make withdrawals from your Annuity without purchasing the Spousal Highest Daily Lifetime 7 Plus benefit. The Spousal Highest Daily Lifetime 7 Plus benefit provides a guarantee that if your Account Value declines due to Sub-account performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Transfers to and from the elected Sub-accounts and the AST Investment Grade Bond Portfolio Sub-account triggered by the Spousal Highest Daily Lifetime 7 Plus asset transfer program will not count toward the maximum number of free transfers allowable under an Annuity. . You must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the Spousal Highest Daily Lifetime 7 Plus benefit. If, subsequent to your election of the benefit, we 127 change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly adopted requirements. Subject to any change in requirements, transfers of Account Value and allocation of additional purchase payments may be subject to new investment limitations. . If you elect this benefit and in connection with that election, you are required to reallocate to permitted investment options, then on the Valuation Day we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in the permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly-elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly-elected benefit will not arise until the close of business on the following Valuation Day. . The maximum fee for Spousal Highest Daily Lifetime 7 Plus is 1.50% annually of the greater of Account Value and the Protected Withdrawal Value. The current fee for Spousal Highest Daily Lifetime 7 Plus is 0.90% annually of the greater of Account Value and the Protected Withdrawal Value. We deduct this fee at the end of each benefit quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.225% of the greater of the prior day's Account Value, or the prior day's Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Sub-account. Since this fee is based on the greater of the Account Value and the Protected Withdrawal Value, the fee for Spousal Highest Daily Lifetime 7 Plus may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the Account Value, we will reduce the Account Value to zero, and continue the benefit as described above. Election of and Designations under the Benefit Spousal Highest Daily Lifetime 7 Plus can only be elected based on two Designated Lives. Designated Lives must be natural persons who are each other's spouses at the time of election of the benefit and at the death of the first of the Designated Lives to die. Currently, Spousal Highest Daily Lifetime 7 Plus only may be elected where the Owner, Annuitant, and Beneficiary designations are as follows: . One Annuity Owner, where the Annuitant and the Owner are the same person and the beneficiary is the Owner's spouse. The youngest Owner/Annuitant and the beneficiary must be at least 50 years old and the oldest must be at least 55 years old at the time of election; or . Co-Annuity Owners, where the Owners are each other's spouses. The beneficiary designation must be the surviving spouse, or the spouses named equally. One of the owners must be the Annuitant. The youngest Owner must be at least 50 years old and the oldest owner must be at least 55 years old at the time of election; or . One Annuity Owner, where the Owner is a custodial account established to hold retirement assets for the benefit of the Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code (or any successor Code section thereto) ("Custodial Account"), the beneficiary is the Custodial Account, and the spouse of the Annuitant is the Contingent Annuitant. The youngest of the Annuitant and the Contingent Annuitant must be at least 50 years old and the oldest must be at least 55 years old at the time of election. We do not permit a change of Owner under this benefit, except as follows: (a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or (b) if the Annuity initially is co-owned, but thereafter the Owner who is not the Annuitant is removed as Owner. We permit changes of beneficiary under this benefit. If the Designated Lives divorce, the Spousal Highest Daily Lifetime 7 Plus benefit may not be divided as part of the divorce settlement or judgment. Nor may the divorcing spouse who retains ownership of the Annuity appoint a new Designated Life upon re-marriage. Spousal Highest Daily Lifetime 7 Plus can be elected at the time that you purchase your Annuity or after the Issue Date, subject to our eligibility rules and restrictions. See "Termination of Existing Benefits and Election of New Benefits" above for information pertaining to elections, termination and re-election of benefits. Please note that if you terminate a living benefit and elect a new living benefit, you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elected based on your Account Value as of the date the new benefit becomes active. We reserve the right to waive, change and/or further limit the election frequency in the future. Termination of the Benefit You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election may apply. The benefit automatically terminates: (i) if upon the death of the first Designated Life, the surviving Designated Life opts to take the death benefit under the Annuity (thus, the benefit does not terminate solely because of the death of the first Designated Life), (ii) upon the death of the second Designated Life, (iii) upon your termination of the benefit, (iv) upon your surrender of the Annuity, (v) upon your election to begin receiving annuity payments (although if you have elected to take annuity payments in the form of the Annual Income Amount, we will continue to pay the Annual Income Amount), (vi) if both the Account Value and Annual Income Amount equal zero, or (vii) if you cease to meet our requirements as described in "Election of and Designations under the Benefit". 128 Upon termination of Spousal Highest Daily Lifetime 7 Plus other than upon death of a Designated Life, we impose any accrued fee for the benefit (i.e., the fee for the pro-rated portion of the year since the fee was last assessed), and thereafter we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the AST Investment Grade Bond Portfolio Sub-account (as defined below) to your variable investment options based on your existing allocation instructions or (in the absence of such instruction) pro rata (i.e. in the same proportion as the current balances in your variable investment options). How Spousal Highest Daily Lifetime 7 Plus Transfers Account Value between Your Permitted Sub-accounts and the AST Investment Grade Bond Sub-account See "How Highest Daily Lifetime 7 Plus Transfers Account Value Between Your Permitted Sub-accounts and the AST Investment Grade Bond Sub-account" in this Prospectus for information regarding this component of the benefit. Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the required minimum distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that required minimum distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as required minimum distribution provisions under the tax law. Please note, however, that any withdrawal (except the Non-Lifetime Withdrawal) you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive the Return of Principal Guarantee and the guaranteed amount described above under "Key Feature - Protected Withdrawal Value". Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this benefit here. However, we do note that if you participate in Spousal Highest Daily Lifetime 7 Plus through a non-qualified annuity, as with all withdrawals, once all Purchase Payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Spousal Highest Daily Lifetime 7 Plus/SM/ with Beneficiary Income Option We offer an optional death benefit feature under Spousal Highest Daily Lifetime 7 Plus, the amount of which is linked to your Annual Income Amount . We refer to this optional death benefit as the Beneficiary Income Option or BIO. This version is only being made available in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. You may choose Spousal Highest Daily Lifetime 7 Plus with or without also selecting the Beneficiary Income Option death benefit. However, you may not elect the Beneficiary Income Option without Spousal Highest Daily Lifetime 7 Plus and you must elect the Beneficiary Income Option death benefit at the time you elect Spousal Highest Daily Lifetime 7 Plus. If you elect Spousal Highest Daily Lifetime 7 Plus without the Beneficiary Income Option and would like to add the feature later, you must terminate the Spousal Highest Daily Lifetime 7 Plus benefit and elect the Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option (subject to availability and benefit re-election provisions). Please note that if you terminate Spousal Highest Daily Lifetime 7 Plus and elect the Spousal Highest Daily Lifetime 7 Plus with BIO you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. As long as your Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. If you elect the Beneficiary Income Option death benefit, you may not elect any other optional benefit. You may elect the Beneficiary Income Option death benefit so long as each Designated Life is no older than age 75 at the time of election and the Spousal Highest Daily Lifetime 7 Plus age requirements are met. This death benefit is not transferable in the event of a divorce, nor may the benefit be split in accordance with any divorce proceedings or similar instrument of separation. If you choose the Spousal Highest Daily Lifetime 7 Plus with BIO, the maximum charge is 2.00% of the greater of Account Value and the Protected Withdrawal Value ("PWV") annually. The current charge is 1.10% annually of the greater of Account Value and the PWV. We deduct this charge at the end of each benefit quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.275% of the greater of the prior day's Account Value or the prior day's Protected Withdrawal Value 129 at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts, including the AST Investment Grade Bond Sub-account. Because the fee for this benefit is based on the greater of the Account Value or the Protected Withdrawal Value, the fee for Spousal Highest Daily Lifetime 7 Plus with the Beneficiary Income Option may be greater than it would have been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described below. For purposes of this optional death benefit, we calculate the Annual Income Amount and Protected Withdrawal Value in the same manner that we do under Spousal Highest Daily Lifetime 7 Plus itself. However, we will stop determining the Periodic Value (as described above) on the earlier of your first Lifetime Withdrawal after the effective date of the benefit or the Tenth Anniversary Date. This means that under the Spousal Highest Daily Lifetime 7 Plus with BIO benefit you will not be eligible for the guaranteed minimum Periodic Values described above on the 20/th/ and 25/th/ Anniversary of the Benefit Effective Date. Upon the first death of a Designated Life, no amount is payable under the Beneficiary Income Option death benefit. Upon the second death of a Designated Life, we identify the following amounts: (a) the amount of the basic death benefit under the Annuity, (b) the Protected Withdrawal Value (less any credits associated with Purchase Payments applied within 12 months prior to the date of death), and (c) the Annual Income Amount. If there were no Lifetime Withdrawals prior to the date of death of the second Designated Life, then we calculate the Protected Withdrawal Value for purposes of this death benefit as of the date of death of the second Designated Life, and we calculate the Annual Income Amount as if there were a Lifetime Withdrawal on the date of death of the second Designated Life. If there were Lifetime Withdrawals prior to the date of death of the second Designated Life, then we set the Protected Withdrawal Value and Annual Income Amount for purposes of this death benefit as of the date that we receive due proof of death. If there is one beneficiary, he/she must choose to receive either the basic death benefit (in a lump sum or other permitted form of distribution) or the Beneficiary Income Option death benefit (in the form of annual payments of the Annual Income Amount - such payments may be annual or at other intervals that we permit). If there are multiple beneficiaries, each beneficiary is presented with the same choice. Thus, each beneficiary can choose to take his/her portion of either (a) the basic Death Benefit, or (b) the Beneficiary Income Option death benefit. In order to receive the Beneficiary Income Option Death Benefit, each beneficiary's share of the death benefit proceeds must be allocated as a percentage of the total death benefit to be paid. We allow a beneficiary who has opted to receive the Annual Income Amount to designate another beneficiary, who would receive any remaining payments upon the former beneficiary's death. Note also that the final payment, exhausting the Protected Withdrawal Value, may be less than the Annual Income Amount. Here is an example to illustrate how the death benefit may be paid: . Assume that (i) the basic death benefit is $50,000, the Protected Withdrawal Value is $100,000, and the Annual Income Amount is $5,000; (ii) there are two beneficiaries (the first designated to receive 75% of the death benefit and the second designated to receive 25% of the death benefit); (iii) the first beneficiary chooses to receive his/her portion of the death benefit in the form of the Annual Income Amount, and the second beneficiary chooses to receive his/her portion of the death benefit with reference to the basic death benefit. . Under those assumptions, the first beneficiary will be paid a pro-rated portion of the Annual Income Amount for 20 years (the 20 year pay out period is derived from the $5,000 Annual Income Amount, paid each year until it exhausts the entire $100,000 Protected Withdrawal Value). The pro-rated portion of the Annual Income Amount equal to $3,750 (i.e., the first beneficiary's 75% share multiplied by $5,000) is then paid each year for the 20 year period. Payment of $3,750 for 20 years results in total payments of $75,000 (i.e., the first beneficiary's 75% share of the $100,000 Protected Withdrawal Value). The second beneficiary would receive 25% of the basic death benefit amount (or $12,500). If you elect to terminate Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option, both Spousal Highest Daily Lifetime 7 Plus and that death benefit option will be terminated. You may not terminate the death benefit option without terminating the entire benefit. If you terminate Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option, your ability to elect other optional living benefits will be affected as indicated in the "Election of and Designations under the Benefit" section. 130 DEATH BENEFIT WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT? The Annuity provides a Death Benefit during its accumulation period. If an Annuity is owned by one or more natural persons, the Death Benefit is payable upon the first death of an Owner. If an Annuity is owned by an entity, the Death Benefit is payable upon the Annuitant's death, if there is no Contingent Annuitant. Generally, if a Contingent Annuitant was designated before the Annuitant's death and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a Death Benefit will not be paid at that time. The person upon whose death the Death Benefit is paid is referred to below as the "decedent." BASIC DEATH BENEFIT The Annuity provides a basic Death Benefit at no additional charge. The Insurance Charge we deduct daily from your Account Value allocated to the Sub-accounts is used, in part, to pay us for the risk we assume in providing the basic Death Benefit guarantee under an Annuity. The Annuity also offers four different optional Death Benefits that can be purchased for an additional charge. The additional charge is deducted to compensate Prudential Annuities for providing increased insurance protection under the optional Death Benefits. Notwithstanding the additional protection provided under the optional Death Benefits, the additional cost has the impact of reducing the net performance of the investment options. In addition under certain circumstances, your Death Benefit may be reduced by the amount of any Credits we applied to your Purchase Payments. (See "How are Credits Applied to My Account Value".) Considerations for Contingent Annuitants: We may allow the naming of a contingent annuitant when a Nonqualified Annuity contract is held by a pension plan or a tax favored retirement plan. In such a situation, the Annuity may no longer qualify for tax deferral where the Annuity contract continues after the death of the Annuitant. In some of our Annuities we allow for the naming of a co-annuitant, which also is used to mean the successor annuitant (and not another life used for measuring the duration of an annuity payment option). Like in the case of a contingent annuitant, the Annuity may no longer qualify for tax deferral where the contract continues after the death of the Annuitant. The basic Death Benefit is the greater of: . The sum of all Purchase Payments (not including any Credits) less the sum of all proportional withdrawals. . The sum of your Account Value in the Sub-accounts, your Interim Value in the Fixed Allocations, and any Account Value in the Benefit Fixed Rate Account or the DCA Fixed Rate Options (less the amount of any Credits applied within 12-months prior to the date of death). "Proportional withdrawals" are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. For example, a withdrawal of 50% of Account Value would be considered as a 50% reduction in Purchase Payments for purposes of calculating the basic Death Benefit. OPTIONAL DEATH BENEFITS Two optional Death Benefits are offered for purchase with your Annuity to provide an enhanced level of protection for your beneficiaries. Currently, these benefits are only offered in those jurisdictions where we have received regulatory approval and must be elected at the time that you purchase your Annuity. We may, at a later date, allow existing Annuity Owners to purchase an optional Death Benefit subject to our rules and any changes or restrictions in the benefits. The "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit may only be elected individually, and cannot be elected in combination with any other optional Death Benefit. If you elect Spousal Lifetime Five, Spousal Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime 7 Plus or the BIO feature of Highest Daily Lifetime Seven or the Highest Daily Lifetime 7 Plus Suite of benefits, you are not permitted to elect an optional Death Benefit. Under certain circumstances, each Optional Death Benefit that you elect may be reduced by the amount of Credits applied to your Purchase Payments (upon receipt of SEC approval of related exemptive application). Investment Restrictions may apply if you elect certain optional death benefits. See the chart in the "Investment Options" section of the Prospectus for a list of investment options available and permitted with each benefit. 131 Enhanced Beneficiary Protection Optional Death Benefit The Enhanced Beneficiary Protection Optional Death Benefit is no longer available for new elections. It provides additional amounts to your Beneficiary that may be used to offset federal and state taxes payable on any taxable gains in your Annuity at the time of your death. Whether this benefit is appropriate for you may depend on your particular circumstances, including other financial resources that may be available to your Beneficiary to pay taxes on your Annuity should you die during the accumulation period. No benefit is payable if death occurs on or after the Annuity Date. The Enhanced Beneficiary Protection Optional Death Benefit provided a benefit payable in addition to the basic Death Benefit and certain other optional death benefits you may elect in conjunction with this benefit. If the Annuity has one Owner, the Owner had to be age 75 or less at the time the benefit was purchased. If an Annuity has joint Owners, the oldest Owner had to be age 75 or less. If an Annuity is owned by an entity, the Annuitant had to be age 75 or less. Calculation of Enhanced Beneficiary Protection Optional Death Benefit If you purchased the Enhanced Beneficiary Protection Optional Death Benefit, the Death Benefit is calculated as follows: 1. the basic Death Benefit described above; PLUS 2. 40% of your "Growth" under an Annuity, as defined below. "Growth" means the sum of your Account Value in the Sub-accounts and your Interim Value in the MVA Fixed Allocations, minus the total of all Purchase Payments (less the amount of any Credits applied within 12-months prior to the date of death) reduced by the sum of all proportional withdrawals. "Proportional withdrawals" are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. For example, a withdrawal of 50% of Account Value would be considered as a 50% reduction in Purchase Payments. The Enhanced Beneficiary Protection Optional Death Benefit is subject to a maximum of 100% of all Purchase Payments applied to an Annuity at least 12 months prior to the death of the decedent that triggers the payment of the Death Benefit. The Enhanced Beneficiary Protection Optional Death Benefit was offered in those jurisdictions where we received regulatory approval. Please refer to the section entitled "Tax Considerations" for a discussion of special tax considerations for purchasers of this benefit. The Enhanced Beneficiary Protection Death Benefit was not available if you elected the "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit, the Spousal Lifetime Five Income Benefit, Spousal Highest Daily Lifetime Seven or Highest Daily Lifetime Seven with BIO. See Appendix B for examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated. Highest Anniversary Value Death Benefit ("HAV") If an Annuity has one Owner, the Owner must be age 79 or less at the time the Highest Anniversary Value Optional Death Benefit is purchased. If an Annuity has joint Owners, the oldest Owner must be age 79 or less. If an Annuity is owned by an entity, the Annuitant must be age 79 or less. Certain of the Portfolios offered as Sub-accounts under the Annuity are not available if you elect the Highest Anniversary Value Death Benefit. Calculation of Highest Anniversary Value Death Benefit The HAV Death Benefit depends on whether death occurs before or after the Death Benefit Target Date. If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above; and 2. the Highest Anniversary Value as of the Owner's date of death. 132 If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above; and 2. the Highest Anniversary Value on the Death Benefit Target Date plus the sum of all Purchase Payments (including any Credits applied to such Purchase Payments more than twelve (12) months prior to date of death) less the sum of all proportional withdrawals since the Death Benefit Target Date. The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death and decreased by any proportional withdrawals since such date. The Highest Anniversary Value Death Benefit described above is currently being offered in those jurisdictions where we have received regulatory approval. The Highest Anniversary Value Death Benefit is not available if you elected the "Combination 5% Roll-up and Highest Anniversary Value" or the "Highest Daily Value" Death Benefit. It is also not available with Spousal Lifetime Five or Spousal Highest Daily Lifetime Seven. Please refer to the definition of Death Benefit Target Date below. This death benefit may not be an appropriate feature where the Owner's age is near the age specified in the Death Benefit Target Date. This is because the benefit may not have the same potential for growth as it otherwise would, since there will be fewer contract anniversaries before the death benefit target date is reached. The death benefit target date under this death benefit is earlier than the death benefit target date under the Combination 5% Roll-up and Highest Anniversary Value Death Benefit for Owners who are age 76 or older when an Annuity is issued, which may result in a lower value on the death benefit, since there will be fewer contract anniversaries before the death benefit target date is reached. See Appendix B for examples of how the Highest Anniversary Value Death Benefit is calculated. Combination 5% Roll-up and Highest Anniversary Value Death Benefit If an Annuity has one Owner, the Owner must be age 79 or less at the time the Combination 5% Roll-up and HAV Optional Death Benefit is purchased. If an Annuity has joint Owners, the oldest Owner must be age 79 or less. If the Annuity is owned by an entity, the Annuitant must be age 79 or less. Certain of the Portfolios offered as Sub-accounts under an Annuity are not available if you elect the Combination 5% Roll-up and HAV Death Benefit. If you elect this benefit, you must allocate your Account Value in accordance with the then permitted and available option(s). Calculation of the Combination 5% Roll-up and Highest Anniversary Value Death Benefit The Combination 5% Roll-up and HAV Death Benefit equals the greatest of: 1. the basic Death Benefit described above; and 2. the Highest Anniversary Value Death Benefit described above; and 3. 5% Roll-up described below. The calculation of the 5% Roll-up depends on whether death occurs before or after the Death Benefit Target Date. If the Owner dies before the Death Benefit Target Date the 5% Roll up is equal to: . all Purchase Payments (including any Credits applied to such Purchase Payments more than twelve (12) months prior to date of death) increasing at an annual effective interest rate of 5% starting on the date that each Purchase Payment is made and ending on the Owner's date of death; MINUS . the sum of all withdrawals, dollar for dollar up to 5% of the Death Benefit's value as of the prior contract anniversary (or Issue Date if the withdrawal is in the first contract year). Any withdrawals in excess of the 5% dollar for dollar limit are proportional. If the Owner dies on or after the Death Benefit Target Date the 5% Roll-up is equal to: . the 5% Roll-up value as of the Death Benefit Target Date increased by total Purchase Payments (including any Credits applied to such Purchase Payments more than twelve (12) months prior to date of death) made after the Death Benefit Target Date; 133 MINUS . the sum of all withdrawals which reduce the 5% Roll-up proportionally. The amounts calculated in Items 1, 2 and 3 above (before, on or after the Death Benefit Target Date) may be reduced by any Credits under certain circumstances. Please refer to the definitions of Death Benefit Target Date below. This Death Benefit may not be an appropriate feature where the Owner's age is near the age specified in the Death Benefit Target Date. This is because the benefit may not have the same potential for growth as it otherwise would, since there will be fewer Annuity anniversaries before the Death Benefit Target Date is reached. The "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit described above is currently being offered in those jurisdictions where we have received regulatory approval. The "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit is not available if you elect any other optional Death Benefit or elect Spousal Lifetime Five, Spousal Highest Daily Lifetime Seven, or the BIO feature of Highest Daily Lifetime Seven or the Highest Daily Lifetime 7 Plus benefit. See Appendix B for examples of how the "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit is calculated. Key Terms Used with the Highest Anniversary Value Death Benefit and the Combination 5% Roll-up and Highest Anniversary Value Death Benefit: . The Death Benefit Target Date for the Highest Anniversary Value Death Benefit is the contract anniversary on or after the 80/th/ birthday of the current Owner, the oldest of either joint Owner or the Annuitant, if entity owned. . The Death Benefit Target Date for the Combination 5% Roll-up and HAV Death Benefit is the later of the contract anniversary on or after the 80/th/ birthday of the current Owner, the oldest of either joint Owner or the Annuitant, if entity owned, or five years after the Issue Date of an Annuity. . The Highest Anniversary Value equals the highest of all previous "Anniversary Values" less proportional withdrawals since such anniversary and plus any Purchase Payments (including any Credits applied to such Purchase Payments more than twelve (12) months prior to the date of death) since such anniversary. . The Anniversary Value is the Account Value in the Sub-accounts plus the Interim Value in any MVA Fixed Allocation as of each anniversary of the Issue Date of an Annuity. The Anniversary Value on the Issue Date is equal to your Purchase Payment. (including any Credits applied to such Purchase Payments more than twelve (12) months prior to the date of death) . Proportional Withdrawals are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. Proportional withdrawals result in a reduction to the Highest Anniversary Value or 5% Roll-up value by reducing such value in the same proportion as the Account Value was reduced by the withdrawal as of the date the withdrawal occurred. For example, if your Highest Anniversary Value or 5% Roll-up value is $125,000 and you subsequently withdraw $10,000 at a time when your Account Value is equal to $100,000 (a 10% reduction), when calculating the optional Death Benefit we will reduce your Highest Anniversary Value ($ 125,000) by 10% or $12,500. Highest Daily Value Death Benefit ("HDV") The Highest Daily Value Death Benefit is no longer available for new elections. If an Annuity has one Owner, the Owner must have been age 79 or less at the time the Highest Daily Value Death Benefit was elected. If an Annuity has joint Owners, the older Owner must have been age 79 or less. If there are joint Owners, death of the Owner refers to the first to die of the joint Owners. If an Annuity is owned by an entity, the Annuitant must have been age 79 or less at the time of election and death of the Owner refers to the death of the Annuitant. If you elected this benefit, you must allocate your Account Value in accordance with the permitted and available option(s) with this benefit. The HDV Death Benefit depends on whether death occurs before or after the Death Benefit Target Date. If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above (including any Credits applied to such Purchase Payments more than twelve (12) months prior to the date of death); and 2. the HDV as of the Owner's date of death. If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above; and 134 2. the HDV on the Death Benefit Target Date plus the sum of all Purchase Payments (including any Credits applied to such Purchase Payments more than twelve (12) months prior to the date of death) less the sum of all proportional withdrawals since the Death Benefit Target Date. The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death and decreased by any proportional withdrawals since such date. The Highest Daily Value Death Benefit described above was offered in those jurisdictions where we received regulatory approval. The Highest Daily Value Death Benefit is not available if you elected the Guaranteed Return Option Plus 2008, Highest Daily GRO, Spousal Lifetime Five, Highest Daily Lifetime Five, Highest Daily Lifetime Seven, the Highest Daily Lifetime 7 Plus benefits, Spousal Highest Daily Lifetime Seven, the "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit, or the Highest Anniversary Value Death Benefit. Key Terms Used with the Highest Daily Value Death Benefit: . The Death Benefit Target Date for the Highest Daily Value Death Benefit is the later of an Annuity anniversary on or after the 80/th/ birthday of the current Owner, or the older of either the joint Owner or the Annuitant, if entity owned, or five years after the Issue Date of an Annuity. . The Highest Daily Value equals the highest of all previous "Daily Values" less proportional withdrawals since such date and plus any Purchase Payments (plus associated Credits) since such date. . The Daily Value is the Account Value as of the end of each Valuation Day. The Daily Value on the Issue Date is equal to your Purchase Payment (plus associated Credits applied more than twelve (12) months prior to the date of death). . Proportional withdrawals are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. Proportional withdrawals result in a reduction to the Highest Daily Value by reducing such value in the same proportion as the Account Value was reduced by the withdrawal as of the date the withdrawal occurred. For example, if your Highest Daily Value is $125,000 and you subsequently withdraw $10,000 at a time when your Account Value is equal to $100,000 (a 10% reduction), when calculating the optional Death Benefit we will reduce your Highest Daily Value ($125,000) by 10% or $12,500. Please see Appendix B to this prospectus for a hypothetical example of how the HDV Death Benefit is calculated. Annuities with Joint Owners For Annuities with Joint Owners, the Death Benefits are calculated as shown above except that the age of the oldest of the joint Owners is used to determine the Death Benefit Target Date. NOTE: If you and your spouse own your Annuity jointly, we will pay the Death Benefit to the Beneficiary. If the sole primary Beneficiary is the surviving spouse, then the surviving spouse can elect to assume ownership of your Annuity and continue the Annuity instead of receiving the Death Benefit. Annuities Owned by Entities For Annuities owned by an entity, the Death Benefits are calculated as shown above except that the age of the Annuitant is used to determine the Death Benefit Target Date. Payment of the Death Benefit is based on the death of the Annuitant (or Contingent Annuitant, if applicable). Where a contract is structured so that it is owned by a grantor trust but the annuitant is not the grantor, then the contract is required to terminate upon the death of the grantor if the grantor pre-deceases the annuitant under Section 72(s) of the Code. Under this circumstance, the contract value will be paid out to the beneficiary and it is not eligible for the death benefit provided under the contract. Can I terminate the optional Death Benefits? Do the optional Death Benefits terminate under other circumstances? You can terminate the Enhanced Beneficiary Protection Death Benefit and the Highest Anniversary Value Death Benefit at any time. The "Combination 5% Roll-up and HAV Death Benefit" and the HDV Death Benefit may not be terminated once elected. The optional Death Benefits will terminate automatically on the Annuity Date. We may also terminate any optional Death Benefit if necessary to comply with our interpretation of the Code and applicable regulations. For jointly owned Annuities, the optional death benefits are payable upon the first death of either Owner and therefore terminate and do not continue if a surviving spouse continues the Annuity. Where an Annuity is structured so that it is owned by a grantor trust but the annuitant is not the grantor, then the Annuity is required to terminate upon the death of the grantor if the grantor pre-deceases the annuitant under Section 72(s) of the Code. Under this circumstance, the Account Value will be paid out to the beneficiary and it is not eligible for the death benefit provided under the Annuity. What are the charges for the optional Death Benefits? For elections of the Highest Anniversary Value Death Benefit and the Combination 5% Roll-Up and HAV Death Benefit made on or after May 1, 2009, we impose a charge equal to 0.40% and 0.80%, respectively, per year of the average daily net assets of the Sub-accounts. For elections of the Highest Anniversary Value Death Benefit and the Combination 5% Roll-Up and HAV Death Benefit that were made prior to May 1, 2009, we impose a charge equal to 0.25% and 0.50%, respectively, per year of the average 135 daily net assets of the Sub-accounts. We deduct a charge equal to 0.25% per year of the average daily net assets of the Sub-accounts for the Enhanced Beneficiary Protection Death Benefit and 0.50% per year of the average daily net assets of the Sub-accounts for the HDV Death Benefit. We deduct the charge for each of these benefits to compensate Prudential Annuities for providing increased insurance protection under the optional Death Benefits. The additional annual charge is deducted daily against your Account Value allocated to the Sub-accounts. Please refer to the section entitled "Tax Considerations" for additional considerations in relation to the optional Death Benefit. PRUDENTIAL ANNUITIES' ANNUITY REWARDS What is the Annuity Rewards Benefit? The Annuity Rewards Benefit offers Owners the ability to capture any market gains since the Issue Date of their Annuity as an enhancement to their current Death Benefit so their beneficiaries will not receive less than an Annuity's value as of the effective date of the benefit. Under the Annuity Rewards Benefit, Prudential Annuities guarantees that the Death Benefit will not be less than: . your Account Value in the Sub-accounts plus the Interim Value in any MVA Fixed Allocations as of the effective date of the benefit . MINUS any proportional withdrawals following the effective date of the benefit . PLUS any additional Purchase Payments applied to your Annuity following the effective date of the benefit. The Annuity Rewards Death Benefit enhancement does not affect the calculation of the basic Death Benefit or any Optional Death Benefits available under an Annuity. If the Death Benefit amount payable under your Annuity's basic Death Benefit or any Optional Death Benefits you purchase is greater than the enhanced Death Benefit under the Annuity Rewards Benefit on the date the Death Benefit is calculated, your beneficiary will receive the higher amount. Who is eligible for the Annuity Rewards benefit? Owners can elect the Annuity Rewards Death Benefit enhancement when the original CDSC period is over. However, the Account Value on the date that the Annuity Rewards benefit is effective, must be greater than the amount that would be payable to the Beneficiary under the Death Benefit (including any amounts payable under any Optional Death Benefit then in effect). The effective date must occur before annuity payments begin. There can only be one effective date for the Annuity Rewards Death Benefit enhancement. There is no additional charge for electing the Annuity Rewards Death Benefit enhancement. PAYMENT OF DEATH BENEFITS Alternative Death Benefit Payment Options - Annuities owned by Individuals (not associated with Tax-Favored Plans) Except in the case of a spousal assumption as described below, upon your death, certain distributions must be made under the Annuity. The required distributions depend on whether you die before you start taking annuity payments under the Annuity or after you start taking annuity payments under the Annuity. If you die on or after the Annuity Date, the remaining portion of the interest in the Annuity must be distributed at least as rapidly as under the method of distribution being used as of the date of death. In the event of your death before the Annuity Date, the Death Benefit must be distributed: . within five (5) years of the date of death; or . as a series of payments not extending beyond the life expectancy of the beneficiary or over the life of the beneficiary. Payments under this option must begin within one year of the date of death. Unless you have made an election prior to Death Benefit proceeds becoming due, a Beneficiary can elect to receive the Death Benefit proceeds under the Beneficiary Continuation Option as described below in the section entitled "Beneficiary Continuation Option," as a series of required distributions. Upon our receipt of proof of death, we will send to the beneficiary materials that list these payment options. Alternative Death Benefit Payment Options - Annuities Held by Tax-Favored Plans The Code provides for alternative death benefit payment options when an Annuity is used as an IRA, 403(b) or other "qualified investment" that requires minimum distributions. Upon your death under an IRA, 403(b) or other "qualified investment", the designated Beneficiary may generally elect to continue the Annuity and receive Required Minimum Distributions under the 136 Annuity instead of receiving the death benefit in a single payment. The available payment options will depend on whether you die before the date Required Minimum Distributions under the Code were to begin, whether you have named a designated beneficiary and whether the Beneficiary is your surviving spouse. . If you die after a designated beneficiary has been named, the death benefit must be distributed by December 31/st/ of the year including the five year anniversary of the date of death, or as periodic payments not extending beyond the life expectancy of the designated beneficiary (provided such payments begin by December 31/st/ of the year following the year of death). However, if your surviving spouse is the beneficiary, the death benefit can be paid out over the life expectancy of your spouse with such payments beginning no later than December 31/st/ of the year following the year of death or December 31/st/ of the year in which you would have reached age 70 1/2, which ever is later. Additionally, if the contract is payable to (or for the benefit of) your surviving spouse, that portion of the Annuity may be continued with your spouse as the owner. Note that the Worker, Retiree and Employer Recovery Act of 2008 suspended Required Minimum Distributions for 2009. This means that if your beneficiary receives payment as periodic payments, no payment is required in 2009. If your beneficiary elects to receive full distribution by December 31/st/ of the year including the five year anniversary of the date of death, 2009 shall not be included in the five year requirement period. This effectively extends this period to December 31/st/ of the year including the six year anniversary date of death. . If you die before a designated beneficiary is named and before the date required minimum distributions must begin under the Code, the death benefit must be paid out by December 31/st/ of the year including the five year anniversary of the date of death. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31/st/ of the year following the year of death, such contract is deemed to have no designated beneficiary. For this distribution requirement also, 2009 shall not be included in the five year requirement period. . If you die before a designated beneficiary is named and after the date required minimum distributions must begin under the Code, the death benefit must be paid out at least as rapidly as under the method then in effect. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31/st/ of the year following the year of death, such contract is deemed to have no designated beneficiary. A beneficiary has the flexibility to take out more each year than mandated under the required minimum distribution rules. Until withdrawn, amounts in an IRA, 403(b) or other "qualified investment" continue to be tax deferred. Amounts withdrawn each year, including amounts that are required to be withdrawn under the Required Minimum Distribution rules, are subject to tax. You may wish to consult a professional tax advisor for tax advice as to your particular situation. For a Roth IRA, if death occurs before the entire interest is distributed, the death benefit must be distributed under the same rules applied to IRAs where death occurs before the date Required Minimum Distributions must begin under the Code. The tax consequences to the beneficiary may vary among the different death benefit payment options. See the Tax Considerations section of this prospectus, and consult your tax advisor. Beneficiary Continuation Option Instead of receiving the death benefit in a single payment, or under an Annuity Option, a beneficiary may take the death benefit under an alternative death benefit payment option, as provided by the Code and described above under the sections entitled "Payment of Death Benefits" and "Alternative Death Benefit Payment Options - Annuities Held by Tax-Favored Plans." This "Beneficiary Continuation Option" is described below and is available for both qualified Annuities (i.e. annuities sold to an IRA, Roth IRA, SEP IRA, or 403(b)), Beneficiary Annuities and non-qualified Annuities. Under the Beneficiary Continuation Option: . The beneficiary must apply at least $15,000 to the Beneficiary Continuation Option. . The Owner's Annuity will be continued in the Owner's name, for the benefit of the beneficiary. . Beginning on the date we receive an election by the beneficiary to take the death benefit in a form other than a lump sum, the beneficiary will incur a Settlement Service Charge which is an annual charge assessed on a daily basis against the average assets allocated to the Sub-accounts. For non-qualified Annuities the charge is 1.00% per year, and for qualified Annuities the charge is 1.40% per year. . Beginning on the date we receive an election by the beneficiary to take the death benefit in a form other than a lump sum, the beneficiary will incur an annual maintenance fee equal to the lesser of $30 or 2% of Account Value. For non-qualified annuities, the fee will only apply if the Account Value is less than $25,000 at the time the fee is assessed. The fee will not apply if it is assessed 30 days prior to a surrender request. . The initial Account Value will be equal to any death benefit (including any optional death benefit) that would have been payable to the beneficiary if the beneficiary had taken a lump sum distribution. . The available Sub-accounts will be among those available to the Owner at the time of death, however certain Sub-Accounts may not be available. 137 . The beneficiary may request transfers among Sub-accounts, subject to the same limitations and restrictions that applied to the Owner. Transfers in excess of 20 per year will incur a $10 transfer fee. . No Fixed Allocations or fixed interest rate options will be offered for the non-qualified Beneficiary Continuation Options. However, for qualified Annuities, the Fixed Allocations will be those offered at the time the Beneficiary Continuation Option is elected. . No additional Purchase Payments can be applied to the Annuity. . The basic death benefit and any optional benefits elected by the Owner will no longer apply to the beneficiary. . The beneficiary can request a withdrawal of all or a portion of the Account Value at any time, unless the Beneficiary Continuation Option was the payout predetermined by the Owner and the Owner restricted the beneficiary's withdrawal rights. . Withdrawals are not subject to CDSC. . Upon the death of the beneficiary, any remaining Account Value will be paid in a lump sum to the person(s) named by the beneficiary (successor), unless the successor chooses to continue receiving payments. Currently only Investment Options corresponding to Portfolios of the Advanced Series Trust are available under the Beneficiary Continuation Option. In addition to the materials referenced above, the Beneficiary will be provided with a prospectus and a settlement agreement describing the Beneficiary Continuation Option. We may pay compensation to the broker-dealer of record on the Annuity based on amounts held in the Beneficiary Continuation Option. Please contact us for additional information on the availability, restrictions and limitations that will apply to a beneficiary under the Beneficiary Continuation Option. Spousal Assumption of Annuity You may name your spouse as your Beneficiary. If you and your spouse own your Annuity jointly, we assume that the sole primary Beneficiary will be the surviving spouse unless you elect an alternative Beneficiary Designation. Unless you elect an alternative Beneficiary Designation, the spouse Beneficiary may elect to assume ownership of the Annuity instead of taking the Death Benefit payment. Any Death Benefit (including any optional Death Benefits) that would have been payable to the Beneficiary will become the new Account Value as of the date we receive due proof of death and any required proof of a spousal relationship. As of the date the assumption is effective, the surviving spouse will have all the rights and benefits that would be available under the Annuity to a new purchaser of the same attained age. For purposes of determining any future Death Benefit for the surviving spouse, the new Account Value will be considered as the initial Purchase Payment. No CDSC will apply to the new Account Value. However, any additional Purchase Payments applied after the date the assumption is effective will be subject to all provisions of the Annuity, including any CDSC that may apply to the additional Purchase Payments. See the section entitled "Managing Your Annuity" - "Spousal Designations" and "Contingent Annuitant" for a discussion of the treatment of a spousal Contingent Annuitant in the case of the death of the Annuitant in an Annuity owned by a Custodial Account. Are there any exceptions to these rules for paying the Death Benefit? Yes, there are exceptions that apply no matter how your Death Benefit is calculated. There are exceptions to the Death Benefit if the decedent was not the Owner or Annuitant as of the Issue Date (or within 60 days thereafter) and did not become the Owner or Annuitant due to the prior Owner's or Annuitant's death. Any Death Benefit (including any optional Death Benefit) that applies will be suspended for a two-year period from the date he or she first became Owner or Annuitant. After the two-year suspension period is completed, the Death Benefit is the same as if this person had been an Owner or Annuitant on the Issue Date. When do you determine the Death Benefit? We determine the amount of the Death Benefit as of the date we receive "due proof of death" (and in certain limited circumstances as of the date of death), any instructions we require to determine the method of payment and any other written representations we require to determine the proper payment of the Death Benefit. "Due proof of death" may include a certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death or other satisfactory proof of death. Upon our receipt of "due proof of death" we automatically transfer the Death Benefit to the AST Money Market Sub-account until we further determine the universe of eligible Beneficiaries. Once the universe of eligible Beneficiaries has been determined each eligible Beneficiary may allocate his or her eligible share of the Death Benefit to an eligible annuity payment option. Each Beneficiary must make an election as to the method they wish to receive their portion of the Death Benefit. Absent an election of a Death Benefit payment method, no Death Benefit can be paid to the Beneficiary. We may require written acknowledgment of all named Beneficiaries before we can pay the Death Benefit. During the period from the date of death until we receive all required paper work, the amount of the Death Benefit may be subject to market fluctuations. 138 VALUING YOUR INVESTMENT HOW IS MY ACCOUNT VALUE DETERMINED? During the accumulation period, your Annuity has an Account Value. The Account Value is determined separately for each Sub-account allocation and for each Fixed Allocation. The Account Value is the sum of the values of each Sub-account allocation and the value of each Fixed Allocation. For Annuities with a Highest Daily Lifetime Five election, Account Value also includes the value of any allocation to the Benefit Fixed Rate Account. See the "Living Benefits - Highest Daily Lifetime Five" section of the Prospectus for a description of the Benefit Fixed Rate Account. The Account Value does not reflect any CDSC that may apply to a withdrawal or surrender. The Account Value includes any Credits we applied to your Purchase Payments which we are entitled to take back under certain circumstances. When determining the Account Value on a day more than 30 days prior to a MVA Fixed Allocation's Maturity Date, the Account Value may include any Market Value Adjustment that would apply to a MVA Fixed Allocation (if withdrawn or transferred) on that day. WHAT IS THE SURRENDER VALUE OF MY ANNUITY? The Surrender Value of your Annuity is the value available to you on any day during the accumulation period. The Surrender Value is defined under "Glossary of Terms" above. HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS? When you allocate Account Value to a Sub-account, you are purchasing units of the Sub-account. Each Sub-account invests exclusively in shares of an underlying Portfolio. The value of the Units fluctuates with the market fluctuations of the Portfolios. The value of the Units also reflects the daily accrual for the Insurance Charge, and if you elected one or more optional benefits whose annual charge is deducted daily, the additional charge made for such benefits. There may be several different Unit Prices for each Sub-account to reflect the Insurance Charge, and the charges for any optional benefits. The Unit Price for the Units you purchase will be based on the total charges for the benefits that apply to your Annuity. See the section entitled "What Happens to My Units When There is a Change in Daily Asset-Based Charges?" for a detailed discussion of how Units are purchased and redeemed to reflect changes in the daily charges that apply to your Annuity. Each Valuation Day, we determine the price for a Unit of each Sub-account, called the "Unit Price." The Unit Price is used for determining the value of transactions involving Units of the Sub-accounts. We determine the number of Units involved in any transaction by dividing the dollar value of the transaction by the Unit Price of the Sub-account as of the Valuation Day. Example Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the Sub-account. Assume that later, you wish to transfer $3,000 of your Account Value out of that Sub-account and into another Sub-account. On the Valuation Day you request the transfer, the Unit Price of the original Sub-account has increased to $16.79 and the Unit Price of the new Sub-account is $17.83. To transfer $3,000, we sell 178.677 Units at the current Unit Price, leaving you 158.477 Units. We then buy $3,000 of Units of the new Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of the new Sub-account. HOW DO YOU VALUE FIXED ALLOCATIONS? During the Guarantee Period, we use the concept of an Interim Value for the MVA Fixed Allocations. The Interim Value can be calculated on any day and is equal to the initial value allocated to a MVA Fixed Allocation plus all interest credited to a MVA Fixed Allocation as of the date calculated. The Interim Value does not include the impact of any Market Value Adjustment. If you made any transfers or withdrawals from an MVA Fixed Allocation, the Interim Value will reflect the withdrawal of those amounts and any interest credited to those amounts before they were withdrawn. To determine the Account Value of a MVA Fixed Allocation on any day more than 30 days prior to its Maturity Date, we multiply the Account Value of the MVA Fixed Allocation times the Market Value Adjustment factor. In addition to MVA Fixed Allocations that are subject to a Market Value Adjustment, we offer DCA Fixed Rate Options that are used with our 6 or 12 Month Dollar Cost Averaging Program, and are not subject to any MVA. Account Value allocated to the DCA Fixed Rate Options earns the declared rate of interest while it is transferred over a 6 month or 12 month period into the Sub-accounts that you have designated. WHEN DO YOU PROCESS AND VALUE TRANSACTIONS? Prudential Annuities is generally open to process financial transactions on those days that the New York Stock Exchange (NYSE) is open for trading. There may be circumstances where the NYSE does not open on a regularly scheduled date or time or closes at an earlier time than scheduled (normally 4:00 p.m. EST). Generally, financial transactions requested before the close of the NYSE which meet our requirements will be processed according to the value next determined following the close of business. Financial transactions requested on a non-Valuation Day or after the close of the NYSE will be processed based on the value next computed on the next Valuation Day. There may be circumstances when the opening or closing time of the NYSE is different than other major stock exchanges, such as NASDAQ or the American Stock Exchange. Under such circumstances, the closing time of the NYSE will be used when valuing and processing transactions. There may be circumstances where the NYSE is open, however, due to inclement weather, natural disaster or other circumstances beyond our control, our offices may be closed or our business processing capabilities may be restricted. Under those circumstances, 139 your Account Value may fluctuate based on changes in the Unit Values, but you may not be able to transfer Account Value, or make a purchase or redemption request. We have arrangements with certain selling firms, under which receipt by the firm in good order prior to our cut-off time on a given Valuation Day is treated as receipt by us on that Valuation Day for pricing purposes. Currently, we have such an arrangement with Citigroup Global Markets Inc. ("CGM"). In addition, we currently have an arrangement with Merrill Lynch, Pierce, Fenner & Smith, Inc. ("Merrill Lynch") under which transfer orders between Sub-accounts that are received in good order by Merrill Lynch prior to the NYSE close on a given Valuation Day will be priced by us as of that Valuation Day. The arrangements with CGM and Merrill Lynch may be terminated in certain circumstances. The NYSE is closed on the following nationally recognized holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. On those dates, we will not process any financial transactions involving purchase or redemption orders. Prudential Annuities will also not process financial transactions involving purchase or redemption orders or transfers on any day that: . trading on the NYSE is restricted; . an emergency, as determined by the SEC, exists as determined by the SEC making redemption or valuation of securities held in the separate account impractical; or . the SEC, by order, permits the suspension or postponement for the protection of security holders. Initial Purchase Payments: We are required to allocate your initial Purchase Payment to the Sub-accounts within two (2) Valuation Days after we receive all of our requirements at our office to issue an Annuity. If we do not have all the required information to allow us to issue your Annuity, we may retain the Purchase Payment while we try to reach you or your representative to obtain all of our requirements. If we are unable to obtain all of our required information within five (5) Valuation Days, we are required to return the Purchase Payment to you at that time, unless you specifically consent to our retaining the Purchase Payment while we gather the required information. Once we obtain the required information, we will invest the Purchase Payment (and any associated Credits) and issue an Annuity within two (2) Valuation Days. With respect to both your initial Purchase Payment and any subsequent Purchase Payment that is pending investment in our separate account, we may hold the amount temporarily in our general account and may earn interest on such amount. You will not be credited with interest during that period. Additional Purchase Payments: We will apply any additional Purchase Payments (and any associated Credit) on the Valuation Day that we receive the Purchase Payment at our office with satisfactory allocation instructions. Scheduled Transactions: Scheduled transactions include transfers made in connection with dollar cost averaging, the asset allocation program, auto-rebalancing, systematic withdrawals, systematic investments, required minimum distributions, substantially equal periodic payments under Section 72(t) of the Code, or annuity payments. Scheduled transactions are processed and valued as of the date they are scheduled, unless the scheduled day is not a Valuation Day. In that case, the transaction will be processed and valued on the next Valuation Day, unless (with respect to required minimum distributions, substantially equal periodic payments under Section 72(t) of the Code, systematic withdrawals and annuity payments only), the next Valuation Day falls in the subsequent calendar year, in which case the transaction will be processed and valued on the prior Valuation Day. Unscheduled Transactions: "Unscheduled" transactions include any other non-scheduled transfers and requests for Partial Withdrawals or Free Withdrawals or Surrenders. Unscheduled transactions are processed and valued as of the Valuation Day we receive the request at our Office and have all of the required information. We may postpone paying any amount for a full or partial surrender to authenticate the signature on a request. In the event that we postpone payment, the request will not be effective until we have validated the signature on the request to our satisfaction. Once accepted, the request for a full or partial surrender will be paid within seven days. Medically-related Surrenders & Death Benefits: Medically-related surrender requests and Death Benefit claims require our review and evaluation before processing. We price such transactions as of the date we receive at our Office all supporting documentation we require for such transactions and that are satisfactory to us. We are generally required by law to pay any surrender request or death benefit claims from the Separate Account within 7 days of our receipt of your request in good order. Termination of Optional Benefits: Except for the Guaranteed Minimum Income Benefit, the "Combination 5% Roll-up and Highest Anniversary Value Death Benefit" and the Highest Daily Value Death Benefit, which generally cannot be terminated by the owner once elected, if any optional benefit terminates, we will no longer deduct the charge we apply to purchase the optional benefit. Certain optional benefits may be added after you have purchased your Annuity. On the date a charge no longer applies or a charge for an optional benefit begins to be deducted, your Annuity will become subject to a different daily asset-based charge. This change may result in the number of Units attributed to your Annuity and the value of those Units being different than it was before the change; however, the adjustment in the number of Units and Unit Price will not affect your Account Value (although the change in charges that are deducted will affect your Account Value). 140 TAX CONSIDERATIONS The tax considerations associated with an Annuity vary depending on whether the contract is (i) owned by an individual or non-natural person, and not associated with a tax-favored retirement plan, or (ii) held under a tax-favored retirement plan. We discuss the tax considerations for these categories of contracts below. The discussion is general in nature and describes only federal income tax law (not state or other tax laws). It is based on current law and interpretations, which may change. The information provided is not intended as tax advice. You should consult with a qualified tax advisor for complete information and advice. References to purchase payments below relate to your cost basis in your contract. Generally, your cost basis in a contract not associated with a tax-favored retirement plan is the amount you pay into your contract, or into annuities exchanged for your contract, on an after-tax basis less any withdrawals of such payments. Cost basis for a tax-favored retirement plan is provided only in limited circumstances, such as for contributions to a Roth IRA or nondeductible IRA contributions. The discussion includes a description of certain spousal rights under the contract, and our administration of such spousal rights and related tax reporting accords with our understanding of the Defense of Marriage Act (which defines a "marriage" as a legal union between a man and a woman and a "spouse" as a person of the opposite sex). Depending on the state in which your annuity is issued, we may offer certain spousal benefits to civil union couples or same-sex marriages. You should be aware, however, that federal tax law does not recognize civil unions or same-sex marriages. Therefore, we cannot permit a civil union partner or same-sex spouse to continue the annuity upon the death of the first partner under the annuity's "spousal continuance" provision. Civil union couples and same-sex marriage spouses should consider that limitation before selecting a spousal benefit under the annuity. The discussion below generally assumes that the Annuity Contract is issued to the Contract Owner. For Annuity Contracts issued under the Beneficiary Continuation Option refer to the Taxes Payable by Beneficiaries for Nonqualified Annuity Contracts and Required Distributions Upon Your Death for Qualified Annuity Contracts in this Tax Considerations section. NONQUALIFIED ANNUITY CONTRACTS In general, as used in this prospectus, a Nonqualified Annuity is owned by an individual or non-natural person and is not associated with a tax-favored retirement plan. Taxes Payable by You We believe the Annuity is an annuity contract for tax purposes. Accordingly, as a general rule, you should not pay any tax until you receive money under the contract. Generally, annuity contracts issued by the same company (and affiliates) to you during the same calendar year must be treated as one annuity contract for purposes of determining the amount subject to tax under the rules described below. Charges for investment advisory fees that are taken from the contract are treated as a partial withdrawal from the contract and will be reported as such to the contract owner. It is possible that the Internal Revenue Service (IRS) would assert that some or all of the charges for the optional benefits under the contract should be treated for federal income tax purposes as a partial withdrawal from the contract. If this were the case, the charge for this benefit could be deemed a withdrawal and treated as taxable to the extent there are earnings in the contract. Additionally, for owners under age 59 1/2, the taxable income attributable to the charge for the benefit could be subject to a tax penalty. If the IRS determines that the charges for one or more benefits under the contract are taxable withdrawals, then the sole or surviving owner will be provided with a notice from us describing available alternatives regarding these benefits. You must commence annuity payments no later than the first day of the calendar month next following the maximum Annuity date for your Contract. For some of our contracts, you are able to choose to defer the Annuity Date beyond the default Annuity date described in your Contract. However, the IRS may not then consider your contract to be an annuity under the tax law. Taxes on Withdrawals and Surrender If you make a withdrawal from your contract or surrender it before annuity payments begin, the amount you receive will be taxed as ordinary income, rather than as return of purchase payments, until all gain has been withdrawn. Once all gain has been withdrawn, payments will be treated as a nontaxable return of purchase payments until all purchase payments have been returned. After all purchase payments are returned, all subsequent amounts will be taxed as ordinary income. You will generally be taxed on any withdrawals from the contract while you are alive even if the withdrawal is paid to someone else. Withdrawals under any of the optional living benefit benefits or as a systematic payment are taxed under these rules. If you assign or pledge all or part of your contract as collateral for a loan, the part assigned generally will be treated as a withdrawal. If you transfer your contract for less than full consideration, such as by gift, you will also trigger tax on any gain in the contract. This rule does not apply if you transfer the contract to your spouse or under most circumstances if you transfer the contract incident to divorce. If you choose to receive payments under an interest payment option, or a beneficiary chooses to receive a death benefit under an interest payment option, that election will be treated, for tax purposes, as surrendering your Annuity and will immediately subject any gain in the contract to income tax. Taxes on Annuity Payments A portion of each annuity payment you receive will be treated as a partial return of your purchase payments and will not be taxed. The remaining portion will be taxed as ordinary income. Generally, the nontaxable portion is 141 determined by multiplying the annuity payment you receive by a fraction, the numerator of which is your purchase payments (less any amounts previously received tax-free) and the denominator of which is the total expected payments under the contract. After the full amount of your purchase payments have been recovered tax-free, the full amount of the annuity payments will be taxable. If annuity payments stop due to the death of the annuitant before the full amount of your purchase payments have been recovered, a tax deduction may be allowed for the unrecovered amount. Please refer to your Annuity Contract for the maximum Annuity Date. Tax Penalty for Early Withdrawal from a Nonqualified Annuity Contract You may owe a 10% tax penalty on the taxable part of distributions received from your Nonqualified Annuity contract before you attain age 59 1/2. Amounts are not subject to this tax penalty if: . the amount is paid on or after you reach age 59 1/2 or die; . the amount received is attributable to your becoming disabled; . generally the amount paid or received is in the form of substantially equal payments not less frequently than annually (please note that substantially equal payments must continue until the later of reaching age 59 1/2 or 5 years and modification of payments during that time period will result in retroactive application of the 10% tax penalty); or . the amount received is paid under an immediate annuity contract (in which annuity payments begin within one year of purchase). Other exceptions to this tax may apply. You should consult your tax advisor for further details. Special Rules in Relation to Tax-free Exchanges Under Section 1035 Section 1035 of the Internal Revenue Code of 1986, as amended (Code), permits certain tax-free exchanges of a life insurance, annuity or endowment contract for an annuity. Partial surrenders may be treated in the same way as tax-free 1035 exchanges of entire contracts, therefore avoiding current taxation of any gains in the contract as well as the 10% tax penalty on pre-age 59 1/2 withdrawals. The IRS has reserved the right to treat transactions it considers abusive as ineligible for this favorable partial 1035 exchange treatment. In Revenue Procedure 2008-24, the IRS has indicated that where there is a surrender or distribution from either the initial annuity contract or receiving annuity contract within 12 months of the date on which the partial exchange was completed, the transfer will retroactively be treated as a taxable distribution from the initial annuity contract and a contribution to the receiving annuity contract. Tax free exchange treatment will be retained if the subsequent surrender or distribution would be eligible for an exception to the 10% federal income tax penalty, other than the exceptions for substantially equal periodic payments or distributions under an immediate annuity. It is unclear how the IRS will treat a partial exchange from a life insurance, endowment, or annuity contract into an immediate annuity. As of the date of this prospectus, we will accept a partial 1035 exchange from a non-qualified annuity into an immediate annuity as a "tax-free" exchange for future tax reporting purposes, except to the extent that we, as a reporting and withholding agent, believe that we would be expected to deem the transaction to be abusive. However, some insurance companies may not recognize these partial surrenders as tax-free exchanges and may report them as taxable distributions to the extent of any gain distributed as well as subjecting the taxable portion of the distribution to the 10% tax penalty. We strongly urge you to discuss any transaction of this type with your tax advisor before proceeding with the transaction. If an Annuity is purchased through a tax-free exchange of a life insurance, annuity or endowment contract that was purchased prior to August 14, 1982, then any purchase payments made to the original contract prior to August 14, 1982 will be treated as made to the new contract prior to that date. Generally, such pre-August 14, 1982 withdrawals are treated as a recovery of your investment in the contract first until purchase payments made before August 14, 1982 are withdrawn. Moreover, any income allocable to purchase payments made before August 14, 1982, is not subject to the 10% tax penalty. Taxes Payable by Beneficiaries The Death Benefit options are subject to income tax to the extent the distribution exceeds the cost basis in the contract. The value of the Death Benefit, as determined under federal law, is also included in the owner's estate. Generally, the same tax rules described above would also apply to amounts received by your beneficiary. Choosing any option other than a lump sum Death Benefit may defer taxes. Certain minimum distribution requirements apply upon your death, as discussed further below in the Annuity Qualification section. Tax consequences to the beneficiary vary depending upon the Death Benefit payment option selected. Generally, for payment of the Death Benefit . As a lump sum payment: the beneficiary is taxed on gain in the contract. . Within 5 years of death of owner: the beneficiary is taxed as amounts are withdrawn (in this case gain is treated as being distributed first). . Under an annuity or annuity settlement option with distribution beginning within one year of the date of death of the owner: the beneficiary is taxed on each payment (part will be treated as gain and part as return of purchase payments). Considerations for Contingent Annuitants: We may allow the naming of a contingent annuitant when a Nonqualified Annuity contract is held by a pension plan or a tax favored retirement plan. In such a situation, the Annuity may no longer qualify for tax deferral where the Annuity contract continues after the death of the Annuitant. 142 Reporting and Withholding on Distributions Taxable amounts distributed from an Annuity are subject to federal and state income tax reporting and withholding. In general, we will withhold federal income tax from the taxable portion of such distribution based on the type of distribution. In the case of an annuity or similar periodic payment, we will withhold as if you are a married individual with three (3) exemptions unless you designate a different withholding status. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In the case of all other distributions, we will withhold at a 10% rate. You may generally elect not to have tax withheld from your payments. An election out of withholding must be made on forms that we provide. State income tax withholding rules vary and we will withhold based on the rules of your State of residence. Special tax rules apply to withholding for nonresident aliens, and we generally withhold income tax for nonresident aliens at a 30% rate. A different withholding rate may be applicable to a nonresident alien based on the terms of an existing income tax treaty between the United States and the nonresident alien's country. Please refer to the discussion below regarding withholding rules for a Qualified Annuity. Regardless of the amount withheld by us, you are liable for payment of federal and state income tax on the taxable portion of annuity distributions. You should consult with your tax advisor regarding the payment of the correct amount of these income taxes and potential liability if you fail to pay such taxes. Entity Owners Where a contract is held by a non-natural person (e.g. a corporation), other than as an agent or nominee for a natural person (or in other limited circumstances), the contract will not be taxed as an annuity and increases in the value of the contract over its cost basis will be subject to tax annually. Where a contract is issued to a trust, and such trust is characterized as a grantor trust under the Internal Revenue Code, such contract shall not be considered to be held by a non-natural person and will generally be subject to the tax reporting and withholding requirements for a Nonqualified Annuity. Where a contract is structured so that it is owned by a grantor trust but the annuitant is not the grantor, then the contract is required to terminate upon the death of the grantor if the grantor pre-deceases the annuitant under Section 72(s) of the Code. Under this circumstance, the contract value will be paid out to the beneficiary and it is not eligible for the death benefit provided under the contract. Annuity Qualification Diversification And Investor Control. In order to qualify for the tax rules applicable to annuity contracts described above, the assets underlying the Sub-accounts of an Annuity must be diversified, according to certain rules under the Internal Revenue Code. Each portfolio is required to diversify its investments each quarter so that no more than 55% of the value of its assets is represented by any one investment, no more than 70% is represented by any two investments, no more than 80% is represented by any three investments, and no more than 90% is represented by any four investments. Generally, securities of a single issuer are treated as one investment and obligations of each U.S. Government agency and instrumentality (such as the Government National Mortgage Association) are treated as issued by separate issuers. In addition, any security issued, guaranteed or insured (to the extent so guaranteed or insured) by the United States or an instrumentality of the U.S. will be treated as a security issued by the U.S. Government or its instrumentality, where applicable. We believe the portfolios underlying the variable investment options of the Annuity meet these diversification requirements. An additional requirement for qualification for the tax treatment described above is that we, and not you as the contract owner, must have sufficient control over the underlying assets to be treated as the owner of the underlying assets for tax purposes. While we also believe these investor control rules will be met, the Treasury Department may promulgate guidelines under which a variable annuity will not be treated as an annuity for tax purposes if persons with ownership rights have excessive control over the investments underlying such variable annuity. It is unclear whether such guidelines, if in fact promulgated, would have retroactive effect. It is also unclear what effect, if any, such guidelines might have on transfers between the investment options offered pursuant to this Prospectus. We reserve the right to take any action, including modifications to your Annuity or the investment options, required to comply with such guidelines if promulgated. Any such changes will apply uniformly to affected owners and will be made with such notice to affected owners as is feasible under the circumstances. Required Distributions Upon Your Death for Nonqualified Annuity Contracts. Upon your death, certain distributions must be made under the contract. The required distributions depend on whether you die before you start taking annuity payments under the contract or after you start taking annuity payments under the contract. If you die on or after the Annuity Date, the remaining portion of the interest in the contract must be distributed at least as rapidly as under the method of distribution being used as of the date of death. If you die before the Annuity Date, the entire interest in the contract must be distributed within 5 years after the date of death, or as periodic payments over a period not extending beyond the life or life expectancy of such designated beneficiary (provided such payments begin within one year of your death). Your designated beneficiary is the person to whom benefit rights 143 under the contract pass by reason of death, and must be a natural person in order to elect a periodic payment option based on life expectancy or a period exceeding five years. Additionally, if the Annuity is payable to (or for the benefit of) your surviving spouse, that portion of the contract may be continued with your spouse as the owner. For Nonqualified annuity contracts owned by a non-natural person, the required distribution rules apply upon the death of the annuitant. This means that for a contract held by a non-natural person (such as a trust) for which there is named a co-annuitant, then such required distributions will be triggered by the death of the first co-annuitants to die. Changes In Your Annuity. We reserve the right to make any changes we deem necessary to assure that your Annuity qualifies as an annuity contract for tax purposes. Any such changes will apply to all contract owners and you will be given notice to the extent feasible under the circumstances. Qualified Annuity Contracts In general, as used in this prospectus, a Qualified Annuity is an Annuity contract with applicable endorsements for a tax-favored plan or a Nonqualified Annuity contract held by a tax-favored retirement plan. The following is a general discussion of the tax considerations for Qualified Annuity contracts. This Annuity may or may not be available for all types of the tax-favored retirement plans discussed below. This discussion assumes that you have satisfied the eligibility requirements for any tax-favored retirement plan. Please consult your Financial Professional prior to purchase to confirm if this contract is available for a particular type of tax-favored retirement plan or whether we will accept the type of contribution you intend for this contract. A Qualified annuity may typically be purchased for use in connection with: . Individual retirement accounts and annuities (IRAs), including inherited IRAs (which we refer to as a Beneficiary IRA), which are subject to Sections 408(a) and 408(b) of the Code; . Roth IRAs, including inherited Roth IRAs (which we refer to as a Beneficiary Roth IRA) under Section 408A of the Code; . A corporate Pension or Profit-sharing plan (subject to 401(a) of the Code); . H.R. 10 plans (also known as Keogh Plans, subject to 401(a) of the Code); . Tax Sheltered Annuities (subject to 403(b) of the Code, also known as Tax Deferred Annuities or TDAs); . Section 457 plans (subject to 457 of the Code). A Nonqualified annuity may also be purchased by a 401(a) trust or custodial IRA or Roth IRA account, or a Section 457 plan, which can hold other permissible assets. The terms and administration of the trust or custodial account or plan in accordance with the laws and regulations for 401(a) plans, IRAs or Roth IRAs, or a Section 457 plan, as applicable, are the responsibility of the applicable trustee or custodian. You should be aware that tax favored plans such as IRAs generally provide income tax deferral regardless of whether they invest in annuity contracts. This means that when a tax favored plan invests in an annuity contract, it generally does not result in any additional tax benefits (such as income tax deferral and income tax free transfers). Types of Tax-favored Plans IRAs. If you buy an Annuity for use as an IRA, we will provide you a copy of the prospectus and contract. The "IRA Disclosure Statement" and "Roth IRA Disclosure Statement" which accompany the prospectus contain information about eligibility, contribution limits, tax particulars, and other IRA information. In addition to this information (some of which is summarized below), the IRS requires that you have a "free look" after making an initial contribution to the contract. During this time, you can cancel the Annuity by notifying us in writing, and we will refund all of the purchase payments under the Annuity (or, if provided by applicable state law, the amount credited under the Annuity, if greater), less any applicable federal and state income tax withholding. Contributions Limits/Rollovers. Subject to the minimum purchase payment requirements of an Annuity, you may purchase an Annuity for an IRA in connection with a "rollover" of amounts from a qualified retirement plan, as a transfer from another IRA, by making a single contribution consisting of your IRA contributions and catch-up contributions, if applicable, attributable to the prior year and the current year during the period from January 1 to April 15, or as a current year contribution. In 2009 the contribution limit is $5,000. The contribution amount is indexed for inflation. The tax law also provides for a catch-up provision for individuals who are age 50 and above, allowing these individuals an additional $1,000 contribution each year. The catch-up amount is not indexed for inflation. The "rollover" rules under the Code are fairly technical; however, an individual (or his or her surviving spouse) may generally "roll over" certain distributions from tax favored retirement plans (either directly or within 60 days from the date of these distributions) if he or she meets the requirements for distribution. Once you buy an Annuity, you can make regular IRA contributions under the Annuity (to the extent permitted by law). However, if you make such regular IRA contributions, you should note that you will not be able to treat the contract as a "conduit IRA," which means that you will not retain possible favorable tax treatment if you 144 subsequently "roll over" the contract funds originally derived from a qualified retirement plan or TDA into another Section 401(a) plan or TDA. In some circumstances, non-spouse beneficiaries may directly roll over to an IRA amounts due from qualified plans, 403(b) plans, and governmental 457(b) plans. The rollover rules applicable to non-spouse beneficiaries under the Code are more restrictive than the rollover rules applicable to owner/participants and spouse beneficiaries. Generally, non-spouse beneficiaries may roll over distributions from tax favored retirement plans only as a direct rollover, and if permitted by the plan. Under the 2008 Retiree and Employer Recovery Act, employer retirement plans are required to permit non-spouse beneficiaries to roll over funds to an inherited IRA for plan years beginning after December 31, 2009. An inherited IRA must be directly rolled over from the employer plan or IRA and must be titled in the name of the deceased (i.e., John Doe deceased for the benefit of Jane Doe). No additional contributions can be made to a Beneficiary IRA. Required Provisions. Contracts that are IRAs (or endorsements that are part of the contract) must contain certain provisions: . You, as owner of the contract, must be the "annuitant" under the contract (except in certain cases involving the division of property under a decree of divorce); . Your rights as owner are non-forfeitable; . You cannot sell, assign or pledge the contract; . The annual contribution you pay cannot be greater than the maximum amount allowed by law, including catch-up contributions if applicable (which does not include any rollover amounts); . The date on which required minimum distributions must begin cannot be later than April 1st of the calendar year after the calendar year you turn age 70 1/2; and . Death and annuity payments must meet "required minimum distribution" rules described below. Usually, the full amount of any distribution from an IRA (including a distribution from this contract) which is not a rollover is taxable. As taxable income, these distributions are subject to the general tax withholding rules described earlier regarding a Nonqualified Annuity. In addition to this normal tax liability, you may also be liable for the following, depending on your actions: . A 10% early withdrawal penalty described below; . Liability for "prohibited transactions" if you, for example, borrow against the value of an IRA; or . Failure to take a required minimum distribution, also described below. SEPs. SEPs are a variation on a standard IRA, and contracts issued to a SEP must satisfy the same general requirements described under IRAs (above). There are, however, some differences: . If you participate in a SEP, you generally do not include in income any employer contributions made to the SEP on your behalf up to the lesser of (a) $49,000 in 2009 ($46,000 in 2008) or (b) 25% of your taxable compensation paid by the contributing employer (not including the employer's SEP contribution as compensation for these purposes). However, for these purposes, compensation in excess of certain limits established by the IRS will not be considered. In 2009, this limit is $245,000 ($230,000 for 2008); . SEPs must satisfy certain participation and nondiscrimination requirements not generally applicable to IRAs; and . SEPs that contain a salary reduction or "SARSEP" provision prior to 1997 may permit salary deferrals up to $16,500 in 2009 with the employer making these contributions to the SEP. However, no new "salary reduction" or "SARSEPs" can be established after 1996. Individuals participating in a SARSEP who are age 50 or above by the end of the year will be permitted to contribute an additional $5,500 in 2009. These amounts are indexed for inflation. These Annuities are not available for SARSEPs. You will also be provided the same information, and have the same "free look" period, as you would have if you purchased the contract for a standard IRA. ROTH IRAs. The "Roth IRA Disclosure Statement" contains information about eligibility, contribution limits, tax particulars and other Roth IRA information. Like standard IRAs, income within a Roth IRA accumulates tax-free, and contributions are subject to specific limits. Roth IRAs have, however, the following differences: . Contributions to a Roth IRA cannot be deducted from your gross income; . "Qualified distributions" from a Roth IRA are excludable from gross income. A "qualified distribution" is a distribution that satisfies two requirements: (1) the distribution must be made (a) after the owner of the IRA attains age 59 1/2; (b) after the owner's death; (c) due to the owner's disability; or (d) for a qualified first time homebuyer distribution within the meaning of Section 72(t)(2)(F) of the Code; and (2) the distribution must be made in the year that is at least five tax years after the first year for which a contribution was made to any Roth IRA established for the owner or five years after a rollover, transfer, or conversion was made from a traditional IRA to a Roth IRA. Distributions from a Roth IRA that are not qualified distributions will be treated as made first from contributions and then from earnings and earnings will be taxed generally in the same manner as distributions from a traditional IRA. . If eligible (including meeting income limitations and earnings requirements), you may make contributions to a Roth IRA after attaining age 70 1/2, and distributions are not required to begin upon attaining such age or at any time thereafter. Subject to the minimum purchase payment requirements of an Annuity, if you meet certain income limitations you may purchase an Annuity for a Roth IRA in connection with a "rollover" of amounts of another traditional IRA, conduit IRA, SEP, SIMPLE-IRA 145 or Roth IRA by making a single contribution consisting of your Roth IRA contributions and catch-up contributions, if applicable, attributable to the prior year and the current year during the period from January 1 to April 15 of the current year, or with a current contribution. The Code permits persons who meet certain income limitations (generally, adjusted gross income under $100,000) who are not married filing a separate return and who receive certain qualifying distributions from such non-Roth IRAs, to directly rollover or make, within 60 days, a "rollover" of all or any part of the amount of such distribution to a Roth IRA which they establish. Beginning January 2008, an individual receiving an eligible rollover distribution from an employer sponsored retirement plan under sections 401(a) or 403(b) of the Code can directly roll over contributions to a Roth IRA, subject to the same income limits. This conversion triggers current taxation (but is not subject to a 10% early distribution penalty). Once an Annuity has been purchased, regular Roth IRA contributions will be accepted to the extent permitted by law. In addition, an individual receiving an eligible rollover distribution from a designated Roth account under an employer plan may roll over the distribution to a Roth IRA even if the individual is not eligible to make regular contributions to a Roth IRA. Until 2010, participants with an adjusted gross income greater than $100,000 are not permitted to roll over funds from an employer plan , other than a Roth 401(k) or Roth 403(b) distribution, to a Roth IRA. Non-spouse beneficiaries receiving a distribution from an employer sponsored retirement plan under sections 401(a) or 403(b) of the Code can also directly roll over contributions to a Roth IRA, subject to the same income limits. However, it is our understanding of the Code that non-spouse beneficiaries cannot "rollover" benefits from a traditional IRA to a Roth IRA. TDAs. You may own a Tax Deferred Annuity (also known as a TDA, Tax Sheltered Annuity (TSA), 403(b) plan or 403(b) annuity) generally if you are an employee of a tax-exempt organization (as defined under Code Section 501(c)(3)) or a public educational organization, and you may make contributions to a TDA so long as your employer maintains such a plan and your rights to the annuity are nonforfeitable. Contributions to a TDA, and any earnings, are not taxable until distribution. You may also make contributions to a TDA under a salary reduction agreement, generally up to a maximum of $16,500 in 2009. Individuals participating in a TDA who are age 50 or above by the end of the year will be permitted to contribute an additional $5,500 in 2009. This amount is indexed for inflation. Further, you may roll over TDA amounts to another TDA or an IRA. You may also roll over TDA amounts to a qualified retirement plan, a SEP and a 457 government plan. A contract may generally only qualify as a TDA if distributions of salary deferrals (other than "grandfathered" amounts held as of December 31, 1988) may be made only on account of: . Your attainment of age 59 1/2; . Your severance of employment; . Your death; . Your total and permanent disability; or . Hardship (under limited circumstances, and only related to salary deferrals, not including earnings attributable to these amounts). In any event, you must begin receiving distributions from your TDA by April 1st of the calendar year after the calendar year you turn age 70 1/2 or retire, whichever is later. These distribution limits do not apply either to transfers or exchanges of investments under the contract, or to any "direct transfer" of your interest in the contract to another employer's TDA plan or mutual fund "custodial account" described under Code Section 403(b)(7). Employer contributions to TDAs are subject to the same general contribution, nondiscrimination, and minimum participation rules applicable to "qualified" retirement plans. Caution: Under recent IRS regulations we can accept contributions, transfers and rollovers only if we have entered into an information-sharing agreement, or its functional equivalent, with the applicable employer or its agent. In addition, in order to comply with the regulations, we will only process certain transactions (e.g, transfers, withdrawals, hardship distributions and, if applicable, loans) with employer approval. This means that if you request one of these transactions we will not consider your request to be in good order, and will not therefore process the transaction, until we receive the employer's approval in written or electronic form. Required Minimum Distributions and Payment Options If you hold the contract under an IRA (or other tax-favored plan), required minimum distribution rules must be satisfied. This means that generally payments must start by April 1 of the year after the year you reach age 70 1/2 and must be made for each year thereafter. For a TDA or a 401(a) plan for which the participant is not a greater than 5% owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the Owner's lifetime. The amount of the payment must at least equal the minimum required under the IRS rules. Several choices are available for calculating the minimum amount. More information on the mechanics of this calculation is available on request. Please contact us at a reasonable time before the IRS deadline so that a timely distribution is made. Please note that there is a 50% tax penalty on the amount of any required minimum distribution not made in a timely manner. Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. Required minimum distributions are calculated based on the sum of the Account Value and the actuarial value of any additional death benefits and benefits from optional riders that you have purchased under the contract. As a result, the required minimum distributions may be larger than if the calculation were based on the Account Value only, which may in turn result in an earlier (but 146 not before the required beginning date) distribution of amounts under the Annuity and an increased amount of taxable income distributed to the Annuity owner, and a reduction of death benefits and the benefits of any optional riders. You can use the Minimum Distribution option to satisfy the required minimum distribution rules for an Annuity without either beginning annuity payments or surrendering the Annuity. We will distribute to you the required minimum distribution amount, less any other partial withdrawals that you made during the year. Such amount will be based on the value of the contract as of December 31 of the prior year, but is determined without regard to other contracts you may own. If you have previously elected the Minimum Distribution Option to satisfy your required minimum distributions, we will continue to make such distributions to you in 2009 based on this methodology, unless you tell us not to make a 2009 distribution. Although the IRS rules determine the required amount to be distributed from your IRA each year, certain payment alternatives are still available to you. If you own more than one IRA, you can choose to satisfy your minimum distribution requirement for each of your IRAs by withdrawing that amount from any of your IRAs. If you inherit more than one IRA or more than one Roth IRA from the same owner, similar rules apply. Required Distributions Upon Your Death for Qualified Annuity Contracts Upon your death under an IRA, Roth IRA, 403(b) or other employer sponsored plan, the designated beneficiary may generally elect to continue the contract and receive required minimum distributions under the contract instead of receiving the death benefit in a single payment. The available payment options will depend on whether you die before the date required minimum distributions under the Code were to begin, whether you have named a designated beneficiary and whether that beneficiary is your surviving spouse. . If you die after a designated beneficiary has been named, the death benefit must be distributed by December 31/st/ of the year including the five year anniversary of the date of death, or as periodic payments not extending beyond the life or life expectancy of the designated beneficiary (as long as payments begin by December 31/st/ of the year following the year of death). However, if your surviving spouse is the beneficiary, the death benefit can be paid out over the life or life expectancy of your spouse with such payments beginning no later than December 31/st/ of the year following the year of death or December 31/st/ of the year in which you would have reached age 70 1/2, which ever is later. Additionally, if the contract is payable to (or for the benefit of) your surviving spouse, that portion of the contract may be continued with your spouse as the owner. Note that the Worker, Retiree and Employer Recovery Act of 2008 suspended Required Minimum Distributions for 2009. This means that if your beneficiary receives payment as periodic payments, no payment is required in 2009. If your beneficiary elects to receive full distribution by December 31 of the year including the five year anniversary of the date of death, 2009 shall not be included in the five year requirement period. This effectively extends this period to December 31/st/ of the six year anniversary of the date of death. . If you die before a designated beneficiary is named and before the date required minimum distributions must begin under the Code, the death benefit must be paid out by December 31/st/ of the year including the five year anniversary of the date of death. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31/st/ of the year following the year of death, such contract is deemed to have no designated beneficiary. A designated beneficiary may elect to apply the rules for no designated beneficiary if those would provide a smaller payment requirement. For this distribution requirement also, 2009 shall not be included in the five year requirement period. . If you die before a designated beneficiary is named and after the date required minimum distributions must begin under the Code, the death benefit must be paid out at least as rapidly as under the method then in effect. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31st of the year following the year of death, such contract is deemed to have no designated beneficiary. A designated beneficiary may elect to apply the rules for no designated beneficiary if those would provide a smaller payment requirement. For this distribution requirement also, 2009 shall not be included in the five year requirement period. A beneficiary has the flexibility to take out more each year than mandated under the required minimum distribution rules. Until withdrawn, amounts in a Qualified Annuity contract continue to be tax deferred. Amounts withdrawn each year, including amounts that are required to be withdrawn under the required minimum distribution rules, are subject to tax. You may wish to consult a professional tax advisor for tax advice as to your particular situation. For a Roth IRA, if death occurs before the entire interest is distributed, the death benefit must be distributed under the same rules applied to IRAs where death occurs before the date required minimum distributions must begin under the Code. Tax Penalty for Early Withdrawals from Qualified Annuity Contracts You may owe a 10% tax penalty on the taxable part of distributions received from an IRA, SEP, Roth IRA, TDA or qualified retirement plan before you attain age 59 1/2. Amounts are not subject to this tax penalty if: . the amount is paid on or after you reach age 59 1/2 or die; 147 . the amount received is attributable to your becoming disabled; or . generally the amount paid or received is in the form of substantially equal payments not less frequently than annually. (Please note that substantially equal payments must continue until the later of reaching age 59 1/2 or 5 years. Modification of payments during that time period will result in retroactive application of the 10% tax penalty.) Other exceptions to this tax may apply. You should consult your tax advisor for further details. Withholding We will withhold federal income tax at the rate of 20% for any eligible rollover distribution paid by us to or for a plan participant, unless such distribution is "directly" rolled over into another qualified plan, IRA (including the IRA variations described above), SEP, 457 government plan or TDA. An eligible rollover distribution is defined under the tax law as a distribution from an employer plan under 401(a), a TDA or a 457 governmental plan, excluding any distribution that is part of a series of substantially equal payments (at least annually) made over the life expectancy of the employee or the joint life expectancies of the employee and his designated beneficiary, any distribution made for a specified period of 10 years or more, any distribution that is a required minimum distribution and any hardship distribution. Regulations also specify certain other items which are not considered eligible rollover distributions. For all other distributions, unless you elect otherwise, we will withhold federal income tax from the taxable portion of such distribution at an appropriate percentage. The rate of withholding on annuity payments where no mandatory withholding is required is determined on the basis of the withholding certificate that you file with us. If you do not file a certificate, we will automatically withhold federal taxes on the following basis: . For any annuity payments not subject to mandatory withholding, you will have taxes withheld by us as if you are a married individual, with 3 exemptions. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default; and . For all other distributions, we will withhold at a 10% rate. We will provide you with forms and instructions concerning the right to elect that no amount be withheld from payments in the ordinary course. However, you should know that, in any event, you are liable for payment of federal income taxes on the taxable portion of the distributions, and you should consult with your tax advisor to find out more information on your potential liability if you fail to pay such taxes. There may be additional state income tax withholding requirements. ERISA Requirements ERISA (the "Employee Retirement Income Security Act of 1974") and the Code prevent a fiduciary and other "parties in interest" with respect to a plan (and, for these purposes, an IRA would also constitute a "plan") from receiving any benefit from any party dealing with the plan, as a result of the sale of the contract. Administrative exemptions under ERISA generally permit the sale of insurance/annuity products to plans, provided that certain information is disclosed to the person purchasing the contract. This information has to do primarily with the fees, charges, discounts and other costs related to the contract, as well as any commissions paid to any agent selling the contract. Information about any applicable fees, charges, discounts, penalties or adjustments may be found in the applicable sections of this Prospectus. Information about sales representatives and commissions may be found in the sections of this Prospectus addressing distribution of the Annuities. Other relevant information required by the exemptions is contained in the contract and accompanying documentation. Please consult with your tax advisor if you have any questions about ERISA and these disclosure requirements. Spousal Consent Rules for Retirement Plans - Qualified Contracts If you are married at the time your payments commence, you may be required by federal law to choose an income option that provides survivor annuity income to your spouse, unless your spouse waives that right. Similarly, if you are married at the time of your death, federal law may require all or a portion of the Death Benefit to be paid to your spouse, even if you designated someone else as your beneficiary. A brief explanation of the applicable rules follows. For more information, consult the terms of your retirement arrangement. Defined Benefit Plans and Money Purchase Pension Plans. If you are married at the time your payments commence, federal law requires that benefits be paid to you in the form of a "qualified joint and survivor annuity" (QJSA), unless you and your spouse waive that right, in writing. Generally, this means that you will receive a reduced payment during your life and, upon your death, your spouse will receive at least one-half of what you were receiving for life. You may elect to receive another income option if your spouse consents to the election and waives his or her right to receive the QJSA. If your spouse consents to the alternative form of payment, your spouse may not receive any benefits from the plan upon your death. Federal law also requires that the plan pay a Death Benefit to your spouse if you are married and die before you begin receiving your benefit. This benefit must be available in the form of an annuity for your spouse's lifetime and is called a "qualified pre-retirement survivor annuity" (QPSA). If the plan pays Death Benefits to other beneficiaries, you may elect to have a beneficiary other than your spouse receive the Death Benefit, but only if your spouse consents to the election and waives his or her right to receive the QPSA. If your spouse consents to the alternate beneficiary, your spouse will receive no benefits from the plan upon your death. Any QPSA waiver prior to your attaining age 35 will become null and void on the first day of the calendar year in which you attain age 35, if still employed. 148 Defined Contribution Plans (including 401(k) Plans and ERISA 403(b) Annuities). Spousal consent to a distribution is generally not required. Upon your death, your spouse will receive the entire Death Benefit, even if you designated someone else as your beneficiary, unless your spouse consents in writing to waive this right. Also, if you are married and elect an annuity as a periodic income option, federal law requires that you receive a QJSA (as described above), unless you and your spouse consent to waive this right. IRAs, non-ERISA 403(b) Annuities, and 457 Plans. Spousal consent to a distribution usually is not required. Upon your death, any Death Benefit will be paid to your designated beneficiary. Additional Information For additional information about federal tax law requirements applicable to IRAs and Roth IRAs, see the IRA Disclosure Statement or Roth IRA Disclosure Statement, as applicable. Generation-skipping Transfers If you transfer your contract to a person two or more generations younger than you (such as a grandchild or grandniece) or to a person that is more than 37 1/2 years younger than you, there may be generation-skipping transfer tax consequences. 149 GENERAL INFORMATION HOW WILL I RECEIVE STATEMENTS AND REPORTS? We send any statements and reports required by applicable law or regulation to you at your last known address of record. You should therefore give us prompt notice of any address change. We reserve the right, to the extent permitted by law and subject to your prior consent, to provide any prospectus, prospectus supplements, confirmations, statements and reports required by applicable law or regulation to you through our Internet Website at www.prudentialannuities.com or any other electronic means, including diskettes or CD ROMs. We send a confirmation statement to you each time a transaction is made affecting Account Value, such as making additional Purchase Payments, transfers, exchanges or withdrawals. We may also send quarterly statements detailing the activity affecting your Annuity during the calendar quarter. We may confirm regularly scheduled transactions, including, but not limited to, the Annual Maintenance Fee, Systematic Withdrawals (including 72(t) payments and required minimum distributions), electronic funds transfer, Dollar Cost Averaging, and static rebalancing, in quarterly statements instead of confirming them immediately. You should review the information in these statements carefully. You may request additional reports. We reserve the right to charge up to $50 for each such additional report. We will also send an annual report and a semi-annual report containing applicable financial statements for the Portfolios to Owners or, with your prior consent, make such documents available electronically through our Internet Website or other electronic means. WHO IS PRUDENTIAL ANNUITIES? Prudential Annuities Life Assurance Corporation, a Prudential Financial Company, ("Prudential Annuities") is a stock life insurance company incorporated under the Laws of Connecticut on July 26, 1988 and is domiciled in Connecticut with licenses in all 50 states, the District of Columbia and Puerto Rico. Prudential Annuities is a wholly-owned subsidiary of Prudential Annuities, Inc., whose ultimate parent is Prudential Financial, Inc. Prudential Annuities markets through and in conjunction with registered broker-dealers. Prudential Annuities offers a wide array of annuities, including (1) deferred variable annuities that are registered with the SEC, including fixed interest rate annuities that are offered as a companion to certain of our variable annuities and are registered because of their market value adjustment feature and (2) fixed annuities that are not registered with the SEC. In addition, Prudential Annuities has in force a relatively small block of variable life insurance policies and immediate variable annuities, but it no longer actively sells such policies. No company other than Prudential Annuities has any legal responsibility to pay amounts that it owes under its annuity and variable life insurance contracts. However, Prudential Financial exercises significant influence over the operations and capital structure of Prudential Annuities. Prudential Annuities conducts the bulk of its operations through staff employed by it or by affiliated companies within the Prudential Financial family. Certain discrete functions have been delegated to non-affiliates that could be deemed "service providers" under the Investment Company Act of 1940. The entities engaged by Prudential Annuities may change over time. As of December 31, 2008, non-affiliated entities that could be deemed service providers to Prudential Annuities and/or another insurer within the Prudential Annuities business unit consisted of the following: Alliance-One Services Inc. (administration of variable life policies) located at 55 Hartland Street East Hartford CT 06108, Ascensus (qualified plan administrator) located at 200 Dryden Road, Dresher, PA 19025, Blue Frog Solutions, Inc. (order entry systems provider) located at 555 SW 12/th/ Ave, Suite 202 Pompano Beach, FL 33069, Broadridge Investor Communication Solutions, Inc. (proxy tabulation services), 51 Mercedes Way, Edgewood, NY 11717, EBIX Inc. (order-entry system) located at 5 Concourse Parkway Suite 3200 Atlanta, GA 30328, Diversified Information Technologies Inc. (records management) located at 123 Wyoming Ave Scranton, PA 18503, Fosdick Fulfillment Corp. (fulfillment of prospectuses and marketing materials) located at 26 Barnes Industrial Park Road North Wallingford, CT 06492, Insurance Technologies (annuity illustrations) located at 38120 Amrhein Ave., Livonia, MI 48150, Lason Systems Inc. (contract printing and mailing) located at 1305 Stephenson Highway Troy, MI 48083, Morningstar Associates LLC (asset allocation recommendations) located at 225 West Wacker Drive Chicago, IL 60606, Pershing LLC (order-entry systems provider) located at One Pershing Plaza Jersey City, NJ 07399, Personix (printing and fulfillment of confirmations and client statements) located at 13100 North Promenade Boulevard Stafford, TX 77477, RR Donnelley Receivables Inc. (printing annual reports and prospectuses) located at 111 South Wacker Drive Chicago, IL 60606-4301, Stanton Group (qualified plan administrator) located at Two Pine Tree Drive Suite 400 Arden Hills, MN 55112 Attention: Alerus Retirement Solutions, State Street (accumulation unit value calculations) located at State Street Financial Center One Lincoln Street Boston, Massachusetts 02111, The Harty Press, Inc. (printing and fulfillment of marketing materials) located at 25 James Street New Haven, CT 06513, VG Reed & Sons Inc. (printing and fulfillment of annual reports) located at 1002 South 12/th/ Street Louisville, KY 40210, William B. Meyer (printing and fulfillment of prospectuses and marketing materials) located at 255 Long Beach Boulevard Stratford, CT 06615. WHAT ARE SEPARATE ACCOUNTS? The separate accounts are where Prudential Annuities sets aside and invests the assets of some of our annuities. These separate accounts were established under the laws of the State of Connecticut. The assets of each separate account are held in the name of Prudential Annuities, and legally belong to us. These assets are kept separate from all our other assets, and may not be charged with liabilities arising out of any other business we may conduct. Thus, income, gains and losses from assets allocated to a separate 150 account are credited to or charged against each such separate account, without regard to other income, gains, or losses of Prudential Annuities or of any other of our separate accounts. More detailed information about Prudential Annuities, including its audited consolidated financial statements, is provided in the Statement of Additional Information. Separate Account B During the accumulation period, the assets supporting obligations based on allocations to the Sub-accounts are held in Sub-accounts of Prudential Annuities Life Assurance Corporation Variable Account B, also referred to as "Separate Account B". Separate Account B was established by us pursuant to Connecticut law on November 25, 1987. Separate Account B also holds assets of other annuities issued by us with values and benefits that vary according to the investment performance of Separate Account B. Separate Account B consists of multiple Sub-accounts. Each Sub-account invests only in a single mutual fund or mutual fund portfolio. The name of each Sub-account generally corresponds to the name of the underlying Portfolio. Each Sub-account in Separate Account B may have several different Unit Prices to reflect the Insurance Charge, and the charges for any optional benefits that are offered under the Annuities issued by us through Separate Account B. Separate Account B is registered with the SEC under the Investment Company Act of 1940 ("Investment Company Act") as a unit investment trust, which is a type of investment company. The SEC does not supervise investment policies, management or practices of Separate Account B. We may offer new Sub-accounts, eliminate Sub-accounts, or combine Sub-accounts at our sole discretion. We may also close Sub-accounts to additional Purchase Payments on existing Annuities or close Sub-accounts for Annuities purchased on or after specified dates. We will first notify you and receive any necessary SEC and/or state approval before making such a change. If an underlying mutual fund is liquidated, we will ask you to reallocate any amount in the liquidated fund. If you do not reallocate these amounts, we will reallocate such amounts only in accordance with SEC pronouncements and only after obtaining an order from the SEC, if required. If we make a fund substitution or change, we may change the Annuity contract to reflect the substitution or change. We do not control the underlying mutual funds, so we cannot guarantee that any of those funds will always be available. If you are enrolled in a Dollar Cost Averaging, Asset Rebalancing, or comparable programs while an underlying fund merger, substitution or liquidation takes place, unless otherwise noted in any communication from us, your Account Value invested in such underlying fund will be transferred automatically to the designated surviving fund in the case of mergers, the replacement fund in the case of substitutions, and an available Money Market Fund in the case of fund liquidations. Your enrollment instructions will be automatically updated to reflect the surviving fund, the replacement fund or a Money Market Fund for any continued and future investments. Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the underlying mutual funds or fund portfolios, as applicable. We do not guarantee the investment results of any Sub-account. Your Account Value allocated to the Sub-accounts may increase or decrease. You bear the entire investment risk. There is no assurance that the Account Value of your Annuity will equal or be greater than the total of the Purchase Payments you make to us. Separate Account D During the accumulation period, assets supporting our obligations based on Fixed Allocations are held in Prudential Annuities Life Assurance Corporation Separate Account D, also referred to as "Separate Account D". Such obligations are based on the fixed interest rates we credit to Fixed Allocations and the terms of the Annuities. These obligations do not depend on the investment performance of the assets in Separate Account D. Separate Account D was established by us pursuant to Connecticut law. There are no units in Separate Account D. The Fixed Allocations are guaranteed by our general account. An Annuity Owner who allocates a portion of their Account Value to Separate Account D does not participate in the investment gain or loss on assets maintained in Separate Account D. Such gain or loss accrues solely to us. We retain the risk that the value of the assets in Separate Account D may drop below the reserves and other liabilities we must maintain. Should the value of the assets in Separate Account D drop below the reserve and other liabilities we must maintain in relation to the annuities supported by such assets, we will transfer assets from our general account to Separate Account D to make up the difference. We have the right to transfer to our general account any assets of Separate Account D in excess of such reserves and other liabilities. We maintain assets in Separate Account D supporting a number of annuities we offer. We may employ investment managers to manage the assets maintained in Separate Account D. Each manager we employ is responsible for investment management of a different portion of Separate Account D. From time to time additional investment managers may be employed or investment managers may cease being employed. We are under no obligation to employ or continue to employ any investment manager(s) and have sole discretion over the investment managers we retain. We are not obligated to invest according to specific guidelines or strategies except as may be required by Connecticut and other state insurance laws. 151 WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS? Each underlying mutual fund is registered as an open-end management investment company under the Investment Company Act. Shares of the underlying mutual fund portfolios are sold to separate accounts of life insurance companies offering variable annuity and variable life insurance products. The shares may also be sold directly to qualified pension and retirement plans. Voting Rights We are the legal owner of the shares of the underlying mutual funds in which the Sub-accounts invest. However, under SEC rules, you have voting rights in relation to Account Value maintained in the Sub-accounts. If an underlying mutual fund portfolio requests a vote of shareholders, we will vote our shares based on instructions received from Owners with Account Value allocated to that Sub-account. Owners have the right to vote an amount equal to the number of shares attributable to their contracts. If we do not receive voting instructions in relation to certain shares, we will vote those shares in the same manner and proportion as the shares for which we have received instructions. This voting procedure is sometimes referred to as "mirror voting" because, as indicated in the immediately preceding sentence, we mirror the votes that are actually cast, rather than decide on our own how to vote. In addition, because all the shares of a given mutual fund held within our separate account are legally owned by us, we intend to vote all of such shares when that underlying fund seeks a vote of its shareholders. As such, all such shares will be counted towards whether there is a quorum at the underlying fund's shareholder meeting and towards the ultimate outcome of the vote. Thus, under "mirror voting," it is possible that the votes of a small percentage of contractholders who actually vote will determine the ultimate outcome. We will furnish those Owners who have Account Value allocated to a Sub-account whose underlying mutual fund portfolio has requested a "proxy" vote with proxy materials and the necessary forms to provide us with their voting instructions. Generally, you will be asked to provide instructions for us to vote on matters such as changes in a fundamental investment strategy, adoption of a new investment advisory agreement, or matters relating to the structure of the underlying mutual fund that require a vote of shareholders. Advanced Series Trust (the "Trust") has obtained an exemption from the Securities and Exchange Commission that permits its co-investment advisers, AST Investment Services, Inc. and Prudential Investments LLC, subject to approval by the Board of Trustees of the Trust, to change sub-advisors for a Portfolio and to enter into new sub-advisory agreements, without obtaining shareholder approval of the changes. This exemption (which is similar to exemptions granted to other investment companies that are organized in a similar manner as the Trust) is intended to facilitate the efficient supervision and management of the sub-advisors by AST Investment Services, Inc., Prudential Investments LLC and the Trustees. The Trust is required, under the terms of the exemption, to provide certain information to shareholders following these types of changes. We may add new Sub-accounts that invest in a series of underlying funds other than the Trust. Such series of funds may have a similar order from the SEC. You also should review the prospectuses for the other underlying funds in which various Sub-accounts invest as to whether they have obtained similar orders from the SEC. Material Conflicts It is possible that differences may occur between companies that offer shares of an underlying mutual fund portfolio to their respective separate accounts issuing variable annuities and/or variable life insurance products. Differences may also occur surrounding the offering of an underlying mutual fund portfolio to variable life insurance policies and variable annuity contracts that we offer. Under certain circumstances, these differences could be considered "material conflicts," in which case we would take necessary action to protect persons with voting rights under our variable annuity contracts and variable life insurance policies against persons with voting rights under other insurance companies' variable insurance products. If a "material conflict" were to arise between owners of variable annuity contracts and variable life insurance policies issued by us we would take necessary action to treat such persons equitably in resolving the conflict. "Material conflicts" could arise due to differences in voting instructions between owners of variable life insurance and variable annuity contracts of the same or different companies. We monitor any potential conflicts that may exist. Service Fees Payable to Prudential Annuities Prudential Annuities or our affiliates have entered into agreements with the investment adviser or distributor of the underlying Portfolios. Under the terms of these agreements, Prudential Annuities, or our affiliates may provide administrative and support services to the Portfolios for which it receives a fee of up to 0.75% (currently) of the average assets allocated to the Portfolios under each Annuity from the investment adviser, distributor and/or the fund. These agreements may be different for each underlying mutual fund whose portfolios are offered as Sub-accounts. Prudential Annuities and/or our affiliates receive substantial and varying administrative service payments, Rule 12b-1 fees, and "revenue sharing" payments from certain underlying Portfolios or related parties. Rule 12b-1 fees compensate our affiliated principal underwriter for distribution, marketing, and/or servicing functions. Administrative services payments compensate us for providing administrative services with respect to Annuity Owners invested indirectly in the Portfolio, which include duties such as recordkeeping, shareholder services, and the mailing of periodic reports. We receive administrative services fees with respect to both affiliated underlying Portfolios and unaffiliated underlying Portfolios. The administrative services fees we receive from affiliates originate from the assets of the affiliated Portfolio itself and/or the assets of the Portfolio's investment adviser. In recognition of the administrative services provided by the relevant affiliated insurance companies, the investment advisers to 152 certain affiliated Portfolios also make "revenue sharing" payments to such affiliated insurance companies. In any case, the existence of these fees tends to increase the overall cost of investing in the Portfolio. In addition, because these fees are paid to us, allocations you make to these affiliated underlying Portfolios benefit us financially. In addition to the payments that we receive from underlying funds and/or their affiliates, those same funds and/or their affiliates may make payments to us and/or other insurers within the Prudential Financial group related to the offering of investment options within variable annuities or life insurance offered by different Prudential business units. We collect these payments and fees under agreements between us and a Portfolio's principal underwriter, transfer agent, investment adviser and/or other entities related to the Portfolio. The 12b-1 fees and administrative services fees that we receive may vary among the different fund complexes that are part of our investment platform. Thus, the fees we collect may be greater or smaller, based on the Portfolios that you select. In addition, we may consider these payments and fees, among a number of factors, when deciding to add or keep a Portfolio on the "menu" of Portfolios that we offer through the Annuity. Please see the table entitled "Underlying Mutual Fund Portfolio Annual Expenses" for a listing of the Portfolios that pay a 12b-1 fee. With respect to administrative services fees, the maximum fee that we receive is equal to 0.75% of the average assets allocated to the Portfolio(s) under the Annuity. We expect to make a profit on these fees. In addition, an investment adviser, sub-adviser or distributor of the underlying Portfolios may also compensate us by providing reimbursement, defraying the costs of, or paying directly for, among other things, marketing and/or administrative services and/or other services they provide in connection with the Annuity. These services may include, but are not limited to: sponsoring or co-sponsoring various promotional, educational or marketing meetings and seminars attended by distributors, wholesalers, and/or broker dealer firms' registered representatives, and creating marketing material discussing the contract, available options, and underlying Portfolios. The amounts paid depend on the nature of the meetings, the number of meetings attended by the adviser, sub-adviser, or distributor, the number of participants and attendees at the meetings, the costs expected to be incurred, and the level of the adviser's, sub-adviser's or distributor's participation. These payments or reimbursements may not be offered by all advisers, sub-advisers, or distributor and the amounts of such payments may vary between and among each adviser, sub-adviser and distributor depending on their respective participation. During 2008, with regard to amounts that were paid under the kinds of arrangements described immediately above, the amounts ranged from approximately $750 to approximately $1,138,481. These amounts may have been paid to one or more Prudential-affiliated insurers issuing individual variable annuities. WHO DISTRIBUTES ANNUITIES OFFERED BY PRUDENTIAL ANNUITIES? Prudential Annuities Distributors, Inc. (PAD), a wholly-owned subsidiary of Prudential Annuities, Inc., is the distributor and principal underwriter of the Annuities offered through this prospectus. PAD acts as the distributor of a number of annuity and life insurance products. PAD's principal business address is One Corporate Drive, Shelton, Connecticut 06484. PAD is registered as a broker-dealer under the Securities Exchange Act of 1934 (Exchange Act), and is a member of the Financial Industry Regulatory Authority (FINRA). The Annuity is offered on a continuous basis. PAD enters into distribution agreements with broker-dealers who are registered under the Exchange Act and with entities that may offer the Annuities but are exempt from registration ("firms"). Applications for the Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance agents under state insurance law. In addition, PAD may offer the Annuities directly to potential purchasers. Prudential Annuities sells its annuity products through multiple distribution channels, including (1) independent broker-dealer firms and financial planners; (2) broker-dealers that are members of the New York Stock Exchange, including "wirehouse" and regional broker-dealer firms; and (3) broker-dealers affiliated with banks or that specialize in marketing to customers of banks. Although we are active in each of those distribution channels, the majority of our sales have come from the independent broker-dealer firms and financial planners. On June 1, 2006, The Prudential Insurance Company of America, an affiliate of Prudential Annuities, acquired the variable annuity business of The Allstate Corporation ("Allstate"), which included exclusive access to the Allstate affiliated broker-dealer until May 31, 2009. We began selling variable annuities through the Allstate affiliated broker-dealer registered representatives in the third quarter of 2006. Commissions are paid to firms on sales of the Annuity according to one or more schedules. The registered representative will receive a portion of the compensation, depending on the practice of his or her firm. Commissions are generally based on a percentage of Purchase Payments made, up to a maximum of 6.0%. Alternative compensation schedules are available that provide a lower initial commission plus ongoing annual compensation based on all or a portion of the Account Value. We may also provide compensation to the distributing firm for providing ongoing service to you in relation to your Annuity. Commissions and other compensation paid in relation to your Annuity do not result in any additional charge to you or to the Separate Account. 153 In addition, in an effort to promote the sale of our products (which may include the placement of Prudential Annuities and/or the Annuities on a preferred or recommended company or product list and/or access to the firm's registered representatives), we or PAD may enter into compensation arrangements with certain broker-dealer firms with respect to certain or all registered representatives of such firms under which such firms may receive separate compensation or reimbursement for, among other things, training of sales personnel and/or marketing and/or administrative services and/or other services they provide. These services may include, but are not limited to: educating customers of the firm on the Annuity's' features; conducting due diligence and analysis, providing office access, operations and systems support; holding seminars intended to educate the firm's registered representatives and make them more knowledgeable about the Annuities; providing a dedicated marketing coordinator; providing priority sales desk support; and providing expedited marketing compliance approval. To the extent permitted by FINRA rules and other applicable laws and regulations, PAD may pay or allow other promotional incentives or payments in the form of cash or non-cash compensation. These arrangements may not be offered to all firms and the terms of such arrangements may differ between firms. A list of the firms to whom Prudential Annuities pays an amount of greater than $10,000 under these arrangements is provided below, which is available upon request. You should note that firms and individual registered representatives and branch managers within some firms participating in one of these compensation arrangements might receive greater compensation for selling the Annuities than for selling a different annuity that is not eligible for these compensation arrangements. While compensation is generally taken into account as an expense in considering the charges applicable to an annuity product, any such compensation will be paid by us or PAD and will not result in any additional charge to you. Overall compensation paid to the distributing firm does not exceed, based on actuarial assumptions, 8.5% of the total purchase payments made. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Annuity. Further information about the firms that are part of these compensation arrangements appears in the Statement of Additional Information, which is available without charge upon request. We or PAD also may compensate third-party vendors, for services that such vendors render to broker-dealer firms. To the extent permitted by the FINRA rules and other applicable laws and regulations, PAD may pay or allow other promotional incentives or payments in the forms of cash or non-cash compensation. These arrangements may not be offered to all firms and the terms of such arrangements may differ between firms. In addition, we or our affiliates may provide such compensation, payments and/or incentives to firms arising out of the marketing, sale and/or servicing of variable annuities or life insurance offered by different Prudential business units. The list below identifies three general types of payments that PAD pays which are broadly defined as follows: . Percentage Payments based upon "Assets under Management" or "AUM": This type of payment is a percentage payment that is based upon assets, subject to certain criteria in certain Prudential Annuities products. . Percentage Payments based upon sales: This type of payment is a percentage payment that is based upon the total amount of money received as purchase payments under Prudential Annuities annuity products sold through the firm. . Fixed Payments: These types of payments are made directly to or in sponsorship of the firm (or its affiliated broker-dealers). Examples of arrangements under which such payments may be made currently include, but are not limited to: sponsorships, conferences (national, regional and top producer), speaker fees, promotional items and reimbursements to firms for marketing activities or services paid by the firms and/or their registered representatives. The amount of these payments varies widely because some payments may encompass only a single event, such as a conference, and others have a much broader scope. In addition, we may make payments periodically during the relationship for systems, operational and other support. The list below includes the names of the firms (or their affiliated broker/dealers) that we are aware (as of December 31, 2008) received payment with respect to annuity business during 2008 (or as to which a payment amount was accrued during 2008). The firms listed below include those receiving payments in connection with marketing of products issued by Prudential Annuities Life Assurance Corporation. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the contract. During 2008, the least amount paid, and greatest amount paid, were $3,106 and $7,256,316, respectively. Name of Firm:
1717 Capital Management Co. Allstate Financial Services, LLC AXA Advisors, LLC 1st Global Capital Corp. American Financial Associates Bancnorth Investment Group, Inc. A. G. Edwards & Sons, Inc. American General Securities BancorpSouth Investment Services, Inc. Advantage Capital American Independent Securities BCG Securities, Inc. Advisory Group Equity Services Agency Group, LLC Beneficial Investment Services Inc AIG Retirement Advisors American Portfolios Financial Services Berthel Fisher & Company AIG Financial Advisors, Inc. Ameriprise Advisor Services, Inc. BFT Financial Group, LLC Allegheny Investments Ltd. Ameritas Investment Corp. Brecek & Young Advisors, Inc. Allmax Financial Solutions, LLC Associated Securities Corp. Broker Dealer Financial Services
154
BrokersXpress LLC Independent Financial Grp, LLC Princor Financial Services Corp. Brookstone Securities, Inc. Infinex Investments, Inc. ProEquities, Inc. Cadaret, Grant & Co., Inc. ING Financial Partners, Inc. Professional Asset Management Calton & Associates, Inc. Institutional Securities Corp. QA3 Financial Corp. Cambridge Investment Research Intercarolina Financial Services Questar Capital Corporation Cambridge Legacy Securities, LLC InterSecurities, Inc. R. Seelaus & Company Inc Cantella & Co., Inc. Intervest International Equities Corp. Raymond James & Associates, Inc. Capital Analysts Invest Financial Corporation Raymond James Financial Services Capital Financial Services, Inc. Investacorp RBC Dain Rauscher, Inc. Capital Investment Group, Inc. Investment Centers of America Regency Securities, Inc. Capital One Investments, LLC Investment Professionals Resource Horizons Group Centaurus Financial, Inc. Investors Capital Corporation Robert W. Baird & Co., Inc. CFD Investments, Inc. J.J.B. Hilliard Lyons, Inc. Royal Alliance Associates, Inc. Citigroup Global Markets, Inc. J.P. Turner & Company, LLC Sage Rutty & Co., Inc. City Securities Corp. J.W. Cole Financial, Inc. Sammons Securities Co., LLC Commonwealth Financial Network Janney Montgomery Scott, LLC. Scottsdale Capital Advisors Community Bankers Securities KCD Financial, Inc. Securian Financial Services, Inc. Comprehensive Asset Management Key Investment Services LLC Securities America, Inc. Crown Capital Securities, LP KMS Financial Services, Inc. Securities Service Network, Inc. CUE LaSalle St. Securities, LLC Sigma Financial Corporation CUNA Brokerage Services, Inc. Legend Equities Corporation Signator Investors, Inc. CUSO Financial Services, LP Legg Mason Wood Walker, Inc. SII Investments, Inc. Dalton Strategic Inv. Svcs. Inc Lincoln Financial Advisors SMH Capital, Inc. David A. Noyes & Company Lincoln Financial Securities Source Capital Group, Inc. Eagle One Investments, LLC Corporation Southwest Securities, Inc. EDI Financial Lincoln Investment Planning Stifel Nicolaus & Co., Inc. Ensemble Financial Services Inc Lombard Securities, Inc. Summit Brokerage Services, Inc. ePLANNING Securities, Inc. LPL Financial Corporation Summit Equities, Inc. Equity Services, Inc. M Holdings Securities, Inc Sunset Financial Services, Inc. Essex National Securities, Inc. McClurg Capital Corporation Synergy Investment Group, LLC Ferris Baker Watts, Inc. McGinn, Smith & Co., INC. TFS Securities, Inc. FFP Securities, Inc. Medallion Investment Services The Investment Center, Inc. Financial Network Investment Corp. Merrill Lynch The Leaders Group, Inc. Financial Planning Consultants Metropolitan Life Insurance Co. Tower Square Securities, Inc. Financial West Group Michigan Securities, Inc. Traderight Securities Fintegra, LLC MML Investors Services, Inc. Transamerica Financial Advisors First Allied Securities, Inc. Money Concepts Capital Corp. Triad Advisors, Inc. First Brokerage America, LLC Moors & Cabot, Inc. Trinity Wealth Securities, LLC First Montauk Securities Corp. Morgan Keegan & Company Trustmont Financial Group, Inc. First Wall Street Corp. Morgan Stanley & Co Incorporated UBS Financial Services, Inc. First Western Advisors Multi-Financial Securities Corp. United Planners Financial Services of Fortune Financial Services, Inc. Mutual Service Corporation America Founders Financial Securities LLC National Financial LLD USA Financial Securities Corp. FSC Securities Corp. National Planning Corporation UVEST Financial Services Group, Inc. FSICGarden State Securities, Inc. National Retirement Partners Vanderbilt Securities Gary Goldberg & Co., Inc. National Securities Corp. Wachovia Securities Financial Geneos Wealth Management, Inc. Next Financial Group, Inc. Network, LLC Genworth Financial Securities Corp. NFP Securities, Inc. Wachovia Securities, Inc. (PCG)/PSI Girard Securities, Inc. North Ridge Securities Corp. Wachovia Securities,LLC(BA) Great American Advisors, Inc. NYLIFE Securities, Inc. Wall Street Financial Group GunnAllen Financial, Inc. OneAmerica Securities, Inc. Walnut Street Securities, Inc. GWN Securities, Inc. Oppenheimer & Co., Inc. (Fahnestock) Waterford Investor Services, Inc. H. Beck, Inc. Pacific West Securities, Inc. Waterstone Financial Group, Inc. H.D. Vest Investment Packerland Brokerage Services, Inc. Wayne Hummer Investments LLC Hantz Financial Services, Inc. Park Avenue Securities, LLC Webster Investment Services, Inc. Harbour Investments, Inc. Penn Plaza Brokerage, Ltd. Wells Fargo Investments, LLC HBW Securities LLC Penrod & Company Wescom Financial Services LLC Hornor, Townsend & Kent, Inc. PNC Investments, LLC Woodbury Financial Services, Inc. Howe Barnes Hoefer & Arnett Inc Presidential Brokerage, Inc. World Equity Group, Inc. IFMG Securities, Inc. Prime Capital Services, Inc. World Group Securities, Inc.
155 On July 1, 2003, Prudential Financial 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 Richmond, Virginia. Wachovia is the majority owner and Prudential Financial, indirectly through subsidiaries, is a minority owner of Wachovia Securities. Prudential Financial has announced its intention to divest its interest in Wachovia Securities. Wachovia and Wachovia Securities are key distribution partners for certain products of Prudential Financial affiliates, including mutual funds and individual annuities that are distributed through their financial advisors, bank channel and independent channel. In addition, Prudential Financial is a service provider to the managed account platform and certain wrap-fee benefits offered by Wachovia Securities. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE Prudential Annuities Life Assurance Corporation incorporates by reference into the prospectus its latest annual report on Form 10-K filed pursuant to Section 13(a) or Section 15(d) of the Exchange Act since the end of the fiscal year covered by its latest annual report. In addition, all documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act also are incorporated into the prospectus by reference. We will provide to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the information that has been incorporated by reference into the prospectus but not delivered with the prospectus. Such information will be provided upon written or oral request at no cost to the requester by writing to Prudential Annuities Life Assurance Corporation, One Corporate Drive, Shelton, CT 06484 or by calling 888-PRU-2888. We file periodic reports as required under the Securities Exchange Act of 1934. The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC (see http://www.sec.gov). Our internet address is http://www.prudentialannuities.com. FINANCIAL STATEMENTS The financial statements of the separate account and Prudential Annuities Life Assurance Corporation are included in the Statement of Additional Information. HOW TO CONTACT US You can contact us by: . calling our Customer Service Team at 1-888-PRU-2888 during our normal business hours, or our telephone automated response system at 1-800-766-4530. . writing to us via regular mail at Prudential Annuities, P.O. Box 7960, Philadelphia, PA 19176 OR for express mail Prudential Annuities, 2101 Welsh Road, Dresher, PA 19025. NOTE: Failure to send mail to the proper address may result in a delay in our receiving and processing your request. . accessing information about your Annuity through our Internet Website at www.prudentialannuities.com. You can obtain account information by calling our automated response system and at www.prudentialannuities.com, our Internet Website. Our Customer Service representatives are also available during business hours to provide you with information about your account. You can request certain transactions through our telephone voice response system, our Internet Website or through a customer service representative. You can provide authorization for a third party, including your attorney-in-fact acting pursuant to a power of attorney or your Financial Professional, to access your account information and perform certain transactions on your account. You will need to complete a form provided by us which identifies those transactions that you wish to authorize via telephonic and electronic means and whether you wish to authorize a third party to perform any such transactions. Please note that unless you tell us otherwise, we deem that all transactions that are directed by your Financial Professional with respect to your Annuity have been authorized by you. We require that you or your representative provide proper identification before performing transactions over the telephone or through our Internet Website. This may include a Personal Identification Number (PIN) that will be provided to you upon issue of your Annuity or you may establish or change your PIN by calling our automated response system and at www.prudentialannuities.com, our Internet Website. Any third party that you authorize to perform financial transactions on your account will be assigned a PIN for your account. Transactions requested via telephone are recorded. To the extent permitted by law, we will not be responsible for any claims, loss, liability or expense in connection with a transaction requested by telephone or other electronic means if we acted on such transaction instructions after following reasonable procedures to identify those persons authorized to perform transactions on your Annuity using verification methods which may include a request for your Social Security number, PIN or other form of electronic identification. We may be liable for losses due to unauthorized or fraudulent instructions if we did not follow such procedures. Prudential Annuities does not guarantee access to telephonic, facsimile, Internet or any other electronic information or that we will be able to accept transaction instructions via such means at all times. Regular and/or express mail will be the only means by which we will accept transaction instructions when telephonic, facsimile, Internet or any other electronic means are unavailable or delayed. Prudential Annuities reserves the right to limit, restrict or terminate telephonic, facsimile, Internet or any other electronic transaction privileges at any time. 156 INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. LEGAL PROCEEDINGS We are subject to legal and regulatory actions in the ordinary course of our businesses, including class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and proceedings generally applicable to business practices in the industry in which we operate. We are subject to class action lawsuits and other litigation alleging, among other things, that we made improper or inadequate disclosures in connection with the sale of annuity products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. We are also subject to litigation arising out of our general business activities, such as our investments and contracts, and could be exposed to claims or litigation concerning certain business or process patents. Regulatory authorities from time to time make inquiries and conduct investigations and examinations relating particularly to us and our products. In addition, we, along with other participants in the business in which we engage, may be subject from time to time to investigations, examinations and inquiries, in some cases industry-wide, concerning issues or matters upon which such regulators have determined to focus. In some of our pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of a litigation or regulatory matter, and the amount or range of potential loss at any particular time, is inherently uncertain. The following is a summary of certain pending proceedings. We have substantially completed a remediation program to correct errors in the administration of approximately 11,000 annuity contracts issued by us. 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 the data integrity errors, as reflected on the annuities administrative system, all occurred before the acquisition of Prudential Annuities by Prudential Financial, Inc. (the "Acquisition"). The remediation and administrative costs of the remediation program are subject to the indemnification provisions of the agreement (the "Acquisition Agreement") pursuant to which Prudential Financial, Inc. acquired Prudential Annuities from Skandia Insurance Company Ltd. (publ) ("Skandia"). On April 17, 2009, AST Investment Services, Inc. ("ASISI") one of the Investment Managers of Advanced Series Trust, settled separate administrative proceedings brought by the SEC and the New York Attorney General's Office ("NYAG") regarding market timing activities of ASISI related to certain variable annuities and Advanced Series Trust. The settlements relate to conduct that generally occurred between January 1998 and September 2003. Prudential Financial, Inc. ("Prudential Financial") acquired ASISI, formerly named American Skandia Investment Services, Inc., from Skandia Insurance Company Ltd. (publ) in May 2003. Subsequent to the acquisition, Prudential Financial implemented controls, procedures and measures designed to protect customers from the types of activities involved in these settlements. Under the terms of the settlements, ASISI is paying a total of $34 million in disgorgement and an additional $34 million as a civil money penalty, and ASISI has undertaken that by the end of 2009 it will undergo a compliance review by an independent third party, who shall issue a report of its findings and recommendations to ASISI's Board of Directors, the Audit Committee of Advanced Series Trust and the Staff of the SEC. Prudential Investments LLC, the other Investment Manager of Advanced Series Trust, is not involved in the settlements. During the third quarter of 2004, we identified a system-generated calculation error in our annuity contract administration system that existed prior to the Acquisition. This error related to the calculation of amounts due to customers for certain transactions subject to a market value adjustment upon the surrender or transfer of monies out of their annuity contract's fixed allocation options. The error resulted in an underpayment to policyholders, as well as additional anticipated costs to us associated with remediation, breakage and other costs. Our consultants have developed the systems functionality to compute remediation amounts and are in the process of running the computations on affected contracts. We contacted state insurance regulators and commenced Phase I of our outreach to customers on November 12, 2007. Phase II commenced June 6, 2008. Phase III commenced December 5, 2008. A final phase is expected to rollout in April of 2009. We have advised Skandia that a portion of the remediation and related administrative costs are subject to the indemnification provisions of the Acquisition Agreement. From January 2006 to February 2008, thirty-one complaints were filed in 17th Judicial Circuit Court, Broward County, Florida alleging misrepresentations in the sale of annuities against us and in certain of the cases the two brokers who sold the annuities. The complaints allege that the brokers represented that any losses in the annuities would be insured or paid by a state guaranty fund and purport to state claims of breach of fiduciary duty, negligence, fraud, fraudulent inducement, negligent misrepresentation and seek damages in unspecified amounts but in excess of $15,000 per case. Thirty of the thirty-one lawsuits settled in December 2008. Skandia has indemnified us for the thirty settled matters, but has reserved the right to seek reimbursement of a portion of the total indemnified settlement amount pursuant to the provisions of the Acquisition Agreement. Our litigation and regulatory matters are subject to many uncertainties, and given its complexity and scope, their outcome cannot be predicted. It is possible that results of operations or cash flow of Prudential Annuities 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, 157 upon the results of operations or cash flow for such period. In light of the unpredictability of our litigation and regulatory matters, it is also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation or regulatory matters could have a material adverse effect on our financial position. Management believes, however, that, based on information currently known to it, the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to indemnification, is not likely to have a material adverse effect on our financial position. CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The following are the contents of the Statement of Additional Information: General Information about Prudential Annuities . Prudential Annuities Life Assurance Corporation . Prudential Annuities Life Assurance Corporation Variable Account B . Prudential Annuities Life Assurance Corporation Separate Account D Principal Underwriter/Distributor - Prudential Annuities Distributors, Inc. How the Unit Price is Determined Additional Information on Fixed Allocations . How We Calculate the Market Value Adjustment General Information . Voting Rights . Modification . Deferral of Transactions . Misstatement of Age or Sex . Ending the Offer Annuitization Experts Legal Experts Financial Statements 158 APPENDIX A - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B Separate Account B consists of multiple Sub-accounts that are available as investment options for the Prudential Annuities Annuities. Each Sub-account invests only in a single mutual fund or mutual fund portfolio. All or some of these Sub-accounts are available as investment options for other variable annuities we offer pursuant to different prospectuses. Unit Prices And Numbers Of Units. The following tables show for each Annuity: (a) the historical Unit Price, corresponding to the Annuity features bearing the highest and lowest combinations of asset-based charges*, as of the dates shown, for Units in each of the Sub-accounts of Separate Account B that are being offered pursuant to this Prospectus**; and (b) the number of Units outstanding for each such Sub-account as of the dates shown. The period for each year begins on January 1 and ends on December 31. Since November 18, 2002, we have been determining, on a daily basis, multiple Unit Prices for each Sub-account of Separate Account B. We compute multiple Unit Prices because several of our variable annuities invest in the same Sub-accounts, and these annuities deduct varying charges that correspond to each combination of the applicable Insurance Charge, Distribution Charge (when applicable) and the charges for each optional benefit. Where an asset-based charge corresponding to a particular Sub-account within a new annuity product is identical to that in the same Sub-account within an existing annuity, the Unit Price for the new annuity will be identical to that of the existing annuity. In such cases, we will for reference purposes depict, in the condensed financial information for the new annuity, Unit Prices of the existing annuity. To the extent a Sub-account commenced operations during a particular calendar year, the Unit Price as of the end of the period reflects only the partial year results from the commencement of operations until December 31/st/ of the applicable year. When a Unit Price was first calculated for a particular Sub-account, we set the price of that Unit at $10.00 per Unit. Thereafter, Unit Prices vary based on market performance. Unit Prices and Units are provided for Sub-accounts that commenced operations prior to January 1, 2009. * Note: While a unit price is reflected for the maximum combination of asset based charges for each Sub-account, not all Sub-accounts are available if you elect certain optional benefits. ** The remaining unit values appear in the Statement of Additional Information, which you may obtain free of charge by sending in the request form at the end of the Prospectus or contacting us at 1-888-PRU-2888. ADVANCED SERIES XTRA CREDIT EIGHT/SM/ ("XT8") Prudential Annuities Life Assurance Corporation Prospectus ACCUMULATION UNIT VALUES: With No Optional Benefits (1.75%)
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period ---------------------------------------------------------------------------------------------------------------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $14.10 $9.96 371,815 ---------------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.40 $8.70 366,989 ---------------------------------------------------------------------------------------------------------------------- AST American Century Income & Growth Portfolio 06/30/2008 to 12/31/2008 $13.99 $10.28 116,472 ---------------------------------------------------------------------------------------------------------------------- AST Schroders Multi-Asset World Strategies Portfolio formerly, AST American Century Strategic Allocation Portfolio 06/30/2008 to 12/31/2008 $13.80 $10.13 805,504 ---------------------------------------------------------------------------------------------------------------------- AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.52 $10.54 4,924,789 ---------------------------------------------------------------------------------------------------------------------- AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $21.71 $14.38 50,033 ---------------------------------------------------------------------------------------------------------------------- AST UBS Dynamic Alpha Portfolio 06/30/2008 to 12/31/2008 $14.59 $11.85 3,160,598 ---------------------------------------------------------------------------------------------------------------------- AST DeAm Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $15.78 $11.34 124,499 ---------------------------------------------------------------------------------------------------------------------- AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $16.13 $10.41 40,300 ---------------------------------------------------------------------------------------------------------------------- AST High Yield Portfolio 06/30/2008 to 12/31/2008 $14.13 $10.62 140,984
A-1
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period -------------------------------------------------------------------------------------------------------------------- AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $21.30 $14.22 104,149 -------------------------------------------------------------------------------------------------------------------- AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $16.54 $10.84 84,121 -------------------------------------------------------------------------------------------------------------------- AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $16.10 $12.18 207,810 -------------------------------------------------------------------------------------------------------------------- AST Goldman Sachs Concentrated Growth Portfolio 06/30/2008 to 12/31/2008 $13.63 $8.55 81,276 -------------------------------------------------------------------------------------------------------------------- AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $17.45 $10.70 86,649 -------------------------------------------------------------------------------------------------------------------- AST Goldman Sachs Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $17.05 $13.19 41,001 -------------------------------------------------------------------------------------------------------------------- AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.72 $8.83 276,477 -------------------------------------------------------------------------------------------------------------------- AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $13.78 $10.62 187,186 -------------------------------------------------------------------------------------------------------------------- AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $15.05 $9.68 585,331 -------------------------------------------------------------------------------------------------------------------- AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $14.65 $9.90 101,558 -------------------------------------------------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $18.31 $11.65 166,699 -------------------------------------------------------------------------------------------------------------------- AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $18.09 $11.11 126,789 -------------------------------------------------------------------------------------------------------------------- AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.52 $9.17 68,880 -------------------------------------------------------------------------------------------------------------------- AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $11.15 $10.90 712,342 -------------------------------------------------------------------------------------------------------------------- AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $11.90 $11.38 1,923,586 -------------------------------------------------------------------------------------------------------------------- AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $13.63 $9.51 162,150 -------------------------------------------------------------------------------------------------------------------- AST QMA US Equity Alpha formerly, AST AllianceBernstein Managed Index 500 Portfolio 06/30/2008 to 12/31/2008 $13.21 $9.01 65,761 -------------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Natural Resources Portfolio 06/30/2008 to 12/31/2008 $40.57 $17.60 116,495 -------------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $14.62 $11.46 1,854,274 -------------------------------------------------------------------------------------------------------------------- AST International Value Portfolio 06/30/2008 to 12/31/2008 $21.23 $13.65 149,062 -------------------------------------------------------------------------------------------------------------------- AST MFS Global Equity Portfolio 06/30/2008 to 12/31/2008 $17.81 $12.90 29,392 -------------------------------------------------------------------------------------------------------------------- AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $18.54 $11.98 113,373 -------------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $13.08 $12.35 196,898 -------------------------------------------------------------------------------------------------------------------- AST International Growth Portfolio 06/30/2008 to 12/31/2008 $21.21 $11.88 279,897
A-2
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period -------------------------------------------------------------------------------------------------------------- AST Aggressive Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.60 $6.93 308,687 -------------------------------------------------------------------------------------------------------------- AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.79 $7.70 5,254,768 -------------------------------------------------------------------------------------------------------------- AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.73 $7.90 4,352,710 -------------------------------------------------------------------------------------------------------------- AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.78 $8.18 4,544,410 -------------------------------------------------------------------------------------------------------------- AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.81 $9.00 5,689,527 -------------------------------------------------------------------------------------------------------------- AST First Trust Balanced Target Portfolio 06/30/2008 to 12/31/2008 $9.86 $7.26 2,521,848 -------------------------------------------------------------------------------------------------------------- AST First Trust Capital Appreciation Target Portfolio 06/30/2008 to 12/31/2008 $10.35 $6.68 3,179,075 -------------------------------------------------------------------------------------------------------------- AST Advanced Strategies Portfolio 06/30/2008 to 12/31/2008 $10.72 $7.90 2,718,573 -------------------------------------------------------------------------------------------------------------- AST CLS Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.33 $7.32 953,185 -------------------------------------------------------------------------------------------------------------- AST CLS Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $9.34 $7.14 1,735,291 -------------------------------------------------------------------------------------------------------------- AST Horizon Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $9.17 $6.94 863,227 -------------------------------------------------------------------------------------------------------------- AST Horizon Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $9.46 $7.57 1,188,844 -------------------------------------------------------------------------------------------------------------- AST Niemann Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $9.07 $7.15 571,212 -------------------------------------------------------------------------------------------------------------- AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $9.82 $10.72 12,969,535 -------------------------------------------------------------------------------------------------------------- AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.06 $9.29 827,581 -------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $10.04 $11.70 0 -------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $10.06 $12.53 0 -------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $10.08 $12.60 0 -------------------------------------------------------------------------------------------------------------- AST Global Real Estate Portfolio 07/21/2008* to 12/31/2008 $10.18 $6.11 50,776 -------------------------------------------------------------------------------------------------------------- AST Parametric Emerging Markets Equity Portfolio 07/21/2008* to 12/31/2008 $10.10 $5.57 41,994 -------------------------------------------------------------------------------------------------------------- AST Focus Four Plus Portfolio 07/21/2008* to 12/31/2008 $10.00 $7.47 573,235 -------------------------------------------------------------------------------------------------------------- Evergreen VA Growth Fund 06/30/2008 to 12/31/2008 $11.65 $7.87 45,694 -------------------------------------------------------------------------------------------------------------- Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $16.80 $10.96 34,306 -------------------------------------------------------------------------------------------------------------- Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $14.72 $11.65 5,197
A-3
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period ------------------------------------------------------------------------------------------------------------- Franklin Templeton VIP Founding Funds Allocation Fund 06/30/2008 to 12/31/2008 $9.28 $6.64 2,458,339 ------------------------------------------------------------------------------------------------------------- Prudential SP International Growth Portfolio 06/30/2008 to 12/31/2008 $14.70 $8.21 37,898 ------------------------------------------------------------------------------------------------------------- Gartmore NVIT Developing Markets 06/30/2008 to 12/31/2008 $38.74 $18.30 47,859 ------------------------------------------------------------------------------------------------------------- The DOW DART 10 Portfolio formerly, First Trust Dow Target 10 06/30/2008 to 12/31/2008 $12.06 $9.96 5,473 ------------------------------------------------------------------------------------------------------------- First Trust Target Focus Four Portfolio 06/30/2008 to 12/31/2008 $9.16 $6.11 13,357 ------------------------------------------------------------------------------------------------------------- Global Dividend Target 15 formerly, First Trust Global Dividend Target 15 06/30/2008 to 12/31/2008 $21.34 $14.63 54,496 ------------------------------------------------------------------------------------------------------------- NASDAQ Target 15 Portfolio formerly, First Trust NASDAQ Target 15 06/30/2008 to 12/31/2008 $9.89 $5.97 5,319 ------------------------------------------------------------------------------------------------------------- S&P Target 24 Portfolio formerly, First Trust S&P Target 24 06/30/2008 to 12/31/2008 $12.08 $9.90 7,628 ------------------------------------------------------------------------------------------------------------- Target Managed VIP Portfolio formerly, First Trust Managed VIP 06/30/2008 to 12/31/2008 $15.24 $9.75 57,975 ------------------------------------------------------------------------------------------------------------- Value Line Target 25 Portfolio formerly, First Trust Value Line Target 25 06/30/2008 to 12/31/2008 $9.90 $4.55 5,578 ------------------------------------------------------------------------------------------------------------- The DOW Target Dividend Portfolio formerly, First Trust Dow Target Dividend 06/30/2008 to 12/31/2008 $8.16 $6.57 33,392 ------------------------------------------------------------------------------------------------------------- AIM V.I. Dynamics Fund 06/30/2008 to 12/31/2008 $17.49 $10.21 11,493 ------------------------------------------------------------------------------------------------------------- AIM V.I. Financial Services Fund 06/30/2008 to 12/31/2008 $8.31 $4.89 27,302 ------------------------------------------------------------------------------------------------------------- AIM V.I. Global Health Care 06/30/2008 to 12/31/2008 $13.69 $10.69 20,679 ------------------------------------------------------------------------------------------------------------- AIM V.I. Technology Fund 06/30/2008 to 12/31/2008 $9.92 $6.22 9,377 ------------------------------------------------------------------------------------------------------------- Wells Fargo Advantage VT Equity Income 06/30/2008 to 12/31/2008 $13.88 $10.19 10,669
* Denotes the start date of these sub-accounts A-4 ADVANCED SERIES XTRA CREDIT EIGHT/SM/ ("XT8") Prudential Annuities Life Assurance Corporation Prospectus ACCUMULATION UNIT VALUES: With Lifetime Five and HDV or Lifetime Five and Combo 5% Roll-UP/HAV or Highest Daily LT5 and Highest Daily LT5 and Combo 5% Roll-UP/HAV (2.85%)
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period ---------------------------------------------------------------------------------------------------------------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $9.97 $7.01 3,174 ---------------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $9.98 $6.44 3,632 ---------------------------------------------------------------------------------------------------------------------- AST American Century Income & Growth Portfolio 06/30/2008 to 12/31/2008 $10.03 $7.33 0 ---------------------------------------------------------------------------------------------------------------------- AST Schroders Multi-Asset World Strategies Portfolio formerly, AST American Century Strategic Allocation Portfolio 06/30/2008 to 12/31/2008 $10.01 $7.31 44,525 ---------------------------------------------------------------------------------------------------------------------- AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.00 $9.96 0 ---------------------------------------------------------------------------------------------------------------------- AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $10.02 $6.60 1,599 ---------------------------------------------------------------------------------------------------------------------- AST UBS Dynamic Alpha Portfolio 06/30/2008 to 12/31/2008 $10.04 $8.10 11,874 ---------------------------------------------------------------------------------------------------------------------- AST DeAm Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.14 0 ---------------------------------------------------------------------------------------------------------------------- AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $9.89 $6.35 0 ---------------------------------------------------------------------------------------------------------------------- AST High Yield Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.47 0 ---------------------------------------------------------------------------------------------------------------------- AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $9.88 $6.56 731 ---------------------------------------------------------------------------------------------------------------------- AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $9.99 $6.51 0 ---------------------------------------------------------------------------------------------------------------------- AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $9.89 $7.44 1,276 ---------------------------------------------------------------------------------------------------------------------- AST Goldman Sachs Concentrated Growth Portfolio 06/30/2008 to 12/31/2008 $9.97 $6.23 0 ---------------------------------------------------------------------------------------------------------------------- AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $9.95 $6.07 0 ---------------------------------------------------------------------------------------------------------------------- AST Goldman Sachs Small-Cap Value Portfolio 07/21/2008* to 12/31/2008 $10.03 $7.60 0 ---------------------------------------------------------------------------------------------------------------------- AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.00 $6.90 3,128 ---------------------------------------------------------------------------------------------------------------------- AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.66 0 ---------------------------------------------------------------------------------------------------------------------- AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $10.02 $6.41 3,515 ---------------------------------------------------------------------------------------------------------------------- AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $9.99 $6.71 0 ---------------------------------------------------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $9.92 $6.28 0
A-5
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period -------------------------------------------------------------------------------------------------------------------- AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $9.99 $6.10 0 -------------------------------------------------------------------------------------------------------------------- AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $9.91 $6.69 710 -------------------------------------------------------------------------------------------------------------------- AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $9.99 $9.71 0 -------------------------------------------------------------------------------------------------------------------- AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $9.99 $9.50 0 -------------------------------------------------------------------------------------------------------------------- AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $10.01 $6.94 0 -------------------------------------------------------------------------------------------------------------------- AST QMA US Equity Alpha formerly, AST AllianceBernstein Managed Index 500 Portfolio 06/30/2008 to 12/31/2008 $10.01 $6.79 0 -------------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Natural Resources Portfolio 06/30/2008 to 12/31/2008 $10.13 $4.37 0 -------------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.79 37,853 -------------------------------------------------------------------------------------------------------------------- AST International Value Portfolio 06/30/2008 to 12/31/2008 $10.01 $6.40 1,206 -------------------------------------------------------------------------------------------------------------------- AST MFS Global Equity Portfolio 06/30/2008 to 12/31/2008 $10.01 $7.21 0 -------------------------------------------------------------------------------------------------------------------- AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $10.03 $6.44 0 -------------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $9.94 $9.33 0 -------------------------------------------------------------------------------------------------------------------- AST International Growth Portfolio 06/30/2008 to 12/31/2008 $10.00 $5.57 1,409 -------------------------------------------------------------------------------------------------------------------- AST Aggressive Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.00 $6.50 0 -------------------------------------------------------------------------------------------------------------------- AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.10 121,700 -------------------------------------------------------------------------------------------------------------------- AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.32 40,353 -------------------------------------------------------------------------------------------------------------------- AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.54 48,464 -------------------------------------------------------------------------------------------------------------------- AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $9.99 $8.26 187,167 -------------------------------------------------------------------------------------------------------------------- AST First Trust Balanced Target Portfolio 06/30/2008 to 12/31/2008 $9.96 $7.29 11,006 -------------------------------------------------------------------------------------------------------------------- AST First Trust Capital Appreciation Target Portfolio 06/30/2008 to 12/31/2008 $9.97 $6.39 186,460 -------------------------------------------------------------------------------------------------------------------- AST Advanced Strategies Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.33 39,700 -------------------------------------------------------------------------------------------------------------------- AST CLS Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.04 34,354 -------------------------------------------------------------------------------------------------------------------- AST CLS Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.61 9,095
A-6
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period ------------------------------------------------------------------------------------------------------------- AST Horizon Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $9.98 $7.51 25,174 ------------------------------------------------------------------------------------------------------------- AST Horizon Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $9.99 $7.95 21,122 ------------------------------------------------------------------------------------------------------------- AST Niemann Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $9.99 $7.83 24,994 ------------------------------------------------------------------------------------------------------------- AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.87 0 ------------------------------------------------------------------------------------------------------------- AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.00 $9.18 18,043 ------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $10.04 $11.64 0 ------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $10.06 $12.46 0 ------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $10.08 $12.53 0 ------------------------------------------------------------------------------------------------------------- AST Global Real Estate Portfolio 07/21/2008* to 12/31/2008 $10.17 $6.08 0 ------------------------------------------------------------------------------------------------------------- AST Parametric Emerging Markets Equity Portfolio 07/21/2008* to 12/31/2008 $10.10 $5.54 0 ------------------------------------------------------------------------------------------------------------- AST Focus Four Plus Portfolio 07/21/2008* to 12/31/2008 $10.00 $7.43 19,030 ------------------------------------------------------------------------------------------------------------- Evergreen VA Growth Fund 06/30/2008 to 12/31/2008 $9.87 $6.63 0 ------------------------------------------------------------------------------------------------------------- Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $10.07 $6.53 0 ------------------------------------------------------------------------------------------------------------- Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $9.94 $7.82 0 ------------------------------------------------------------------------------------------------------------- Franklin Templeton VIP Founding Funds Allocation Fund 06/30/2008 to 12/31/2008 $10.02 $7.13 26,023 ------------------------------------------------------------------------------------------------------------- Gartmore NVIT Developing Markets 06/30/2008 to 12/31/2008 $10.04 $4.72 0 ------------------------------------------------------------------------------------------------------------- The DOW DART 10 Portfolio formerly, First Trust Dow Target 10 06/30/2008 to 12/31/2008 $9.94 $8.17 0 ------------------------------------------------------------------------------------------------------------- First Trust Target Focus Four Portfolio 06/30/2008 to 12/31/2008 $9.87 $6.55 0 ------------------------------------------------------------------------------------------------------------- Global Dividend Target 15 formerly, First Trust Global Dividend Target 15 06/30/2008 to 12/31/2008 $10.01 $6.82 0 ------------------------------------------------------------------------------------------------------------- NASDAQ Target 15 Portfolio formerly, First Trust NASDAQ Target 15 06/30/2008 to 12/31/2008 $9.89 $5.93 0 ------------------------------------------------------------------------------------------------------------- S&P Target 24 Portfolio formerly, First Trust S&P Target 24 06/30/2008 to 12/31/2008 $9.94 $8.10 0 ------------------------------------------------------------------------------------------------------------- Target Managed VIP Portfolio formerly, First Trust Managed VIP 06/30/2008 to 12/31/2008 $9.97 $6.34 0 ------------------------------------------------------------------------------------------------------------- Value Line Target 25 Portfolio formerly, First Trust Value Line Target 25 06/30/2008 to 12/31/2008 $9.89 $4.52 0
A-7
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period -------------------------------------------------------------------------------------------------- The DOW Target Dividend Portfolio formerly, First Trust Dow Target Dividend 06/30/2008 to 12/31/2008 $9.78 $7.83 0 -------------------------------------------------------------------------------------------------- AIM V.I. Dynamics Fund 06/30/2008 to 12/31/2008 $9.98 $5.79 0 -------------------------------------------------------------------------------------------------- AIM V.I. Financial Services Fund 06/30/2008 to 12/31/2008 $9.71 $5.68 0 -------------------------------------------------------------------------------------------------- AIM V.I. Global Health Care 06/30/2008 to 12/31/2008 $10.07 $7.82 0 -------------------------------------------------------------------------------------------------- AIM V.I. Technology Fund 06/30/2008 to 12/31/2008 $9.92 $6.18 0 -------------------------------------------------------------------------------------------------- Wells Fargo Advantage VT Equity Income 06/30/2008 to 12/31/2008 $10.04 $7.33 0
* Denotes the start date of these sub-accounts A-8 APPENDIX B - CALCULATION OF OPTIONAL DEATH BENEFITS Examples of Enhanced Beneficiary Protection Optional Death Benefit Calculation The following are examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated. Each example assumes that a $50,000 initial Purchase Payment is made. Each example assumes that there is one Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment options. Each example assumes that no Credits have been applied to the Account Value. The formula for determining the Enhanced Beneficiary Protection Optional Death Benefit is as follows: Growth = Account Value of variable minus purchase payments - investment options plus Interim proportional withdrawals Value of Fixed Allocations (no MVA applies)
Example with market increase Assume that the Owner has made no withdrawals and that the Account Value has been increasing due to positive market performance. On the date we receive due proof of death, the Account Value is $75,000. The basic Death Benefit is calculated as purchase payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $75,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($75,000) PLUS 40% of the "Growth" under the Annuity. Growth = $75,000 - [$50,000 - $0] = $25,000 Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth = $25,000 * 0.40 = $10,000 Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit = $85,000
Examples with market decline Assume that the Owner has made no withdrawals and that the Account Value has been decreasing due to declines in market performance. On the date we receive due proof of death, the Account Value is $45,000. The basic Death Benefit is calculated as purchase payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $50,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($50,000) PLUS the "Growth" under the Annuity. Growth = $45,000 - [$50,000 - $0] = $-5,000 Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth NO BENEFIT IS PAYABLE Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit = $50,000
In this example you would receive no additional benefit from purchasing the Enhanced Beneficiary Protection Optional Death Benefit. B-1 Example with market increase and withdrawals Assume that the Account Value has been increasing due to positive market performance and the Owner made a withdrawal of $15,000 in Annuity Year 5 when the Account Value was $75,000. On the date we receive due proof of death, the Account Value is $90,000. The basic Death Benefit is calculated as purchase payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $90,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($90,000) PLUS 40% of the "Growth" under the Annuity. Growth = $90,000 - [$50,000 - ($50,000 * $15,000/$75,000)] = $90,000 - [$50,000 - $10,000] = $90,000 - $40,000 = $50,000 Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth = $50,000 * 0.40 = $20,000 Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit = $110,000
Examples of Highest Anniversary Value Death Benefit Calculation The following are examples of how the Highest Anniversary Value Death Benefit is calculated. Each example assumes an initial Purchase Payment of $50,000. Each example assumes that there is one Owner who is age 70 on the Issue Date and that all Account Value is maintained in the variable investment options. Example with market increase and death before Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals have been made. On the date we receive due proof of death, the Account Value is $75,000; however, the Anniversary Value on the 5/th/ anniversary of the Issue Date was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Anniversary Value or the basic Death Benefit. The Death Benefit would be the Highest Anniversary Value ($90,000) because it is greater than the amount that would have been payable under the basic Death Benefit ($75,000). Example with withdrawals Assume that the Account Value has been increasing due to positive market performance and the Owner made a withdrawal of $15,000 in Annuity Year 7 when the Account Value was $75,000. On the date we receive due proof of death, the Account Value is $80,000; however, the Anniversary Value on the 5/th/ anniversary of the Issue Date was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Anniversary Value or the basic Death Benefit. Highest Anniversary Value = $90,000 - [$90,000 * $15,000/$75,000] = $90,000 - $18,000 = $72,000 Basic Death Benefit = max [$80,000, $50,000 - ($50,000 * $15,000/$75,000)] = max [$80,000, $40,000] = $80,000 The Death Benefit therefore is $80,000.
B-2 Example with death after Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals had been made prior to the Death Benefit Target Date. Further assume that the Owner dies after the Death Benefit Target Date, when the Account Value is $75,000. The Highest Anniversary Value on the Death Benefit Target Date was $80,000; however, following the Death Benefit Target Date, the Owner made a Purchase Payment of $15,000 and later had taken a withdrawal of $5,000 when the Account Value was $70,000. The Death Benefit is equal to the greater of the Highest Anniversary Value plus purchase payments minus proportional withdrawals after the Death Benefit Target Date or the basic Death Benefit. Highest Anniversary Value = $80,000 + $15,000 - [($80,000 + $15,000) * $5,000/$70,000] = $80,000 + $15,000 - $6,786 = $88,214 Basic Death Benefit = max [$75,000, ($50,000 + $15,000) - {($50,000 + $15,000) * $5,000/$70,000}] = max [$75,000, $60,357] = $75,000 The Death Benefit therefore is $88,214.
Examples of Combination 5% Roll-Up and Highest Anniversary Value Death Benefit Calculation The following are examples of how the Combination 5% Roll-Up and Highest Anniversary Value Death Benefit are calculated. Each example assumes an initial Purchase Payment of $50,000. Each example assumes that there is one Owner who is age 70 on the Issue Date and that all Account Value is maintained in the variable investment options. Example with market increase and death before Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals have been made. On the 7/th/ anniversary of the Issue Date we receive due proof of death, at which time the Account Value is $75,000; however, the Anniversary Value on the 5/th/ anniversary of the Issue Date was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Roll-Up Value is equal to initial Purchase Payment accumulated at 5% for 6 years, or $67,005. The Death Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary Value or the basic Death Benefit. The Death Benefit would be the Highest Anniversary Value ($90,000) because it is greater than both the Roll-Up Value ($67,005) and the amount that would have been payable under the basic Death Benefit ($75,000). Example with withdrawals Assume that the Owner made a withdrawal of $5,000 on the 6/th/ anniversary of the Issue Date when the Account Value was $45,000. The Roll-Up Value on the 6/th/ anniversary of the Issue Date is equal to initial Purchase Payment accumulated at 5% for 6 years, or $67,005. The 5% Dollar-for-Dollar Withdrawal Limit for the 7/th/ annuity year is equal to 5% of the Roll-Up Value as of the 6/th/ anniversary of the Issue Date, or $3,350. Therefore, the remaining $1,650 of the withdrawal results in a proportional reduction to the Roll-Up Value. On the 7/th/ anniversary of the Issue Date we receive due proof of death, at which time the Account Value is $43,000; however, the Anniversary Value on the 2/nd/ anniversary of the Issue Date was $70,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary Value or the basic Death Benefit. Roll-Up Value = {(67,005 - $3,350) - [($67,005 - $3,350) * $1,650/($45,000 - $3,350)]} * 1.05 = ($63,655 - $2,522) * 1.05 = $64,190 Highest Anniversary Value = $70,000 - [$70,000 * $5,000/$45,000] = $70,000 - $7,778 = $62,222 Basic Death Benefit = max [$43,000, $50,000 - ($50,000 * $5,000/$45,000)] = max [$43,000, $44,444] = $44,444 The Death Benefit therefore is $64,190.
B-3 Example with death after Death Benefit Target Date Assume that the Owner has not made any withdrawals prior to the Death Benefit Target Date. Further assume that the Owner dies after the Death Benefit Target Date, when the Account Value is $75,000. The Roll-Up Value on the Death Benefit Target Date (the contract anniversary on or following the Owner's 80/th/ birthday) is equal to initial Purchase Payment accumulated at 5% for 10 years, or $81,445. The Highest Anniversary Value on the Death Benefit Target Date was $85,000; however, following the Death Benefit Target Date, the Owner made a Purchase Payment of $15,000 and later had taken a withdrawal of $5,000 when the Account Value was $70,000. The Death Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary Value or the basic Death Benefit as of the Death Benefit Target Date; each increased by subsequent purchase payments and reduced proportionally for subsequent withdrawals. Roll-Up Value = $81,445 + $15,000 - [($81,445 + 15,000) * $5,000/$70,000] = $81,445 + $15,000 - $6,889 = $89,556 Highest Anniversary Value = $85,000 + $15,000 - [($85,000 + 15,000) * $5,000/$70,000] = $85,000 + $15,000 - $7,143 = $92,857 Basic Death Benefit = max [$75,000, $50,000 + $15,000 - {(50,000 + $15,000) * $5,000/$70,000}] = max [$75,000, $60,357] = $75,000 The Death Benefit therefore is $92,857.
Examples of Highest Daily Value Death Benefit Calculation The following are examples of how the HDV Death Benefit is calculated. Each example assumes an initial Purchase Payment of $50,000. Each example assumes that there is one Owner who is age 70 on the Issue Date. Example with market increase and death before Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals have been made. On the date we receive due proof of death, the Account Value is $75,000; however, the Highest Daily Value was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Daily Value or the basic Death Benefit. The Death Benefit would be the HDV ($90,000) because it is greater than the amount that would have been payable under the basic Death Benefit ($75,000). Example with withdrawals Assume that the Account Value has been increasing due to positive market performance and the Owner made a withdrawal of $15,000 in Annuity Year 7 when the Account Value was $75,000. On the date we receive due proof of death, the Account Value is $80,000; however, the Highest Daily Value ($90,000) was attained during the fifth Annuity Year. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Daily Value (proportionally reduced by the subsequent withdrawal) or the basic Death Benefit. Highest Daily Value = $90,000 - [$90,000 * $15,000/$75,000] = $90,000 - $18,000 = $72,000 Basic Death Benefit = max [$80,000, $50,000 - ($50,000 * $15,000/$75,000)] = max [$80,000, $40,000] = $80,000 The Death Benefit therefore is $80,000.
B-4 Example with death after Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals had been made prior to the Death Benefit Target Date. Further assume that the Owner dies after the Death Benefit Target Date, when the Account Value is $75,000. The Highest Daily Value on the Death Benefit Target Date was $80,000; however, following the Death Benefit Target Date, the Owner made a Purchase Payment of $15,000 and later had taken a withdrawal of $5,000 when the Account Value was $70,000. The Death Benefit is equal to the greater of the Highest Daily Value on the Death Benefit Target Date plus Purchase Payments minus proportional withdrawals after the Death Benefit Target Date or the basic Death Benefit. Highest Daily Value = $80,000 + $15,000 - [($80,000 + $15,000) * $5,000/$70,000] = $80,000 + $15,000 - $6,786 = $88,214 Basic Death Benefit = max [$75,000, ($50,000 + $15,000) - {($50,000 + $15,000) * $5,000/$70,000}] = max [$75,000, $60,357] = $75,000 The Death Benefit therefore is $88,214.
B-5 APPENDIX C - FORMULA UNDER HIGHEST DAILY LIFETIME FIVE INCOME BENEFIT We set out below the current formula under which we may transfer amounts between the variable investment options and the Benefit Fixed Rate Account. Upon your election of Highest Daily Lifetime Five, we will not alter the formula that applies to your Annuity. However, as discussed in the "Living Benefits" section, we reserve the right to modify this formula with respect to those who elect Highest Daily Lifetime Five in the future. TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULA: . C\\u\\ - the upper target is established on the effective date of the Highest Daily Lifetime Five benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently, it is 83%. . C\\t\\ - the target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 80%. . C\\l\\ - the lower target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 77%. . L - the target value as of the current Valuation Day. . r - the target ratio. . a - the factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. The factors that we use currently are derived from the a2000 Individual Annuity Mortality Table with an assumed interest rate of 3%. Each number in the table "a" factors (which appears below) represents a factor, which when multiplied by the Highest Daily Annual Income Amount, projects our total liability for the purpose of asset transfers under the guarantee. . Q - age based factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. The factor is currently set equal to 1. . V - the total value of all Permitted Sub-accounts in the Annuity. . F - the total value of all Benefit Fixed Rate Account allocations. . I - the income value prior to the first withdrawal. The income value is equal to what the Highest Daily Annual Income Amount would be if the first withdrawal were taken on the date of calculation. After the first withdrawal the income value equals the greater of the Highest Daily Annual Income Amount, the quarterly step-up amount times the annual income percentage, and the Account Value times the annual income percentage. . T - the amount of a transfer into or out of the Benefit Fixed Rate Account. . I% - annual income amount percentage. This factor is established on the Effective Date and is not changed for the life of the guarantee. Currently, this percentage is equal to 5% TARGET VALUE CALCULATION: On each Valuation Day, a target value (L) is calculated, according to the following formula. If the variable Account Value (V) is equal to zero, no calculation is necessary. L = I * Q * a Transfer Calculation: The following formula, which is set on the Effective Date and is not changed for the life of the guarantee, determines when a transfer is required: Target Ratio r = (L - F) / V.
. If r ((greater than)) C\\u\\, assets in the Permitted Sub-accounts are transferred to Benefit Fixed Rate Account. . If r ((less than)) C\\l\\, and there are currently assets in the Benefit Fixed Rate Account (F ((greater than)) 0), assets in the Benefit Fixed Rate Account are transferred to the Permitted Sub-accounts. The following formula, which is set on the Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = {Min(V, [L - F - V * C\\t\\] / (1 - C\\t\\))} T(greater than)0, Money moving from the Permitted Sub-accounts to the Benefit Fixed Rate Account T = {Min(F, [L - F - V * C] / (1 - C\\t\\))} T(less than)0, Money moving from the Benefit Fixed Rate Account to the Permitted Sub-accounts]
C-1 Example: Male age 65 contributes $100,000 into the Permitted Sub accounts and the value drops to $92,300 during year one, end of day one. A table of values for "a" appears below. Target Value Calculation: L = I * Q * a = 5000.67 * 1 * 15.34 = 76,710.28
Target Ratio: r = (L - F) / V = (76,710.28 - 0) / 92,300.00 = 83.11%
Since r (greater than) Cu ( because 83.11% (greater than) 83%) a transfer into the Benefit Fixed rate Account occurs. T = { Min ( V, [ L - F - V * Ct] / ( 1 - Ct))} = { Min ( 92,300.00, [ 76,710.28 - 0 - 92,300.00 * 0.80] / ( 1 - 0.80))} = { Min ( 92,300.00, 14,351.40 )} = 14,351.40
FORMULA FOR CONTRACTS WITH 90% CAP FEATURE TARGET VALUE CALCULATION: On each Valuation Day, a target value (L) is calculated, according to the following formula. If the variable Account Value (V) is equal to zero, no calculation is necessary. L = I * Q * a
If you elect this feature, the following replaces the "Transfer Calculation" above. Transfer Calculation: The following formula, which is set on the effective date of this feature and is not changed for the life of the guarantee, determines when a transfer is required: On the effective date of this feature (and only on the effective date of this feature), the following asset transfer calculation is performed to determine the amount of Account Value allocated to the Benefit Fixed Rate Account: If (F / (V + F) (greater than) .90) then T = F - (V + F) * .90 If T is greater than $0 as described above, then no additional transfer calculations are performed on the effective date. On each Valuation Day thereafter (including the effective date of this feature provided F / (V + F) (less than)= .90), the following asset transfer calculation is performed Target Ratio r = (L - F) / V
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to the Benefit Fixed Rate Account (subject to the 90% cap rule described above). . If r (less than) C\\l\\ and there are currently assets in the Benefit Fixed Rate Account (F (greater than) 0), assets in the Benefit Fixed Rate Account are transferred to the Permitted Sub-accounts. The following formula, which is set on the Effective Date of this feature and is not changed for the life of the guarantee, determines the transfer amount: T = Min(MAX (0, (0.90 * (V + F)) - F), [L - F - V * Money is transferred from the elected Permitted C\\t\\] / (1 - C\\t\\)) Sub-accounts to Benefit Fixed Rate Account T = Min(F, - [L - F - V * C\\t\\] / (1 - C\\t\\)), Money is transferred from the Benefit Fixed Rate Account to the Permitted Sub-accounts
C-2 Age 65 "a" Factors for Liability Calculations (in Years and Months since Benefit Effective Date)*
Months Years 1 2 3 4 5 6 7 8 9 10 11 12 ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1 15.34 15.31 15.27 15.23 15.20 15.16 15.13 15.09 15.05 15.02 14.98 14.95 2 14.91 14.87 14.84 14.80 14.76 14.73 14.69 14.66 14.62 14.58 14.55 14.51 3 14.47 14.44 14.40 14.36 14.33 14.29 14.26 14.22 14.18 14.15 14.11 14.07 4 14.04 14.00 13.96 13.93 13.89 13.85 13.82 13.78 13.74 13.71 13.67 13.63 5 13.60 13.56 13.52 13.48 13.45 13.41 13.37 13.34 13.30 13.26 13.23 13.19 6 13.15 13.12 13.08 13.04 13.00 12.97 12.93 12.89 12.86 12.82 12.78 12.75 7 12.71 12.67 12.63 12.60 12.56 12.52 12.49 12.45 12.41 12.38 12.34 12.30 8 12.26 12.23 12.19 12.15 12.12 12.08 12.04 12.01 11.97 11.93 11.90 11.86 9 11.82 11.78 11.75 11.71 11.67 11.64 11.60 11.56 11.53 11.49 11.45 11.42 10 11.38 11.34 11.31 11.27 11.23 11.20 11.16 11.12 11.09 11.05 11.01 10.98 11 10.94 10.90 10.87 10.83 10.79 10.76 10.72 10.69 10.65 10.61 10.58 10.54 12 10.50 10.47 10.43 10.40 10.36 10.32 10.29 10.25 10.21 10.18 10.14 10.11 13 10.07 10.04 10.00 9.96 9.93 9.89 9.86 9.82 9.79 9.75 9.71 9.68 14 9.64 9.61 9.57 9.54 9.50 9.47 9.43 9.40 9.36 9.33 9.29 9.26 15 9.22 9.19 9.15 9.12 9.08 9.05 9.02 8.98 8.95 8.91 8.88 8.84 16 8.81 8.77 8.74 8.71 8.67 8.64 8.60 8.57 8.54 8.50 8.47 8.44 17 8.40 8.37 8.34 8.30 8.27 8.24 8.20 8.17 8.14 8.10 8.07 8.04 18 8.00 7.97 7.94 7.91 7.88 7.84 7.81 7.78 7.75 7.71 7.68 7.65 19 7.62 7.59 7.55 7.52 7.49 7.46 7.43 7.40 7.37 7.33 7.30 7.27 20 7.24 7.21 7.18 7.15 7.12 7.09 7.06 7.03 7.00 6.97 6.94 6.91 21 6.88 6.85 6.82 6.79 6.76 6.73 6.70 6.67 6.64 6.61 6.58 6.55 22 6.52 6.50 6.47 6.44 6.41 6.38 6.36 6.33 6.30 6.27 6.24 6.22 23 6.19 6.16 6.13 6.11 6.08 6.05 6.03 6.00 5.97 5.94 5.92 5.89 24 5.86 5.84 5.81 5.79 5.76 5.74 5.71 5.69 5.66 5.63 5.61 5.58 25 5.56 5.53 5.51 5.48 5.46 5.44 5.41 5.39 5.36 5.34 5.32 5.29 26 5.27 5.24 5.22 5.20 5.18 5.15 5.13 5.11 5.08 5.06 5.04 5.01 27 4.99 4.97 4.95 4.93 4.91 4.88 4.86 4.84 4.82 4.80 4.78 4.75 28 4.73 4.71 4.69 4.67 4.65 4.63 4.61 4.59 4.57 4.55 4.53 4.51 29 4.49 4.47 4.45 4.43 4.41 4.39 4.37 4.35 4.33 4.32 4.30 4.28 30 4.26 4.24 4.22 4.20 4.18 4.17 4.15 4.13 4.11 4.09 4.07 4.06 31 4.04 4.02 4.00 3.98 3.97 3.95 3.93 3.91 3.90 3.88 3.86 3.84 32 3.83 3.81 3.79 3.78 3.76 3.74 3.72 3.71 3.69 3.67 3.66 3.64 33 3.62 3.61 3.59 3.57 3.55 3.54 3.52 3.50 3.49 3.47 3.45 3.44 34 3.42 3.40 3.39 3.37 3.35 3.34 3.32 3.30 3.29 3.27 3.25 3.24 35 3.22 3.20 3.18 3.17 3.15 3.13 3.12 3.10 3.08 3.07 3.05 3.03 36 3.02 3.00 2.98 2.96 2.95 2.93 2.91 2.90 2.88 2.86 2.85 2.83 37 2.81 2.79 2.78 2.76 2.74 2.73 2.71 2.69 2.68 2.66 2.64 2.62 38 2.61 2.59 2.57 2.56 2.54 2.52 2.51 2.49 2.47 2.45 2.44 2.42 39 2.40 2.39 2.37 2.35 2.34 2.32 2.30 2.29 2.27 2.25 2.24 2.22 40 2.20 2.19 2.17 2.15 2.14 2.12 2.11 2.09 2.07 2.06 2.04 2.02 41 2.01 1.84 1.67 1.51 1.34 1.17 1.00 0.84 0.67 0.50 0.33 0.17
* The values set forth in this table are applied to all ages, and apply whether or not the 90% cap is elected. C-3 APPENDIX D - ANNUITIES APPROVED FOR SALE BY THE NEW YORK STATE INSURANCE DEPARTMENT
XTra Credit EIGHT NY ---------------------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------------------- Minimum Investment $10,000 ---------------------------------------------------------------------------------------------------------------------------- Maximum Issue Age Annuitant 85 Oldest Owner 75 ---------------------------------------------------------------------------------------------------------------------------- Contingent Deferred Sales 10 Years Charge Schedule (9%, 9%, 8%, 7%, 6%, 5%, 4%, 3%, 2%, 1%) (Applied to Purchase Payments based on the inception date of the Annuity) ---------------------------------------------------------------------------------------------------------------------------- Insurance Charge 1.75% ---------------------------------------------------------------------------------------------------------------------------- Annual Maintenance Fee Lesser of $30 or 2% of Account Value ---------------------------------------------------------------------------------------------------------------------------- Transfer Fee $10 after twenty in any annuity year ---------------------------------------------------------------------------------------------------------------------------- Contract Credit Yes. The amount of the credit applied to a Purchase Payment is based on the year the Purchase Payment is received, for the first 6 years of the contract. Currently the credit percentages for each year starting with the first year are: If the Purchase Payments are 100,000+: 8%, 6%, 4%, 3%, 2%, 1% and if the Purchase Payments are (less than) $100,000: 6%, 5%, 4%, 3%, 2%, and 1%. ---------------------------------------------------------------------------------------------------------------------------- Fixed Allocation (If No available, early withdrawals are subject to a Market Value Adjustment) ("MVA") ---------------------------------------------------------------------------------------------------------------------------- Variable Investment Options All options generally available except where restrictions apply when certain riders are purchased. ---------------------------------------------------------------------------------------------------------------------------- Basic Death Benefit The greater of: Purchase Payments less proportional withdrawals or Account Value (variable); no MVA applied. ---------------------------------------------------------------------------------------------------------------------------- Optional Death Benefits (for HAV an additional cost)/1/ ---------------------------------------------------------------------------------------------------------------------------- Optional Living Benefits (for Highest Daily GRO, GMWB, GMIB, Lifetime Five, Spousal Lifetime an additional cost)/2/ Five, Highest Daily Lifetime Five, Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime Seven (Highest Daily Lifetime 7 Plus and Spousal Highest Daily Lifetime 7 Plus pending New York Department of Insurance approval) ---------------------------------------------------------------------------------------------------------------------------- Annuity Rewards/3/ Available after initial CDSC period ---------------------------------------------------------------------------------------------------------------------------- Annuitization Options Fixed option only Annuity date cannot exceed the first day of the calendar month following Annuitant's 90/th/ birthday. The maximum Annuity Date is based on the first Owner or Annuitant to reach the maximum age, as indicated in your Annuity. ---------------------------------------------------------------------------------------------------------------------------- Medically-Related Surrender Not Available Feature ----------------------------------------------------------------------------------------------------------------------------
(1)For more information on these benefits, refer to the "Death Benefit" section in the Prospectus. (2)For more information on these benefits, refer to the "Living Benefit Programs" section in the Prospectus. Highest Daily Lifetime Seven with Beneficiary Income Option (BIO), Spousal Highest Daily Lifetime Seven with BIO, Highest Daily Lifetime Seven with Lifetime Income Accelerator (LIA), Highest Daily Lifetime 7 Plus with BIO, Spousal Highest Daily Lifetime 7 Plus with BIO and Highest Daily Lifetime 7 Plus with LIA are not currently available in New York. (3)The Annuity rewards benefit offers Owners an ability to increase the guaranteed death benefit so that the death benefit will at least equal the Annuity's Account Value on the effective date of the Annuity Rewards benefits, if the terms of the Annuity Rewards benefit are met. For more information about variations applicable to annuities approved for sale by the New York State Insurance Department, please refer to your annuity contract. D-1 APPENDIX E - FORMULA UNDER GRO PLUS 2008 AND HIGHEST DAILY GRO THE FOLLOWING ARE THE TERMS AND DEFINITIONS REFERENCED IN THE TRANSFER CALCULATION FORMULA: . AV is the current Account Value of the Annuity . V is the current Account Value of the elected Sub-accounts of the Annuity . B is the total current value of the AST bond portfolio Sub-account . C\\l\\ is the lower target value. Currently, it is 79%. . C\\t\\ is the middle target value. Currently, it is 82%. . C\\u\\ is the upper target value. Currently, it is 85%. For each guarantee provided under the benefit, . G\\i\\ is the guarantee amount . N\\i\\ is the number of days until the maturity date . d\\i\\ is the discount rate applicable to the number of days until the maturity date. It is determined with reference to a benchmark index, reduced by the Discount Rate Adjustment. Once selected, we will not change the applicable benchmark index. However, if the benchmark index is discontinued, we will substitute a successor benchmark index, if there is one. Otherwise we will substitute a comparable benchmark index. We will obtain any required regulatory approvals prior to substitution of the benchmark index. The formula, which is set on the Effective Date and is not changed while the Rider is in effect, determines, on each Valuation Day, when a transfer is required. The formula begins by determining the value on that Valuation Day that, if appreciated at the applicable discount rate, would equal the guarantee amount at the end of the Base Guarantee Period or Step-Up Guarantee Period. We call the greatest of these values the "current liability (L)." L = MAX (L\\i\\), where L\\i\\ = G\\i\\ / (1 + d\\i\\)/(Ni/365)/.
Next the formula calculates the following formula ratio: r = (L - B) / V.
If the formula ratio exceeds an upper target value, then all or a portion of the Account Value will be transferred to the bond fund Sub-account associated with the current liability. If at the time we make a transfer to the bond fund Sub-account associated with the current liability there is Account Value allocated to a bond fund Sub-account not associated with the current liability, we will transfer all assets from that bond fund Sub-account to the bond fund Sub-account associated with the current liability. The formula will transfer assets into the Transfer Account if r (greater than) C\\u\\. The transfer amount is calculated by the following formula: T = {Min(V, [L - B - V*C\\t\\] / (1 - C\\t\\))}
If the formula ratio is less than a lower target value and there are assets in the Transfer Account, then the formula will transfer assets out of the Transfer Account into the elected Sub-accounts. The transfer amount is calculated by the following formula: T = {Min(B, - [L - B - V*C\\t\\] / (1 - C \\t\\))}
If following a transfer to the elected Sub-accounts, there are assets remaining in a bond fund Sub-account not associated with the current liability, we will transfer all assets from that bond fund Sub-account to the bond fund Sub-account associated with the current liability. E-1 APPENDIX F - FORMULA UNDER HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT AND SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT (including Highest Daily Lifetime Seven with BIO, Highest Daily Lifetime Seven with LIA and Spousal Highest Daily Lifetime Seven with BIO) 1. Formula for Contracts Issued on or after July 21, 2008 (Without Election of 90% Cap Feature) TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULA: . C\\u\\ - the upper target is established on the effective date of the Highest Daily Lifetime Seven benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently, it is 83%. . C\\t\\ - the target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 80%. . C\\l\\ - the lower target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 77%. . L - the target value as of the current business day. . r - the target ratio. . a - factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. . V\\v\\ - the total value of all Permitted Sub-accounts in the Annuity. . V\\F\\ - the total value of all elected Fixed Rate Options in the Annuity. . B - the total value of the AST Investment Grade Bond Portfolio Sub-account. . P - Income Basis. Prior to the first withdrawal, the Income Basis is the Protected Withdrawal Value calculated as if the first withdrawal were taken on the date of calculation. After the first withdrawal, the Income Basis is equal to the greater of (1) the Protected Withdrawal Value at the time of the first withdrawal, adjusted for additional purchase payments including the amount of any associated Credits, and adjusted proportionally for excess withdrawals*, (2) any highest quarterly value increased for additional purchase payments including the amount of any associated Credits, and adjusted for withdrawals, and (3) the Account Value. . T - the amount of a transfer into or out of the AST Investment Grade Bond Portfolio Sub-account. * Note: withdrawals of less than the Annual Income Amount do not reduce the Income Basis. TARGET VALUE CALCULATION: On each business day, a target value (L) is calculated, according to the following formula. If the Account Value (V\\V\\ + V\\F\\) is equal to zero, no calculation is necessary. L = 0.05 * P * a
TRANSFER CALCULATION: The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines when a transfer is required: Target Ratio r = (L - B) / (V\\V\\ + V\\F\\).
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to the AST Investment Grade Bond Portfolio Sub-account. . If r (less than) C\\l\\, and there are currently assets in the AST Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets in the AST Investment Grade Bond Portfolio Sub-account are transferred to the Permitted Sub-accounts according to most recent allocation instructions. F-1 The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = {Min (V\\V\\ + V\\F\\), [L - B - (V\\V\\ + V\\F\\) * C\\t\\] / (1 - Money is transferred from the elected C\\t\\))} Sub-accounts and Fixed Rate Options to the Transfer Account T = {Min (B, - [L - B - (V\\V\\ + V\\F\\)* C\\t\\] / (1 - C\\t\\))} Money is transferred from the Transfer Account to the elected Sub-accounts
{Min (V\\V\\ + V\\F\\), [L - B - (V\\V\\ + V\\F\\) * C\\t\\] / (1 - Money is transferred from the elected C\\t\\))} Sub-accounts and Fixed Rate Options to the Transfer Account {Min (B, - [L - B - (V\\V\\ + V\\F\\)* C\\t\\] / (1 - C\\t\\))} Money is transferred from the Transfer Account to the elected Sub-accounts
2. Formula for Contracts Issued Prior to 7/21/08 (Without Election of 90% Cap Feature) TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULA: . C\\u \\- the upper target is established on the effective date of the Highest Daily Lifetime Seven benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently, it is 83%. . C\\t\\ - the target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 80%. . C\\l\\ - the lower target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 77%. . L - the target value as of the current business day. . r - the target ratio. . a - factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. . V - the total value of all Permitted Sub-accounts in the annuity. . B - the total value of the AST Investment Grade Bond Portfolio Sub-account. . P - Income Basis. Prior to the first withdrawal, the Income Basis is the Protected Withdrawal Value calculated as if the first withdrawal were taken on the date of calculation. After the first withdrawal, the Income Basis is equal to the greater of (1) the Protected Withdrawal Value at the time of the first withdrawal, adjusted for additional purchase payments including the amount of any associated Credits, and adjusted proportionally for excess withdrawals*, (2) any highest quarterly value increased for additional purchase payments including the amount of any associated Credits, and adjusted for withdrawals, and (3) the Account Value. . T - the amount of a transfer into or out of the AST Investment Grade Bond Portfolio Sub-account * Note: withdrawals of less than the Annual Income Amount do not reduce the Income Basis. TARGET VALUE CALCULATION: On each business day, a target value (L) is calculated, according to the following formula. If the variable account value (V) is equal to zero, no calculation is necessary. L = 0.05 * P * a
TRANSFER CALCULATION: The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines when a transfer is required: Target Ratio r = (L - B) / V.
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to the AST Investment Grade Bond Portfolio Sub-account. . If r (less than) C\\l\\, and there are currently assets in the AST Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets in the AST Investment Grade Bond Portfolio Sub-account are transferred to the Permitted Sub-accounts according to most recent allocation instructions. F-2 The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = {Min(V, [L - B - V * C\\t\\] / (1 - C\\t\\))}, Money is transferred from the Permitted Sub-accounts to the AST Investment Grade Bond Portfolio Sub-account T = {Min(B, - [L - B - V * C\\t\\] / (1 - C\\t\\))}, Money is transferred from the AST Investment Grade Bond Portfolio Sub-account to the Permitted Sub-accounts
"a" Factors for Liability Calculations (in Years and Months since Benefit Effective Date)*
Months Years 1 2 3 4 5 6 7 8 9 10 11 12 ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1 15.34 15.31 15.27 15.23 15.20 15.16 15.13 15.09 15.05 15.02 14.98 14.95 2 14.91 14.87 14.84 14.80 14.76 14.73 14.69 14.66 14.62 14.58 14.55 14.51 3 14.47 14.44 14.40 14.36 14.33 14.29 14.26 14.22 14.18 14.15 14.11 14.07 4 14.04 14.00 13.96 13.93 13.89 13.85 13.82 13.78 13.74 13.71 13.67 13.63 5 13.60 13.56 13.52 13.48 13.45 13.41 13.37 13.34 13.30 13.26 13.23 13.19 6 13.15 13.12 13.08 13.04 13.00 12.97 12.93 12.89 12.86 12.82 12.78 12.75 7 12.71 12.67 12.63 12.60 12.56 12.52 12.49 12.45 12.41 12.38 12.34 12.30 8 12.26 12.23 12.19 12.15 12.12 12.08 12.04 12.01 11.97 11.93 11.90 11.86 9 11.82 11.78 11.75 11.71 11.67 11.64 11.60 11.56 11.53 11.49 11.45 11.42 10 11.38 11.34 11.31 11.27 11.23 11.20 11.16 11.12 11.09 11.05 11.01 10.98 11 10.94 10.90 10.87 10.83 10.79 10.76 10.72 10.69 10.65 10.61 10.58 10.54 12 10.50 10.47 10.43 10.40 10.36 10.32 10.29 10.25 10.21 10.18 10.14 10.11 13 10.07 10.04 10.00 9.96 9.93 9.89 9.86 9.82 9.79 9.75 9.71 9.68 14 9.64 9.61 9.57 9.54 9.50 9.47 9.43 9.40 9.36 9.33 9.29 9.26 15 9.22 9.19 9.15 9.12 9.08 9.05 9.02 8.98 8.95 8.91 8.88 8.84 16 8.81 8.77 8.74 8.71 8.67 8.64 8.60 8.57 8.54 8.50 8.47 8.44 17 8.40 8.37 8.34 8.30 8.27 8.24 8.20 8.17 8.14 8.10 8.07 8.04 18 8.00 7.97 7.94 7.91 7.88 7.84 7.81 7.78 7.75 7.71 7.68 7.65 19 7.62 7.59 7.55 7.52 7.49 7.46 7.43 7.40 7.37 7.33 7.30 7.27 20 7.24 7.21 7.18 7.15 7.12 7.09 7.06 7.03 7.00 6.97 6.94 6.91 21 6.88 6.85 6.82 6.79 6.76 6.73 6.70 6.67 6.64 6.61 6.58 6.55 22 6.52 6.50 6.47 6.44 6.41 6.38 6.36 6.33 6.30 6.27 6.24 6.22 23 6.19 6.16 6.13 6.11 6.08 6.05 6.03 6.00 5.97 5.94 5.92 5.89 24 5.86 5.84 5.81 5.79 5.76 5.74 5.71 5.69 5.66 5.63 5.61 5.58 25 5.56 5.53 5.51 5.48 5.46 5.44 5.41 5.39 5.36 5.34 5.32 5.29 26 5.27 5.24 5.22 5.20 5.18 5.15 5.13 5.11 5.08 5.06 5.04 5.01 27 4.99 4.97 4.95 4.93 4.91 4.88 4.86 4.84 4.82 4.80 4.78 4.75 28 4.73 4.71 4.69 4.67 4.65 4.63 4.61 4.59 4.57 4.55 4.53 4.51 29 4.49 4.47 4.45 4.43 4.41 4.39 4.37 4.35 4.33 4.32 4.30 4.28 30 4.26 4.24 4.22 4.20 4.18 4.17 4.15 4.13 4.11 4.09 4.07 4.06 31 4.04 4.02 4.00 3.98 3.97 3.95 3.93 3.91 3.90 3.88 3.86 3.84 32 3.83 3.81 3.79 3.78 3.76 3.74 3.72 3.71 3.69 3.67 3.66 3.64 33 3.62 3.61 3.59 3.57 3.55 3.54 3.52 3.50 3.49 3.47 3.45 3.44 34 3.42 3.40 3.39 3.37 3.35 3.34 3.32 3.30 3.29 3.27 3.25 3.24 35 3.22 3.20 3.18 3.17 3.15 3.13 3.12 3.10 3.08 3.07 3.05 3.03 36 3.02 3.00 2.98 2.96 2.95 2.93 2.91 2.90 2.88 2.86 2.85 2.83 37 2.81 2.79 2.78 2.76 2.74 2.73 2.71 2.69 2.68 2.66 2.64 2.62 38 2.61 2.59 2.57 2.56 2.54 2.52 2.51 2.49 2.47 2.45 2.44 2.42 39 2.40 2.39 2.37 2.35 2.34 2.32 2.30 2.29 2.27 2.25 2.24 2.22 40 2.20 2.19 2.17 2.15 2.14 2.12 2.11 2.09 2.07 2.06 2.04 2.02 41 2.01 1.84 1.67 1.51 1.34 1.17 1.00 0.84 0.67 0.50 0.33 0.17
* The values set forth in this table are applied to all ages, and apply to each formula set out in this Appendix. F-3 3. Formula for Contracts with 90% Cap Feature on or after July 21, 2008 See above for the Terms and Definitions Referenced in the Calculation Formula. The following formula, which is set on the effective date of this feature and is not changed for the life of the guarantee, determines when a transfer is required: On the effective date of this feature (and only on the effective date of this feature), the following asset transfer calculation is performed to determine the amount of Account Value allocated to the AST Investment Grade Bond sub-account: If (B / (V\\v\\ + V\\f\\ + B) (greater than) .90) then T = B - [(V\\v\\ + V\\f\\ + B) * .90]
If T is greater than $0 as described above, then no additional transfer calculations are performed on the effective date and future transfers to the AST Investment Grade Bond Sub-account will not occur at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. On each Valuation Day thereafter (including the effective date of this feature provided B / ( V\\v\\ + V\\f\\ + B) (less than) = .90), the following asset transfer calculation is performed Target Ratio r = (L - B) / (V\\V\\ + V\\F\\).
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to the AST Investment Grade Bond Portfolio Sub-account (subject to the 90% cap rule described above). . If r (less than) C\\l\\, and there are currently assets in the AST Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets in the AST Investment Grade Bond Portfolio Sub-account are transferred to the Permitted Sub-accounts according to most recent allocation instructions. The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = Min (MAX(0, (0.90 * (V\\V\\ + V\\F\\ + B)) - B), Money is transferred from the elected Sub-accounts [L - B - (V\\V\\ + V\\F\\) * C\\t\\] / (1 - C\\t\\)) to the AST Investment Grade Bond Sub-account T = Min (B, - [L - B - ( V\\v\\ + V\\f\\ ) * C\\t\\] / (1 - C\\t\\)) Money is transferred from the AST Investment Grade Sub-account to the elected Sub-accounts
Min (MAX(0, (0.90 * (V\\V\\ + V\\F\\ + B)) - B), Money is transferred from the elected Sub-accounts [L - B - (V\\V\\ + V\\F\\) * C\\t\\] / (1 - C\\t\\)) to the AST Investment Grade Bond Sub-account Min (B, - [L - B - ( V\\v\\ + V\\f\\ ) * C\\t\\] / (1 - C\\t\\)) Money is transferred from the AST Investment Grade Sub-account to the elected Sub-accounts
4. Formula for Contracts with 90% Cap Feature if Benefit was Elected Prior to July 21, 2008: See above for the Terms and Definitions Referenced in the Calculation Formula. The following formula, which is set on the effective date of this feature and is not changed for the life of the guarantee, determines when a transfer is required: On the effective date of this feature (and only on the effective date of this feature), the following asset transfer calculation is performed to determine the amount of Account Value allocated to the AST Investment Grade Bond Sub-account: If (B / (V + B) (greater than) .90) then T = B - [(V + B) * .90]
If T is greater than $0 as described above, then no additional transfer calculations are performed on the effective date. On each Valuation Day thereafter (including the effective date of this feature provided B / (V + B) (less than)= .90), the following asset transfer calculation is performed Target Ratio r = (L - B) / V.
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to AST Investment Grade Bond Sub-account. . If r (less than) C\\l\\ and there are currently assets in the AST Investment Grade Bond Sub-account (F (greater than) 0), assets in the AST Investment Grade Bond Sub-account are transferred to the Permitted Sub-accounts. F-4 The following formula, which is set on the Effective Date of this feature and is not changed for the life of the guarantee, determines the transfer amount: T = Min(MAX (0, (0.90 * (V + B)) - B), [L - B - V * Money is transferred from the elected Permitted C\\t\\] / (1 - C\\t\\)) Sub-accounts to AST Investment Grade Bond Sub-Account T = {Min(B, - [L - B - V * C\\t\\] / (1 - C\\t\\))}, Money is transferred from the AST Investment Grade Bond Sub-account to the Permitted Sub- accounts.
F-5 APPENDIX G - SELECTING THE VARIABLE ANNUITY THAT'S RIGHT FOR YOU Although only the XTra Credit Eight variable annuity is offered through this prospectus, you should know that Prudential Annuities Life Assurance Corporation ("PALAC") offers other deferred variable annuity products through separate prospectuses. Not all of those other annuities may be available to you, depending on your state of residence and/or the broker-dealer through which your annuity was sold. However, to the extent that other PALAC annuities (or those of other insurers) are available to you, you should be aware that those annuities likely come with a different array of optional features (e.g., living benefits or death benefits) and charges than XTra Credit Eight. For example, some annuities do not offer any credit, but typically would bear lower CDSCs and insurance charges than XTra Credit Eight. You can identify the PALAC annuities available to you by speaking to your Financial Professional or calling 1-888-PRU-2888. Among the factors you should consider when choosing which annuity product may be most appropriate for your individual needs are the following: . Your age; . The amount of your investment and any planned future deposits into the Annuity, . How long you intend to hold the annuity (also referred to as investment time horizon); . Your desire to make withdrawals from the annuity and the timing thereof; . Your investment return objectives; . The effect of optional benefits that may be elected; . The value of being able to "lock-in" growth in your Annuity after the initial withdrawal charge period for purposes of calculating the death benefit payable from the Annuity; and . Your desire to minimize costs and/or maximize return associated with the annuity. In general, you will pay higher ongoing fees for added liquidity and other product benefits while Annuities with longer surrender charge periods often have lower ongoing expenses. There are trade-offs associated with the costs and benefits provided by each Annuity. You should consider which benefits are most important to you, and whether the associated costs offer the greatest value to you. The following chart reflects the Account Value and Surrender Value of the XT8 variable annuity over a variety of holding periods under the hypothetical assumptions noted. The chart is intended to help you compare XTra Credit Eight with other Annuities that may be available to you. The values shown below are based on the following assumptions: . Annuity was issued on or after June 16, 2009 . An initial investment of $100,000 is made in the Xtra Credit Eight Annuity earning a gross rate of return of 0%, 6%, and 10% respectively. . No subsequent deposits or withdrawals are made from the Annuity. . The hypothetical gross rates of return are reduced by the arithmetic average of the fees and expenses of the Portfolios and the charges that are deducted from the Annuity at the Separate Account level as follows: a. 1.21% for the Portfolios offered under XTra Credit Eight, based on the fees and expenses of the Portfolios as of December 31, 2008. The arithmetic average of all the fund expenses is computed by adding portfolios and then dividing by the number of Portfolios. For purposes of the illustration, we do not reflect any expense reimbursements or expense waivers that might apply and are described in the prospectus fee table. b. The Separate Account level charges refer to the Insurance Charge/Administration charge. . The Account Value and Surrender Value are further reduced by the annual maintenance fee. For the Xtra Credit Eight, the Account Value and Surrender Value reflect the addition of any applicable Purchase Credits. The Account Value assumes no surrender, while the Surrender Value assumes a 100% surrender 2 days prior to the anniversary of the Issue Date of the Annuity ("Annuity Anniversary"), therefore reflecting the withdrawal charge applicable to that Annuity Year. Note that a withdrawal on the Annuity Anniversary, or the day before the Annuity Anniversary, would be subject to the withdrawal charge applicable to the next Annuity Year, which usually is lower. The surrender charge is calculated based on the date that the Purchase Payment was made and for purposes of this illustration, we assume that a single purchase payment of $100,000 was made on the Issue Date. The values that you actually experience under an Annuity will be different from what is depicted here if any of the assumptions we make here differ from your circumstances. (We will provide you a personalized illustration upon request). G-1
------------------------------------------------------------------------ 0% Gross Rate of Return 6% Gross Rate of Return 10% Gross Rate of Return Xtra Credit 8 Xtra Credit 8 Xtra Credit 8 ------------------------------------------------------------------------ Net rate of return Net rate of return Net rate of return All years -2.94% All years 2.88% All years 6.77% ------------------------------------------------------------------------ Account Surrender Account Surrender Account Surrender Year Value Value Value Value Value Value ----------------------------------------------------------------------------- 1 104,835 95,835 111,107 102,107 115,288 106,288 ----------------------------------------------------------------------------- 2 101,720 92,720 114,276 105,276 123,053 114,053 ----------------------------------------------------------------------------- 3 98,696 90,696 117,537 109,537 131,342 123,342 ----------------------------------------------------------------------------- 4 95,762 88,762 120,892 113,892 140,193 133,193 ----------------------------------------------------------------------------- 5 92,914 86,914 124,343 118,343 149,643 143,643 ----------------------------------------------------------------------------- 6 90,149 85,149 127,894 122,894 159,733 154,733 ----------------------------------------------------------------------------- 7 87,466 83,466 131,548 127,548 170,505 166,505 ----------------------------------------------------------------------------- 8 84,861 81,861 135,307 132,307 182,006 179,006 ----------------------------------------------------------------------------- 9 82,333 80,333 139,174 137,174 194,286 192,286 ----------------------------------------------------------------------------- 10 79,880 78,880 143,153 142,153 207,396 206,396 ----------------------------------------------------------------------------- 11 77,498 77,498 147,247 147,247 221,394 221,394 ----------------------------------------------------------------------------- 12 75,187 75,187 151,459 151,459 236,339 236,339 ----------------------------------------------------------------------------- 13 72,943 72,943 155,792 155,792 252,295 252,295 ----------------------------------------------------------------------------- 14 70,766 70,766 160,250 160,250 269,332 269,332 ----------------------------------------------------------------------------- 15 68,652 68,652 164,837 164,837 287,521 287,521 ----------------------------------------------------------------------------- 16 66,600 66,600 169,557 169,557 306,941 306,941 ----------------------------------------------------------------------------- 17 64,609 64,609 174,412 174,412 327,675 327,675 ----------------------------------------------------------------------------- 18 62,676 62,676 179,408 179,408 349,812 349,812 ----------------------------------------------------------------------------- 19 60,801 60,801 184,547 184,547 373,448 373,448 ----------------------------------------------------------------------------- 20 58,980 58,980 189,835 189,835 398,683 398,683 ----------------------------------------------------------------------------- 21 57,212 57,212 195,276 195,276 425,625 425,625 ----------------------------------------------------------------------------- 22 55,497 55,497 200,873 200,873 454,391 454,391 ----------------------------------------------------------------------------- 23 53,832 53,832 206,632 206,632 485,104 485,104 ----------------------------------------------------------------------------- 24 52,216 52,216 212,557 212,557 517,895 517,895 ----------------------------------------------------------------------------- 25 50,648 50,648 218,653 218,653 552,905 552,905 -----------------------------------------------------------------------------
Assumptions: a. $100,000 initial investment b. Fund Expenses = 1.21% c. No optional death benefits or living benefits elected d. Annuity was issued on or after June 16, 2008 and prior to February 23, 2009 e. Surrender value assumes surrender 2 days before Annuity anniversary G-2 APPENDIX H - FORMULA FOR HIGHEST DAILY LIFETIME 7 PLUS INCOME BENEFIT AND SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS INCOME BENEFIT (including Highest Daily Lifetime 7 Plus with BIO, Highest Daily Lifetime 7 Plus with LIA and Spousal Highest Daily Lifetime 7 Plus with BIO) TRANSFERS OF ACCOUNT VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE BOND SUB-ACCOUNT TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULAS: . C\\u\\ - the upper target is established on the effective date of the Highest Daily Lifetime 7 Plus/Spousal Highest Daily Lifetime 7 Plus benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently, it is 83%. . Cu\\s\\ - The secondary upper target is established on the effective date of the Highest Daily Lifetime 7 Plus/Spousal Highest Daily Lifetime 7 Plus benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently it is 84.5% . C\\t\\ - the target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 80%. . C\\l\\ - the lower target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 78%. . L - the target value as of the current Valuation Day. . r - the target ratio. . a - factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. (See below for the table of "a" factors) . V\\v\\ - the total value of all Permitted Sub-accounts in the Annuity. . V\\F\\ - the total value of all elected Fixed Rate Options in the Annuity . B - the total value of the AST Investment Grade Bond Portfolio Sub-account. . P - Income Basis. Prior to the first Lifetime Withdrawal, the Income Basis is equal to the Protected Withdrawal Value calculated as if the first Lifetime Withdrawal were taken on the date of calculation. After the first Lifetime Withdrawal, the Income Basis is equal to the greater of (1) the Protected Withdrawal Value on the date of the first Lifetime Withdrawal, increased for additional Purchase Payments, including the amount of any associated Credits, and adjusted proportionally for excess withdrawals*, and (2) any highest daily Account Value occurring on or after the date of the first Lifetime Withdrawal and prior to or including the date of this calculation increased for additional Purchase Payments including the amount of any associated Credits, and adjusted for Lifetime Withdrawals. . T - the amount of a transfer into or out of the AST Investment Grade Bond Portfolio Sub-account . T\\M\\ - the amount of a monthly transfer out of the AST Investment Grade Bond Portfolio * Note: Lifetime Withdrawals of less than or equal to the Annual Income Amount do not reduce the Income Basis. Daily Calculations TARGET VALUE CALCULATION: On each Valuation Day, a target value (L) is calculated, according to the following formula. If the variable Account Value (V\\V\\+ V\\F\\) is equal to zero, no calculation is necessary. L = 0.05 * P * a
TRANSFER CALCULATION: The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines when a transfer is required: Target Ratio r = (L - B) / (V\\V\\ + V\\F\\).
. If on the third consecutive Valuation Day r (greater than) Cu and r (less or =) Cu\\s\\ or if on any day r (greater than) Cu\\s\\, and subject to the 90% cap rule described above, assets in the Permitted Sub-accounts (including DCA Fixed Rate Option used with any applicable 6 or 12 Month DCA Program) are transferred to the AST Investment Grade Bond Portfolio Sub-account. H-1 . If r (less than) C\\l\\, and there are currently assets in the AST Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets in the AST Investment Grade Bond Portfolio Sub-account are transferred to the Permitted Sub-accounts according to most recent allocation instructions. The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = Min (MAX (0, (0.90 * (V\\V\\ + V\\F\\ + B)) - B), Money is transferred from the Permitted [L - B - (V\\V\\ + V\\F\\) * C\\t\\]/(1 - C\\t\\)) Sub-accounts and Fixed Rate Options to the AST Investment Grade Bond Sub-account T = {Min (B, - [L - B - (V\\V\\ + V\\F\\)* C\\t\\]/(1 - C\\t\\))} Money is transferred from the AST Investment Grade Bond Sub-account to the Permitted Sub- accounts
MONTHLY CALCULATION On each monthly anniversary of the Annuity Issue Date and following the daily Transfer Calculation above, the following formula determines if a transfer from the AST Investment Grade Bond Sub-account to the Permitted Sub-Accounts will occur: If, after the daily Transfer Calculation is performed, {Min (B, .05 * (V\\V\\ + V\\F\\ + B))} (less than) (C\\u\\ * (V\\V\\ + V\\F\\) - L + B) / (1 - C\\u\\), then T\\M\\ = {Min (B, .05 * (V\\V\\ + V\\F\\ + B))} Money is transferred from the AST Investment Grade Bond Sub-account to the Permitted Sub- accounts.
"a" Factors for Liability Calculations (in Years and Months since Benefit Effective Date)*
Months Years 1 2 3 4 5 6 7 8 9 10 11 12 ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1 15.34 15.31 15.27 15.23 15.20 15.16 15.13 15.09 15.05 15.02 14.98 14.95 2 14.91 14.87 14.84 14.80 14.76 14.73 14.69 14.66 14.62 14.58 14.55 14.51 3 14.47 14.44 14.40 14.36 14.33 14.29 14.26 14.22 14.18 14.15 14.11 14.07 4 14.04 14.00 13.96 13.93 13.89 13.85 13.82 13.78 13.74 13.71 13.67 13.63 5 13.60 13.56 13.52 13.48 13.45 13.41 13.37 13.34 13.30 13.26 13.23 13.19 6 13.15 13.12 13.08 13.04 13.00 12.97 12.93 12.89 12.86 12.82 12.78 12.75 7 12.71 12.67 12.63 12.60 12.56 12.52 12.49 12.45 12.41 12.38 12.34 12.30 8 12.26 12.23 12.19 12.15 12.12 12.08 12.04 12.01 11.97 11.93 11.90 11.86 9 11.82 11.78 11.75 11.71 11.67 11.64 11.60 11.56 11.53 11.49 11.45 11.42 10 11.38 11.34 11.31 11.27 11.23 11.20 11.16 11.12 11.09 11.05 11.01 10.98 11 10.94 10.90 10.87 10.83 10.79 10.76 10.72 10.69 10.65 10.61 10.58 10.54 12 10.50 10.47 10.43 10.40 10.36 10.32 10.29 10.25 10.21 10.18 10.14 10.11 13 10.07 10.04 10.00 9.96 9.93 9.89 9.86 9.82 9.79 9.75 9.71 9.68 14 9.64 9.61 9.57 9.54 9.50 9.47 9.43 9.40 9.36 9.33 9.29 9.26 15 9.22 9.19 9.15 9.12 9.08 9.05 9.02 8.98 8.95 8.91 8.88 8.84 16 8.81 8.77 8.74 8.71 8.67 8.64 8.60 8.57 8.54 8.50 8.47 8.44 17 8.40 8.37 8.34 8.30 8.27 8.24 8.20 8.17 8.14 8.10 8.07 8.04 18 8.00 7.97 7.94 7.91 7.88 7.84 7.81 7.78 7.75 7.71 7.68 7.65 19 7.62 7.59 7.55 7.52 7.49 7.46 7.43 7.40 7.37 7.33 7.30 7.27 20 7.24 7.21 7.18 7.15 7.12 7.09 7.06 7.03 7.00 6.97 6.94 6.91 21 6.88 6.85 6.82 6.79 6.76 6.73 6.70 6.67 6.64 6.61 6.58 6.55 22 6.52 6.50 6.47 6.44 6.41 6.38 6.36 6.33 6.30 6.27 6.24 6.22 23 6.19 6.16 6.13 6.11 6.08 6.05 6.03 6.00 5.97 5.94 5.92 5.89 24 5.86 5.84 5.81 5.79 5.76 5.74 5.71 5.69 5.66 5.63 5.61 5.58 25 5.56 5.53 5.51 5.48 5.46 5.44 5.41 5.39 5.36 5.34 5.32 5.29 26 5.27 5.24 5.22 5.20 5.18 5.15 5.13 5.11 5.08 5.06 5.04 5.01 27 4.99 4.97 4.95 4.93 4.91 4.88 4.86 4.84 4.82 4.80 4.78 4.75 28 4.73 4.71 4.69 4.67 4.65 4.63 4.61 4.59 4.57 4.55 4.53 4.51 29 4.49 4.47 4.45 4.43 4.41 4.39 4.37 4.35 4.33 4.32 4.30 4.28 30 4.26 4.24 4.22 4.20 4.18 4.17 4.15 4.13 4.11 4.09 4.07 4.06**
* The values set forth in this table are applied to all ages. ** In all subsequent years and months thereafter, the annuity factor is 4.06 H-2 APPENDIX I - SPECIAL CONTRACT PROVISIONS FOR ANNUITIES ISSUED IN CERTAIN STATES Certain features of your Annuity may be different than the features described earlier in this prospectus if your Annuity is issued in certain states described below. For Annuities issued in New York, please see Appendix D.
Jurisdiction Special Provisions ------------------------------------------------------------------------------------------------------------------------- Maryland Fixed Allocations are not available. ------------------------------------------------------------------------------------------------------------------------- Massachusetts If your Annuity is issued in Massachusetts after January 1, 2009, the annuity rates we use to calculate annuity payments are available only on a gender-neutral basis under any Annuity Option or any lifetime withdrawal optional benefit (except the Guaranteed Minimum Withdrawal Benefit). Medically Related Surrenders are not available. ------------------------------------------------------------------------------------------------------------------------- Montana If your Annuity is issued in Montana, the annuity rates we use to calculate annuity payments are available only on a gender-neutral basis under any Annuity Option or any lifetime withdrawal optional benefit (except the Guaranteed Minimum Withdrawal Benefit). ------------------------------------------------------------------------------------------------------------------------- Nevada Fixed Allocations are not available. ------------------------------------------------------------------------------------------------------------------------- North Dakota Fixed Allocations are not available. ------------------------------------------------------------------------------------------------------------------------- Vermont Fixed Allocations are not available. ------------------------------------------------------------------------------------------------------------------------- Washington If you elect Highest Daily Lifetime Five, or any version of Highest Daily Lifetime Seven, the Guaranteed Minimum Account Value Credit otherwise available with these optional benefits is not available. Fixed Allocations are not available. -------------------------------------------------------------------------------------------------------------------------
I-1 PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER DETAILS ABOUT THE PRUDENTIAL ANNUITIES ANNUITY DESCRIBED IN PROSPECTUS XT8PROS (05/2009). --------------------------------------- (print your name) --------------------------------------- (address) --------------------------------------- (city/state/zip code)
Variable Annuity Issued by: Variable Annuity Distributed by: PRUDENTIAL ANNUITIES LIFE PRUDENTIAL ANNUITIES ASSURANCE CORPORATION DISTRIBUTORS, INC. A Prudential Financial Company A Prudential Financial Company One Corporate Drive One Corporate Drive Shelton, Connecticut 06484 Shelton, Connecticut 06484 Telephone: 1-888-PRU-2888 Telephone: 203-926-1888 http://www.prudentialannuities.com http://www.prudentialannuities.com MAILING ADDRESSES: PRUDENTIAL ANNUITIES - VARIABLE ANNUITIES P.O. Box 7960 Philadelphia, PA 19176 EXPRESS MAIL: PRUDENTIAL ANNUITIES - VARIABLE ANNUITIES 2101 Welsh Road Dresher, PA 19025 [LOGO] Prudential The Prudential Insurance Company of America 751 Broad Street Newark, NJ 07102-3777
PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION A Prudential Financial Company One Corporate Drive, Shelton, Connecticut 06484 OPTIMUM XTRA/SM/ Flexible Premium Deferred Annuities PROSPECTUS: MAY 1, 2009 This prospectus describes one flexible premium deferred annuity (the "Annuity") offered by Prudential Annuities Life Assurance Corporation ("Prudential Annuities/SM/", "we", "our", or "us") exclusively through LPL Financial Corporation. The Annuity may be offered as an individual annuity contract or as an interest in a group annuity. The Annuity has different features and benefits that may be appropriate for you based on your financial situation, your age and how you intend to use the Annuity. This Prospectus describes the important features of the Annuity and what you should consider before purchasing the Annuity. In addition, the selling broker-dealer firm through which this Annuity is sold may decline to make available to its customers certain of the optional features and investment options offered generally under the Annuity. Alternatively, the firm may restrict the optional benefits that it makes available to its customers (e.g., by imposing a lower maximum issue age for certain optional benefits than what is prescribed generally under the Annuity). The selling broker-dealer firm may impose restrictions on the availability of the Annuity based on certain criteria. Please speak to your Financial Professional for further details. The Annuity or certain of its investment options and/or features may not be available in all states. For the variations specific to Annuities approved for sale by the New York State Insurance Department, see Appendix E. Certain terms are capitalized in this Prospectus. Those terms are either defined in the Glossary of Terms or in the context of the particular section. Because the Optimum XTra Annuity grants credits with respect to your Purchase Payments, the expenses of the Optimum XTra Annuity may be higher than expenses for an Annuity without a credit. In addition, the amount of the credits that you receive under the Optimum XTra Annuity may be more than offset by the additional fees and charges associated with the credit. THE SUB-ACCOUNTS Each Sub-account of Prudential Annuities Life Assurance Corporation Variable Account B invests in an underlying mutual fund portfolio. Currently, portfolios of the following underlying mutual funds are being offered: Advanced Series Trust and Evergreen Variable Annuity Trust. See the following page for a complete list of Sub-accounts. PLEASE READ THIS PROSPECTUS Please read this Prospectus and the current prospectus for the underlying mutual funds. Keep them for future reference. If you are purchasing the Annuity as a replacement for an existing variable annuity or variable life coverage or a fixed insurance policy, you should consider any surrender or penalty charges you may incur when replacing your existing coverage and that this Annuity may be subject to a contingent deferred sales charge if you elect to surrender the Annuity or take a partial withdrawal. You should consider your need to access the Annuity's Account Value and whether the Annuity's liquidity features will satisfy that need. AVAILABLE INFORMATION We have also filed a Statement of Additional Information that is available from us, without charge, upon your request. The contents of the Statement of Additional Information are described at the end of this prospectus under "Contents of Statement of Additional Information". The Statement of Additional Information is incorporated by reference into this prospectus. This Prospectus is part of the registration statement we filed with the SEC regarding this offering. Additional information on us and this offering is available in the registration statement and the exhibits thereto. You may review and obtain copies of these materials at no cost to you, by contacting us. These documents, as well as documents incorporated by reference, may also be obtained through the SEC's Internet Website (http://www.sec.gov) for this registration statement as well as for other registrants that file electronically with the SEC. The Annuity is NOT a deposit or obligation of, or issued, guaranteed or endorsed by, any bank, are NOT insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency. An investment in an annuity involves investment risks, including possible loss of value, even with respect to amounts allocated to the AST Money Market Sub-account. -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. OPTIMUM XTRA/SM/ IS A SERVICE MARK OR REGISTERED TRADEMARK OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND IS USED UNDER LICENCE BY ITS AFFILIATES. -------------------------------------------------------------------------------- FOR FURTHER INFORMATION CALL: 1-888-PRU-2888 Prospectus Dated: May Statement of Additional 1, 2009 Information Dated: May 1, 2009 OA074PROS-0509 LPLOASAI PLEASE SEE OUR PRIVACY POLICY AND OUR IRA, ROTH IRA AND FINANCIAL DISCLOSURE STATEMENTS ATTACHED TO THE BACK COVER OF THIS PROSPECTUS. INVESTMENT OPTIONS Advanced Series Trust: AST AllianceBernstein Core Value AST AllianceBernstein Growth & Income AST American Century Income & Growth AST Balanced Asset Allocation AST Bond Portfolio 2015 AST Bond Portfolio 2016 AST Bond Portfolio 2018 AST Bond Portfolio 2019 AST Bond Portfolio 2020 AST Capital Growth Asset Allocation AST Cohen & Steers Realty AST DeAM Large-Cap Value AST Federated Aggressive Growth AST Goldman Sachs Mid-Cap Growth AST International Growth AST International Value AST Investment Grade Bond AST JPMorgan International Equity AST Large-Cap Value AST Lord Abbett Bond Debenture AST Marsico Capital Growth AST Mid-Cap Value AST MFS Growth AST Money Market AST Neuberger Berman Mid-Cap Growth AST Neuberger Berman/LSV Mid-Cap Value AST Neuberger Berman Small-Cap Growth AST PIMCO Limited Maturity Bond AST PIMCO Total Return Bond AST Preservation Asset Allocation AST Small-Cap Growth AST Small-Cap Value AST T. Rowe Price Global Bond AST T. Rowe Price Large-Cap Growth AST Western Asset Core Plus Bond Evergreen Variable Annuity Trust: International Equity Omega CONTENTS GLOSSARY OF TERMS...................................................................... 1 SUMMARY OF CONTRACT FEES AND CHARGES................................................... 4 EXPENSE EXAMPLES....................................................................... 13 SUMMARY................................................................................ 14 INVESTMENT OPTIONS..................................................................... 18 WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?.................... 18 WHAT ARE THE FIXED ALLOCATIONS?....................................................... 24 FEES AND CHARGES....................................................................... 25 WHAT ARE THE CONTRACT FEES AND CHARGES?............................................... 25 WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS?.......................................... 27 WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYMENT OPTION?............................. 27 EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES............................................. 27 PURCHASING YOUR ANNUITY................................................................ 28 WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?................................. 28 MANAGING YOUR ANNUITY.................................................................. 29 MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?....................... 29 MAY I RETURN MY ANNUITY IF I CHANGE MY MIND?.......................................... 29 MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?.............................................. 30 MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?.......................... 30 MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?...................... 30 MANAGING YOUR ACCOUNT VALUE............................................................ 31 HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?.......................................... 31 HOW DO I RECEIVE CREDITS UNDER THE OPTIMUM XTRA ANNUITY?.............................. 31 HOW ARE CREDITS APPLIED TO ACCOUNT VALUE UNDER THE OPTIMUM XTRA ANNUITY?.............. 31 ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?............ 32 DO YOU OFFER DOLLAR COST AVERAGING?................................................... 33 DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?...................................... 34 ARE ANY ASSET ALLOCATION PROGRAMS AVAILABLE?.......................................... 34 WHAT IS THE BALANCED INVESTMENT PROGRAM?.............................................. 35 MAY I GIVE MY FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION INSTRUCTIONS?.. 35 MAY I AUTHORIZE MY THIRD PARTY INVESTMENT ADVISOR TO MANAGE MY ACCOUNT?............... 35 HOW DO THE FIXED ALLOCATIONS WORK?.................................................... 36 HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS?..................................... 36 HOW DOES THE MARKET VALUE ADJUSTMENT WORK?............................................ 37 WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES?........................................ 38 ACCESS TO ACCOUNT VALUE................................................................ 39 WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?...................................... 39 ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?......................................... 39 CAN I WITHDRAW A PORTION OF MY ANNUITY?............................................... 39 HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?......................................... 39 CAN I MAKE PERIODIC WITHDRAWALS FROM MY ANNUITY DURING THE ACCUMULATION PERIOD?....... 40 DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE?............................................................................... 40 WHAT ARE REQUIRED MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?........... 40 CAN I SURRENDER MY ANNUITY FOR ITS VALUE?............................................. 41 WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?........................... 41 WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?.......................................... 41 HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?.................................. 42 HOW ARE ANNUITY PAYMENTS CALCULATED?.................................................. 43 LIVING BENEFITS........................................................................ 44 DO YOU OFFER BENEFITS DESIGNED TO PROVIDE INVESTMENT PROTECTION FOR OWNERS WHILE THEY ARE ALIVE?.......................................................................... 44
(i) GUARANTEED RETURN OPTION PLUS 2008 (GRO PLUS 2008)....................................... 45 HIGHEST DAILY GUARANTEED RETURN OPTION (HD GRO).......................................... 48 GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB)............................................. 52 GUARANTEED MINIMUM INCOME BENEFIT (GMIB)................................................. 55 LIFETIME FIVE INCOME BENEFIT (LIFETIME FIVE)............................................. 59 SPOUSAL LIFETIME FIVE INCOME BENEFIT (SPOUSAL LIFETIME FIVE)............................. 64 HIGHEST DAILY LIFETIME FIVE INCOME BENEFIT (HD5)......................................... 67 HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT (HD7)........................................ 75 SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT (SHD7)............................... 87 HIGHEST DAILY LIFETIME 7 PLUS/SM/ INCOME BENEFIT (HIGHEST DAILY LIFETIME 7 PLUS)/SM/..... 96 SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS/SM/ INCOME BENEFIT (SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS)/SM/............................................................................ 109 DEATH BENEFIT............................................................................. 119 WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?............................................ 119 BASIC DEATH BENEFIT...................................................................... 119 OPTIONAL DEATH BENEFITS.................................................................. 119 PRUDENTIAL ANNUITIES' ANNUITY REWARDS.................................................... 124 PAYMENT OF DEATH BENEFITS................................................................ 124 VALUING YOUR INVESTMENT................................................................... 127 HOW IS MY ACCOUNT VALUE DETERMINED?...................................................... 127 WHAT IS THE SURRENDER VALUE OF MY ANNUITY?............................................... 127 HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?.............................................. 127 HOW DO YOU VALUE FIXED ALLOCATIONS?...................................................... 127 WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?.............................................. 127 WHAT HAPPENS TO MY UNITS WHEN THERE IS A CHANGE IN DAILY ASSET-BASED CHARGES?............ 128 TAX CONSIDERATIONS........................................................................ 129 GENERAL INFORMATION....................................................................... 138 HOW WILL I RECEIVE STATEMENTS AND REPORTS?............................................... 138 WHO IS PRUDENTIAL ANNUITIES?............................................................. 138 WHAT ARE SEPARATE ACCOUNTS?.............................................................. 138 WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?..................................... 139 WHO DISTRIBUTES ANNUITIES OFFERED BY PRUDENTIAL ANNUITIES?............................... 141 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................................... 143 FINANCIAL STATEMENTS..................................................................... 144 HOW TO CONTACT US........................................................................ 144 INDEMNIFICATION.......................................................................... 144 LEGAL PROCEEDINGS........................................................................ 144 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION...................................... 146 APPENDIX A - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B ACCUMULATION UNIT VALUE.............................................................................. A-1 APPENDIX B - CALCULATION OF OPTIONAL DEATH BENEFITS....................................... B-1 APPENDIX C - ADDITIONAL INFORMATION ON ASSET ALLOCATION PROGRAMS.......................... C-1 APPENDIX D - FORMULA UNDER HIGHEST DAILY LIFETIME FIVE INCOME BENEFIT..................... D-1 APPENDIX E - ANNUITIES APPROVED FOR SALE BY THE NEW YORK STATE INSURANCE DEPARTMENT....... E-1 APPENDIX F - FORMULA UNDER GRO PLUS 2008 AND HIGHEST DAILY GRO............................ F-1 APPENDIX G - FORMULA UNDER HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT AND SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT............................................. G-1 APPENDIX H - FORMULA UNDER HIGHEST DAILY LIFETIME 7 PLUS INCOME BENEFIT AND SPOUSAL HIGHEST DAILY LIFETIME PLUS INCOME BENEFIT.............................................. H-1 APPENDIX I - SPECIAL CONTRACT PROVISIONS FOR ANNUITIES ISSUED IN CERTAIN STATES........... I-1 APPENDIX J - SELECTING THE VARIABLE ANNUITY THAT'S RIGHT FOR YOU.......................... J-1
(ii) GLOSSARY OF TERMS Many terms used within this Prospectus are described within the text where they appear. The description of those terms are not repeated in this Glossary of Terms. Account Value: The value of each allocation to a Sub-account (also referred to as a "variable investment option") plus any Fixed Allocation prior to the Annuity Date, increased by any earnings, and/or less any losses, distributions and charges. The Account Value is calculated before we assess any applicable Contingent Deferred Sales Charge ("CDSC" or "surrender charge") and/or, other than on an annuity anniversary, any fee that is deducted from the Annuity annually in arrears. The Account Value is determined separately for each Sub-account and for each Fixed Allocation, and then totaled to determine the Account Value for your entire Annuity. The Account Value of each MVA Fixed Allocation on any day other than its Maturity Date may be calculated using a market value adjustment. The Account Value includes any Credits we applied to your purchase payments that we are entitled to take back under certain circumstances. With respect to the Highest Daily Lifetime Five Income Benefit election, Account Value includes the value of any allocation to the Benefit Fixed Rate Account. Adjusted Purchase Payments: As used in the discussion of certain optional benefits in this prospectus and elsewhere, Adjusted purchase payments are purchase payments, increased by any Credits applied to your Account Value in relation to such purchase payments, and decreased by any charges deducted from such purchase payments. Annuitization: The application of Account Value to one of the available annuity options for the Owner to begin receiving periodic payments for life (or joint lives), for a guaranteed minimum number of payments or for life with a guaranteed minimum number of payments. Annuity Date: The date you choose for annuity payments to commence. Unless we agree otherwise, for Annuities issued on or after November 20, 2006, the Annuity Date must be no later than the first day of the calendar month coinciding with or next following the later of: (a) the oldest Owner's or Annuitant's 95/th/ birthday, whichever occurs first, and (b) the fifth anniversary of the Issue Date. Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and each successive 12-month period thereafter. Benefit Fixed Rate Account: A fixed investment option offered as part of this Annuity that is used only if you have elected the optional Highest Daily Lifetime Five Benefit. Amounts allocated to the Benefit Fixed Rate Account earn a fixed rate of interest, and are held within our general account. You may not allocate Purchase Payments to the Benefit Fixed Rate Account. Rather, Account Value is transferred to and from the Benefit Fixed Rate Account only under the asset transfer feature of the Highest Daily Lifetime Five Income Benefit. Code: The Internal Revenue Code of 1986, as amended from time to time. Combination 5% Roll-up And HAV Death Benefit: We offer an optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing the greater of the Highest Anniversary Value Death Benefit and a 5% annual increase on purchase payments adjusted for withdrawals. Contingent Deferred Sales Charge (CDSC): This is a sales charge that may be deducted when you make a full or partial withdrawal under your Annuity. We refer to this as a "contingent" charge because it is imposed only if you make a withdrawal. The charge is a percentage of each applicable Purchase Payment that is being withdrawn. The period during which a particular percentage applies is measured from the Issue Date of the Annuity. Enhanced Beneficiary Protection Death Benefit: An optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing amounts in addition to the basic Death Benefit that can be used to offset federal and state taxes payable on any taxable gains in your Annuity at the time of your death. We no longer offer the Enhanced Beneficiary Protection Death Benefit. Fixed Allocation: An investment option that offers a fixed rate of interest for a specified Guarantee Period during the accumulation period. Certain Fixed Allocations are subject to a market value adjustment if you withdraw Account Value prior to the Fixed Allocation's maturity (MVA Fixed Allocation). Free Look: Under state insurance laws, you have the right, during a limited period of time, to examine your Annuity and decide if you want to keep it or cancel it. This right is referred to as your "free look" right. The length of this time period depends on the law of your state, and may vary depending on whether your purchase is a replacement or not. 1 Guaranteed Minimum Income Benefit (GMIB): An optional benefit that, for an additional cost, after a seven-year waiting period, guarantees your ability to begin receiving income from your Annuity in the form of annuity payments based on your total purchase payments and an annual increase of 5% on such purchase payments adjusted for withdrawals (called the "Protected Income Value"), regardless of the impact of market performance on your Account Value. We no longer offer GMIB. Guaranteed Minimum Withdrawal Benefit (GMWB): An optional benefit that, for an additional cost, guarantees your ability to withdraw amounts over time equal to an initial principal value, regardless of the impact of market performance on your Account Value. We no longer offer GMWB. Guarantee Period: A period of time during the accumulation period where we credit a fixed rate of interest on a Fixed Allocation. Guaranteed Return Option Plus 2008/SM/ (GRO Plus 2008)/SM//Highest Daily Guaranteed Return Option/SM/ (Highest Daily GRO/SM/): Each of GRO Plus 2008, and Highest Daily GRO is a separate optional benefit that, for an additional cost, guarantees a minimum Account Value at one or more future dates and that requires your participation in an asset transfer program. Highest Anniversary Value Death Benefit ("HAV"): An optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing a death benefit equal to the greater of the basic Death Benefit and the Highest Anniversary Value, less proportional withdrawals. Highest Daily Lifetime Five/SM/ Income Benefit: An optional benefit that, for an additional cost, guarantees your ability to withdraw an annual amount equal to a percentage of a guaranteed benefit base called the Total Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. We no longer offer Highest Daily Lifetime Five. Highest Daily Lifetime Seven/SM/ Income Benefit: An optional benefit for an additional charge, that guarantees your ability to withdraw amounts equal to a percentage of a guaranteed benefit base called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. Highest Daily Lifetime Seven is the same class of optional benefits as our Highest Daily Lifetime Five Income Benefit, but differs (among other things) with respect to how the Protected Withdrawal Value is calculated and how the lifetime withdrawals are calculated. Starting in 2009, we began offering Highest Daily Lifetime 7 Plus in lieu of Highest Daily Lifetime Seven wherever we have received the required State and selling firm approvals. Highest Daily Lifetime 7 Plus/SM/ Income Benefit: An optional benefit that is available for an additional charge. The benefit guarantees your ability to withdraw amounts equal to a percentage of a guaranteed benefit base called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. Highest Daily Lifetime 7 Plus is the same class of optional benefit as our Highest Daily Lifetime Seven Income Benefit, but differs (among other things) with respect to how the Protected Withdrawal Value is calculated and how the lifetime withdrawals are calculated. Starting in 2009, we began offering Highest Daily Lifetime 7 Plus in lieu of Highest Daily Lifetime Seven wherever we have received the required State and selling firm approvals. Highest Daily Value Death Benefit ("HDV"): An optional benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing a death benefit equal to the greater of the basic Death Benefit and the Highest Daily Value, less proportional withdrawals. We no longer offer HDV. Interim Value: The value of the MVA Fixed Allocations on any date other than the Maturity Date. The Interim Value is equal to the initial value allocated to the MVA Fixed Allocations plus all interest credited to the MVA Fixed Allocations as of the date calculated, less any transfers or withdrawals from the MVA Fixed Allocations. The Interim Value does not include the effect of any MVA. Issue Date: The effective date of your Annuity. Key Life: Under the Beneficiary Continuation Option, the person whose life expectancy is used to determine payments. Lifetime Five/SM/ Income Benefit: An optional benefit that, for an additional cost, guarantees your ability to withdraw an annual amount equal to a percentage of an initial principal value called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. We no longer offer Lifetime Five. MVA: A market value adjustment used in the determination of Account Value of an MVA Fixed Allocation on any day more than 30 days prior to the Maturity Date of such MVA Fixed Allocation. 2 Owner: With an Annuity issued as an individual annuity contract, the Owner is either an eligible entity or person named as having ownership rights in relation to the Annuity. With an Annuity issued as a certificate under a group annuity contract, the "Owner" refers to the person or entity who has the rights and benefits designated as to the "Participant" in the certificate. Spousal Lifetime Five/SM/ Income Benefit: An optional benefit that, for an additional cost, guarantees until the later death of two Designated Lives (as defined in this Prospectus) the ability to withdraw an annual amount equal to a percentage of an initial principal value called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. We no longer offer Spousal Lifetime Five. Spousal Highest Daily Lifetime Seven/SM/ Income Benefit: An optional benefit that, for an additional charge, guarantees your ability to withdraw amounts equal to a percentage of a guaranteed benefit base called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. The benefit is the spousal version of the Highest Daily Lifetime Seven Income Benefit and is the same class of optional benefit as our Highest Daily Lifetime Five Income Benefit, but differs (among other things) with respect to how the Protected Withdrawal Value is calculated and to how the lifetime withdrawals are calculated. Starting in 2009, we began offering Spousal Highest Daily Lifetime 7 Plus in lieu of Spousal Highest Daily Lifetime Seven wherever we have received the required State and selling firm approvals. Spousal Highest Daily Lifetime 7 Plus/SM/ Income Benefit: An optional benefit that, for an additional charge, guarantees your ability to withdraw amounts equal to a percentage of a guaranteed benefit base called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. The benefit is the spousal version of the Highest Daily Lifetime 7 Plus Income Benefit and is the same class of optional benefit as our Spousal Highest Daily Lifetime Seven Income Benefit, but differs (among other things) with respect to how the Protected Withdrawal Value is calculated and to how the lifetime withdrawals are calculated. Starting in 2009, we began offering Spousal Highest Daily Lifetime 7 Plus in lieu of Spousal Highest Daily Lifetime Seven wherever we have received the required State and selling firm approvals. Sub-account: We issue your Annuity through our separate account. See "What is the Separate Account?" under the General Information section. The separate account invests in underlying mutual fund portfolios. From an accounting perspective, we divide the separate account into a number of sections, each of which corresponds to a particular underlying mutual fund portfolio. We refer to each such section of our separate account as a "Sub-account". Surrender Value: The value of your Annuity available upon surrender prior to the Annuity Date. It equals the Account Value as of the date we price the surrender minus any applicable CDSC, Annual Maintenance Fee, any Tax Charge and the charge for any optional benefits and any additional amounts we applied to your purchase payments that we may be entitled to recover under certain circumstances. The surrender value may be calculated using a MVA with respect to amounts in any MVA Fixed Allocation. Unit: A measure used to calculate your Account Value in a Sub-account during the accumulation period. Valuation Day: Every day the New York Stock Exchange is open for trading or any other day the Securities and Exchange Commission requires mutual funds or unit investment trusts to be valued. 3 SUMMARY OF CONTRACT FEES AND CHARGES Below is a summary of the fees and charges for the Annuity. Some fees and charges are assessed against the Annuity while others are assessed against assets allocated to the Sub-accounts. The fees and charges that are assessed against an Annuity include any applicable Contingent Deferred Sales Charge, Transfer Fee, Tax Charge and Annual Maintenance Fee. The charges that are assessed against the Sub-accounts are the Mortality and Expense Risk charge, the charge for Administration of the Annuity, any applicable Distribution Charge and the charge for certain optional benefits you elect. Certain optional benefits deduct a charge from each Annuity based on a percentage of a "protected value." Each underlying mutual fund portfolio assesses a fee for investment management, other expenses and, with some mutual funds, a 12b-1 fee. The prospectus for each underlying mutual fund provides more detailed information about the expenses for the underlying mutual funds. The following tables provide a summary of the fees and charges you will pay if you surrender your Annuity or transfer Account Value among investment options. These fees and charges are described in more detail within this Prospectus. ----------------------------- TRANSACTION FEES AND CHARGES ----------------------------- CONTINGENT DEFERRED SALES CHARGES FOR THE ANNUITY /1/ OPTIMUM XTRA Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr. 9 Yr. 10 Yr. 11+ -------------------------------------------------------------------- 9.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -------------------------------------------------------------------- 1 The Contingent Deferred Sales Charges are assessed upon surrender or withdrawal. The charge is a percentage of each applicable Purchase Payment deducted upon surrender or withdrawal. The period during which a particular percentage applies is measured from the Issue Date of the Annuity.
------------------------------------ OTHER TRANSACTION FEES AND CHARGES (assessed against the Annuity) ------------------------------------ FEE/CHARGE OPTIMUM XTRA ------------------------------------ Transfer Fee /1/ $15.00 maximum currently, $10.00 ------------------------------------ Tax Charge /2/ 0% to 3.5% ------------------------------------
1 Currently, we deduct the fee after the 20/th/ transfer each Annuity Year. We guarantee that the number of charge free transfers per Annuity Year will never be less than 8. 2 In some states a tax is payable, either when purchase payments are received, upon surrender or when the Account Value is applied under an annuity option. The tax charge is assessed as a percentage of purchase payments, Surrender Value, or Account Value, as applicable. We reserve the right to deduct the charge either at the time the tax is imposed, upon a full surrender of the Annuity, or upon annuitization. See the subsection "Tax Charge" under "Fees and Charges" in this Prospectus. The following table provides a summary of the periodic fees and charges you will pay while you own your Annuity, excluding the underlying mutual fund Portfolio annual expenses. These fees and charges are described in more detail within this Prospectus.
------------------------------------------------------------- PERIODIC FEES AND CHARGES (assessed against the Annuity) ------------------------------------------------------------- FEE/CHARGE OPTIMUM XTRA Annual Maintenance Fee /1/ Lesser of $35 or 2% of Account Value ------------------------------------------------------------- Beneficiary Continuation Option Only Lesser of $30 or 2% of Account Value
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------------------------------------------------------------------------ ANNUAL FEES CHARGES/OF THE SUB-ACCOUNTS /3/ (assessed as a percentage of the daily net assets of the Sub-accounts) ------------------------------------------------------------------------ FEE/CHARGE OPTIMUM XTRA Mortality & Expense Risk Charge /4/ 1.60% ------------------------------------------------------------------------ Administration Charge /4/ 0.15% ------------------------------------------------------------------------ Settlement Service Charge /5/ 1 40% qualified: 1.00% non-qualified: ------------------------------------------------------------------------ Total Annual Charges of The 1.75% Sub-accounts (excluding settlement service charge) ------------------------------------------------------------------------
1 Assessed annually on the Annuity's anniversary date or upon surrender. For beneficiaries who elect the non-qualified Beneficiary Continuation Option, the fee is only applicable if Account Value is less than $25,000 at the time the fee is assessed. 2 Only applicable if Account Value is less than $100,000. Fee may differ in certain States. 3 These charges are deducted daily and apply to the Sub-accounts only. 4 The combination of the Mortality and Expense Risk Charge and Administration Charge is referred to as the "Insurance Charge" elsewhere in this Prospectus. 5 The Mortality & Expense Risk Charge and the Administration Charge do not apply if you are a beneficiary under the Beneficiary Continuation Option. The Settlement Service Charge applies only if your beneficiary elects the Beneficiary Continuation Option. 5 The following table sets forth the charge for each optional benefit under the Annuity. The fees for these optional benefits would be in addition to the periodic fees and transaction fees set forth in the tables above. We reserve the right to increase the charge to the maximum charge indicated, upon any step-up or reset under the benefit, or new election of the benefit. However, we have no present intention of doing so. The total charge column depicts the sum of the applicable Insurance Charge and the charge for the particular optional benefit.
----------------------------------------------------------------------------- YOUR OPTIONAL BENEFIT FEES AND CHARGES/ 1/ ----------------------------------------------------------------------------- OPTIONAL BENEFIT OPTIONAL BENEFIT TOTAL FEE/CHARGE ANNUAL (as a percentage of CHARGE/ 2/ Sub-account net assets, for unless otherwise OPTIMUM indicated) XTRA ----------------------------------------------------------------------------- GUARANTEED RETURN OPTION PLUS 2008 (GRO Plus 2008) Maximum Charge /3/ 0.75% 2.50% Current Charge 0.60% 2.35% (if elected on or after May 1, 2009) ----------------------------------------------------------------------------- HIGHEST DAILY GUARANTEED RETURN OPTION (HD GRO) Maximum Charge /3/ 0.75% 2.50% Current Charge (if elected on or 0.60% 2.35% after May 1, 2009) ----------------------------------------------------------------------------- GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB) Maximum Charge /3/ 1.00% 2.75% Current Charge 0.35% 2.10% ----------------------------------------------------------------------------- GUARANTEED MINIMUM INCOME BENEFIT (GMIB) Maximum Charge /3/ 1.00% of PIV 1.75%+ 1.00% of PIV Current Charge 0.50% of PIV 1.75%+ 0.50% of PIV ----------------------------------------------------------------------------- LIFETIME FIVE INCOME BENEFIT Maximum Charge /3/ 1.50% 3.25% Current Charge 0.60% 2.35% ----------------------------------------------------------------------------- SPOUSAL LIFETIME FIVE INCOME BENEFIT Maximum Charge/ 3/ 1.50% 3.25% Current Charge 0.75% 2.50% ----------------------------------------------------------------------------- HIGHEST DAILY LIFETIME FIVE INCOME BENEFIT Maximum Charge /3/ 1.50% 3.25% Current Charge 0.60% 2.35% ----------------------------------------------------------------------------- HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT Maximum Charge /3/ 1.50% of PWV 1.75%+ 1.50% of PWV Current Charge 0.60% of PWV 1.75%+ 0.60% of PWV ----------------------------------------------------------------------------- HIGHEST DAILY LIFETIME SEVEN WITH BENEFICIARY INCOME OPTION (BIO) Maximum Charge /3/ 2.00% of PWV 1.75%+ 2.00% of PWV Current Charge 0.95% of PWV 1.75%+ 0.95% of PWV -----------------------------------------------------------------------------
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----------------------------------------------------------------------------------- YOUR OPTIONAL BENEFIT FEES AND CHARGES/ 1/ ----------------------------------------------------------------------------------- OPTIONAL BENEFIT OPTIONAL BENEFIT TOTAL FEE/CHARGE ANNUAL (as a percentage of CHARGE/ 2/ Sub-account net assets, for unless otherwise OPTIMUM indicated) XTRA ----------------------------------------------------------------------------------- HIGHEST DAILY LIFETIME SEVEN WITH LIFETIME INCOME ACCELERATOR (LIA) Maximum Charge /3/ 2.00% of PWV 1.75% + 2.00% of PWV Current Charge 0.95% of PWV 1.75% + 0.95% of PWV ----------------------------------------------------------------------------------- SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT Maximum Charge /3/ 1.50% of PWV 1.75% + 1.50% of PWV Current Charge 0.75% of PWV 1.75% + 0.75% of PWV ----------------------------------------------------------------------------------- SPOUSAL HIGHEST DAILY LIFETIME SEVEN WITH BENEFICIARY INCOME OPTION (BIO) Maximum Charge /3/ 2.00% of PWV 1.75% + 2.00% of PWV Current Charge 0.95% of PWV 1.75% + 0.95% of PWV ----------------------------------------------------------------------------------- HIGHEST DAILY LIFETIME 7 PLUS Maximum Charge /3/ 1.50% greater of 1.75% + 1.50% Account Value and greater of Account PWV Value and PWV Current Charge 0.75% greater of 1.75% + 0.75% Account Value and greater of Account PWV Value and PWV ----------------------------------------------------------------------------------- HIGHEST DAILY LIFETIME 7 PLUS WITH BENEFICIARY INCOME OPTION (BIO) Maximum Charge /3/ 2.00% greater of 1.75% + 2.00% Account Value and greater of Account PWV Value and PWV Current Charge 1.10% greater of 1.75% + 1.10% Account Value and greater of Account PWV Value and PWV ----------------------------------------------------------------------------------- SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS Maximum Charge /3/ 1.50% greater of 1.75% + 1.50% Account Value and greater of Account PWV Value and PWV Current Charge 0.90% greater of 1.75% + 0.90% Account Value and greater of Account PWV Value and PWV -----------------------------------------------------------------------------------
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----------------------------------------------------------------------------------- YOUR OPTIONAL BENEFIT FEES AND CHARGES/ 1/ ----------------------------------------------------------------------------------- OPTIONAL BENEFIT OPTIONAL BENEFIT TOTAL FEE/CHARGE ANNUAL (as a percentage of CHARGE/ 2/ Sub-account net assets, for unless otherwise OPTIMUM indicated) XTRA ----------------------------------------------------------------------------------- HIGHEST DAILY LIFETIME 7 PLUS WITH LIFETIME INCOME ACCELERATOR (LIA) Maximum Charge /3/ 2.00% greater of 1.75% + 2.00% Account Value and greater of Account PWV Value and PWV Current Charge 1.10% greater of 1.75% + 1.10% Account Value and greater of Account PWV Value and PWV ----------------------------------------------------------------------------------- SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS WITH BENEFICIARY INCOME OPTION (BIO) Maximum Charge /3/ 2.00% greater of 1.75% + 2.00% Account Value and greater of Account PWV Value and PWV Current Charge 1.10% greater of 1.75% + 1.10% Account Value and greater of Account PWV Value and PWV ----------------------------------------------------------------------------------- ENHANCED BENEFICIARY PROTECTION DEATH BENEFIT Current and Maximum Charge/ 4/ 0.25% 2.00% ----------------------------------------------------------------------------------- HIGHEST ANNIVERSARY VALUE DEATH BENEFIT ("HAV") Current and Maximum Charge /4/ (if 0.40% 2.15% elected on or after May 1, 2009) ----------------------------------------------------------------------------------- COMBINATION 5% ROLL-UP AND HAV DEATH BENEFIT Current and Maximum Charge /4/ (if 0.80% 2.55% elected on or after May 1, 2009) ----------------------------------------------------------------------------------- HIGHEST DAILY VALUE DEATH BENEFIT ("HDV") Current and Maximum Charge /4/ 0.50% 2.25% ----------------------------------------------------------------------------------- Please refer to the section of this Prospectus that describes each optional benefit for a complete description of the benefit, including any restrictions or limitations that may apply. -----------------------------------------------------------------------------------
1 GRO Plus 2008: Charge for the benefit is assessed against the average daily net assets of the Sub-accounts. For elections prior to May 1, 2009, the charge is 0.35% of Sub-account assets, for a 2.10% total annual charge in all Annuity Years. For elections on or after May 1, 2009, the charge is 0.60%, for a total annual charge of 2.35%. Highest Daily GRO: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. If you elected the benefit prior to May 1, 2009, the fees are as follows: The current charge is .35% of Sub-account assets, and 2.10% total annual charge applies in all Annuity Years. For elections on or after May 1, 2009, the charge is 0.60%, for a total annual charge of 2.35%. Guaranteed Minimum Withdrawal Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. 2.10% total annual charge applies in all Annuity Years. This benefit is no longer available for new elections. Guaranteed Minimum Income Benefit: Charge for this benefit is assessed against the GMIB Protected Income Value ("PIV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts and the Fixed Allocations. 0.50% of PIV is in addition to 1.75% annual charge in all Annuity Years. This benefit is no longer available for new elections. Lifetime Five Income Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. 2.35% total annual charge applies in all Annuity years. This benefit is no longer available for new elections. Spousal Lifetime Five Income Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. 2.50% total annual charge applies in all Annuity years. This benefit is no longer available for new elections. Highest Daily Lifetime Five Income Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. 2.35% total annual charge applies in all Annuity years. This benefit is no longer available for new elections. Highest Daily Lifetime Seven: 0.60% of PWV is in addition to 1.75% annual charge in all annuity years. Highest Daily Lifetime Seven with BIO. Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. 0.95% of PWV is in addition to 1.75% annual charge. Highest Daily Lifetime Seven with LIA. Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. 0.95% of PWV is in addition to 1.75% annual charge. Spousal Highest Daily Lifetime Seven with BIO. Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. 0.95% of PWV is in addition to 1.75% annual charge. Spousal Highest Daily Lifetime Seven: Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. 0.75% of PWV is in addition to 1.75% annual charge in all annuity years. Highest Daily Lifetime 7 Plus. Charge for this benefit is assessed against the greater of Account Value and Protected Withdrawal Value. As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. 0.75% is in addition to 1.75% annual charge. 8 Highest Daily Lifetime 7 Plus with BIO. Charge for this benefit is assessed against the greater of Account Value and Protected Withdrawal Value. As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. 1.10% is in addition to 1.75% annual charge. Highest Daily Lifetime 7 Plus with LIA. Charge for this benefit is assessed against the greater of Account Value and Protected Withdrawal Value. As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. 1.10% is in addition to 1.75% annual charge. Spousal Highest Daily Lifetime 7 Plus. Charge for this benefit is assessed against the greater of Account Value and Protected Withdrawal Value. As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. 0.90% is in addition to 1.75% annual charge. Spousal Highest Daily Lifetime 7 Plus with BIO. Charge for this benefit is assessed against the greater of Account Value and Protected Withdrawal Value. As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. 1.10% is in addition to 1.75% annual charge. Enhanced Beneficiary Protection Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. 2.00% total annual charge applies in all Annuity years. This benefit is no longer available for new elections. Highest Anniversary Value Death Benefit. Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. For elections prior to May 1, 2009, 0.25% charge results in 2.00% total annual charge. 2.15% total annual charge applies in all Annuity Years, for elections on or after May 1, 2009. Combination 5% Roll-Up and HAV Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. 2.55% total annual charge applies in all Annuity Years, for elections on or after May 1, 2009. For elections prior to May 1, 2009, 0.50% charge results in 2.25% total annual charge. Highest Daily Value Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. 2.25% total annual charge applies in all Annuity years. This benefit is no longer available for new elections. 2 The Total Annual Charge includes the Insurance Charge and Distribution Charge (if applicable) assessed against the average daily net assets allocated to the Sub-accounts. If you elect more than one optional benefit, the Total Annual Charge would be increased to include the charge for each optional benefit. With respect to GMIB, the 0.50% charge is assessed against the GMIB Protected Income Value. With respect to Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime Seven, Highest Daily Lifetime 7 Plus and Spousal Highest Daily Lifetime 7 Plus the charge is assessed against the Protected Withdrawal Value (greater of PWV and Account Value, for the "Plus" benefits). With respect to each of Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime Seven, Highest Daily Lifetime 7 Plus and Spousal Highest Daily Lifetime 7 Plus one-fourth of the annual charge is deducted at the end of each quarter, where the quarters are part of years that have as their anniversary the date that the benefit was elected. These optional benefits are not available under the Beneficiary Continuation Option. 3 We reserve the right to increase the charge up to the maximum charge indicated, upon any step-up or reset under the benefit, or new election of the benefit. 4 Our reference in the fee table to "current and maximum" charge does not connote that we have the authority to increase the charge for Annuities that already have been issued. Rather, the reference indicates that there is no maximum charge to which the current charge could be increased for existing Annuities. However, our State filings may have included a provision allowing us to impose an increased charge for newly-issued Annuities. 9 The following table provides the range (minimum and maximum) of the total annual expenses for the underlying mutual funds ("Portfolios") as of December 31, 2008. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets.
---------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES ---------------------------------------------------- MINIMUM MAXIMUM ---------------------------------------------------- Total Portfolio Operating Expense 0.62% 1.67% ----------------------------------------------------
The following are the total annual expenses for each underlying mutual fund ("Portfolio") as of December 31, 2008, except as noted. The "Total Annual Portfolio Operating Expenses" reflect the combination of the underlying Portfolio's investment management fee, other expenses and any 12b-1 fees. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets. There is no guarantee that actual expenses will be the same as those shown in the table. For certain of the underlying Portfolios, a portion of the management fee has been waived and/or other expenses have been partially reimbursed. The existence of any such fee waivers and/or reimbursements have been reflected in the footnotes. The following expenses are deducted by the underlying Portfolio before it provides Prudential Annuities with the daily net asset value. The underlying Portfolio information was provided by the underlying mutual funds and has not been independently verified by us. See the prospectuses or statements of additional information of the underlying Portfolios for further details. The current prospectus and statement of additional information for the underlying Portfolios can be obtained by calling 1-888-PRU-2888.
-------------------------------------------------------------------------------------------- UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES (as a percentage of the average net assets of the underlying Portfolios) -------------------------------------------------------------------------------------------- For the year ended December 31, 2008 ------------------------------------------------- UNDERLYING PORTFOLIO Acquired Total Portfolio Annual Management Other Fees & Portfolio Fee// Expenses 12b-1 Fee Expenses Expenses -------------------------------------------------------------------------------------------- Advanced Series Trust /1,2,3/ AST AllianceBernstein Core Value 0.75% 0.18% 0.00% 0.00% 0.93% AST AllianceBernstein Growth & Income 0.75% 0.13% 0.00% 0.00% 0.88% AST American Century Income & Growth /4/ 0.75% 0.18% 0.00% 0.00% 0.93% AST Balanced Asset Allocation 0.15% 0.02% 0.00% 0.93% 1.10% AST Bond Portfolio 2015 /5/ 0.64% 0.26% 0.00% 0.00% 0.90% AST Bond Portfolio 2016 /5,6/ 0.65% 1.02% 0.00% 0.00% 1.67% AST Bond Portfolio 2018 /5/ 0.64% 0.35% 0.00% 0.00% 0.99% AST Bond Portfolio 2019 /5/ 0.64% 0.47% 0.00% 0.00% 1.11% AST Bond Portfolio 2020 /5,6/ 0.65% 1.02% 0.00% 0.00% 1.67% AST Capital Growth Asset Allocation 0.15% 0.01% 0.00% 0.96% 1.12% AST Cohen & Steers Realty Portfolio /4/ 1.00% 0.17% 0.00% 0.00% 1.17% AST DeAM Large-Cap Value 0.85% 0.15% 0.00% 0.00% 1.00% AST Federated Aggressive Growth 0.95% 0.21% 0.00% 0.00% 1.16% AST Goldman Sachs Mid-Cap Growth 1.00% 0.18% 0.00% 0.00% 1.18% AST International Growth 1.00% 0.18% 0.00% 0.00% 1.18% AST International Value 1.00% 0.18% 0.00% 0.00% 1.18% AST Investment Grade Bond /5/ 0.64% 0.13% 0.00% 0.00% 0.77% AST JPMorgan International Equity /4/ 0.89% 0.20% 0.00% 0.00% 1.09% AST Large-Cap Value /4/ 0.75% 0.12% 0.00% 0.00% 0.87% AST Lord Abbett Bond-Debenture 0.80% 0.17% 0.00% 0.00% 0.97% AST Marsico Capital Growth 0.90% 0.13% 0.00% 0.00% 1.03% AST MFS Growth 0.90% 0.15% 0.00% 0.00% 1.05% AST Mid-Cap Value 0.95% 0.19% 0.00% 0.00% 1.14% AST Money Market /4/ 0.50% 0.12% 0.00% 0.00% 0.62% AST Neuberger Berman/LSV Mid-Cap Value 0.90% 0.15% 0.00% 0.00% 1.05% AST Neuberger Berman Mid-Cap Growth /4/ 0.90% 0.15% 0.00% 0.00% 1.05% AST Neuberger Berman Small-Cap Growth 0.95% 0.21% 0.00% 0.00% 1.16% AST PIMCO Limited Maturity Bond 0.65% 0.15% 0.00% 0.00% 0.80% AST PIMCO Total Return Bond 0.65% 0.13% 0.00% 0.00% 0.78% AST Preservation Asset Allocation 0.15% 0.02% 0.00% 0.87% 1.04% AST Small-Cap Growth 0.90% 0.22% 0.00% 0.00% 1.12% AST Small-Cap Value 0.90% 0.18% 0.00% 0.00% 1.08% AST T. Rowe Price Global Bond 0.80% 0.19% 0.00% 0.00% 0.99%
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--------------------------------------------------------------------------------------- UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES (as a percentage of the average net assets of the underlying Portfolios) --------------------------------------------------------------------------------------- For the year ended December 31, 2008 ------------------------------------------------- UNDERLYING PORTFOLIO Acquired Total Portfolio Annual Management Other Fees & Portfolio Fee// Expenses 12b-1 Fee Expenses Expenses --------------------------------------------------------------------------------------- Advanced Series Trust continued AST T. Rowe Price Large-Cap Growth 0.88% 0.13% 0.00% 0.00% 1.01% AST Western Asset Core Plus Bond 0.70% 0.14% 0.00% 0.00% 0.84% --------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------- Evergreen Variable Annuity Trust /7/ International Equity 0.42% 0.25% 0.00% 0.00% 0.67% Omega 0.52% 0.20% 0.00% 0.00% 0.72%
1 Advanced Series Trust: Share of the Portfolios are generally purchased through variable insurance products. The Advanced Series Trust (the "Trust") has entered into arrangements with the issuers of the variable insurance products offering the Portfolios under which the Trust compensates the issuers 0.10% for providing ongoing services to Portfolio shareholders in lieu of the Trust providing such services directly to shareholders. Amounts paid under these arrangements are included in "Other Expenses." Subject to the expense limitations set forth below, for each Portfolio of the Trust (except as noted below), Prudential Investments LLC and AST Investment Services, Inc. have agreed to voluntarily waive a portion of the 0.10% administrative services fee, based on the average daily net assets of each Portfolio of the Trust, as set forth in the table below. Average Daily Net Assets of Portfolio Fee Rate Including Waiver ------------------------------------------------------------------------------ Up to and including $500 million 0.10% (no waiver) ------------------------------------------------------------------------------ Over $500 million up to and including $750 million 0.09% ------------------------------------------------------------------------------ Over $750 million up to and including $1 billion 0.08% ------------------------------------------------------------------------------ Over $1 billion 0.07% ------------------------------------------------------------------------------ The administrative services fee is not waived in the case of the Dynamic Asset Allocation Portfolios. The Dynamic Asset Allocation Portfolios are AST Balanced Asset Allocation, AST Capital Growth Asset Allocation, and AST Preservation Asset Allocation. The Dynamic Asset Allocation Portfolios "fund of fund" which means each of these Portfolios invests primarily or exclusively in one or more mutual funds, referred to here as "Underlying Portfolios". A Portfolio will not be directly subject to the administrative services fee to the extent it invests in Underlying Portfolios. Because the Dynamic Asset Allocation Portfolios generally invest all of their assets in Underlying Portfolios, the Dynamic Asset Allocation Portfolios generally will not be directly subject to the administrative services fee. The Underlying Portfolios in which the Dynamic Asset Allocation Portfolios invest, however, will be subject to the administrative services fee. 2 Some of the Portfolios invest in other investment companies (the "Acquired Portfolios"). For example, each Dynamic Asset Allocation Portfolio invests in shares of other Portfolios of the Trust. Investors in a Portfolio indirectly bear the fees and expenses of the Acquired Portfolios. The expenses shown under "Acquired Portfolio Fees and Expenses" represent a weighted average of the expense ratios of the Acquired Portfolios in which each Portfolio invested during the year ended December 31, 2008. The Dynamic Asset Allocation Portfolios do not pay any transaction fees when purchasing or redeeming shares of the Acquired Portfolios. When a Portfolio's "Acquired Portfolio Fees and Expenses" are less that 0.01%, such expenses are included in the column titled "Other Expenses." This may cause the Total Annual Portfolio Operating Expenses to differ from those set forth in the Financial Highlights tables of such Portfolios in the prospectus for the Trust. 3 The management fee rate shown in the "management fees" column is based on the indicated Portfolio's average daily net assets as of the fiscal year ended December 31, 2008, except that the fee rate shown does not reflect the impact of any contractual or voluntary management fee waivers that may be applicable and which would result in a reduction in the fee rate paid by the Portfolio. The management fee rate for certain Portfolios may include "breakpoints" which are reduced fee rates that are applicable at specified levels of Portfolio assets; the effective fee rates shown in the table reflect and incorporate any fee "breakpoints" which may be applicable. 4 Effective as of July 1, 2008, Prudential Investments LLC and AST Investment Services, Inc. have voluntarily agreed to waive a portion of their management fee and/or limit expenses (expressed as a percentage of average daily net assets) for certain Portfolios of the Trust, as set forth in the table below. These arrangements may be discontinued or otherwise modified at any time. Portfolio Fee Waiver and/or Expense Limitation --------------------------------------------------------------------------- AST Large-Cap Value 0.84% --------------------------------------------------------------------------- AST Cohen & Steers Realty 0.97% --------------------------------------------------------------------------- AST American Century Income & Growth 0.87% --------------------------------------------------------------------------- AST Money Market 0.56% --------------------------------------------------------------------------- AST JPMorgan International Equity 1.01% --------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Growth 1.25% --------------------------------------------------------------------------- 5 With respect to each of the AST Bond Portfolio 2015, AST Bond Portfolio 2016, AST Bond Portfolio 2018, AST Bond Portfolio 2019, AST Bond Portfolio 2020, and the AST Investment Grade Bond Portfolio, Prudential Investments LLC and AST Investment Services, Inc. have voluntarily agreed to waive a portion of their investment management fees and/or reimburse certain expenses for the Portfolios so that each Portfolio's investment management fees plus other expenses (exclusive in all cases of taxes, interest, brokerage commissions, distribution fees, dividend and interest expense, if any, related to short sales, and extraordinary expenses) do not exceed 1.00% of each Portfolio's average daily net assets for the fiscal year ending December 31, 2009. These arrangements are voluntary and may be discontinued or otherwise modified by the Investment Managers at any time without prior notice. 11 6 AST Bond Portfolio 2016 and AST Bond Portfolio 2020 are based on estimated expenses for 2009 at an estimated asset level. 7 The Total fees in the table above include fees and expenses incurred indirectly by the fund as a result of its investment in other investment companies (each, an Acquired Fund). The Total ratio of expenses to net assets excludes expense reductions. Includes voluntary fee waivers and/or reimbursements. The Fund's investment advisor may cease these voluntary waivers and/or reimbursements at any time 12 EXPENSE EXAMPLES These examples are intended to help you compare the cost of investing in one Prudential Annuity with the cost of investing in other Prudential Annuities and/or other variable annuities. Below are examples for each Annuity showing what you would pay in expenses at the end of the stated time periods had you invested $10,000 in the Annuity and your investment has a 5% return each year. The examples reflect the following fees and charges for each Annuity as described in "Summary of Contract Fees and Charges": . Insurance Charge . Distribution Charge (if applicable) . Contingent Deferred Sales Charge . Annual Maintenance Fee . The maximum combination of optional benefit charges The examples also assume the following for the period shown: . You allocate all of your Account Value to the Sub-account with the maximum gross total annual operating expenses, and those expenses remain the same each year* . For each charge, we deduct the maximum charge rather than the current charge . You make no withdrawals of Account Value . You make no transfers, or other transactions for which we charge a fee . No tax charge applies . You elect the Highest Daily Lifetime 7 Plus with Combination 5% Roll-up and HAV Death Benefit (which are the maximum combination of optional benefit charges) . No Purchase Payment credit is granted under the Annuity. Amounts shown in the examples are rounded to the nearest dollar. * Note: Not all portfolios offered as Sub-accounts may be available depending on optional benefit selection, the applicable jurisdiction and selling firm. THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR THEIR PORTFOLIOS - ACTUAL EXPENSES WILL BE LESS THAN THOSE SHOWN DEPENDING UPON WHICH OPTIONAL BENEFIT YOU ELECT OTHER THAN INDICATED IN THE EXAMPLES OR IF YOU ALLOCATE ACCOUNT VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS. Expense Examples are provided as follows: If you surrender your annuity at the end of the applicable time period:
1 yr 3 yrs 5 yrs 10 yrs --------------------------------------------- OPTIMUM XTRA/ 2/ $1,487 $2,613 $3,613 $5,982 ---------------------------------------------
If you annuitize your annuity at the end of the applicable time period:/1/
1 yr 3 yrs 5 yrs 10 yrs ------------------------------------------ OPTIMUM XTRA/ 2/ NA NA $3,037 $5,886 ------------------------------------------
If you do not surrender your annuity at the end of the applicable time period:
1 yr 3 yrs 5 yrs 10 yrs ------------------------------------------- OPTIMUM XTRA/ 2/ $623 $1,845 $3,037 $5,886 -------------------------------------------
1. If you own Optimum Xtra, you may not annuitize in the first Three (3) Annuity Years. 2. Expense examples calculations for Optimum Xtra are not adjusted to reflect the Purchase Credit. If the Purchase Credit were reflected in the calculations, expenses would be higher. For information relating to accumulation unit values pertaining to the sub-accounts, please see Appendix A - condensed Financial Information About Seperate Account B. 13 SUMMARY Optimum XTra This Summary describes key features of the variable annuity described in this Prospectus. It is intended to help give you an overview, and to point you to sections of the prospectus that provide greater detail. This Summary is intended to supplement the prospectus, so you should not rely on the Summary alone for all the information you need to know before purchase. You should read the entire Prospectus for a complete description of the variable annuity. Your financial professional can also help you if you have questions. What is a variable annuity? A variable annuity is a contract between you and an insurance company. It is designed to help you save money for retirement, and provide income during your retirement. With the help of your financial professional, you choose how to invest your money within your annuity. The value of your annuity will rise or fall depending on whether the investment options you choose perform well or perform poorly. Investing in a variable annuity involves risk and you can lose your money. By the same token, investing in a variable annuity can provide you with the opportunity to grow your money through participation in mutual fund-type investments. Your financial professional will help you choose your investment options based on your tolerance for risk and your needs. Variable annuities also offer a variety of optional guarantees to receive an income for life through withdrawal or provide minimum death benefits for your beneficiaries, or minimum account value guarantees. These benefits provide a degree of insurance in the event your annuity performs poorly. These optional benefits are available for an extra cost, and are subject to limitations and conditions more fully described later in this Prospectus. The guarantees are based on the long-term financial strength of the insurance company. What does it mean that my variable annuity is "tax-deferred"? Because variable annuities are issued by an insurance company, you pay no taxes on any earnings from your annuity until you withdraw the money. You may also transfer among your investment options without paying a tax at the time of the transfer. Until you withdraw the money, tax deferral allows you to keep money invested that would otherwise go to pay taxes. When you take your money out of the variable annuity, however, you will be taxed on the earnings at ordinary income tax rates rather than lower capital gains rates. If you withdraw earnings before you reach age 59 1/2, you also may be subject to a 10% federal tax penalty. You may also purchase one of our variable annuities as a tax-qualified retirement investment such as an IRA, SEP-IRA, Roth IRA, 401(a) plan, or 403(b) plan. Although there is no additional tax advantage to a variable annuity purchased through one of these plans, you may desire the variable annuities' other features such as guaranteed lifetime income payments or death benefits for use within these plans. What variable annuities are offered in this Prospectus? This Prospectus describes the variable annuity listed below. With the help of your financial professional, you choose the annuity based on your time horizon, liquidity needs, and desire for credits. The annuity described in this prospectus is: . Optimum XTra How do I purchase the variable annuity? See your financial professional to complete an application. Your eligibility to purchase is based on your age and the size of your investment:
Maximum Age for Minimum Initial Product Initial Purchase Purchase Payment ------- ---------------- ---------------- Optimum XTra 75 $10,000
The "Maximum Age for Initial Purchase" applies to the oldest owner as of the day we would issue the Annuity. If the Annuity is to be owned by an entity, the maximum age applies to the annuitant as of the day we would issue the Annuity. The availability and level of protection of certain optional benefits may also vary based on the age of the owner or annuitant on the issue date of the annuity, the date the benefit is elected, or the date of the owner's death. Please see the section entitled "Living Benefits" and "Death Benefit" for additional information on these benefits. We may allow you to purchase an Annuity with an amount lower than the "Minimum Initial Purchase Payment" if you establish an electronic funds transfer that would allow you to meet the minimum requirement within one year. You may make additional payments of at least $100 into your Annuity at any time, subject to maximums allowed by us and as provided by law. 14 After you purchase your Annuity you will have usually ten days to examine it and cancel it if you change your mind for any reason (referred to as the "free look period"). The period of time and the amount returned to you is dictated by State law, and is stated on the front cover of your contract. You must cancel your Annuity in writing. See "What Are the Requirements for Purchasing the Annuity" for more detail. Where should I invest my money? With the help of your financial professional, you choose where to invest your money within the Annuity. Certain optional benefits may limit your ability to invest in the investment options otherwise available to you under the Annuity. You may choose from a variety of investment options ranging from conservative to aggressive. These investment options participate in mutual fund investments that are kept in a separate account from our other general assets. Although you may recognize some of the names of the money managers, these investment options are designed for variable annuities and are not the same mutual funds available to the general public. You can decide on a mix of investment options that suit your goals. Or, you can choose one of our investment options that participates in several mutual funds according to a specified goal such as balanced asset allocation, or capital growth asset allocation. If you select certain optional benefits, we may limit the investment options that you may elect. Each of the underlying mutual funds is described by its own prospectus, which you should read before investing. There is no assurance that any investment option will meet its investment objective. We also offer programs to help discipline your investing, such as dollar cost averaging or automatic rebalancing. See "Investment Options," and "Managing Your Account Value." How can I receive income from my Annuity? You can receive income by taking withdrawals or electing annuity payments. If you take withdrawals, you should plan them carefully, because withdrawals may be subject to tax, and may be subject to a contingent deferred sales charge (discussed below). See the "Tax Considerations" section of this Prospectus. You may withdraw up to 10% of your investment each year without being subject to a contingent deferred sales charge. You may elect to receive income through annuity payments over your lifetime, also called "annuitization". This option may appeal to those who worry about outliving their Account Value through withdrawals. If you elect to receive annuity payments, you convert your Account Value into a stream of future payments. This means in most cases you no longer have an Account Value and therefore cannot make withdrawals. We offer different types of annuity options to meet your needs, and you can choose the benefits and costs that make sense for you. For example, some of our annuity options allow for withdrawals, and some provide a death benefit, while others guarantee payments for life without a death benefit or the ability to make withdrawals. See "Access to Account Value." Options for Guaranteed Lifetime Withdrawals. We offer several optional benefits for an additional fee that guarantee your ability to take withdrawals for life as a percentage of an initial guaranteed benefit base, even after your Account Value falls to zero. These benefits may appeal to you if you wish to maintain flexibility and control over your Account Value invested (instead of converting it to an annuity stream) and want the assurance of predictable income. If you withdraw more than the allowable amount during any year, your future level of guaranteed withdrawals decreases. As part of these benefits you are required to invest only in certain permitted investment options. Some of the benefits utilize a predetermined mathematical formula to help manage your guarantee through all market cycles. Please see the applicable optional benefits section for more information. These benefits contain detailed provisions, so please see the following sections of the Prospectus for complete details: . Highest Daily Lifetime 7 Plus . Spousal Highest Daily Lifetime 7 Plus . Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator . Highest Daily Lifetime 7 Plus with Beneficiary Income Option . Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option . Highest Daily Lifetime Seven* . Spousal Highest Daily Lifetime Seven* . Highest Daily Lifetime Seven with Lifetime Income Accelerator* . Highest Daily Lifetime Seven with Beneficiary Income Option* . Spousal Highest Daily Lifetime Seven with Beneficiary Income Option* * No longer available for new elections in a given State once the Highest Daily Lifetime 7 Plus version is approved. Options for Guaranteed Accumulation. We offer several optional benefits for an additional fee that guarantee your Account Value to a certain level after a period of years. As part of these benefits you are required to invest only in certain permitted investment options. Please see applicable optional benefits sections for more information. 15 These benefits contain detailed provisions, so please see the following sections of the Prospectus for complete details: . Guaranteed Return Option Plus 2008 . Highest Daily Guaranteed Return Option What happens to my annuity upon death? You may name a beneficiary to receive the proceeds of your annuity upon your death. Your annuity must be distributed within the time periods required by the tax laws. The annuity offers a basic death benefit. The basic death benefit provides your beneficiaries with the greater of your purchase payments less all proportional withdrawals or your value in the annuity at the time of death (the amount of the basic death benefit may depend on the decedent's age). We also offer optional death benefits for an additional charge: . Highest Anniversary Value Death Benefit: Offers the greater of the basic death benefit and a highest anniversary value of the annuity. . Combination 5% Roll-up and Highest Anniversary Value Death Benefit: Offers the greatest of the basic death benefit, the highest anniversary value death benefit described above, and a value assuming 5% growth of your investment adjusted for withdrawals. Each death benefit has certain age restrictions. Please see the "Death Benefit" section of the Prospectus for more information. How do I receive credits? With Optimum XTra, we apply a credit to your Annuity each time you make a purchase payment during the first six (6) years. Because of the credits, the expenses of this Annuity may be higher than other annuities that do not offer credits. The amount of the credit depends on the amount of the purchase payment:
CREDIT CREDIT (Cumulative (Cumulative Purchase Payments Purchase Payments ANNUITY YEAR 8.00% $100,000 or Greater) Less than $100,000) -------------------------------------------------------------- 1 8.00% 6.00% 2 6.00% 5.00% 3 4.00% 4.00% 4 3.00% 3.00% 5 2.00% 2.00% 6 1.00% 1.00% 7+ 0.00% 0.00% --------------------------------------------------------------
Please note that during the first 10 years, the total asset-based charges on the Optimum XTra annuity are higher than many of our other annuities. In addition, the Contingent Deferred Sales Charge (CDSC) on the Optimum XTra annuity is higher and is deducted for a longer period of time as compared to our other annuities. In general, we may take back credits applied within 12 months of death or a medically-related surrender. We may also take back credits if you return your Annuity under the "free-look" provision. Please see the section entitled "Managing Your Account Value" for more information. What are the Annuity's Fees and Charges? Contingent Deferred Sales Charge: If you withdraw all or part of your annuity before the end of a period of years, we may deduct a contingent deferred sales charge, or "CDSC". The CDSC is calculated as a percentage of your purchase payment being withdrawn, and depends on how long your purchase payment has been invested.
Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8 Yr. 9 Yr. 10 Yr. 11+ --------------------------------------------------------------------------------- Optimum XTra 9.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% ---------------------------------------------------------------------------------
Each year you may withdraw up to 10% of your purchase payments without the imposition of a CDSC. This free withdrawal feature does not apply when fully surrendering your Annuity. We may also waive the CDSC under certain circumstances, such as for medically-related circumstances or taking required minimum distributions under a qualified contracts. Transfer Fee: You may make 20 transfers between investment options each year free of charge. After the 20th transfer, we will charge $10.00 for each transfer. We do not consider transfers made as part of any Dollar Cost Averaging, Automatic Rebalancing or asset allocation program when we count the twenty free transfers. All transfers made on the same day will be treated as one (1) transfer. Any transfers made as a result of the predetermined mathematical formula will not count towards the total transfers allowed. Annual Maintenance Fee: Until you start annuity payments, we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $35.00 or 2% of your Account Value invested in the Sub-accounts, whichever is less. The Annual Maintenance Fee is only deducted if your Account Value is less than $100,000. 16 Tax Charge: We may deduct a charge to reimburse us for taxes we may pay on premiums received in certain jurisdictions. The tax charge currently ranges up to 3 1/2% of your purchase payments and is designed to approximate the taxes that we are required to pay. Insurance Charge: We deduct an Insurance Charge. It is an annual charge assessed on a daily basis. It is the combination of the Mortality & Expense Risk Charge and the Administration Charge. The charge is assessed against the daily assets allocated to the Sub-accounts and depends on which annuity you purchase:
FEE/CHARGE Optimum XTra --------------------------------------------- Mortality & Expense Risk Charge 1.60% Administration Charge 0.15% Total Insurance Charge 1.75% ---------------------------------------------
Charges for Optional Benefits: If you elect to purchase certain optional benefits, we will deduct an additional charge. For some optional benefits, the charge is deducted from your Account Value allocated to the Sub-accounts. This charge is included in the daily calculation of the Unit Price for each Sub-account. For certain optional benefits, such as Highest Daily Lifetime Seven, the charge is assessed against the Protected Withdrawal Value and taken out of the Sub-accounts periodically. Please refer to the section entitled "Summary of Contract Fees and Charges" for the list of charges for each optional benefit. Settlement Service Charge: If your beneficiary takes the death benefit under a Beneficiary Continuation Option, we deduct a Settlement Service Charge, although the Insurance Charge no longer applies. The charge is assessed daily against the average assets allocated to the Sub-accounts and is equal to an annual charge of 1.00% for non-qualified Annuities and 1.40% for qualified Annuities. Fees and expenses incurred by the Portfolios: Each Portfolio incurs total annual operating expenses comprised of an investment management fee, other expenses and any distribution and service (12b-1) fees that may apply. More detailed information about fees and expenses can be found in the prospectuses for the Portfolios. Please see the "Fees and Charges" section of the Prospectus for more information. Costs to Sell and Administer Our Variable Annuity: Your financial professional may receive a commission for selling one of our variable annuities to you. We may pay fees to your financial professional's broker dealer firm to cover costs of marketing or administration. These commissions and fees may incent your financial professional to sell our variable annuity instead of one offered by another company. We also receive fees from the mutual fund companies that offer the investment options for administrative costs and marketing. These fees may influence our decision to offer one family of funds over another. If you have any questions you may speak with your financial professional or us. See "General Information". Other Information Please see the section entitled "General Information" for more information about our annuities, including legal information about our company, separate account, and underlying funds. 17 INVESTMENT OPTIONS WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS? Each variable investment option is a Sub-account of Prudential Annuities Life Assurance Corporation Variable Account B (see "What are Separate Accounts" for more detailed information). Each Sub-account invests exclusively in one Portfolio. You should carefully read the prospectus for any Portfolio in which you are interested. The Investment Objectives/Policies chart below classifies each of the Portfolios based on our assessment of their investment style (as of the date of this Prospectus). The chart also provides a description of each Portfolio's investment objective (in italics) and a short, summary description of their key policies to assist you in determining which Portfolios may be of interest to you. There is no guarantee that any underlying Portfolio will meet its investment objective. Not all portfolios offered as Sub-accounts may be available depending on optional benefit selection, the applicable jurisdiction and selling firm. The Portfolios that you select are your choice - we do not provide investment advice, and we do not recommend or endorse any particular Portfolio. You bear the investment risk for amounts allocated to the Portfolios. Please see the General Information section of this Prospectus, under the heading concerning "service fees" for a discussion of fees that we may receive from underlying mutual funds and/or their families. When you purchase the Annuity, you will be required to participate in LPL's asset allocation program which does not utilize all of the investment options available under the Annuity. Unless you have elected an optional benefit that requires you to stay in the asset allocation program, you will be permitted to transfer Account Value out of the asset allocation program subsequent to the Issue Date. Currently, the following optional benefits require that you maintain your Account Value in one or more of the asset allocation programs: Lifetime Five, Spousal Lifetime Five, Highest Daily Lifetime Five, Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime Seven, GRO Plus 2008, Highest Daily GRO, the Highest Daily Lifetime 7 Plus benefits, and the Highest Daily Value death benefit. The asset allocation program is offered by LPL. We have not designed the models or the program, and we are not responsible for them. Our role is limited to administering the model you select. For additional information, are Appendix C - "Additional Information on Asset Allocation Programs." If your Annuity is no longer held through LPL, we will not require you to continue to participate in LPL's asset allocation program. In that event, you will be permitted to allocate your Account Value to any permitted Portfolio (unless you are obligated to invest in specified Portfolios to participate in an optional benefit). The name of the advisor/sub-advisor for each Portfolio appears next to the description. Those Portfolios whose name includes the prefix "AST" are Portfolios of Advanced Series Trust. The investment managers for AST are AST Investment Services, Inc., a Prudential Financial Company, and Prudential Investments LLC, both of which are affiliated companies of Prudential Annuities. However, a sub-advisor, as noted below, is engaged to conduct day-to-day management. The Portfolios are not publicly traded mutual funds. They are only available as investment options in variable annuity contracts and variable life insurance policies issued by insurance companies, or in some cases, to participants in certain qualified retirement plans. However, some of the Portfolios available as Sub-accounts under the Annuities are managed by the same portfolio advisor or sub-advisor as a retail mutual fund of the same or similar name that the Portfolio may have been modeled after at its inception. Certain retail mutual funds may also have been modeled after a Portfolio. While the investment objective and policies of the retail mutual funds and the Portfolios may be substantially similar, the actual investments will differ to varying degrees. Differences in the performance of the funds can be expected, and in some cases could be substantial. You should not compare the performance of a publicly traded mutual fund with the performance of any similarly named Portfolio offered as a Sub-account. Details about the investment objectives, policies, risks, costs and management of the Portfolios are found in the prospectuses for the underlying mutual funds. The current prospectus and statement of additional information for the underlying Portfolios can be obtained by calling 1-888-PRU-2888. -------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR -------------------------------------------------------------------- ADVANCED SERIES TRUST -------------------------------------------------------------------- LARGE AST AllianceBernstein Core Value AllianceBernstein CAP Portfolio: seeks long-term capital L.P. VALUE growth by investing primarily in common stocks. The subadviser expects that the majority of the Portfolio's assets will be invested in the common stocks of large companies that appear to be undervalued. Among other things, the Portfolio seeks to identify compelling buying opportunities created when companies are undervalued on the basis of investor reactions to near-term problems or circumstances even though their long-term prospects remain sound. The subadviser seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. -------------------------------------------------------------------- LARGE AST AllianceBernstein Growth & AllianceBernstein CAP Income Portfolio: seeks long-term L.P. VALUE growth of capital and income while attempting to avoid excessive fluctuations in market value. The Portfolio normally will invest in common stocks (and securities convertible into common stocks). The subadviser will take a value-oriented approach, in that it will try to keep the Portfolio's assets invested in securities that are selling at reasonable valuations in relation to their fundamental business prospects. -------------------------------------------------------------------- 18 --------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR --------------------------------------------------------------------- LARGE AST American Century Income & Growth American Century CAP Portfolio: seeks capital growth with Investment VALUE current income as a secondary Management, Inc. objective. The Portfolio invests primarily in common stocks that offer potential for capital growth, and may, consistent with its investment objective, invest in stocks that offer potential for current income. The subadviser utilizes a quantitative management technique with a goal of building an equity portfolio that provides better returns than the S&P 500 Index without taking on significant additional risk and while attempting to create a dividend yield that will be greater than the S&P 500 Index. --------------------------------------------------------------------- ASSET AST Balanced Asset Allocation Prudential ALLOCA Portfolio (formerly known as AST Investments LLC; TION Conservative Asset Allocation Quantitative Portfolio): seeks to obtain total Management return consistent with its specified Associates LLC level of risk. The Portfolio primarily invests its assets in a diversified portfolio of other mutual funds, the underlying portfolios, of the Advanced Series Trust and certain affiliated money market funds. Under normal market conditions, the Portfolio will devote approximately 60% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 52.5% to 67.5%, and 40% of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 32.5% to 47.5%). The Portfolio is not limited to investing exclusively in shares of the underlying portfolios and may invest in securities and futures contracts, swap agreements and other financial and derivative instruments. --------------------------------------------------------------------- FIXED AST Bond Portfolio 2015: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2015. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. --------------------------------------------------------------------- FIXED AST Bond Portfolio 2016: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2016. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. --------------------------------------------------------------------- FIXED AST Bond Portfolio 2018: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2018. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. --------------------------------------------------------------------- FIXED AST Bond Portfolio 2019: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2019. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. --------------------------------------------------------------------- FIXED AST Bond Portfolio 2020: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2020. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. --------------------------------------------------------------------- ASSET AST Capital Growth Asset Allocation Prudential ALLOCA Portfolio: seeks to obtain total Investments LLC; TION return consistent with its specified Quantitative level of risk. The Portfolio Management primarily invests its assets in a Associates LLC diversified portfolio of other mutual funds, the underlying portfolios, of the Advanced Series Trust and certain affiliated money market funds. Under normal market conditions, the Portfolio will devote approximately 75% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 67.5% to 80%), and 25% of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 20.0% to 32.5%). The Portfolio is not limited to investing exclusively in shares of the underlying portfolios and may invest in securities and futures contracts, swap agreements and other financial and derivative instruments. --------------------------------------------------------------------- 19 ------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------- SPECIALTY AST Cohen & Steers Realty Portfolio: Cohen & Steers seeks to maximize total return Capital through investment in real estate Management, Inc. securities. The Portfolio pursues its investment objective by investing, under normal circumstances, at least 80% of its net assets in common stocks and other equity securities issued by real estate companies, such as real estate investment trusts (REITs). Under normal circumstances, the Portfolio will invest substantially all of its assets in the equity securities of real estate companies, i.e., a company that derives at least 50% of its revenues from the ownership, construction, financing, management or sale of real estate or that has at least 50% of its assets in real estate. Real estate companies may include real estate investment trusts (REITs). ------------------------------------------------------------------------- LARGE AST DeAM Large-Cap Value Portfolio: Deutsche CAP seeks maximum growth of capital by Investment VALUE investing primarily in the value Management stocks of larger companies. The Americas, Inc. Portfolio pursues its objective, under normal market conditions, by primarily investing at least 80% of the value of its assets in the equity securities of large-sized companies included in the Russell 1000(R) Value Index. The subadviser employs an investment strategy designed to maintain a portfolio of equity securities which approximates the market risk of those stocks included in the Russell 1000(R) Value Index, but which attempts to outperform the Russell 1000(R) Value Index through active stock selection. ------------------------------------------------------------------------- SMALL AST Federated Aggressive Growth Federated Equity CAP Portfolio: seeks capital growth. The Management GROWTH Portfolio pursues its investment Company of objective by investing primarily in Pennsylvania/ the stocks of small companies that Federated Global are traded on national security Investment exchanges, NASDAQ stock exchange and Management Corp.; the over- the-counter-market. Small Federated MDTA companies will be defined as LLC companies with market capitalizations similar to companies in the Russell 2000 Growth and S&P 600 Small Cap Index. ------------------------------------------------------------------------- MID CAP AST Goldman Sachs Mid-Cap Growth Goldman Sachs GROWTH Portfolio: seeks long-term capital Asset Management, growth. The Portfolio pursues its L.P. investment objective, by investing primarily in equity securities selected for their growth potential, and normally invests at least 80% of the value of its assets in medium-sized companies. Medium-sized companies are those whose market capitalizations (measured at the time of investment) fall within the range of companies in the Russell Mid-cap Growth Index. The subadviser seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. ------------------------------------------------------------------------- INTER AST International Growth Portfolio: Marsico Capital NATIONAL seeks long-term capital growth. Management, LLC; EQUITY Under normal circumstances, the William Blair & Portfolio invests at least 80% of Company, LLC the value of its assets in securities of issuers that are economically tied to countries other than the United States. Although the Portfolio intends to invest at least 80% of its assets in the securities of issuers located outside the United States, it may at times invest in U.S. issuers and it may invest all of its assets in fewer than five countries or even a single country. The Portfolio looks primarily for stocks of companies whose earnings are growing at a faster rate than other companies or which offer attractive growth. ------------------------------------------------------------------------- INTER AST International Value Portfolio: LSV Asset NATIONAL seeks long-term capital Management; EQUITY appreciation. The Portfolio normally Thornburg invests at least 80% of the Investment Portfolio's assets in equity Management, Inc. securities. The Portfolio will invest at least 65% of its net assets in the equity securities of companies in at least three different countries, without limit as to the amount of assets that may be invested in a single country. ------------------------------------------------------------------------- FIXED AST Investment Grade Bond Portfolio: Prudential INCOME seeks the highest potential total Investment return consistent with its specified Management, Inc. level of risk tolerance to meet the parameters established to support the Highest Daily Lifetime Seven benefits and maintain liquidity to support changes in market conditions for a fixed duration (weighted average maturity) of about 6 years. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. ------------------------------------------------------------------------- 20 ------------------------------------------------------------------------ STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------ INTER AST JPMorgan International Equity J.P. Morgan NATIONAL Portfolio: seeks long-term capital Investment EQUITY growth by investing in a diversified Management, Inc. portfolio of international equity securities. The Portfolio seeks to meet its objective by investing, under normal market conditions, at least 80% of its assets in a diversified portfolio of equity securities of companies located or operating in developed non-U.S. countries and emerging markets of the world. The equity securities will ordinarily be traded on a recognized foreign securities exchange or traded in a foreign over-the-counter market in the country where the issuer is principally based, but may also be traded in other countries including the United States. ------------------------------------------------------------------------ LARGE AST Large-Cap Value Portfolio: seeks Dreman Value CAP current income and long-term growth Management VALUE of income, as well as capital L.L.C.; Eaton appreciation. The Portfolio invests, Vance under normal circumstances, at least Management; 80% of its net assets in common Hotchkis and Wiley stocks of large capitalization Capital companies. Large capitalization Management LLC companies are those companies with market capitalizations within the market capitalization range of the Russell 1000 Value Index. ------------------------------------------------------------------------ FIXED AST Lord Abbett Bond-Debenture Lord, Abbett & Co. INCOME Portfolio: seeks high current income LLC and the opportunity for capital appreciation to produce a high total return. The Portfolio invests, under normal circumstances, at least 80% of the value of its assets in fixed income securities. The Portfolio allocates its assets principally among fixed income securities in four market sectors: U.S. investment grade securities, U.S. high yield securities, foreign securities (including emerging market securities) and convertible securities. Under normal circumstances, the Portfolio invests in each of the four sectors described above. However, the Portfolio may invest substantially all of its assets in any one sector at any time, subject to the limitation that at least 20% of the Portfolio's net assets must be invested in any combination of investment grade debt securities, U.S. Government securities and cash equivalents. The Portfolio may find good value in high yield securities, sometimes called "lower-rated bonds" or "junk bonds," and frequently may have more than half of its assets invested in those securities. The Portfolio may also make significant investments in mortgage-backed securities. Although the Portfolio expects to maintain a weighted average maturity in the range of five to twelve years, there are no maturity restrictions on the overall Portfolio or on individual securities. The Portfolio may invest up to 20% of its net assets in equity securities. The Portfolio may invest up to 20% of its net assets in foreign securities. ------------------------------------------------------------------------ LARGE AST Marsico Capital Growth Marsico Capital CAP Portfolio: seeks capital growth. Management, LLC GROWTH Income realization is not an investment objective and any income realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing primarily in common stocks of large companies that are selected for their growth potential. Large capitalization companies are companies with market capitalizations within the market capitalization range of the Russell 1000 Growth Index. In selecting investments for the Portfolio, the subadviser uses an approach that combines "top down" macroeconomic analysis with "bottom up" stock selection. The "top down" approach identifies sectors, industries and companies that may benefit from the trends the subadviser has observed. The subadviser then looks for individual companies with earnings growth potential that may not be recognized by the market at large, utilizing a "bottom up" stock selection process. The Portfolio will normally hold a core position of between 35 and 50 common stocks. The Portfolio may hold a limited number of additional common stocks at times when the Portfolio manager is accumulating new positions, phasing out existing or responding to exceptional market conditions. ------------------------------------------------------------------------ LARGE AST MFS Growth Portfolio: seeks Massachusetts CAP long-term capital growth and future, Financial Services GROWTH rather than current income. Under Company normal market conditions, the Portfolio invests at least 80% of its net assets in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts. The subadviser uses a "bottom up" as opposed to a "top down" investment style in managing the Portfolio. ------------------------------------------------------------------------ 21 ------------------------------------------------------------------------ STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------ MID CAP AST Mid-Cap Value Portfolio: seeks EARNEST Partners VALUE to provide capital growth by LLC; WEDGE investing primarily in Capital mid-capitalization stocks that Management, LLP appear to be undervalued. The Portfolio generally invests, under normal circumstances, at least 80% of the value of its net assets in mid- capitalization companies. Mid-capitalization companies are generally those that have market capitalizations, at the time of purchase, within the market capitalization range of companies included in the Russell Midcap Value Index during the previous 12-months based on month-end data. ------------------------------------------------------------------------ FIXED AST Money Market Portfolio: seeks Prudential INCOME high current income while Investment maintaining high levels of Management, Inc. liquidity. The Portfolio invests in high-quality, short-term, U.S. dollar denominated corporate, bank and government obligations. The Portfolio will invest in securities which have effective maturities of not more than 397 days. ------------------------------------------------------------------------ MID CAP AST Neuberger Berman Mid-Cap Growth Neuberger Berman GROWTH Portfolio: seeks capital growth. Management LLC Under normal market conditions, the Portfolio invests at least 80% of its net assets in the common stocks of mid-capitalization companies. Mid-capitalization companies are those companies whose market capitalization is within the range of market capitalizations of companies in the Russell Midcap(R) Growth Index. Using fundamental research and quantitative analysis, the subadviser looks for fast-growing companies that are in new or rapidly evolving industries. The Portfolio may invest in foreign securities (including emerging markets securities). ------------------------------------------------------------------------ MID CAP AST Neuberger Berman/LSV Mid-Cap LSV Asset VALUE Value Portfolio (formerly known as Management; AST Neuberger Berman Mid-Cap Value Neuberger Berman Portfolio): seeks capital growth. Management LLC Under normal market conditions, the Portfolio invests at least 80% of its net assets in the common stocks of medium capitalization companies. For purposes of the Portfolio, companies with market capitalizations that fall within the range of the Russell Midcap(R) Index at the time of investment are considered medium capitalization companies. Some of the Portfolio's assets may be invested in the securities of large-cap companies as well as in small-cap companies. Under the Portfolio's value-oriented investment approach, the subadviser looks for well-managed companies whose stock prices are undervalued and that may rise in price before other investors realize their worth. ------------------------------------------------------------------------ SMALL AST Neuberger Berman Small-Cap Neuberger Berman CAP Growth Portfolio: seeks maximum Management LLC GROWTH growth of investors' capital from a portfolio of growth stocks of smaller companies. The Portfolio pursues its objective, under normal circumstances, by primarily investing at least 80% of its total assets in the equity securities of small-sized companies included in the Russell 2000 Growth(R) Index. ------------------------------------------------------------------------ FIXED AST PIMCO Limited Maturity Bond Pacific Investment INCOME Portfolio: seeks to maximize total Management return consistent with preservation Company LLC of capital and prudent investment (PIMCO) management. The Portfolio will invest, under normal circumstances, at least 80% of the value of its net assets in fixed- income investment instruments of varying maturities which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. ------------------------------------------------------------------------ FIXED AST PIMCO Total Return Bond Pacific Investment INCOME Portfolio: seeks to maximize total Management return consistent with preservation Company LLC of capital and prudent investment (PIMCO) management. The Portfolio will invest, under normal circumstances, at least 80% of the value of its net assets in fixed income investments, which may be represented by forwards or derivatives such as options, futures contracts, or swap agreements. ------------------------------------------------------------------------ ASSET AST Preservation Asset Allocation Prudential ALLOCA Portfolio: seeks to obtain total Investments LLC; TION return consistent with its specified Quantitative level of risk. The Portfolio Management primarily invests its assets in a Associates LLC diversified portfolio of other mutual funds, the underlying portfolios, of the Advanced Series Trust and certain affiliated money market funds. Under normal market conditions, the Portfolio will devote approximately 35% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 27.5% to 42.5%), and 65% of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 57.5% to 72.5%. The Portfolio is not limited to investing exclusively in shares of the underlying portfolios and may invest in securities and futures contracts, swap agreements and other financial and derivative instruments. ------------------------------------------------------------------------ 22 ----------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ----------------------------------------------------------------------- SMALL AST Small-Cap Growth Portfolio: Eagle Asset CAP seeks long-term capital growth. The Management, Inc. GROWTH Portfolio pursues its objective by investing, under normal circumstances, at least 80% of the value of its assets in small-capitalization companies. Small-capitalization companies are those companies with a market capitalization, at the time of purchase, no larger than the largest capitalized company included in the Russell 2000(R) Index at the time of the Portfolio's investment. ----------------------------------------------------------------------- SMALL AST Small-Cap Value Portfolio: seeks ClearBridge CAP to provide long-term capital growth Advisors, LLC; VALUE by investing primarily in Dreman Value small-capitalization stocks that Management appear to be undervalued. The L.L.C.; J.P. Morgan Portfolio invests, under normal Investment circumstances, at least 80% of the Management, Inc.; value of its net assets in small Lee Munder capitalization stocks. Small Investments, Ltd capitalization stocks are the stocks of companies with market capitalization that are within the market capitalization range of the Russell 2000(R) Value Index. ----------------------------------------------------------------------- FIXED AST T. Rowe Price Global Bond T. Rowe Price INCOME Portfolio: seeks to provide high International, Inc. current income and capital growth by investing in high-quality foreign and U.S. dollar-denominated bonds. The Portfolio will invest at least 80% of its total assets in fixed income securities. The Portfolio invests in all types of bonds, including those issued or guaranteed by U.S. or foreign governments or their agencies and by foreign authorities, provinces and municipalities as well as investment grade corporate bonds, mortgage and asset-backed securities, and high-yield bonds of U.S. and foreign issuers. The Portfolio generally invests in countries where the combination of fixed-income returns and currency exchange rates appears attractive, or, if the currency trend is unfavorable, where the subadviser believes that the currency risk can be minimized through hedging. The Portfolio may also invest up to 20% of its assets in the aggregate in below investment-grade, high-risk bonds ("junk bonds") and emerging market bonds. In addition, the Portfolio may invest up to 30% of its assets in mortgage-related (including mortgage dollar rolls and derivatives, such as collateralized mortgage obligations and stripped mortgage securities) and asset- backed securities. The Portfolio may invest in futures, swaps and other derivatives in keeping with its objective. ----------------------------------------------------------------------- LARGE AST T. Rowe Price Large-Cap Growth T. Rowe Price CAP Portfolio: seeks long-term growth of Associates, Inc. GROWTH capital by investing predominantly in the equity securities of a limited number of large, carefully selected, high-quality U.S. companies that are judged likely to achieve superior earnings growth. The Portfolio takes a growth approach to investment selection and normally invests at least 80% of its net assets in the common stocks of large companies. Large companies are defined as those whose market cap is larger than the median market cap of companies in the Russell 1000 Growth Index as of the time of purchase. ----------------------------------------------------------------------- FIXED AST Western Asset Core Plus Bond Western Asset INCOME Portfolio: seeks to maximize total Management return, consistent with prudent Company investment management and liquidity needs, by investing to obtain its average specified duration. The Portfolio's current target average duration is generally 2.5 to 7 years. The Portfolio pursues this objective by investing in all major fixed income sectors with a bias towards non-Treasuries. ----------------------------------------------------------------------- 23 ------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------- EVERGREEN VARIABLE ANNUITY TRUST ------------------------------------------------------------------- INTER Evergreen VA International Equity: Evergreen NATIONAL seeks long-term capital growth and Investment EQUITY secondarily, modest income. The Management Portfolio will normally invest at Company, LLC least 80% of its assets in equity securities issued by in the portfolio manager's opinion, established and quality non-U.S. companies located in countries with developed markets. The Portfolio may purchase securities across all market capitalizations. The Portfolio normally invests at least 65% of its assets in securities of companies in at least three countries (other than the U.S.). The Portfolio may also invest in emerging markets. The Portfolio's managers seek both growth and value opportunities. For growth investments, the Portfolio's manager seeks, among other things, good business models, good management and growth in cash flows. For value investments, the Portfolio's manager seeks, among other things, companies that are undervalued in the marketplace compared to their assets. The Portfolio normally intends to seek modest income from dividends paid by its equity holdings. Other than cash and cash equivalents, the Portfolio intends to invest substantially all of its assets in the securities of non-U.S. issuers. ------------------------------------------------------------------- SPECIALTY Evergreen VA Omega: seeks long-term Evergreen capital growth. The Portfolio Investment invests primarily, and under normal Management conditions substantially all of its Company, LLC assets, in common stocks of U.S. companies across any market capitalization. The Portfolio's manager employs a growth style of equity management that seeks to emphasize companies with cash flow growth, sustainable competitive advantages, returns on invested capital above their cost of capital and the ability to manage for profitable growth that can create long-term value for shareholders. ------------------------------------------------------------------- WHAT ARE THE FIXED ALLOCATIONS? The Fixed Allocations consist of the MVA Fixed Allocations, the DCA Fixed Allocations used with our dollar-cost averaging program, and (with respect to Highest Daily Lifetime Five only), the Benefit Fixed Rate Account. We describe the Benefit Fixed Rate Account in the section of the Prospectus concerning Highest Daily Lifetime Five. We describe the DCA Fixed Allocations in the section entitled "Do You Offer Dollar Cost Averaging?" MVA Fixed Allocations. We offer MVA Fixed Allocations of different durations during the accumulation period. These "MVA Fixed Allocations" earn a guaranteed fixed rate of interest for a specified period of time, called the "Guarantee Period." In most states, we offer MVA Fixed Allocations with Guarantee Periods from 1 to 10 years. We may also offer special purpose MVA Fixed Allocations for use with certain optional investment programs. We guarantee the fixed rate for the entire Guarantee Period. However for MVA Fixed Allocations, if you withdraw or transfer Account Value before the end of the Guarantee Period, we will adjust the value of your withdrawal or transfer based on a formula, called a "Market Value Adjustment." The Market Value Adjustment can either be positive or negative, depending on the movement of applicable interest rates. Please refer to the section entitled "How does the Market Value Adjustment Work?" for a description of the formula along with examples of how it is calculated. You may allocate Account Value to more than one MVA Fixed Allocation at a time. Fixed Allocations are not available in Maryland, Nevada, North Dakota, Vermont, and Washington. Availability of MVA Fixed Allocations is subject to change and may differ by state and by the annuity product you purchase. Please call Prudential Annuities at 1-888-PRU-2888 to determine availability of MVA Fixed Allocations in your state and for your annuity product. You may not allocate Account Value to MVA Fixed Allocations if you have elected the following Optional Benefits: Lifetime Five Income Benefit, Spousal Lifetime Five Income Benefit, Highest Daily Lifetime Five Income Benefit, Highest Daily Lifetime Seven Income Benefit, Spousal Highest Daily Lifetime Seven Income Benefit, Highest Daily Value Death Benefit, Highest Daily Lifetime Seven with Beneficiary Income Option, Spousal Highest Daily Lifetime Seven with Beneficiary Income Option, Highest Daily Lifetime Seven with Lifetime Income Accelerator, GRO Plus 2008, Highest Daily GRO, Highest Daily Lifetime 7 Plus Income Benefit, Spousal Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option, and Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator. The interest rate that we credit to the MVA Fixed Allocations may be reduced by an amount that corresponds to the asset-based charges assessed against the Sub-accounts. No specific fees or expenses are deducted when determining the rate we credit to an MVA Fixed Allocation. However, for some of the same reasons that we deduct the Insurance Charge against Account Value allocated to the Sub-accounts, we also take into consideration mortality, expense, administration, profit and other factors in determining the interest rates we credit to MVA Fixed Allocations. That is, the existence of those factors results in a reduction to the interest rate that we credit under the Fixed Allocations. Any CDSC or Tax Charge applies to amounts that are taken from the Sub-accounts or the MVA Fixed Allocations. 24 FEES AND CHARGES The charges under the Annuity are designed to cover, in the aggregate, our direct and indirect costs of selling, administering and providing benefits under the Annuity. They are also designed, in the aggregate, to compensate us for the risks of loss we assume. If, as we expect, the charges that we collect from the Annuity exceed our total costs in connection with the Annuity, we will earn a profit. Otherwise we will incur a loss. For example, Prudential Annuities may make a profit on the Insurance Charge if, over time, the actual costs of providing the guaranteed insurance obligations under an Annuity are less than the amount we deduct for the Insurance Charge. To the extent we make a profit on the Insurance Charge, such profit may be used for any other corporate purpose, including payment of other expenses that Prudential Annuities incurs in promoting, distributing, issuing and administering an Annuity and to offset a portion of the costs associated with offering any Credits which are funded through Prudential Annuities' general account. The rates of certain of our charges have been set with reference to estimates of the amount of specific types of expenses or risks that we will incur. In most cases, this prospectus identifies such expenses or risks in the name of the charge; however, the fact that any charge bears the name of, or is designed primarily to defray a particular expense or risk does not mean that the amount we collect from that charge will never be more than the amount of such expense or risk, nor does it mean that we may not also be compensated for such expense or risk out of any other charges we are permitted to deduct by the terms of the Annuity. A portion of the proceeds that Prudential Annuities receives from charges that apply to the Sub-accounts may include amounts based on market appreciation of the Sub-account values including appreciation on amounts that represent any Credits. WHAT ARE THE CONTRACT FEES AND CHARGES? Contingent Deferred Sales Charge: We do not deduct a sales charge from purchase payments you make to your Annuity. However, we may deduct a CDSC if you surrender your Annuity or when you make a partial withdrawal. The CDSC reimburses us for expenses related to sales and distribution of the Annuity, including commissions, marketing materials and other promotional expenses. The CDSC is calculated as a percentage of your Purchase Payment being surrendered or withdrawn during the applicable Annuity Year. For purposes of calculating the CDSC, we consider the year following the Issue Date of your Annuity as Year 1. The amount of the CDSC decreases over time, measured from the Issue Date of the Annuity. The CDSC percentages for each Annuity are shown under "Summary of Contract Fees and Charges". If you purchase Optimum XTra and make a withdrawal that is subject to a CDSC, we may use part of that CDSC to recoup our costs of providing the Credit. However, we do not impose any CDSC on your withdrawal of a Credit amount. With respect to a partial withdrawal, we calculate the CDSC by assuming that any available free withdrawal amount is taken out first (see How Much Can I Withdraw as a Free Withdrawal?). If the free withdrawal amount is not sufficient, we then assume that withdrawals are taken from purchase payments that have not been previously withdrawn, on a first-in, first-out basis, and subsequently from any other Account Value in the Annuity. For purposes of calculating any applicable CDSC on a surrender, the purchase payments being withdrawn may be greater than your remaining Account Value or the amount of your withdrawal request. This is most likely to occur if you have made prior partial withdrawals or if your Account Value has declined in value due to negative market performance. In that scenario, we would determine the CDSC amount as the applicable percentage of the purchase payments being withdrawn, rather than as a percentage of the remaining Account Value or withdrawal request. Thus, the CDSC would be greater than if it were calculated as a percentage of remaining Account Value or withdrawal amount. We may waive any applicable CDSC under certain circumstances including, certain medically-related circumstances or when taking a Minimum Distribution from an Annuity purchased as a "qualified" investment. Free Withdrawals, Medically-Related Surrenders and Minimum Distributions are each explained more fully in the section entitled "Access to Your Account Value". Transfer Fee: Currently, you may make twenty (20) free transfers between investment options each Annuity Year. We currently charge $10.00 for each transfer after the twentieth in each Annuity Year. The fee will never be more than $15.00 for each transfer. We do not consider transfers made as part of a Dollar Cost Averaging, Automatic Rebalancing or asset allocation program when we count the twenty free transfers. All transfers made on the same day will be treated as one (1) transfer. Renewals or transfers of Account Value from a Fixed Allocation at the end of its Guarantee Period are not subject to the Transfer Fee and are not counted toward the twenty free transfers. Similarly, transfers made pursuant to a formula used with an optional benefit are not subject to the Transfer fee and are not counted toward the twenty free transfers. We may reduce the number of free transfers allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee unless you make use of electronic means to transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. If you are enrolled in any program that does not permit transfer requests to be transmitted electronically, the Transfer Fee will not be waived. 25 Annual Maintenance Fee: During the accumulation period we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $35.00 or 2% of your Account Value (including any amounts in Fixed Allocations), invested in the Sub-accounts, whichever is less. This fee will be deducted annually on the anniversary of the Issue Date of your Annuity or, if you surrender your Annuity during the Annuity Year, the fee is deducted at the time of surrender. The fee is taken out only from the Sub-accounts. We do not impose the Annual Maintenance Fee upon annuitization, the payment of a Death Benefit, or a medically-rated full surrender. We may increase the Annual Maintenance Fee. However, any increase will only apply to Annuities issued after the date of the increase. For beneficiaries that elect the Beneficiary Continuation Option, the Annual Maintenance Fee is the lesser of $30 or 2% of Account Value. For a non-qualified Beneficiary Continuation Option, the fee is only applicable if the Account Value is less than $25,000 at the time the fee is assessed. Tax Charge: Several states and some municipalities charge premium taxes or similar taxes on annuities that we are required to pay. The amount of tax will vary from jurisdiction to jurisdiction and is subject to change. We pay the tax either when purchase payments are received, upon surrender or when the Account Value is applied under an annuity option. The tax charge is designed to approximate the taxes that we are required to pay and is assessed as a percentage of purchase payments, surrender value, or Account Value as applicable. The tax charge currently ranges up to 3 1/2%. We reserve the right to deduct the charge either at the time the tax is imposed, upon a full surrender of the Annuity, or upon annuitization. We may assess a charge against the Sub-accounts and the Fixed Allocations equal to any taxes which may be imposed upon the separate accounts. We will pay company income taxes on the taxable corporate earnings created by this separate account product. While we may consider company income taxes when pricing our products, we do not currently include such income taxes in the tax charges you pay under the Annuity. We will periodically review the issue of charging for these taxes and may impose a charge in the future. In calculating our corporate income tax liability, we derive certain corporate income tax benefits associated with the investment of company assets, including separate account assets, which are treated as company assets under applicable income tax law. These benefits reduce our overall corporate income tax liability. Under current law, such benefits may include foreign tax credits and corporate dividends received deductions. We do not pass these tax benefits through to holders of the separate account annuity contracts because (i) the contract owners are not the owners of the assets generating these benefits under applicable income tax law and (ii) we do not currently include company income taxes in the tax charges you pay under the contract. Insurance Charge: We deduct an Insurance Charge daily. The charge is assessed against the daily assets allocated to the Sub-accounts and is equal to the amount indicated under "Summary of Contract Fees and Charges". The Insurance Charge is the combination of the Mortality & Expense Risk Charge and the Administration Charge. The Insurance Charge is intended to compensate Prudential Annuities for providing the insurance benefits under each Annuity, including each Annuity's basic Death Benefit that provides guaranteed benefits to your beneficiaries even if the market declines and the risk that persons we guarantee annuity payments to will live longer than our assumptions. The charge also covers administrative costs associated with providing the Annuity benefits, including preparation of the contract and prospectus, confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related expenses. Finally, the charge covers the risk that our assumptions about the mortality risks and expenses under each Annuity are incorrect and that we have agreed not to increase these charges over time despite our actual costs. We may increase the portion of the total Insurance Charge that is deducted for administrative costs; however, any increase will only apply to Annuities issued after the date of the increase. The Insurance Charge is not deducted against assets allocated to a Fixed Allocation. However, the amount we credit to Fixed Allocations may also reflect similar assumptions about the insurance guarantees provided under each Annuity and the administrative costs associated with providing the Annuity benefits. That is, the interest rate we credit to a Fixed Allocation may be reduced to reflect those assumptions. Optional Benefits for which we assess a charge: If you elect to purchase certain optional benefits, we will deduct an additional charge. For some optional benefits, the charge is deducted from your Account Value allocated to the Sub-accounts. This charge is included in the daily calculation of the Unit Price for each Sub-account. For certain other optional benefits, such as Highest Daily Lifetime Seven, the charge is assessed against the Protected Withdrawal Value and taken out of the Sub-accounts. Please refer to the sections entitled "Summary of Contract Fees and Charges" for the list of charges for each optional benefit. Settlement Service Charge: If your beneficiary takes the death benefit under a Beneficiary Continuation Option, we deduct a Settlement Service Charge, although the Insurance Charge no longer applies. The charge is assessed daily against the assets allocated to the Sub-accounts and is equal to an annual charge of 1.00% for non-qualified Annuities and 1.40% for qualified Annuities. Fees and expenses incurred by the Portfolios: Each Portfolio incurs total annual operating expenses comprised of an investment management fee, other expenses and any distribution and service (12b-1) fees that may apply. These fees and expenses are reflected daily by each Portfolio before it provides Prudential Annuities with the net asset value as of the close of business each Valuation Day. More detailed information about fees and expenses can be found in the prospectuses for the Portfolios. 26 WHAT CHARGES APPLY TO THE FIXED ALLOCATIONS? No specific fees or expenses are deducted when determining the rate we credit to a Fixed Allocation. However, for some of the same reasons that we deduct the Insurance Charge against Account Value allocated to the Sub-accounts, we also take into consideration mortality, expense, administration, profit and other factors in determining the interest rates we credit to Fixed Allocations. Any CDSC or Tax Charge applies to amounts that are taken from the Sub-accounts or the Fixed Allocations. That is, the interest rate that we credit to a Fixed Allocation may be reduced to reflect those factors. A Market Value Adjustment may also apply to transfers, certain withdrawals, surrender or annuitization from an MVA Fixed Allocation. WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYMENT OPTION? If you select a fixed payment option, the amount of each fixed payment will depend on the Account Value of your Annuity when you elected to annuitize. There is no specific charge deducted from these payments; however, the amount of each annuity payment reflects assumptions about our insurance expenses. If you select a variable payment option that we may offer, then the amount of your benefits will reflect changes in the value of your Annuity and will be subject to charges that apply under the variable immediate annuity option. Also, a tax charge may apply (see "Tax Charge" above). Currently, we only offer fixed payment options. EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES We may reduce or eliminate certain fees and charges or alter the manner in which the particular fee or charge is deducted. For example, we may reduce the amount of any CDSC or the length of time it applies, reduce or eliminate the amount of the Annual Maintenance Fee or reduce the portion of the total Insurance Charge that is deducted as an Administration Charge. Generally, these types of changes will be based on a reduction to our sales, maintenance or administrative expenses due to the nature of the individual or group purchasing the Annuity. Some of the factors we might consider in making such a decision are: (a) the size and type of group; (b) the number of Annuities purchased by an Owner; (c) the amount of purchase payments or likelihood of additional purchase payments; (d) whether an annuity is reinstated pursuant to our rules; and/or (e) other transactions where sales, maintenance or administrative expenses are likely to be reduced. We will not discriminate unfairly between Annuity purchasers if and when we reduce any fees and charges. 27 PURCHASING YOUR ANNUITY WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY? Initial Purchase Payment: Unless we agree otherwise and subject to our rules, you must make a minimum initial Purchase Payment of $10,000 for Optimum XTra. However, if you decide to make payments under a systematic investment or an electronic funds transfer program, we may accept a lower initial Purchase Payment provided that, within the first Annuity Year, your subsequent Purchase Payments plus your initial Purchase Payment total the minimum initial Purchase Payment amount required for the Annuity purchased. Where allowed by law, we must approve any initial and additional purchase payments where the total amount of purchase payments equal $1,000,000 or more. We may apply certain limitations and/or restrictions on an Annuity as a condition of our acceptance, including limiting the liquidity features or the Death Benefit protection provided under an Annuity, limiting the right to make additional purchase payments, changing the number of transfers allowable under an Annuity or restricting the Sub-accounts or Fixed Allocations that are available. Other limitations and/or restrictions may apply. Applicable laws designed to counter terrorists and prevent money laundering might, in certain circumstances, require us to block a contract owner's ability to make certain transactions, and thereby refuse to accept purchase payments or requests for transfers, partial withdrawals, total withdrawals, death benefits, or income payments until instructions are received from the appropriate regulator. We also may be required to provide additional information about you and your Annuity to government regulators. Except as noted below, purchase payments must be submitted by check drawn on a U.S. bank, in U.S. dollars, and made payable to Prudential Annuities. Purchase payments may also be submitted via 1035 exchange or direct transfer of funds. Under certain circumstances, purchase payments may be transmitted to Prudential Annuities via wiring funds through your Financial Professional's broker-dealer firm. Additional purchase payments may also be applied to your Annuity under an electronic funds transfer arrangement where you authorize us to deduct money directly from your bank account. We may reject any payment if it is received in an unacceptable form. Our acceptance of a check is subject to our ability to collect funds. Age Restrictions: Unless we agree otherwise and subject to our rules, the Owner (or Annuitant if entity owned) must not be older than a maximum issue age as of the Issue Date of the Annuity as follows: age 75 for Optimum XTra. If an Annuity is owned jointly, the oldest of the Owners must not be older than the maximum issue age on the Issue Date. You should consider your need to access your Account Value and whether the Annuity's liquidity features will satisfy that need. If you take a distribution prior to age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. The availability and level of protection of certain optional benefits may vary based on the age of the Owner on the Issue Date of the Annuity or the date of the Owner's death. Owner, Annuitant and Beneficiary Designations: We will ask you to name the Owner(s), Annuitant and one or more Beneficiaries for your Annuity. . Owner: The Owner(s) holds all rights under the Annuity. You may name up to two Owners in which case all ownership rights are held jointly. Generally, joint owners are required to act jointly; however, if each owner provides us with an instruction that we find acceptable, we will permit each owner to act independently on behalf of both owners. All information and documents that we are required to send you will be sent to the first named owner. This Annuity does not provide a right of survivorship. Refer to the Glossary of Terms for a complete description of the term "Owner." . Annuitant: The Annuitant is the person upon whose life we continue to make annuity payments. You must name an Annuitant who is a natural person. We do not accept a designation of joint Annuitants during the accumulation period. In limited circumstances and where allowed by law, you may name one or more Contingent Annuitants. Generally, a Contingent Annuitant will become the Annuitant if the Annuitant dies before the Annuity Date. Please refer to the discussion of "Considerations for Contingent Annuitants" in the Tax Considerations section of the Prospectus. . Beneficiary: The Beneficiary is the person(s) or entity you name to receive the Death Benefit. Your Beneficiary Designation should be the exact name of your beneficiary, not only a reference to the beneficiary's relationship to you. If you use a designation of "surviving spouse," we will pay the Death Benefit to the individual that is your spouse at the time of your death (as defined under the federal tax laws and regulations). If no beneficiary is named the Death Benefit will be paid to you or your estate. Your right to make certain designations may be limited if your Annuity is to be used as an IRA or other "qualified" investment that is given beneficial tax treatment under the Code. You should seek competent tax advice on the income, estate and gift tax implications of your designations. 28 MANAGING YOUR ANNUITY MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS? You may change the Owner, Annuitant and Beneficiary designations by sending us a request in writing in a form acceptable to us. Upon an ownership change, any automated investment or withdrawal programs will be canceled. The new owner must submit the applicable program enrollment if they wish to participate in such a program. Where allowed by law, such changes will be subject to our acceptance. Some of the changes we will not accept include, but are not limited to: . a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a spouse Beneficiary has become the Owner as a result of an Owner's death; . a new Annuitant subsequent to the Annuity Date; . for "non-qualified" investments, a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity; and . a change in Beneficiary if the Owner had previously made the designation irrevocable. There are also restrictions on designation changes when you have elected certain optional benefits. See the "Living Benefits" and "Death Benefits" sections of this Prospectus for any such restrictions. Spousal Designations If an Annuity is co-owned by spouses, we will assume that the sole primary Beneficiary is the surviving spouse that was named as the co-owner unless you elect an alternative Beneficiary Designation. Unless you elect an alternative Beneficiary Designation, upon the death of either spousal Owner, the surviving spouse may elect to assume ownership of the Annuity instead of taking the Death Benefit payment. The Death Benefit that would have been payable will be the new Account Value of the Annuity as of the date of due proof of death and any required proof of a spousal relationship. As of the date the assumption is effective, the surviving spouse will have all the rights and benefits that would be available under the Annuity to a new purchaser of the same attained age. For purposes of determining any future Death Benefit for the beneficiary of the surviving spouse, the new Account Value will be considered as the initial Purchase Payment. No CDSC will apply to the new Account Value. However, any additional purchase payments applied after the date the assumption is effective will be subject to all provisions of the Annuity, including the CDSC when applicable. Spousal assumption is also permitted, subject to our rules and regulatory approval, if the Annuity is held by a custodial account established to hold retirement assets for the benefit of the natural person Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code ("Code") (or any successor Code section thereto) ("Custodial Account") and, on the date of the Annuitant's death, the spouse of the Annuitant is (1) the Contingent Annuitant under the Annuity and (2) the beneficiary of the Custodial Account. The ability to continue the Annuity in this manner will result in the Annuity no longer qualifying for tax deferral under the Code. However, such tax deferral should result from the ownership of the Annuity by the Custodial Account. Please consult your tax or legal adviser. Spousal assumption is only permitted to spouses as defined by federal law. Contingent Annuitant Generally, if an Annuity is owned by an entity and the entity has named a Contingent Annuitant, the Contingent Annuitant will become the Annuitant upon the death of the Annuitant, and no Death Benefit is payable. Unless we agree otherwise, the Annuity is only eligible to have a Contingent Annuitant designation if the entity which owns the Annuity is (1) a plan described in Internal Revenue Code Section 72(s)(5)(A)(i) (or any successor Code section thereto); (2) an entity described in Code Section 72(u)(1) (or any successor Code section thereto); or (3) a Custodial Account, as described in the above section. Where the Annuity is held by a Custodial Account, the Contingent Annuitant will not automatically become the Annuitant upon the death of the Annuitant. Upon the death of the Annuitant, the Custodial Account will have the choice, subject to our rules, to either elect to receive the Death Benefit or elect to continue the Annuity. If the Custodial Account elects to receive the Death Benefit, the Account Value of the Annuity as of the date of due proof of death of the Annuitant will reflect the amount that would have been payable had a Death Benefit been paid. See the section above entitled "Spousal Designations" for more information about how the Annuity can be continued by a Custodial Account. MAY I RETURN MY ANNUITY IF I CHANGE MY MIND? If after purchasing your Annuity you change your mind and decide that you do not want it, you may return it to us within a certain period of time known as a right to cancel period. This is often referred to as a "free look." Depending on the state in which you purchased your Annuity and, in some states, if you purchased the Annuity as a replacement for a prior contract, the right to cancel period may be ten (10) days, or longer, measured from the time that you received your Annuity (the free look period for replacements is typically longer, such as 20 or 30 days). If you return your Annuity during the applicable period, we will refund your current Account Value plus any tax charge deducted, less any applicable federal and state income tax withholding and depending on your state's requirements, any applicable insurance charges deducted. The amount returned to you may be higher or lower than the Purchase Payment(s) applied during the right to cancel period and may be subject to a market value adjustment if it 29 was allocated to a MVA Fixed Allocation. However, where required by law, we will return your Purchase Payments applied during the right to cancel period if they are greater than your current Account Value less any federal and state income tax withholding. With respect to Optimum XTra, if you return your Annuity, we will not return any Credits we applied to your Annuity based on your Purchase Payments. MAY I MAKE ADDITIONAL PURCHASE PAYMENTS? Unless we agree otherwise and subject to our rules, the minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in our Systematic Investment Plan or a periodic Purchase Payment program. Purchase payments made while you participate in an asset allocation program will be allocated in accordance with such benefit. MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT? You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your bank account and applying it to your Annuity. We call our electronic funds transfer program "The Systematic Investment Plan." Purchase payments made through electronic funds transfer may only be allocated to the Sub-accounts when applied. Different allocation requirements may apply in connection with certain optional benefits. We may allow you to invest in your Annuity with a lower initial Purchase Payment, as long as you authorize payments through an electronic funds transfer that will equal at least the minimum Purchase Payment set forth above during the first 12 months of your Annuity. We may suspend or cancel electronic funds transfer privileges if sufficient funds are not available from the applicable financial institution on any date that a transaction is scheduled to occur. MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM? These types of programs are only available with certain types of qualified investments. If your employer sponsors such a program, we may agree to accept periodic purchase payments through a salary reduction program as long as the allocations are made only to Sub-accounts and the periodic purchase payments received in the first year total at least the minimum Purchase Payment set forth above. 30 MANAGING YOUR ACCOUNT VALUE HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED? (See "Valuing Your Investment" for a description of our procedure for pricing initial and subsequent purchase payments.) Initial Purchase Payment: Once we accept your application, we invest your Purchase Payment in your Annuity according to your instructions for allocating your Account Value. The Purchase Payment is your initial Purchase Payment minus any tax charges that may apply. You can allocate purchase payments to one or more available Sub-accounts or available Fixed Allocations. Investment restrictions will apply if you elect certain optional benefits. Subsequent Purchase Payments: Unless you participate in an asset allocation program, or unless you have provided us with other specific allocation instructions for one, more than one, or all subsequent Purchase Payments, we will allocate any additional Purchase Payments you make according to your initial Purchase Payment allocation instructions. If you so instruct us, we will allocate subsequent Purchase Payments according to any new allocation instructions. Unless you tell us otherwise, Purchase Payments made while you participate in an asset allocation program will be allocated in accordance with such program. HOW DO I RECEIVE CREDITS UNDER THE OPTIMUM XTRA ANNUITY? We apply a "Credit" to your Annuity's Account Value each time you make a Purchase Payment during the first six (6) Annuity Years. The amount of the Credit is payable from our general account. The amount of the Credit depends on the Annuity Year in which the Purchase Payment(s) is made and the amount of the Purchase Payment according to the table below:
CREDIT CREDIT (Cumulative (Cumulative Purchase Payments Purchase Payments ANNUITY YEAR $100,000 or Greater) Less than $100,000) ------------------------------------------------------ 1 8.00% 6.00% 2 6.00% 5.00% 3 4.00% 4.00% 4 3.00% 3.00% 5 2.00% 2.00% 6 1.00% 1.00% 7+ 0.00% 0.00% ------------------------------------------------------
HOW ARE CREDITS APPLIED TO ACCOUNT VALUE UNDER THE OPTIMUM XTRA ANNUITY? Each Credit is allocated to your Account Value at the time the Purchase Payment is applied to your Account Value. The amount of the Credit is allocated to the investment options in the same ratio as the applicable Purchase Payment is applied. Examples of Applying Credits Initial Purchase Payment Assume you make an initial Purchase Payment of $75,000 and your Annuity is issued on January 2, 2009. Since the cumulative Purchase Payments are less than $100,000 and the contract is in the first Annuity Year, we would apply a 6% Credit to your Purchase Payment and allocate the amount of the Credit ($4500 = $75,000 x .060) to your Account Value in the proportion that your Purchase Payment is allocated. Initial Purchase Payment With Transfer of Assets Assume you make an initial Purchase Payment of $105,000 (which consists of a check for $75,000 and exchange paperwork indicating additional purchase payments of $30,000) and your Annuity is issued on January 2, 2009 with the receipt of the check for $75,000. On January 16, 2009 the remaining $30,000, as indicated by the exchange paperwork, is received. Since the cumulative Purchase Payments are greater than $100,000 and the contract is in the first Annuity Year, we would apply an 8% Credit to the January 2, 2009 portion of your Purchase Payment and allocate the amount of the Credit ($6,000 = $75,000 X .08) to your Account Value on January 2, 2009 and we would apply an 8% Credit to the January 16, 2009 portion of your Purchase Payment and allocate the amount of the Credit ($2,400 = $30,000 X .080) to your Account Value on January 16, 2009. Additional Purchase Payment in Annuity Year 1 Assume that you make an additional Purchase Payment of $30,000 on March 5, 2009. The cumulative Purchase Payments are greater than $100,000; therefore we would apply an 8.0% Credit to your March 5, 2009 Purchase Payment and allocate the amount of the Credit ($2400 = $30,000 X .08) to your Account Value. 31 Additional Purchase Payment in Annuity Year 6 Assume that you make an additional Purchase Payment of $25,000 on February 6, 2014. The cumulative Purchase Payments are greater than $100,000 and the contract is in the sixth year; therefore we would apply a 1.0% Credit to your Purchase Payment and allocate the amount of the Credit ($250 = $25,000 X .01) to your Account Value. Recapture of XTra Credits The amount of any Credits applied to your Annuity Account Value can be taken back by Prudential Annuities. Specifically, we will recapture Credits: (a) if you return the Annuity during the "free look" period or (b) if the XTra Credit amount was granted within 12 months immediately before a death that triggers payment of the Annuity's death benefit (if allowed by State Law) or (c) if the XTra Credit amount was granted within 12 months immediately prior to your exercise of the medically-related surrender provision of the Annuity. General Information about Credits . We do not consider Credits to be "investment in the contract" for income tax purposes. . You may not withdraw the amount of any Credits under the Free Withdrawal provision. The Free Withdrawal provision only applies to withdrawals of purchase payments. ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS? During the accumulation period you may transfer Account Value between investment options subject to the restrictions outlined below. Transfers are not subject to taxation on any gain. We may require a minimum of $500 in each Sub-account you allocate Account Value to at the time of any allocation or transfer. If you request a transfer and, as a result of the transfer, there would be less than $500 in the Sub-account, we may transfer the remaining Account Value in the Sub-account pro-rata to the other investment options to which you transferred. You may not transfer Account Value to any DCA fixed Allocation (as defined below). You may only allocated payments to DCA Fixed Allocations. Currently, we charge $10.00 for each transfer after the twentieth (20/th/) transfer in each Annuity Year. Transfers made as part of a Dollar Cost Averaging, Automatic Rebalancing or asset allocation program do not count toward the twenty free transfer limit. Renewals or transfers of Account Value from an MVA Fixed Allocation at the end of its Guarantee Period are not subject to the transfer charge. We may reduce the number of free transfers allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee. We may also increase the Transfer Fee that we charge to $15.00 for each transfer after the number of free transfers has been used up. We may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. If enrolled in any program that does not permit transfer requests to be transmitted electronically, the Transfer Fee will not be waived. Once you have made 20 transfers among the Sub-accounts during an Annuity Year, we will accept any additional transfer request during that year only if the request is submitted to us in writing with an original signature and otherwise is in good order. For purposes of this 20 transfer limit, we (i) do not view a facsimile transmission as a "writing", (ii) will treat multiple transfer requests submitted on the same Valuation Day as a single transfer, and (iii) do not count any transfer that solely involves Sub-accounts corresponding to the AST Money Market Portfolio, or any transfer that involves one of our systematic programs, such as asset allocation and automated withdrawals. Frequent transfers among Sub-accounts in response to short-term fluctuations in markets, sometimes called "market timing," can make it very difficult for a Portfolio manager to manage a Portfolio's investments. Frequent transfers may cause the Portfolio to hold more cash than otherwise necessary, disrupt management strategies, increase transaction costs, or affect performance. Each Annuity offers Sub-accounts designed for Owners who wish to engage in frequent transfers (i.e., one or more of the Sub-accounts corresponding to the AST Money Market Portfolio), and we encourage Owners seeking frequent transfers to utilize those Sub-accounts. In light of the risks posed to Owners and other investors by frequent transfers, we reserve the right to limit the number of transfers in any Annuity Year for all existing or new Owners and to take the other actions discussed below. We also reserve the right to limit the number of transfers in any Annuity Year or to refuse any transfer request for an Owner or certain Owners if: (a) we believe that excessive transfer activity (as we define it) or a specific transfer request or group of transfer requests may have a detrimental effect on Unit Values or the share prices of the Portfolios; or (b) we are informed by a Portfolio (e.g., by the Portfolio's portfolio manager) that the purchase or redemption of shares in the Portfolio must be restricted because the Portfolio believes the transfer activity to which such purchase and redemption relates would have a detrimental effect on the share prices of the affected Portfolio. Without limiting the above, the most likely scenario where either of the above could occur would be if the aggregate amount of a trade or trades represented a relatively large proportion of the total assets of a particular Portfolio. In furtherance of our general authority to restrict transfers as described above, and without limiting other actions we may take in the future, we have adopted the following specific restrictions: . With respect to each Sub-account (other than the AST Money Market Sub-account), we track amounts exceeding a certain dollar threshold that were transferred into the Sub-account. If you transfer such amount into a particular Sub-account, and within 30 calendar days thereafter transfer (the "Transfer Out") all or a portion of that amount into another Sub-account, then 32 upon the Transfer Out, the former Sub-account becomes restricted (the "Restricted Sub-account"). Specifically, we will not permit subsequent transfers into the Restricted Sub-account for 90 calendar days after the Transfer Out if the Restricted Sub-account invests in a non-international Portfolio, or 180 calendar days after the Transfer Out if the Restricted Sub-account invests in an international Portfolio. For purposes of this rule, we (i) do not count transfers made in connection with one of our systematic programs, such as asset allocation and automated withdrawals; (ii) do not count any transfer that solely involves Sub-accounts corresponding to the AST Money Market Portfolio; and (iii) do not categorize as a transfer the first transfer that you make after the Issue Date, if you make that transfer within 30 calendar days after the Issue Date. Even if an amount becomes restricted under the foregoing rules, you are still free to redeem the amount from your Annuity at any time. . We reserve the right to effect exchanges on a delayed basis for all contracts. That is, we may price an exchange involving the Sub-accounts on the Valuation Day subsequent to the Valuation Day on which the exchange request was received. Before implementing such a practice, we would issue a separate written notice to Owners that explains the practice in detail. If we deny one or more transfer requests under the foregoing rules, we will inform you or your Financial Professional promptly of the circumstances concerning the denial. There are contract owners of different variable annuity contracts that are funded through the same Separate Account that are not subject to the above-referenced transfer restrictions and, therefore, might make more numerous and frequent transfers than contract owners who are subject to such limitations. Finally, there are contract owners of other variable annuity contracts or variable life contracts that are issued by Prudential Annuities as well as other insurance companies that have the same underlying mutual fund portfolios available to them. Since some contract owners are not subject to the same transfer restrictions, unfavorable consequences associated with such frequent trading within the underlying mutual fund (e.g., greater portfolio turnover, higher transaction costs, or performance or tax issues) may affect all contract owners. Similarly, while contracts managed by a Financial Professional or third party investment advisor are subject to the restrictions on transfers between investment options that are discussed above, if the advisor manages a number of contracts in the same fashion unfavorable consequences may be associated with management activity since it may involve the movement of a substantial portion of an underlying mutual fund's assets which may affect all contract owners invested in the affected options. Apart from such differences in transfer restrictions, we will apply these rules uniformly (including contracts managed by a Financial Professional or third party investment advisor), and will not waive a transfer restriction for any contract owner. Although our transfer restrictions are designed to prevent excessive transfers, they are not capable of preventing every potential occurrence of excessive transfer activity. The Portfolios may have adopted their own policies and procedures with respect to excessive trading of their respective shares, and we reserve the right to enforce any such current or future policies and procedures. The prospectuses for the Portfolios describe any such policies and procedures, which may be more or less restrictive than the policies and procedures we have adopted. Under SEC rules, we are required to: (1) enter into a written agreement with each Portfolio or its principal underwriter or its transfer agent that obligates us to provide to the Portfolio promptly upon request certain information about the trading activity of individual contract owners (including an Annuity Owners' TIN number), and (2) execute instructions from the Portfolio to restrict or prohibit further purchases or transfers by specific contract owners who violate the excessive trading policies established by the Portfolio. In addition, you should be aware that some Portfolios may receive "omnibus" purchase and redemption orders from other insurance companies or intermediaries such as retirement plans. The omnibus orders reflect the aggregation and netting of multiple orders from individual owners of variable insurance contracts and/or individual retirement plan participants. The omnibus nature of these orders may limit the Portfolios in their ability to apply their excessive trading policies and procedures. In addition, the other insurance companies and/or retirement plans may have different policies and procedures or may not have any such policies and procedures because of contractual limitations. For these reasons, we cannot guarantee that the Portfolios (and thus contract owners) will not be harmed by transfer activity relating to other insurance companies and/or retirement plans that may invest in the Portfolios. A Portfolio also may assess a short term trading fee (redemption fee) in connection with a transfer out of the Sub-account investing in that Portfolio that occurs within a certain number of days following the date of allocation to the Sub-account. Each Portfolio determines the amount of the short term trading fee and when the fee is imposed. The fee is retained by or paid to the Portfolio and is not retained by us. The fee will be deducted from your Account Value, to the extent allowed by law. At present, no Portfolio has adopted a short-term trading fee. DO YOU OFFER DOLLAR COST AVERAGING? Yes. As discussed below, we offer Dollar Cost Averaging programs during the accumulation period. In general, Dollar Cost Averaging allows you to systematically transfer an amount periodically from one investment option to one or more other investment options. You can choose to transfer earnings only, principal plus earnings or a flat dollar amount. You may elect a Dollar Cost Averaging program that transfers amounts monthly, quarterly, semi-annually, or annually from Sub-accounts, or a program that transfers amounts monthly from the DCA Fixed Allocations. By investing amounts on a regular basis instead of investing the total amount at one time, Dollar Cost Averaging may decrease the effect of market fluctuation on the investment of your Purchase Payment. This may result in a lower average cost of units over time. However, there is no guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining market. We do not deduct a charge for participating in a Dollar Cost Averaging program. 33 You can Dollar Cost Average from Sub-accounts or the Fixed Allocations. Dollar Cost Averaging from Fixed Allocations is subject to a number of rules that include, but are not limited to the following: . You may only use Fixed Allocations with Guarantee Periods of 1, 2 or 3 years. . You may only Dollar Cost Average earnings or principal plus earnings. If transferring principal plus earnings, the program must be designed to last the entire Guarantee Period for the Fixed Allocation. . Dollar Cost Averaging transfers from Fixed Allocations are not subject to a Market Value Adjustment. NOTE: When a Dollar Cost Averaging program is established from a Fixed Allocation, the fixed rate of interest we credit to your Account Value is applied to a declining balance due to the transfers of Account Value to the Sub-accounts during the Guarantee Period. This will reduce the effective rate of return on the Fixed Allocation over the Guarantee Period. The Dollar Cost Averaging program is not available if you have elected an automatic rebalancing program or an asset allocation program. Dollar Cost Averaging from Fixed Allocations also is not available if you elect certain optional benefits. Prudential Annuities may offer Fixed Allocations with Guarantee Periods of 6 months or 12 months exclusively for use with a Dollar Cost Averaging program ("DCA Fixed Allocations"). DCA Fixed Allocations are designed to automatically transfer Account Value in either 6 or 12 payments under a Dollar Cost Averaging program. Dollar Cost Averaging transfers will be effected on the date the DCA Fixed Dollar Allocations is established and each month following until the entire principal amount plus earning is transferred. DCA Fixed Allocations may only be established with your initial Purchase Payment or additional purchase payments. You may not transfer existing Account Value to a DCA Fixed Allocation. We reserve the right to terminate offering these special purpose Fixed Allocations at any time. Account Value allocated to the DCA Fixed Allocations will be transferred to the Sub-accounts you choose under the Dollar Cost Averaging program. If you terminate the Dollar Cost Averaging program before the entire principal amount plus earnings has been transferred to the Sub-account(s), you must transfer all remaining Account Value to any other investment option. Unless you provide alternate instructions at the time you terminate the Dollar Cost Averaging program, Account Value will be transferred to the AST Money Market Sub-account. Transfers from DCA Fixed Allocations as part of a Dollar Cost Averaging program are not subject to a Market Value Adjustment. However, a Market Value Adjustment will apply if you terminate the Dollar Cost Averaging program before the entire principal amount plus earnings has been transferred to the Sub-account(s). DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS? Yes. During the accumulation period, we offer Automatic Rebalancing among the Sub-accounts you choose. You can choose to have your Account Value rebalanced monthly, quarterly, semi-annually, or annually. On the appropriate date, the Sub-accounts you chose are rebalanced to the allocation percentages you requested. With Automatic Rebalancing, we transfer the appropriate amount from the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return your allocations to the percentages you request. For example, over time the performance of the Sub-accounts will differ, causing your percentage allocations to shift. Any transfer to or from any Sub-account that is not part of your Automatic Rebalancing program, will be made; however, that Sub-account will not become part of your rebalancing program unless we receive instructions from you indicating that you would like such option to become part of the program. There is no minimum Account Value required to enroll in Automatic Rebalancing. All rebalancing transfers as part of an Automatic Rebalancing program are not included when counting the number of transfers each year toward the maximum number of free transfers. We do not deduct a charge for participating in an Automatic Rebalancing program. Participation in the Automatic Rebalancing program may be restricted if you are enrolled in certain other optional programs. Sub-accounts that are part of a Systematic Withdrawal program or Dollar Cost Averaging program will be excluded from an Automatic Rebalancing program. ARE ANY ASSET ALLOCATION PROGRAMS AVAILABLE? Yes. Certain "static asset allocation programs" are provided by LPL Financial Corporation, ("LPL"), the firm selling the Annuity. Initially, you may be required to enroll in an available asset allocation program if you purchase one of the Annuities. Additionally, certain optional benefits require your Account Value be maintained in a model in the asset allocation program. These programs are considered static because once you have selected a model portfolio, the Sub-accounts and the percentage of contract value allocated to each Sub-account cannot be changed without your consent and direction. The programs are available at no additional charge. Under these programs, the Sub-account for each asset class in each model portfolio is designated for you. Under the programs, the values in the Sub-accounts will be rebalanced periodically back to the indicated percentages for the applicable asset class within the model portfolio that you have selected. The programs are offered by LPL. We have not designed the models or the program, and we are not responsible for them. Our role is limited to administering the model you select. For more information on the asset allocation programs see the Appendix entitled "Additional Information on the Asset Allocation Programs." Asset allocation is a sophisticated method of diversification, which allocates assets among asset classes in order to manage investment risk and enhance returns over the long term. However, asset allocation does not guarantee a profit or protect against a loss. No 34 personalized investment advice is provided in connection with the asset allocation programs and you should not rely on these programs as providing individualized investment recommendations to you. The asset allocation programs do not guarantee better investment results. LPL reserves the right to terminate or change the programs at any time. We reserve the right to change the way in which we administer the program you have selected with your LPL Financial Professional, and we reserve the right to terminate our administration of the programs. You should consult with your LPL Financial Professional before electing any asset allocation program. WHAT IS THE BALANCED INVESTMENT PROGRAM? We offer a balanced investment program where a portion of your Account Value is allocated to a Fixed Allocation and the remaining Account Value is allocated to the Sub-accounts that you select. When you enroll in the Balanced Investment Program, you choose the duration that you wish the program to last. This determines the duration of the Guarantee Period for the Fixed Allocation. Based on the fixed rate for the Guarantee Period chosen, we calculate the portion of your Account Value that must be allocated to the Fixed Allocation to grow to a specific "principal amount" (such as your initial Purchase Payment). We determine the amount based on the rates then in effect for the Guarantee Period you choose. If you continue the program until the end of the Guarantee Period and make no withdrawals or transfers, at the end of the Guarantee Period, the Fixed Allocation will have grown to equal the "principal amount". Withdrawals or transfers from the Fixed Allocation before the end of the Guarantee Period will terminate the program and may be subject to a Market Value Adjustment (which may be positive or negative). You can transfer the Account Value that is not allocated to the Fixed Allocation between any of the Sub-accounts available under your Annuity. Account Value you allocate to the Sub-accounts is subject to market fluctuations and may increase or decrease in value. We do not deduct a charge for participating in the Balanced Investment Program. Example Assume you invest $100,000. You choose a 10-year program and allocate a portion of your Account Value to a Fixed Allocation with a 10-year Guarantee Period. The rate for the 10-year Guarantee Period is 2.50%*. Based on the fixed interest rate for the Guarantee Period chosen, the factor is 0.781198 for determining how much of your Account Value will be allocated to the Fixed Allocation. That means that $78,120 will be allocated to the Fixed Allocation and the remaining Account Value ($21,880) will be allocated to the Sub-accounts. Assuming that you do not make any withdrawals or transfers from the Fixed Allocation, it will grow to $100,000 at the end of the Guarantee Period. Of course we cannot predict the value of the remaining Account Value that was allocated to the Sub-accounts. * The rate in this example is hypothetical and may not reflect the current rate for Guarantee Periods of this duration. MAY I GIVE MY FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION INSTRUCTIONS? Yes. Subject to our rules, your Financial Professional may forward instructions regarding the allocation of your Account Value, and request financial transactions involving investment options. If your Financial Professional has this authority, we deem that all transactions that are directed by your Financial Professional with respect to your Annuity have been authorized by you. You must contact us immediately if and when you revoke such authority. We will not be responsible for acting on instructions from your Financial Professional until we receive notification of the revocation of such person's authority. We may also suspend, cancel or limit these privileges at any time. We will notify you if we do. MAY I AUTHORIZE MY THIRD PARTY INVESTMENT ADVISOR TO MANAGE MY ACCOUNT? Yes. You may engage your own investment advisor to manage your account. These investment advisors may be firms or persons who also are appointed by us, or whose affiliated broker-dealers are appointed by us, as authorized sellers of the Annuities. Even if this is the case, however, please note that the investment advisor you engage to provide advice and/or make transfers for you, is not acting on our behalf, but rather is acting on your behalf. We do not offer advice about how to allocate your Account Value under any circumstance. As such, we are not responsible for any recommendations such investment advisors make, any investment models or asset allocation programs they choose to follow or any specific transfers they make on your behalf. Please note that if you have engaged a third-party investment advisor to provide asset allocation services with respect to your Annuity, we may not allow you to elect an optional benefit that requires investment in an asset allocation Portfolio and/or that involves mandatory Account Value transfers (e.g. Highest Daily GRO). It is your responsibility to arrange for the payment of the advisory fee charged by your investment advisor. Similarly, it is your responsibility to understand the advisory services provided by your investment advisor and the advisory fees charged for the services. We or an affiliate of ours may provide administrative support to licensed, registered Financial Professionals or Investment advisors who you authorize to make financial transactions on your behalf. We may require Financial Professionals or investment advisors, who are authorized by multiple contract owners to make financial transactions, to enter into an administrative agreement with Prudential Annuities as a condition of our accepting transactions on your behalf. The administrative agreement may impose limitations on the Financial Professional's or investment advisor's ability to request financial transactions on your behalf. These limitations are intended to minimize the detrimental impact of a Financial Professional who is in a position to transfer large amounts of money for multiple clients in a particular Portfolio or type of portfolio or to comply with specific restrictions or limitations imposed by a Portfolio(s) of Prudential Annuities. 35 Please Note: Annuities where your Financial Professional or investment advisor has the authority to forward instruction on financial transactions are also subject to the restrictions on transfers between investment options that are discussed in the section entitled "ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?" Since transfer activity directed by a Financial Professional or third party investment adviser may result in unfavorable consequences to all contract owners invested in the affected options, we reserve the right to limit the investment options available to a particular Owner where such authority as described above has been given to a Financial Professional or investment advisor or impose other transfer restrictions we deem necessary. The administrative agreement may limit the available investment options, require advance notice of large transactions, or impose other trading limitations on your Financial Professional. Your Financial Professional will be informed of all such restrictions on an ongoing basis. We may also require that your Financial Professional transmit all financial transactions using the electronic trading functionality available through our Internet website (www.prudentialannuities.com). Limitations that we may impose on your Financial Professional or investment advisor under the terms of the administrative agreement do not apply to financial transactions requested by an Owner on their own behalf, except as otherwise described in this Prospectus. HOW DO THE FIXED ALLOCATIONS WORK? We credit a fixed interest rate to the Fixed Allocation throughout a set period of time called a "Guarantee Period." (Note that the discussion in this section of Guarantee Periods is not applicable to the DCA Fixed Allocations, or the Benefit Fixed Rate Account). Fixed Allocations currently are offered with Guarantee Periods from 1 to 10 years. We may make Fixed Allocations of different durations available in the future, including Fixed Allocations offered exclusively for use with certain optional investment programs. Fixed Allocations may not be available in all states and may not always be available for all Guarantee Periods depending on market factors and other considerations. The interest rate credited to a Fixed Allocation is the rate in effect when the Guarantee Period begins and does not change during the Guarantee Period. The rates are an effective annual rate of interest. We determine the interest rates for the various Guarantee Periods. At the time that we confirm your Fixed Allocation, we will advise you of the interest rate in effect and the date your Fixed Allocation matures. We may change the rates we credit new Fixed Allocations at any time. Any change in interest rate does not affect Fixed Allocations that were in effect before the date of the change. To inquire as to the current rates for Fixed Allocations, please call 1-888-PRU-2888. A Guarantee Period for a Fixed Allocation begins: . when all or part of a net Purchase Payment is allocated to that particular Guarantee Period; . upon transfer of any of your Account Value to a Fixed Allocation for that particular Guarantee Period; or . when you "renew" a Fixed Allocation by electing a new Guarantee Period. To the extent permitted by law, we may establish different interest rates for Fixed Allocations offered to a class of Owners who choose to participate in various optional investment programs we make available. This may include, but is not limited to, Owners who elect to use Fixed Allocations under a dollar cost averaging program (see "Do You Offer Dollar Cost Averaging?") or the Balanced Investment Program. The interest rate credited to Fixed Allocations offered to this class of purchasers may be different than those offered to other purchasers who choose the same Guarantee Period but who do not participate in an optional investment program. Any such program is at our sole discretion. Prudential Annuities may offer Fixed Allocations with Guarantee Periods of 3 months or 6 months exclusively for use as a short-term Fixed Allocation ("Short-term Fixed Allocations"). Short-term Fixed Allocations may only be established with your initial Purchase Payment or additional Purchase Payments. You may not transfer existing Account Value to a Short-term Fixed Allocation. We reserve the right to terminate offering these special purpose Fixed Allocations at any time. On the Maturity Date of the Short-term Fixed Allocation, the Account Value will be transferred to the Sub-account(s) you choose at the inception of the program. If no instructions are provided, such Account Value will be transferred to the AST Money Market Sub-account. Short-term Fixed Allocations may not be renewed on the Maturity Date. If you surrender the Annuity or transfer any Account Value from the Short-term Fixed Allocation to any other investment option before the end of the Guarantee Period, a Market Value Adjustment will apply. HOW DO YOU DETERMINE RATES FOR FIXED ALLOCATIONS? We do not have a specific formula for determining the fixed interest rates for Fixed Allocations. Generally the interest rates we offer for Fixed Allocations will reflect the investment returns available on the types of investments we make to support our fixed rate guarantees. These investment types may include cash, debt securities guaranteed by the United States government and its agencies and instrumentalities, money market instruments, corporate debt obligations of different durations, private placements, asset-backed obligations and municipal bonds. In determining rates we also consider factors such as the length of the Guarantee 36 Period for the Fixed Allocation, regulatory and tax requirements, liquidity of the markets for the type of investments we make, commissions, administrative and investment expenses, our insurance risks in relation to the Fixed Allocations, general economic trends and competition. Some of these considerations are similar to those we consider in determining the Insurance Charge that we deduct from Account Value allocated to the Sub-accounts. For some of the same reasons that we deduct the Insurance Charge against the Account Value allocated to the Sub-accounts, we also take into consideration mortality, expense, administration, profit and other factors in determining the interest rates we credit to Fixed Allocations. That is, the existence of those factors results in a reduction to the interest rate that we credit under the MVA Fixed Allocations. We will credit interest on a new Fixed Allocation in an existing Annuity at a rate not less than the rate we are then crediting to Fixed Allocations for the same Guarantee Period selected by new Annuity purchasers in the same class. The interest rate we credit for a Fixed Allocation may be subject to a minimum. Please refer to the Statement of Additional Information. In certain states the interest rate may be subject to a minimum under state law or regulation. HOW DOES THE MARKET VALUE ADJUSTMENT WORK? If you transfer or withdraw Account Value from a MVA Fixed Allocation more than 30 days before the end of its Guarantee Period, we will adjust the value of your investment based on a formula, called a "Market Value Adjustment" or "MVA". The amount of any Market Value Adjustment can be either positive or negative, depending on the movement of a combination of Strip Yields on Strips and an Option-adjusted Spread (each as defined below) between the time that you purchase the Fixed Allocation and the time you make a transfer or withdrawal. The Market Value Adjustment formula compares the combination of Strip Yields for Strips and the Option-adjusted Spreads as of the date the Guarantee Period began with the combination of Strip Yields for Strips and the Option-adjusted Spreads as of the date the MVA is being calculated. Any Market Value Adjustment that applies will be subject to our rules for complying with applicable state law. . "Strips" are a form of security where ownership of the interest portion of United States Treasury securities are separated from ownership of the underlying principal amount or corpus. . "Strip Yields" are the yields payable on coupon Strips of United States Treasury securities. . "Option-adjusted Spread" is the difference between the yields on corporate debt securities (adjusted to disregard options on such securities) and government debt securities of comparable duration. We currently use the Merrill Lynch 1 to 10 year Investment Grade Corporate Bond Index of Option-adjusted Spreads. MVA Formula The MVA formula is applied separately to each MVA Fixed Allocation to determine the Account Value of the MVA Fixed Allocation on a particular date. The formula is as follows: [(1+I) / (1+J+0.0010)]/N/365/ where: I is the Strip Yield as of the start date of the Guarantee Period for coupon Strips maturing at the end of the applicable Guarantee Period plus the Option-adjusted Spread. If there are no Strips maturing at that time, we will use the Strip Yield for the Strips maturing as soon as possible after the Guarantee Period ends. J is the Strip Yield as of the date the MVA formula is being applied for coupon Strips maturing at the end of the applicable Guarantee Period plus the Option-adjusted Spread. If there are no Strips maturing at that time, we will use the Strip Yield for the Strips maturing as soon as possible after the Guarantee Period ends. N is the number of days remaining in the original Guarantee Period. If you surrender your Annuity under the right to cancel provision, the MVA formula is: [(1 + I)/(1 + J)]/N/365/ MVA Examples The following hypothetical examples show the effect of the MVA in determining Account Value. Assume the following: . You allocate $50,000 into a MVA Fixed Allocation (we refer to this as the "Allocation Date" in these examples) with a Guarantee Period of 5 years (we refer to this as the "Maturity Date" in these examples). . The Strip Yields for coupon Strips beginning on Allocation Date and maturing on Maturity Date plus the Option-adjusted Spread is 5.50% (I = 5.50%). . You make no withdrawals or transfers until you decide to withdraw the entire MVA Fixed Allocation after exactly three (3) years, at which point 730 days remain before the Maturity Date (N = 730). 37 Example Of Positive MVA Assume that at the time you request the withdrawal, the Strip Yields for Strips maturing on the Maturity Date plus the Option-adjusted Spread is 4.00% (J = 4.00%). Based on these assumptions, the MVA would be calculated as follows: MVA Factor = [(1+I)/(1+J+0.0010)]/N/365/ = [1.055/1.041]/2/ /= 1.027078 Interim Value = $57,881.25 Account Value after MVA = Interim Value X MVA Factor = $59,448.56 Example Of Negative MVA Assume that at the time you request the withdrawal, the Strip Yields for Strips maturing on the Maturity Date plus the Option-adjusted Spread is 7.00% (J = 7.00%). Based on these assumptions, the MVA would be calculated as follows: MVA Factor = [(1+I)/(1+J+0.0010)]/N/365 /= [1.055/1.071]/2/ = 0.970345 Interim Value = $57,881.25 Account Value after MVA = Interim Value X MVA Factor = $56,164.78 WHAT HAPPENS WHEN MY GUARANTEE PERIOD MATURES? The "Maturity Date" for a MVA Fixed Allocation is the last day of the Guarantee Period (note that the discussion in this section of Guarantee Periods is not applicable to the DCA Fixed Allocations and the Benefit Fixed Rate Account). Before the Maturity Date, you may choose to renew the MVA Fixed Allocation for a new Guarantee Period of the same or different length or you may transfer all or part of that MVA Fixed Allocation's Account Value to another MVA Fixed Allocation or to one or more Sub-accounts. We will not charge a MVA if you choose to renew a MVA Fixed Allocation on its Maturity Date or transfer the Account Value to one or more Sub-accounts. We will notify you before the end of the Guarantee Period about the fixed interest rates that we are currently crediting to all MVA Fixed Allocations that are being offered. The rates being credited to Fixed Allocations may change before the Maturity Date. If you do not specify how you want a Fixed Allocation to be allocated on its Maturity Date, we will then transfer the Account Value of the Fixed Allocation to the AST Money Market Sub-account. You can then elect to allocate the Account Value to any of the Sub-accounts or to a new Fixed Allocation. 38 ACCESS TO ACCOUNT VALUE WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME? During the accumulation period you can access your Account Value through partial withdrawals, Systematic Withdrawals, and where required for tax purposes, Required Minimum Distributions. You can also surrender your Annuity at any time. We may deduct a portion of the Account Value being withdrawn or surrendered as a CDSC, if applicable. If you surrender your Annuity, in addition to any CDSC, we may deduct the Annual Maintenance Fee, any Tax Charge that applies and the charge for any optional benefits. We may also apply a Market Value Adjustment to MVA Fixed Allocations being withdrawn or surrendered. Certain amounts may be available to you each Annuity Year that are not subject to a CDSC. These are called "Free Withdrawals." Unless you notify us differently, withdrawals are taken pro-rata based on the Account Value in the investment options at the time we receive your withdrawal request. Each of these types of distributions is described more fully below. ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS? (For more information, see "Tax Considerations.") During The Accumulation Period A distribution during the accumulation period is deemed to come first from any "gain" in your Annuity and second as a return of your "tax basis", if any. Distributions from your Annuity are generally subject to ordinary income taxation on the amount of any investment gain unless the distribution qualifies as a non-taxable exchange or transfer. If you take a distribution prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. You may wish to consult a professional tax advisor for advice before requesting a distribution. During The Annuitization Period During the annuitization period, a portion of each annuity payment is taxed as ordinary income at the tax rate you are subject to at the time of the payment. The Code and regulations have "exclusionary rules" that we use to determine what portion of each annuity payment should be treated as a return of any tax basis you have in your Annuity. Once the tax basis in your Annuity has been distributed, the remaining annuity payments are taxable as ordinary income. The tax basis in your Annuity may be based on the tax-basis from a prior contract in the case of a 1035 exchange or other qualifying transfer. CAN I WITHDRAW A PORTION OF MY ANNUITY? Yes, you can make a withdrawal during the accumulation period. . To meet liquidity needs, you can withdraw a limited amount from your Annuity during each Annuity Year without application of any CDSC. We call this the "Free Withdrawal" amount. The Free Withdrawal amount is not available if you choose to surrender your Annuity. Amounts withdrawn as a Free Withdrawal do not reduce the amount of CDSC that may apply upon a subsequent withdrawal or surrender of your Annuity. After any partial withdrawal, your Annuity must have a Surrender Value of at least $1,000, or we may treat the partial withdrawal request as a request to fully surrender your annuity. The minimum Free Withdrawal you may request is $100. . You can also make withdrawals in excess of the Free Withdrawal amount. The minimum partial withdrawal you may request is $100. To determine if a CDSC applies to partial withdrawals, we: 1. First determine what, if any, amounts qualify as a Free Withdrawal. These amounts are not subject to the CDSC. 2. Next determine what, if any, remaining amounts are withdrawals of purchase payments. Amounts in excess of the Free Withdrawal amount will be treated as withdrawals of purchase payments unless all purchase payments have been previously withdrawn. These amounts are subject to the CDSC. Purchase payments are withdrawn on a first in, first out basis. 3. Withdraw any remaining amounts from any other Account Value. These amounts are not subject to the CDSC. You may request a withdrawal for an exact dollar amount after deduction of any CDSC that applies (called a "net withdrawal") or request a gross withdrawal from which we will deduct any CDSC that applies, resulting in less money being payable to you than the amount you requested. If you request a net withdrawal, the amount deducted from your Account Value to pay the CDSC may also be subject to a CDSC. Partial withdrawals may also be available following annuitization but only if you choose certain annuity payment options. (Note, however, that we do not permit commutation once annuity payments have commenced). To request the forms necessary to make a withdrawal from your Annuity, call 1-888-PRU-2888 or visit our Internet Website at www.prudentialannuities.com. HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL? The maximum Free Withdrawal amount during each Annuity Year is equal to 10% of all purchase payments that are subject to a CDSC. Withdrawals made within an Annuity Year reduce the Free Withdrawal amount available for the remainder of the Annuity 39 Year. If you do not make a withdrawal during an Annuity Year, you are not allowed to carry over the Free Withdrawal amount to the next Annuity Year. CAN I MAKE PERIODIC WITHDRAWALS FROM MY ANNUITY DURING THE ACCUMULATION PERIOD? Yes. We call these "Systematic Withdrawals." You can receive Systematic Withdrawals of earnings only or a flat dollar amount. Systematic Withdrawals may be subject to a CDSC. We will determine whether a CDSC applies and the amount in the same way as we would for a partial withdrawal. Systematic Withdrawals can be made from Account Value allocated to the Sub-accounts or certain Fixed Allocations. Generally, Systematic Withdrawals from Fixed Allocations are limited to earnings accrued after the program of Systematic Withdrawals begins, or payments of fixed dollar amounts that do not exceed such earnings. Systematic Withdrawals are available on a monthly, quarterly, semi-annual or annual basis. The minimum amount for each Systematic Withdrawal is $100. If any scheduled Systematic Withdrawal is for less than $100 (which may occur under a program that provides payment of an amount equal to the earnings in your Annuity for the period requested), we may postpone the withdrawal and add the expected amount to the amount that is to be withdrawn on the next scheduled Systematic Withdrawal. DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTION 72(t) OF THE INTERNAL REVENUE CODE? Yes. If your Annuity is used as a funding vehicle for certain retirement plans that receive special tax treatment under Sections 401, 403(b), 408 or 408A of the Code, Section 72(t) of the Code may provide an exception to the 10% penalty tax on distributions made prior to age 59 1/2 if you elect to receive distributions as a series of "substantially equal periodic payments." Distributions received under these provisions in any Annuity Year that exceed the maximum amount available as a free withdrawal will be subject to any applicable CDSC. We may apply a Market Value Adjustment to any MVA Fixed Allocations. To request a program that complies with Section 72(t), you must provide us with certain required information in writing on a form acceptable to us. We may require advance notice to allow us to calculate the amount of 72(t) withdrawals. The Surrender Value of your Annuity must be at least $20,000 before we will allow you to begin a program for withdrawals under Section 72(t). The minimum amount for any such withdrawal is $100 and payments may be made monthly, quarterly, semi-annually or annually. You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means of receiving income payments before age 59 1/2 that are not subject to the 10% penalty. WHAT ARE REQUIRED MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM? (See "Tax Considerations" for a further discussion of Required Minimum Distributions.) Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. For purposes of determining whether your withdrawal is subject to the Contingent Deferred Sales Charge, we will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount not subject to Contingent Deferred Sales Charge. Required Minimum Distributions are a type of Systematic Withdrawal we allow to meet distribution requirements under Sections 401, 403(b) or 408 of the Code. Required Minimum Distribution rules do not apply to Roth IRAs during the Owner's lifetime. Under the Code, you may be required to begin receiving periodic amounts from your Annuity. In such case, we will allow you to make Systematic Withdrawals in amounts that satisfy the Required Minimum Distribution rules under the Code. We do not assess a CDSC on Required Minimum Distributions from your Annuity if you are required by law to take such Required Minimum Distributions from your Annuity at the time it is taken. However, a CDSC (if applicable) may be assessed on that portion of a Systematic Withdrawal that is taken to satisfy the Required Minimum Distribution provisions in relation to other savings or investment plans under other qualified retirement plans not maintained with Prudential Annuities. However, no MVA may be assessed on a withdrawal taken to meet RMD requirements applicable to your Annuity. The amount of the Required Minimum Distribution for your particular situation may depend on other annuities, savings or investments. We will only calculate the amount of your Required Minimum Distribution based on the value of your Annuity. We require three (3) days advance written notice to calculate and process the amount of your payments. You may elect to have Required Minimum Distributions paid out monthly, quarterly, semi-annually or annually. The $100 minimum amount that applies to Systematic Withdrawals applies to monthly Required Minimum Distributions but does not apply to Required Minimum Distributions taken out on a quarterly, semi-annual or annual basis. You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a continued means of receiving income payments and satisfying the Required Minimum Distribution provisions under the Code. Annuitized payments are not suspended as Required Minimum Distributions for 2009. 40 Please see "Highest Daily Lifetime 7 Plus" under the subsection "Required Minimum Distributions" for further information relating to Required Minimum Distributions if you own that benefit. CAN I SURRENDER MY ANNUITY FOR ITS VALUE? Yes. During the accumulation period you can surrender your Annuity at any time. Upon surrender, you will receive the Surrender Value. Upon surrender of your Annuity, you will no longer have any rights under the surrendered Annuity. For purposes of calculating any applicable CDSC on surrender, the purchase payments being withdrawn may be greater than your remaining Account Value or the amount of your withdrawal request. This is most likely to occur if you have made prior withdrawals under the Free Withdrawal provision or if your Account Value has declined in value due to negative market performance. In that scenario, we would determine the CDSC amount as the applicable percentage of the purchase payments being withdrawn, rather than as a percentage of the remaining Account Value or withdrawal request. Thus, the CDSC would be greater than if it were calculated as a percentage of remaining Account Value or withdrawal amount. We may apply a Market Value Adjustment to any MVA Fixed Allocations. Under certain annuity payment options, you may be allowed to surrender your Annuity for its then current value. To request the forms necessary to surrender your Annuity, call 1-888-PRU-2888 or visit our Internet Website at www.prudentialannuities.com. WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY? Where permitted by law, you may request to surrender all or part of your Annuity prior to the Annuity Date without application of any otherwise applicable CDSC upon occurrence of a medically-related "Contingency Event" as described below. We may apply a Market Value Adjustment to any MVA Fixed Allocations. If you request a full surrender, the amount payable will be your Account Value minus (a) the amount of any Credits applied within 12 months prior to your request to surrender your Annuity under this provision; and (b) the amount of any Credits added in conjunction with any purchase payments received after our receipt of your request for a medically-related surrender (e.g. purchase payments received at such time pursuant to a salary reduction program). With respect to partial surrenders, we similarly reserve the right to take back Credits as described above. This waiver of any applicable CDSC is subject to our rules in place at the time of your request, which currently include but are not limited to the following: . The Annuitant must have been named or any change of Annuitant must have been accepted by us, prior to the "Contingency Event" described below in order to qualify for a medically-related surrender; . the Annuitant must be alive as of the date we pay the proceeds of such surrender request; . if the Owner is one or more natural persons, all such Owners must also be alive at such time; . we must receive satisfactory proof of the Annuitant's confinement in a Medical Care Facility or Fatal Illness in writing on a form satisfactory to us; and . no additional purchase payments can be made to the Annuity A "Contingency Event" occurs if the Annuitant is: . first confined in a "Medical Care Facility" while your Annuity is in force and remains confined for at least 90 days in a row; or . first diagnosed as having a "Fatal Illness" while your Annuity is in force. The definitions of "Medical Care Facility" and "Fatal Illness," as well as additional terms and conditions, are provided in your Annuity. This benefit is not available in Massachusetts. WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE? We currently make available annuity options that provide fixed annuity payments. Your Annuity provides certain fixed annuity payment options. We do not guarantee to continue to make available or any other option other than the fixed annuity payment options set forth in your Annuity. Fixed options provide the same amount with each payment. Adjustable options provide a fixed payment that is periodically adjusted based on current interest rates. Please refer to the "Living Benefits" section below for a description of annuity options that are available when you elect one of the living benefits. For additional information on annuity payment options you may request a Statement of Additional Information. You may choose an Annuity Date, an annuity option and the frequency of annuity payments. You may change your choices before the Annuity Date under the terms of your contract. A maximum Annuity Date may be required by law or under the terms of your Annuity. The Annuity Date may depend on the annuity option you choose. Certain annuity options may not be available depending on the age of the Annuitant. See section below entitled "How and When Do I Choose the Annuity Payment Option?" 41 Certain of these annuity options may be available to Beneficiaries who choose to receive the Death Benefit proceeds as a series of payments instead of a lump sum payment. Please note, with respect to Optimum XTra, you may not annuitize within the first three Annuity Years. Option 1 Payments for Life: Under this option, income is payable periodically until the death of the "Key Life". The "Key Life" (as used in this section) is the person or persons upon whose life annuity payments are based. No additional annuity payments are made after the death of the Key Life. Since no minimum number of payments is guaranteed, this option offers the largest amount of periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of the Key Life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. Under this option, you cannot make a partial or full surrender of the annuity. Option 2 Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two key lives, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the Key Lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. Under this option, you cannot make a partial or full surrender of the annuity. Option 3 Payments for Life with a Certain Period: Under this option, income is payable until the death of the Key Life. However, if the key life dies before the end of the period selected (5, 10 or 15 years), the remaining payments are paid to the Beneficiary until the end of such period. Under this option, you cannot make a partial or full surrender of the annuity. If this Annuity is issued as a Qualified Annuity contract and annuity payments begin after age 92, then this Option will be modified to permit a period certain that will end no later than the life expectancy of the annuitant defined under the IRS Required Minimum Distribution tables. Option 4 Fixed Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary until the end of such period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting this option. Under this option, you cannot make a partial or full surrender of the annuity. We may make different annuity payment options available in the future. We do not guarantee to continue to make available any other option other than the fixed annuity payment options set forth in your contract. HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION? Unless prohibited by law, we require that you elect either a life annuity or an annuity with a certain period of at least 5 years if any CDSC would apply were you to surrender your Annuity on the Annuity Date. Certain annuity payment options may not be available if your Annuity Date occurs during the period that a CDSC would apply. You have a right to choose your Annuity Date provided it is no later than the maximum Annuity Date that may be required by law or under the terms of your Annuity. If you choose to defer the Annuity Date beyond the default date, the IRS may not consider your contract to be an annuity under the tax law. If that should occur, all gain in your Annuity at that time will become immediately taxable to you. Further, each subsequent year's increase in Account Value would be taxable in that year. By choosing to continue to defer after the default date, you will assume the risk that your Annuity will not be considered an annuity for federal income tax purposes. Unless we agree otherwise, the Annuity Date you choose must be no later than the first day of the calendar month coinciding with or next following the later of the oldest Owner's or Annuitant's 95/th/ birthday whichever occurs first, and the fifth anniversary of the Issue Date. If you do not provide us with your Annuity Date, the maximum date as described above will be the default date; and, unless you instruct us otherwise, we will pay you the annuity payments and the annuity payments, where allowed by law, will be calculated on a fixed basis under Option 3, Payments for Life with 10 years certain. Please note that annuitization essentially involves converting your Account Value to an annuity payment stream, the length of which depends on the terms of the applicable annuity option. Thus, once annuity payments begin, your death benefit is determined solely under the terms of the applicable annuity payment option, and you no longer participate in any optional living benefit (unless you have annuitized under that benefit). 42 HOW ARE ANNUITY PAYMENTS CALCULATED? Fixed Annuity Payments If you choose to receive fixed annuity payments, you will receive equal fixed-dollar payments throughout the period you select. The amount of the fixed payment will vary depending on the annuity payment option and payment frequency you select. Generally, the first annuity payment is determined by multiplying the Account Value, minus any state premium taxes that may apply, by the factor determined from our table of annuity rates. The table of annuity rates differs based on the type of annuity chosen and the frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are derived from the a2000 Individual Annuity Mortality Table with an assumed interest rate of 3% per annum. Where required by law or regulation, (e.g., Montana), such annuity table will have rates that do not differ according to the gender of the Key Life. Otherwise, the rates will differ according to the gender of the Key Life. Adjustable Annuity Payments We may make an adjustable annuity payment option available. Adjustable annuity payments are calculated similarly to fixed annuity payments except that on every fifth (5/th/) anniversary of receiving annuity payments, the annuity payment amount is adjusted upward or downward depending on the rate we are currently crediting to annuity payments. The adjustment in the annuity payment amount does not affect the duration of remaining annuity payments, only the amount of each payment. 43 LIVING BENEFITS DO YOU OFFER BENEFITS DESIGNED TO PROVIDE INVESTMENT PROTECTION FOR OWNERS WHILE THEY ARE ALIVE? Prudential Annuities offers different optional benefits, for an additional charge, that can provide investment protection for Owners while they are alive. Notwithstanding the additional protection provided under the optional Living Benefit, the additional cost has the impact of reducing net performance of the investment options. Each optional benefit offers a distinct type of guarantee, regardless of the performance of the Sub-accounts, that may be appropriate for you depending on the manner in which you intend to make use of your Annuity while you are alive. Depending on which optional benefit you choose, you can have flexibility to invest in the Sub-accounts while: . protecting a principal amount from decreases in value as of specified future dates due to investment performance; . taking withdrawals with a guarantee that you will be able to withdraw not less than a guaranteed benefit base over time; . guaranteeing a minimum amount of growth will be applied to your principal, if it is to be used as the basis for certain types of lifetime income payments or lifetime withdrawals; or . providing spousal continuation of certain benefits. Guaranteed Return Option Plus 2008 (GRO Plus 2008) Highest Daily Guaranteed Return Option (Highest Daily GRO) Guaranteed Minimum Withdrawal Benefit (GMWB) 1 Guaranteed Minimum Income Benefit (GMIB) 1 Lifetime Five Income Benefit and Spousal Lifetime Five Income Benefit 1 Highest Daily Lifetime Five Income Benefit 1 Highest Daily Lifetime Seven Income Benefit 2 Spousal Highest Daily Lifetime Seven Income Benefit 2 Highest Daily Lifetime Seven with Beneficiary Income Option Income Benefit 2 Highest Daily Lifetime Seven with Lifetime Income Accelerator Income Benefit 2 Spousal Highest Daily Lifetime Seven with Beneficiary Income Option Income Benefit 2 Highest Daily Lifetime 7 Plus Income Benefit Spousal Highest Daily Lifetime 7 Plus Income Benefit Highest Daily Lifetime 7 Plus with Beneficiary Income Option Benefit Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator Benefit Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option Benefit (1)No longer available for new elections. (2)Not available for new elections if the corresponding Highest Daily Lifetime 7 Plus version is available in your state. Here is a general description of each kind of living benefit that exists under this Annuity: . Guaranteed Minimum Accumulation Benefits. The common characteristic of these benefits is that a specified amount of your annuity value is guaranteed at some point in the future. For example, under our Highest Daily GRO benefit, we make an initial guarantee that your annuity value on the day you start the benefit will not be any less ten years later. If your annuity value is less on that date, we use our own funds to give you the difference. Because the guarantee inherent in the guaranteed minimum accumulation benefit does not take effect until a specified number of years into the future, you should elect such a benefit only if your investment time horizon is of at least that duration. . Guaranteed Minimum Income Benefit or ("GMIB"). As discussed elsewhere in this Prospectus, you have the right under your Annuity to ask us to convert your accumulated annuity value into a series of annuity payments. Generally, the smaller the amount of your annuity value, the smaller the amount of your annuity payments. GMIB addresses this risk, by guaranteeing a certain amount of appreciation in the amount used to produce annuity payments. Thus, even if your annuity value goes down in value, GMIB guarantees that the amount we use to determine the amount of the annuity payments will go up in value by the prescribed amount. You should select GMIB only if you are prepared to delay your annuity payments for the required waiting period and if you anticipate needing annuity payments. This benefit is no longer available for new elections. . Guaranteed Minimum Withdrawal Benefit or ("GMWB"). This benefit is designed for someone who wants to access the annuity's value through withdrawals over time, rather than by annuitizing. This benefit guarantees that a specified amount will be available for withdrawal over time, even if the value of the annuity itself has declined. Please note that there is a maximum Annuity Date under your Annuity, by which date annuity payments must commence. This benefit is no longer available for new elections. . Lifetime Guaranteed Minimum Withdrawal Benefits. These benefits also are designed for someone who wants to access the annuity's value through withdrawals over time, rather than by annuitizing. These benefits differ, however, in that the withdrawal amounts are guaranteed for life (or until the second to die of spouses). The way that we establish the guaranteed amount that, in turn, determines the amount of the annual lifetime payments varies among these benefits. Under our Highest Daily Lifetime 7 Plus benefit, for example, the guaranteed amount generally is equal to your highest daily Account Value, appreciated at seven percent annually. Please note that there is a maximum Annuity Date under your Annuity, by which date annuity payments must commence. Certain of these benefits are no longer available for new elections. 44 Please refer to the benefit descriptions that follow for a complete description of the terms, conditions and limitations of each optional benefit. Investment restrictions apply if you elect certain optional living benefits. You should consult with your Financial Professional to determine if any of these optional benefits may be appropriate for you based on your financial needs. There are many factors to consider, but we note that among them you may want to evaluate the tax implications of these different approaches to meeting your needs, both between these benefits and in comparison to other potential solutions to your needs (e.g., comparing the tax implications of the withdrawal benefit and annuity payments). Termination of Existing Benefits and Election of New Benefits. If you currently own an Annuity with an optional living benefit that is terminable, you may terminate the benefit rider and elect one of the currently available benefits, subject to availability of the benefit at that time and our then current rules. There is currently no waiting period (you may elect a new benefit beginning on the next Valuation Day) to elect any living benefit once a living benefit is terminated provided that the benefit being elected is available for election post-issue. We reserve the right to waive, change and/or further limit availability and election frequencies in the future. Check with your financial professional regarding the availability of re-electing or electing a benefit and any waiting period. The benefit you re-elect or elect may be more expensive than the benefit you are terminating. Note that once you terminate an existing benefit, you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. You should carefully consider whether terminating your existing benefit and electing a new benefit is appropriate for you. GUARANTEED RETURN OPTION Plus 2008/SM/ (GRO Plus 2008/SM/) You can elect this benefit on the Issue Date of your Annuity, or at any time thereafter (unless you previously participated in either this benefit or Highest Daily GRO, in which case your election must be on an Annuity Anniversary). GRO Plus 2008 is not available if you participate in any other optional living benefit. However, GRO Plus 2008 may be elected together with any optional death benefit, other than the Highest Daily Value Death Benefit. Under GRO Plus 2008, we guarantee that the Account Value on the date that the benefit is added to your Annuity (adjusted for subsequent purchase payments and withdrawals as detailed below) will not be any less than that original value on the seventh anniversary of benefit election and each anniversary thereafter. We refer to this initial guarantee as the "base guarantee." In addition to the base guarantee, GRO Plus 2008 offers the possibility of an enhanced guarantee. You may lock in an enhanced guarantee once per "benefit year" (i.e., a year beginning on the date you acquired the benefit and each anniversary thereafter) if your Account Value on the Valuation Day exceeds the amount of any outstanding base guarantee or enhanced guarantee. We guarantee that the Account Value locked-in by that enhanced guarantee will not be any less seven years later, and each anniversary of that date thereafter. In addition, you may elect an automatic enhanced guarantee feature under which, if Account Value on a benefit anniversary exceeds the highest existing guarantee by 7% or more, we guarantee that such Account Value will not be any less seven benefit anniversaries later and each benefit anniversary thereafter. You may maintain only one enhanced guarantee in addition to your base guarantee. Thus, when a new enhanced guarantee is created, it cancels any existing enhanced guarantee. However, the fact that an enhanced guarantee was effected automatically on a benefit anniversary does not prevent you from "manually" locking-in an enhanced guarantee during the ensuing benefit year. You may elect to terminate an enhanced guarantee without also terminating the base guarantee. If you do, any amounts held in the AST bond portfolio Sub-account with respect to that enhanced guarantee will be transferred to your other Sub-accounts in accordance with your current allocation instructions. Amounts held in an AST bond portfolio Sub-account with respect to the base guarantee will not be transferred as a result of the termination of an enhanced guarantee. Please note that whenever an enhanced guarantee is created, we reserve the right to increase your charge for GRO Plus 2008 if we have increased the charge for new elections of the benefit generally. You may not lock in an enhanced guarantee, either manually or through our optional automatic program, within seven years of the date by which annuity payments must commence under the terms of your Annuity (please see "How and When Do I Choose The Annuity Payment Option?" for further information on your maximum Annuity Date). The inability to lock in an enhanced guarantee referenced in the immediately preceding sentence also applies to a new Owner who has acquired the Annuity from the original owner. In general, we refer to a date on which the Account Value is guaranteed to be present as the "maturity date". If the Account Value on the maturity date is less than the guaranteed amount, we will contribute funds from our general account to bring your Account Value up to the guaranteed amount. If the maturity date is not a Valuation Day, then we would contribute such an amount on the next Valuation Day. We will allocate any such amount to each Sub-account (other than the "Current AST bond portfolio Sub-account" described below) in accordance with your current allocations instructions. Regardless of whether we need to contribute funds at the end of a guarantee period, we will at that time transfer all amounts held within the Current AST bond portfolio Sub-account associated with the maturing guarantee to your other Sub-accounts, on a pro rata basis. If the entire Account Value is invested in an AST bond portfolio Sub-account, we will allocate according to your current allocation instructions. We increase both the base guarantee and any enhanced guarantee by the amount of each Purchase Payment (and associated Credits) made subsequent to the date that the guarantee was established. For example, if the effective date of the benefit was January 1, 2009 and the Account Value was $100,000 on that date, then a $30,000 Purchase Payment made on March 30, 2010 would increase the base guarantee amount to $130,000. As illustrated in the examples below, additional purchase payments also increase an amount we refer to as the "dollar-for-dollar corridor." 45 The dollar-for-dollar corridor is equal to 5% of the base guarantee amount (i.e., 5% of the Account Value at benefit election). Thereafter, the dollar-for-dollar corridor is adjusted only for subsequent purchase payments (i.e., 5% of the Purchase Payment is added to the corridor amount) and "excess withdrawals" (as described below). Thus, the creation of any enhanced guarantee has no impact on the dollar-for-dollar corridor. Each "benefit year", withdrawals that you make that are equal to or less than the dollar-for-dollar corridor reduce both the amount of the dollar-for-dollar corridor for that benefit year plus the base guarantee amount and the amount of any enhanced guarantee by the exact amount of the withdrawal. However, if you withdraw more than the dollar-for-dollar corridor in a given benefit year, we use the portion of the withdrawal that exceeded the dollar-for-dollar corridor to effect a proportional reduction to both the dollar-for-dollar corridor itself and each guarantee amount. We calculate a proportional reduction by (i) identifying the amount of the withdrawal that exceeded the dollar-for-dollar corridor (the "excess withdrawal") (ii) subtracting the dollar-for-dollar amount from the Account Value prior to the withdrawal (iii) dividing the excess withdrawal by the amount in (ii), and (iv) reducing each guarantee amount, and the dollar-for-dollar corridor itself, by the percentage derived in (iii). See examples of this calculation below. Any partial withdrawals in payment of any third party investment advisory service will be treated as withdrawals, and will reduce each guarantee amount and the dollar-for-dollar corridor in the manner indicated above. EXAMPLES The following examples of dollar-for-dollar and proportional reductions assume that: 1.) the Issue Date and the effective date of the GRO Plus/SM/ 2008 benefit are October 13, 2008; 2.) an initial Purchase Payment of $250,000 (includes any Credits); 3.) a base guarantee amount of $250,000; and 4.) a dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for GRO Plus 2008 or other fees and charges. Example 1. Dollar-for-dollar reduction A $10,000 withdrawal is taken on November 29, 2008 (in the first Annuity Year). No prior withdrawals have been taken. As the amount withdrawn is less than the Dollar-for-dollar Limit: . The base guarantee amount is reduced by the amount withdrawn (i.e., by $10,000, from $250,000 to $240,000). . The remaining dollar-for-dollar limit ("Remaining Limit") for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $12,500 to $2,500). Example 2. Dollar-for-dollar and proportional reductions A second $10,000 withdrawal is taken on December 18, 2008 (still within the first Annuity Year). The Account Value immediately before the withdrawal is $180,000. As the amount withdrawn exceeds the Remaining Limit of $2,500 from Example 1: . the base guarantee amount is first reduced by the Remaining Limit (from $240,000 to $237,500); . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or $7,500). -- B is the Account Value less the Remaining Limit ($180,000 - $2,500, or $177,500). The resulting base guarantee amount is: $237,500 X (1 - $7,500 / $177,500), or $227,464.79. The Remaining Limit is set to zero (0) for the balance of the first Annuity Year. Key Feature - Allocation of Account Value GRO Plus 2008 uses a mathematical formula to help manage your guarantees through all market cycles. Because the formula is made part of your schedule supplement, the formula applicable to you may not be altered once you elect the benefit. However, subject to regulatory approval we do reserve the right to amend the formula for newly-issued Annuities that elect GRO Plus 2008 and for existing Annuities that elect the benefit in the future. This required formula helps us manage our financial exposure under GRO Plus 2008, by moving assets out of certain Sub-accounts if dictated by the formula (see below). In essence, we seek to preserve the value of these assets, by transferring them to a more stable option (i.e., one or more specified bond portfolios of Advanced Series Trust). We refer to these bond portfolios collectively as the "AST bond portfolios." The formula also contemplates the transfer of assets from an AST bond portfolio to the other Sub-accounts in certain other scenarios. The formula itself is the same as that used for our Highest Daily GRO benefit, and is set forth in Appendix G to this Prospectus. A summary description of each AST Bond Portfolio appears within the Prospectus section entitled "What Are The Investment Objectives and Policies Of The Portfolios? Upon the initial transfer of your Account Value into an AST Bond Portfolio, we will send a prospectus for that Portfolio to you along with your confirmation. In addition, you can find a copy of the AST Bond Portfolio prospectus by going to www.prudentialannuities.com. Each AST bond portfolio is unique, in that its underlying investments generally mature at different times. For example, there would be an AST bond portfolio whose underlying investments generally mature in 2015, an AST bond portfolio whose underlying investments generally mature in 2016, and so forth. We will introduce new AST bond portfolios in subsequent years, to correspond generally to the length of new guarantee periods that are created under this benefit (and the Highest Daily GRO benefit). If you 46 have elected GRO Plus 2008, you may invest in an AST bond portfolio only by operation of the formula, and thus you may not allocate purchase payments to such a Portfolio. Please see this Prospectus and the prospectus for the Advanced Series Trust for more information about each AST bond portfolio used with this benefit. Although we employ several AST bond portfolios for purposes of the benefit, the formula described in the next paragraph operates so that your Account Value may be allocated to only one AST bond portfolio Sub-account at one time. In the description of the formula in the next paragraph, we refer to the AST bond portfolio Sub-account in which you are invested immediately prior to any potential asset transfer as the "Current AST bond portfolio Sub-account." The formula may dictate that a transfer out of the Current AST Bond Portfolio Sub-account be made, or alternatively may mandate a transfer into another AST bond portfolio Sub-account. Any transfer into an AST bond portfolio Sub-account will be directed to the AST bond portfolio Sub-account associated with the "current liability" (we refer to that Sub-account as the "Transfer AST bond portfolio Sub-account"). Note that if the Current AST bond portfolio Sub-account is associated with the current liability, then that Sub-account would be the Transfer AST bond portfolio Sub-account, and we would simply transfer additional assets into the Sub-account if such a transfer is dictated by the formula. As indicated, the AST bond portfolios are employed with this benefit to help us mitigate the financial risks under our guarantee. Thus, in accordance with the formula, applicable to you under the benefit, we determine which AST bond portfolio your Account Value is transferred to, and under what circumstances a transfer is made. In general, the formula works as follows (please see Appendix F). On each Valuation Day, the formula automatically performs an analysis with respect to each guarantee amount that is outstanding. For each outstanding guarantee, the formula begins by determining the present value on that Valuation Day that, if appreciated at the applicable "discount rate", would equal the applicable guarantee amount on the maturity date. As detailed in the formula, the discount rate is an interest rate determined by taking a benchmark index used within the financial services industry and then reducing the rate determined by that index by a prescribed adjustment. Once selected, we do not change the applicable benchmark index (although we do reserve the right to use a new benchmark index if the original benchmark is discontinued). The greatest of each such present value is referred to as the "current liability" in the formula. The formula compares the current liability to the amount of your Account Value held within the Current AST bond portfolio Sub-account and to your Account Value held within the other Sub-accounts. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount held within your other Sub-accounts, exceeds an upper target value (currently, 0.85), then the formula will make a transfer into the Transfer AST bond portfolio Sub-account, in the amount dictated by the formula. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount within your other Sub-accounts, is less than a lower target value (currently, 0.79), then the formula will transfer Account Value within the Current AST bond portfolio Sub-account into the other Sub-accounts (other than the Transfer AST bond portfolio Sub-account), in the amount dictated by the formula. As discussed above, each Valuation Day, the formula analyzes the difference between your Account Value and your guarantees, as well as how long you have owned the benefit, and determines if any portion of your Account Value needs to be transferred into or out of the AST bond portfolio Sub-accounts (the "Bond Portfolios"). Therefore, at any given time, some, none, or all of your Account Value may be allocated to the Bond Portfolios. If your entire Account Value is transferred to the Bond Portfolios, then based on the way the formula operates, the formula will not transfer amounts out of the Bond Portfolios to the Sub-accounts and the entire Account Value would remain in the Bond Portfolios. If you make additional purchase payments to your Annuity, they will be allocated to the Sub-accounts according to your allocation instructions. Such additional purchase payments may or may not cause the formula to transfer money in or out of the Bond Portfolios. Once the purchase payments are allocated to your Annuity, they will also be subject to the formula, which may result in immediate transfers to or from the Bond Portfolios, if dictated by the formula. The amounts of any such transfers will vary, as dictated by the formula, and will depend on the factors listed below. The amount that is transferred to and from the Bond Portfolios pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . The difference between your Account Value and your Guarantee Amount(s); . The amount of time until the maturity of your Guarantee(s); . The amount invested in, and the performance of, the Permitted Sub-accounts; . The amount invested in, and the performance of, the Bond Portfolios; . The discount rate used to determine the present value of your Guarantee(s); . Additional purchase payments, if any, that you make to the Annuity; and . Withdrawals, if any, taken from the Annuity. Any amounts invested in the Bond Portfolios will affect your ability to participate in a subsequent recovery within the Permitted Sub-accounts. Conversely, the Account Value may be higher at the beginning of the recovery, e.g. more of the Account Value may have been protected from decline and volatility than it otherwise would have been had the benefit not been elected. The Bond Portfolios are available only with these benefits, and you may not allocate purchase payments and transfer Account Value to or from the Bond Portfolios. Transfers under the formula do not impact any guarantees under the benefit that have already been locked-in. 47 Election/Cancellation of the Benefit GRO Plus 2008 can be elected on the Issue Date of your Annuity, or at any time thereafter. You may elect GRO Plus 2008 only if the oldest of the Owner and Annuitant is 84 or younger on the date of election (80 or younger, in New York). If you currently participate in one of the original versions of GRO, you may terminate that benefit at any time and elect GRO Plus 2008. You may cancel the GRO Plus 2008 benefit at any time. You also can cancel an enhanced guarantee, but leave the base guarantee intact. Upon cancellation of GRO Plus 2008, we will transfer any Account Value that is held in an AST bond portfolio Sub-account to the other Sub-accounts, according to your current allocation instructions. GRO Plus 2008 will terminate automatically upon: (a) the death of the Owner or the Annuitant (in an entity owned contract), unless the Annuity is continued by the surviving spouse; (b) as of the date Account Value is applied to begin annuity payments; (c) as of the anniversary of benefit election that immediately precedes the contractually-mandated latest annuity date, or (d) upon full surrender of the Annuity. If you elect to terminate the benefit, GRO Plus 2008 will no longer provide any guarantees. The charge for the GRO Plus 2008 benefit will no longer be deducted from your Account Value upon termination of the benefit. If you wish, you may cancel the GRO Plus 2008 benefit. You may then elect either GRO Plus 2008 or Highest Daily GRO (or any other currently available living benefit) on any Valuation Day after you have cancelled the GRO Plus 2008 benefit, provided the request is received in good order (subject to state availability and in accordance with any applicable age requirements). Upon cancellation of the GRO Plus 2008 benefit, any Account Value allocated to the AST Bond Portfolio Sub-accounts used with the formula will be reallocated to the Permitted Sub-Accounts according to your most recent allocation instructions or, in absence of such instructions, pro rata. Upon your re-election of GRO Plus 2008 or election of Highest Daily GRO, Account Value may be transferred between the AST Bond Portfolio Sub-accounts and the Permitted Sub-accounts according to the formula (see "Key Feature - Allocation of Account Value" section for more details). It is possible that over time the formula could transfer some, all, or none of the Account Value to the AST Bond Portfolio Sub-accounts under the newly-elected benefit. You also should be aware that upon cancellation of the GRO Plus 2008 benefit, you will lose all guarantees that you had accumulated under the benefit. Thus, the guarantees under any newly-elected benefit will be based on your current Account Value. The benefit you elect or re-elect may be more expensive than the benefit you cancel. Once the GRO Plus 2008 benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the GRO Plus 2008 benefit provided that the benefit you are looking to elect is available on a post-issue basis. Special Considerations under GRO Plus 2008 This benefit is subject to certain rules and restrictions, including, but not limited to the following: . Upon inception of the benefit, 100% of your Account Value must be allocated to the permitted Sub-accounts. No fixed interest rate allocations may be in effect as of the date that you elect to participate in the benefit. . You cannot participate in any dollar cost averaging program that transfers Account Value from a fixed interest rate option to a Sub-account. . Transfers between an AST bond portfolio Sub-account and your other Sub-accounts under the benefit will not count toward the maximum number of free transfers allowable under the Annuity. . Any amounts applied to your Account Value by us on a maturity date will not be treated as "investment in the contract" for income tax purposes. . As the time remaining until the applicable maturity date gradually decreases, the benefit may become increasingly sensitive to moves to an AST bond portfolio Sub-account. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Moreover, if you are invested in prohibited investment options and seek to acquire the benefit, we will ask you to reallocate to permitted investment options as a prerequisite to acquiring the benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. . If you elect this benefit, and in connection with that election you are required to reallocate to different investment options permitted under this benefit, then on the Valuation Day on which we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly-elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly-elected benefit will not arise until the close of business on the following Valuation Day. Charges under the Benefit We deduct a charge equal to 0.60% (0.35%, for elections prior to May 1, 2009) of the average daily net assets of the Sub-accounts for participation in the GRO Plus 2008 benefit. The annual charge is deducted daily. The charge is deducted to compensate us for: (a) the risk that your Account Value on a maturity date is less than the amount guaranteed and (b) administration of the benefit. We reserve the right to increase this fee for newly-issued contracts or new elections of the benefit. The charges will not exceed the maximum charges shown in the section of the prospectus entitled "Summary of Contract Fees and Charges." HIGHEST DAILY GUARANTEED RETURN OPTION/SM/ (HD GRO/SM/) You can elect this benefit on the Issue Date of your Annuity, or at any time thereafter (unless you previously participated in this benefit, in which case your election must be on an Annuity Anniversary). Highest Daily GRO is not available if you participate in 48 any other living benefit. However, Highest Daily GRO may be elected together with any optional death benefit, other than the Highest Daily Value Death Benefit. Highest Daily GRO creates a series of separate guarantees, each of which is based on the highest Account Value attained on a day during the applicable time period. As each year of your participation in the benefit passes, we create a new guarantee. Each guarantee then remains in existence until the date on which it matures (unless the benefit terminates sooner). We refer to each date on which the specified Account Value is guaranteed as the "maturity date" for that guarantee. Highest Daily GRO will not create a guarantee if the maturity date of that guarantee would extend beyond the date by which annuity payments must commence under the terms of your Annuity. This is true even with respect to a new Owner who has acquired the Annuity from the original Owner. The guarantees provided by the benefit exist only on the applicable maturity date(s). However, due to the ongoing monitoring of your Account Value, and the transfer of Account Value to support our future guarantees, the benefit may provide some protection from significant Sub-account losses if you choose to surrender your Annuity or begin receiving annuity payments prior to a maturity date. For this same reason, the benefit may limit your ability to benefit from Sub-account increases while it is in effect. The initial guarantee is created on the day that the Highest Daily GRO benefit is added to your Annuity. We guarantee that your Account Value on the tenth anniversary of that day (we refer to each such anniversary as a "benefit anniversary") will not be less than your Account Value on the day that the Highest Daily GRO benefit was added to your Annuity. Each benefit anniversary thereafter, we create a new guarantee. With respect to each such subsequent guarantee, we identify the highest Account Value that occurred between the date of that benefit anniversary and the date on which Highest Daily GRO was added to your Annuity. We guarantee that your Account Value ten years after that benefit anniversary will be no less than the highest daily Account Value that occurred during that time period. The following example illustrates the time period over which we identify the highest daily Account Value for purposes of each subsequent guarantee under the benefit. If the date of benefit election were January 1, 2009, we would create a guarantee on January 1, 2012 based on the highest Account Value achieved between January 1, 2009 and January 1, 2012, and that guarantee would mature on January 1, 2022. As described below, we adjust each of the guarantee amounts for purchase payments and withdrawals. In general, we refer to a date on which the Account Value is guaranteed to be present as the "maturity date". If the Account Value on the maturity date is less than the guaranteed amount, we will contribute funds from our general account to bring your Account Value up to the guaranteed amount. If the maturity date is not a Valuation Day, then we would contribute such an amount on the next Valuation Day. We will allocate any such amount to each Sub-account (other than the "Current AST bond portfolio Sub-account" described below) in accordance with your current allocations instructions. Regardless of whether we need to contribute funds at the end of a guarantee period, we will at that time transfer all amounts held within the AST bond portfolio Sub-account associated with the maturing guarantee to your other Sub-accounts, on a pro rata basis. If the entire account value is invested in the AST bond portfolio Sub-account, we will allocate according to your current allocation instructions. We increase the amount of each guarantee that has not yet reached its maturity date, as well as the highest daily Account Value that we calculate to establish a guarantee, by the amount of each Purchase Payment (and associated Credits) made prior to the applicable maturity date. For example, if the effective date of the benefit was January 1, 2009, and there was an initial guaranteed amount that was set at $100,000 maturing January 1, 2019, and a second guaranteed amount that was set at $120,000 maturing January 1, 2020, then a $30,000 Purchase Payment made on March 30, 2010 would increase the guaranteed amounts to $130,000 and $150,000, respectively. As illustrated in the examples below, additional purchase payments also increase an amount we refer to as the "dollar-for-dollar corridor." We reflect the effect of withdrawals by reference to an amount called the "dollar-for-dollar corridor." The dollar-for-dollar corridor is set initially to equal 5% of the initial guaranteed amount (i.e., 5% of the Account Value at benefit election). Each "benefit year" (i.e., a year that begins on the date of election of Highest Daily GRO and each anniversary thereafter), withdrawals that you make that are equal to or less than the dollar-for-dollar corridor reduce (i) the amount of the dollar-for-dollar corridor for that benefit year (ii) the amount of each outstanding guarantee amount, and (iii) the highest daily Account Value that we calculate to establish a guarantee, by the exact amount of the withdrawal. However, if you withdraw more than the dollar-for-dollar corridor in a given benefit year, we use the portion of the withdrawal that exceeded the dollar-for-dollar corridor to effect a proportional reduction to both the dollar-for-dollar corridor itself and each outstanding guaranteed amount, as well as the highest daily Account Value that we calculate to establish a guarantee. We calculate a proportional reduction by (i) identifying the amount of the withdrawal that exceeded the dollar-for-dollar corridor (the "excess withdrawal") (ii) subtracting the dollar-for-dollar amount from the Account Value prior to the withdrawal (iii) dividing the excess withdrawal by the amount in (ii), and (iv) reducing each guaranteed amount, as well as the highest daily Account Value that we calculate to establish a guarantee and the dollar for dollar corridor itself, by the percentage derived in (iii). See examples of this calculation below. Any partial withdrawals in payment of any third party investment advisory service will be treated as withdrawals, and will reduce each applicable guaranteed amount and the dollar-for-dollar corridor in the manner indicated above. EXAMPLES The following examples of dollar-for-dollar and proportional reductions assume that: 1.) the Issue Date and the effective date of the Highest Daily GRO benefit are October 13, 2008; 2.) an initial Purchase Payment of $250,000 (includes any Credits); 3.) an initial 49 guarantee amount of $250,000; and 4.) a dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for Highest Daily GRO or other fees and charges. Example 1. Dollar-for-dollar reduction A $10,000 withdrawal is taken on November 29, 2008 (in the first Annuity Year). No prior withdrawals have been taken. As the amount withdrawn is less than the Dollar-for-dollar Limit: . The initial guarantee amount is reduced by the amount withdrawn (i.e., by $10,000, from $250,000 to $240,000). . The remaining dollar-for-dollar limit ("Remaining Limit") for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $12,500 to $2,500). Example 2. Dollar-for-dollar and proportional reductions A second $10,000 withdrawal is taken on December 18, 2008 (still within the first Annuity Year). The Account Value immediately before the withdrawal is $180,000. As the amount withdrawn exceeds the Remaining Limit of $2,500 from Example 1: . the initial guarantee amount is first reduced by the Remaining Limit (from $240,000 to $237,500); . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or $7,500). -- B is the Account Value less the Remaining Limit ($180,000 - $2,500, or $177,500). The resulting initial guarantee amount is: $237,500 X (1 - $7,500 / $177,500), or $227,464.79. . The Remaining Limit is set to zero (0) for the balance of the first Annuity Year. The resulting dollar-for-dollar corridor for the next year is $11,373.24 (i.e., 5% of $227,464.79). The resulting dollar-for-dollar corridor for the next Annuity Year is calculated by multiplying the prior dollar-for-dollar corridor by the same ratio by which we reduce the Guarantee Amount above: $12,500 X (1 - $7,500 / $177,500), or $11,971.83. Key Feature - Allocation of Account Value Highest Daily GRO uses a mathematical formula to help manage your guarantees through all market cycles. Because the formula is made part of your schedule supplement, the formula may not be altered. However, subject to regulatory approval, we do reserve the right to amend the formula for newly-issued annuity contracts that elect Highest Daily GRO and for existing contracts that elect the benefit post-issue. This required formula helps us manage our financial exposure under Highest Daily GRO, by moving assets out of certain Sub-accounts in certain scenarios if dictated by the formula (see below). In essence, we seek to preserve the value of these assets, by transferring them to a more stable option (i.e., one of a specified group of bond portfolios within Advanced Series Trust) (collectively, the "AST Bond Portfolios"). The formula also contemplates the transfer of assets from the AST Bond Portfolios to the Permitted Sub-accounts in other scenarios. For purposes of operating the Highest Daily GRO formula, we have included as investment options within this Annuity several AST bond portfolios. Each AST bond portfolio is unique, in that its underlying investments generally mature at the same time as each outstanding maturity date that exists under the benefit. For example, there would be an AST bond portfolio whose underlying investments generally mature in 2018 (corresponding to all guarantees that mature in 2018), an AST Bond Portfolio whose underlying investments generally mature in 2019 (corresponding to all guarantees that mature in 2019), and so forth. We will introduce new AST bond portfolios in subsequent years, to correspond generally to the length of new guarantee periods that are created under this benefit. If you have elected Highest Daily GRO, you may invest in an AST bond portfolio only by operation of the formula, and thus you may not allocate purchase payments to, or transfer Account Value to or from, such a Portfolio. Please see this prospectus and the prospectus for the Advanced Series Trust for more information about each AST bond portfolio used with this benefit. A summary description of each AST Bond Portfolio appears within the Prospectus section entitled "What Are The Investment Objectives and Policies Of The Portfolios?" Upon the initial transfer of your Account Value into an AST Bond Portfolio, we will send a prospectus for that Portfolio to you along with your confirmation. In addition, you can find a copy of the AST Bond Portfolio prospectus by going to www.prudentialannuities.com Although we employ several AST bond portfolios for purposes of the benefit, the formula described in the next paragraph operates so that your Account Value may be allocated to only one AST bond portfolio Sub-account at one time. In the description of the formula in the next paragraph, we refer to the AST bond portfolio Sub-account in which you are invested immediately prior to any potential asset transfer as the "Current AST bond portfolio Sub-account." The formula may dictate that a transfer out of the Current AST bond portfolio Sub-account be made, or alternatively may mandate a transfer into an AST bond portfolio Sub-account. Any transfer into an AST bond portfolio Sub-account will be directed to the AST bond portfolio Sub-account associated with the "current liability" (we refer to that Sub-account as the "Transfer AST bond portfolio Sub-account"). Note that if the Current AST bond portfolio Sub-account is associated with the current liability, then that Sub-account would be the Transfer AST bond portfolio Sub-account, and we would simply transfer additional assets into the Sub-account if dictated by the formula. In general, the formula works as follows. On each Valuation Day, the formula automatically performs an analysis with respect to each guarantee that is outstanding. For each outstanding guarantee, the formula begins by determining the present value on that 50 Valuation Day that, if appreciated at the applicable "discount rate", would equal the applicable guarantee amount on the maturity date. As detailed in the formula, the discount rate is an interest rate determined by taking a benchmark index used within the financial services industry and then reducing that interest rate by a prescribed adjustment. Once selected, we do not change the applicable benchmark index (although we do reserve the right to use a new benchmark index if the original benchmark is discontinued). The greatest of each such present value is referred to as the "current liability" in the formula. The formula compares the current liability to the amount of your Account Value held within the Current AST bond portfolio Sub-account and to your Account Value held within the other Sub-accounts. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount held within your other Sub-accounts, exceeds an upper target value (currently, 0.85), then the formula will make a transfer into the Transfer AST bond portfolio Sub-account, in the amount dictated by the formula. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount within your other Sub-accounts, is less than a lower target value (currently, 0.79), then the formula will transfer Account Value within the Current AST bond portfolio Sub-account into the other Sub-accounts (other than the Transfer AST bond portfolio Sub-account), in the amount dictated by the formula. As discussed above, each Valuation Day, the formula analyzes the difference between your Account Value and your guarantees, as well as how long you have owned the benefit, and determines if any portion of your Account Value needs to be transferred into or out of the AST bond portfolios. Therefore, at any given time, some, none, or all of your Account Value may be allocated to the AST bond portfolios. If your entire Account Value is transferred to the AST bond portfolios, then based on the way the formula operates, the formula will not transfer amounts out of the AST bond portfolios to the Sub-accounts and the entire Account Value would remain in the AST bond portfolios. If you make additional purchase payments to your Annuity, they will be allocated to the Sub-accounts according to your allocation instructions. Such additional purchase payments may or may not cause the formula to transfer money in or out of the AST bond portfolios. Once the purchase payments are allocated to your Annuity, they will also be subject to the formula, which may result in immediate transfers to or from the AST bond portfolios, if dictated by the formula. The amount that is transferred to and from the AST bond portfolios pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . The difference between your Account Value and your Guarantee Amount(s); . The amount of time until the maturity of your Guarantee(s); . The amount invested in, and the performance of, the Permitted Sub-accounts; . The amount invested in, and the performance of, the AST bond portfolios; . The discount rate used to determine the present value of your Guarantee(s); . Additional purchase payments, if any, that you make to the Annuity; and . Withdrawals, if any, taken from the Annuity. Any amounts invested in the AST bond portfolios will affect your ability to participate in a subsequent recovery within the Permitted Sub-accounts. Conversely, the Account Value may be higher at the beginning of the recovery, e.g. more of the Account Value may have been protected from decline and volatility than it otherwise would have been had the benefit not been elected. The AST bond portfolios are available only with these benefits, and you may not allocate purchase payments and transfer Account Value to or from the AST bond portfolios. Transfers do not impact any guarantees that have already been locked-in. Election/Cancellation of the Benefit Highest Daily GRO can be elected on the Issue Date of your Annuity, or at any time thereafter. You may elect Highest Daily GRO only if the oldest of the Owner and Annuitant is 84 or younger on the date of election (80 or younger, in New York). If you currently participate in one of the original versions of GRO, you may terminate that benefit at any time and elect Highest Daily GRO. If you wish, you may cancel the Highest Daily GRO benefit. You may then elect either GRO Plus 2008 or Highest Daily GRO (or any other currently available living benefit, which is available to be added post issue) on any Valuation Day after you have cancelled the Highest Daily GRO benefit, provided the request is received in good order (subject to state availability and in accordance with any applicable age requirements). Upon cancellation of the Highest Daily GRO benefit, any Account Value allocated to the AST Bond Portfolio Sub-accounts used with the formula will be reallocated to the Permitted Sub-Accounts according to your most recent allocation instructions or, in absence of such instructions, pro-rata. Upon your re-election of GRO Plus 2008 or Highest Daily GRO, Account Value may be transferred between the AST Bond Portfolio Sub-accounts and the other Sub-accounts according to the formula (see "Key Feature - Allocation of Account Value" section for more details). It is possible that over time the formula could transfer some, all, or none of the Account Value to the AST Bond Portfolio Sub-accounts under the newly-elected benefit. You also should be aware that upon cancellation of the Highest Daily GRO benefit, you will lose all guarantees that you had accumulated under the benefit. Thus, the guarantees under your newly-elected benefit will be based on your current Account Value. The benefit you elect or re-elect may be more expensive than the benefit you cancel. Once the Highest Daily GRO benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Highest Daily GRO benefit provided that the benefit you are looking to elect is available on a post-issue basis. 51 Highest Daily GRO will terminate automatically upon: (a) the death of the Owner or the Annuitant (in an entity owned contract), unless the Annuity is continued by the surviving spouse; (b) as of the date Account Value is applied to begin annuity payments; (c) as of the anniversary of benefit election that immediately precedes the contractually-mandated latest annuity date, or (d) upon full surrender of the Annuity. If you elect to terminate the benefit, Highest Daily GRO will no longer provide any guarantees. The charge for the Highest Daily GRO benefit will no longer be deducted from your Account Value upon termination of the benefit. Special Considerations under Highest Daily GRO This benefit is subject to certain rules and restrictions, including, but not limited to the following: . Upon inception of the benefit, 100% of your Account Value must be allocated to the Permitted Sub-accounts. No fixed interest rate allocations may be in effect as of the date that you elect to participate in the benefit. . You cannot participate in any dollar cost averaging program that transfers Account Value from a fixed interest rate option to a Sub-account. . Transfers from the other Sub-accounts to an AST bond portfolio Sub-account or from an AST bond portfolio Sub-account to the other Sub-accounts under the benefit will not count toward the maximum number of free transfers allowable under the Annuity. . Any amounts applied to your Account Value by us on a maturity date will not be treated as "investment in the contract" for income tax purposes. . As the time remaining until the applicable maturity date gradually decreases, the benefit may become increasingly sensitive to moves to an AST bond portfolio Sub-account. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Moreover, if you are invested in prohibited investment options and seek to acquire the benefit, we will ask you to reallocate to permitted investment options as a prerequisite to acquiring the benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. . If you elect this benefit, and in connection with that election you are required to reallocate to different investment options permitted under this benefit, then on the Valuation Day on which we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly-elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly-elected benefit will not arise until the close of business on the following Valuation Day. Charges under the Benefit We deduct an annual charge equal to 0.60% (0.35% for elections prior to May 1, 2009) of the average daily net assets of the Sub-accounts (including each AST bond portfolio Sub-account) for participation in the Highest Daily GRO benefit. The charge is deducted daily. The charge is deducted to compensate us for: (a) the risk that your Account Value on the maturity date is less than the amount guaranteed and (b) administration of the benefit. We reserve the right to increase this fee for newly-issued contracts or new elections of the benefit. The charges will not exceed the maximum charges shown in the section of this Prospectus entitled "Summary of Contract Fees and Charges." GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB) The Guaranteed Minimum Withdrawal Benefit is no longer available for new elections. The Guaranteed Minimum Withdrawal Benefit guarantees your ability to withdraw amounts equal to an initial principal value (called the "Protected Value"), regardless of the impact of Sub-account performance on your Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity and wish to ensure that Sub-account performance will not affect your ability to protect your principal. You are not required to make withdrawals as part of the benefit - the guarantee is not lost if you withdraw less than the maximum allowable amount of principal each year under the rules of the benefit. There is an additional charge if you elect the GMWB benefit; however, the charge may be waived under certain circumstances described below. Key Feature - Protected Value The Protected Value is the total amount that we guarantee will be available to you through withdrawals from your Annuity and/or benefit payments, regardless of the impact of Sub-account performance on your Account Value. The Protected Value is reduced with each withdrawal you make until the Protected Value is reduced to zero. When the Protected Value is reduced to zero due to your withdrawals, the GMWB benefit terminates. Additionally, the Protected Value is used to determine the maximum annual amount that you can withdraw from your Annuity, called the Protected Annual Withdrawal Amount, without triggering an adjustment in the Protected Value on a proportional basis. The Protected Value is referred to as the "Benefit Base" in the rider we issue for this benefit. The Protected Value is determined as of the date you make your first withdrawal under your Annuity following your election of the GMWB benefit. The initial Protected Value is equal to the greater of (A) the Account Value on the date you elect the GMWB benefit, plus any additional purchase payments (plus any Credits applied to such purchase payments) before the date of your first withdrawal; or (B) the Account Value as of the date of the first withdrawal from your Annuity. The Protected Value may be 52 enhanced by increases in your Account Value due to market performance during the period between your election of the GMWB benefit and the date of your first withdrawal. . If you elect the GMWB benefit at the time you purchase your Annuity, the Account Value will be your initial Purchase Payment (plus any Credits applied to such purchase payments). . If we offer the GMWB benefit to existing Annuity Owners, the Account Value on the anniversary of the Issue Date of your Annuity following your election of the GMWB benefit will be used to determine the initial Protected Value. . If you make additional purchase payments after your first withdrawal, the Protected Value will be increased by the amount of the additional purchase payment (plus any Credits applied to such purchase payments). You may elect to step-up your Protected Value if, due to positive market performance, your Account Value is greater than the Protected Value. You are eligible to step-up the Protected Value on or after the 5/th/ Annuity anniversary following the first withdrawal under the GMWB benefit. The Protected Value can be stepped up again on or after the 5/th/ Annuity anniversary following the preceding step-up. If you elect to step-up the Protected Value, you must do so during the 30-day period prior to your eligibility date. If you elect to step-up the Protected Value under the benefit, and on the date you elect to step-up, the charges under the GMWB benefit have changed for new purchasers, your benefit may be subject to the new charge going forward. Upon election of the step-up, we reset the Protected Value to be equal to the then current Account Value. For example, assume your initial Protected Value was $100,000 and you have made cumulative withdrawals of $40,000, reducing the Protected Value to $60,000. On the date you are eligible to step-up the Protected Value, your Account Value is equal to $75,000. You could elect to step-up the Protected Value to $75,000 on the date you are eligible. Upon election of the step-up, we also reset the Protected Annual Withdrawal Amount (discussed immediately below) to be equal to the greater of (A) the Protected Annual Withdrawal Amount immediately prior to the reset; and (B) 7% of the Protected Value immediately after the reset. Key Feature - Protected Annual Withdrawal Amount. The initial Protected Annual Withdrawal Amount is equal to 7% of the Protected Value. Under the GMWB benefit, if your cumulative withdrawals each Annuity Year are less than or equal to the Protected Annual Withdrawal Amount, your Protected Value will be reduced on a "dollar-for-dollar" basis (the Protected Value is reduced by the actual amount of the withdrawal, including any CDSC or MVA that may apply). Cumulative withdrawals in any Annuity Year that exceed the Protected Annual Withdrawal Amount trigger a proportional adjustment to both the Protected Value and the Protected Annual Withdrawal Amount, as described in the rider for this benefit (see the examples of this calculation below). The Protected Annual Withdrawal Amount is referred to as the "Maximum Annual Benefit" in the rider we issue for this benefit. The GMWB benefit does not affect your ability to make withdrawals under your Annuity or limit your ability to request withdrawals that exceed the Protected Annual Withdrawal Amount. You are not required to withdraw all or any portion of the Protected Annual Withdrawal Amount each Annuity Year. If, cumulatively, you withdraw an amount less than the Protected Annual Withdrawal Amount in any Annuity Year, you cannot carry-over the unused portion of the Protected Annual Withdrawal Amount to subsequent Annuity Years. However, because the Protected Value is only reduced by the actual amount of withdrawals you make under these circumstances, any unused Protected Annual Withdrawal Amount may extend the period of time until the remaining Protected Value is reduced to zero. . Additional purchase payments will increase the Protected Annual Withdrawal Amount by 7% of the applicable Purchase Payment (and any Credits we apply to such purchase payments under Optimum XTra). . If the Protected Annual Withdrawal Amount after an adjustment exceeds the Protected Value, the Protected Annual Withdrawal Amount will be set equal to the Protected Value. The following examples of dollar-for-dollar and proportional reductions and the reset of the Maximum Annual Benefit assume that: 1.) the Issue Date and the effective date of the GMWB benefit are October 13, 2005; 2.) an initial Purchase Payment of $250,000 (includes any Credits); 3.) a Protected Value of $250,000; and 4.) a Protected Annual Withdrawal Amount of $17,500 (7% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for GMWB or any other fees and charges. Example 1. Dollar-For-Dollar Reduction A $10,000 withdrawal is taken on November 13, 2005 (in the first Annuity Year). No prior withdrawals have been taken. As the amount withdrawn is less than the Protected Annual Withdrawal Amount: . The Protected Value is reduced by the amount withdrawn (i.e., by $10,000, from $250,000 to $240,000). . The remaining Protected Annual Withdrawal Amount for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $17,500 to $7,500). Example 2. Dollar-For-Dollar and Proportional Reductions A second $10,000 withdrawal is taken on December 13, 2005 (still within the first Annuity Year). The Account Value immediately before the withdrawal is $220,000. As the amount withdrawn exceeds the remaining Protected Annual Withdrawal Amount of $7,500 from Example 1: . The Protected Value is first reduced by the remaining Protected Annual Withdrawal Amount (from $240,000 to $232,500); 53 . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the remaining Protected Annual Withdrawal Amount ($10,000 - $7,500, or $2,500). -- B is the Account Value less the remaining Protected Annual Withdrawal Amount ($220,000 - $7,500, or $212,500). The resulting Protected Value is: $232,500 X (1 - $2,500 / $212,500), or $229,764.71. . The Protected Annual Withdrawal Amount is also reduced by the ratio of A to B: The resulting Protected Annual Withdrawal Amount is: $17,500 X (1 - $2,500 / $212,500), or $17,294.12; . The remaining Protected Annual Withdrawal Amount is set to zero (0) for the balance of the first Annuity Year. Example 3. Reset of the Maximum Annual Benefit A $10,000 withdrawal is made on October 13, 2006 (second Annuity Year). The remaining Protected Annual Withdrawal Amount has been reset to the Protected Annual Withdrawal Amount of $17,294.12 from Example 2. As the amount withdrawn is less than the remaining Protected Annual Withdrawal Amount: . the Protected Value is reduced by the amount withdrawn (i.e., reduced by $10,000, from $229,764.71 to $219,764.71). . the remaining Protected Annual Withdrawal Amount for the balance of the second Annuity Year is also reduced by the amount withdrawn (from $17,294.12 to $7,294.12). BENEFITS UNDER GMWB . In addition to any withdrawals you make under the GMWB benefit, Sub-account performance may reduce your Account Value. If your Account Value is equal to zero, and you have not received all of your Protected Value in the form of withdrawals from your Annuity, we will continue to make payments equal to the remaining Protected Value in the form of fixed, periodic payments until the remainder of the Protected Value is paid, at which time the rider terminates. The fixed, periodic payments will each be equal to the Protected Annual Withdrawal Amount, except for the last payment which may be equal to the remaining Protected Value. We will determine the duration for which periodic payments will continue by dividing the Protected Value by the Protected Annual Withdrawal Amount. You will not have the right to make additional purchase payments or receive the remaining Protected Value in a lump sum. You can elect the frequency of payments, subject to our rules then in effect. . If the death benefit under your Annuity becomes payable before you have received all of your Protected Value in the form of withdrawals from your Annuity, your Beneficiary has the option to elect to receive the remaining Protected Value as an alternate death benefit payout in lieu of the amount payable under any other death benefit provided under your Annuity. The remaining Protected Value will be payable in the form of fixed, periodic payments. Your beneficiary can elect the frequency of payments, subject to our rules then in effect. We will determine the duration for which periodic payments will continue by dividing the Protected Value by the Protected Annual Withdrawal Amount. The Protected Value is not equal to the Account Value for purposes of the Annuity's other death benefit options. The GMWB benefit does not increase or decrease the amount otherwise payable under the Annuity's other death benefit options. Generally, the GMWB benefit would be of value to your Beneficiary only when the Protected Value at death exceeds any other amount available as a death benefit. . If you elect to begin receiving annuity payments before you have received all of your Protected Value in the form of withdrawals from your Annuity, an additional annuity payment option will be available that makes fixed annuity payments for a certain period, determined by dividing the Protected Value by the Protected Annual Withdrawal Amount. If you elect to receive annuity payments calculated in this manner, the assumed interest rate used to calculate such payments will be 0%, which is less than the assumed interest rate on other annuity payment options we offer. This 0% assumed interest rate results in lower annuity payments than what would have been paid if the assumed interest rate was higher than 0%. You can also elect to terminate the GMWB benefit and begin receiving annuity payments based on your then current Account Value (not the remaining Protected Value) under any of the available annuity payment options. Other Important Considerations . Withdrawals under the GMWB benefit are subject to all of the terms and conditions of your Annuity, including any CDSC and MVA that may apply. . Withdrawals made while the GMWB benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under your Annuity. . The GMWB benefit does not directly affect your Annuity's Account Value or Surrender Value, but any withdrawal will decrease the Account Value by the amount of the withdrawal. If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the GMWB benefit. The GMWB benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Protected Value in the form of periodic benefit payments. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. 54 Election of the Benefit The GMWB benefit is no longer available. We reserve the right to restrict the maximum amount of Protected Value that may be covered under the GMWB benefit under this Annuity or any other annuities that you own that are issued by Prudential Annuities or its affiliated companies. Termination of the Benefit The benefit terminates automatically when your Protected Value reaches zero based on your withdrawals. You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective. The benefit terminates upon your surrender of your Annuity, upon due proof of death (unless your surviving spouse elects to continue your Annuity and the GMWB benefit or your Beneficiary elects to receive the amounts payable under the GMWB benefit in lieu of the death benefit) or upon your election to begin receiving annuity payments. The charge for the GMWB benefit will no longer be deducted from your Account Value upon termination of the benefit. Charges under the Benefit Currently, we deduct a charge equal to 0.35% of the average daily net assets of the Sub-accounts per year for the GMWB benefit. The annual charge is deducted daily. . If, during the seven years following the effective date of the benefit, you do not make any withdrawals, and do not make any additional purchase payments after a five-year period following the effective date of the benefit, the benefit will remain in effect; however, we will waive the annual charge going forward. If you make an additional Purchase Payment following the waiver of the annual charge, we will begin charging for the benefit. After year seven (7) following the effective date of the program, withdrawals will not cause a charge to be re-imposed. . If you elect to step-up the Protected Value under the benefit, and on the date you elect to step-up, the charges under the benefit have changed for new purchasers, your benefit may be subject to the new charge level for the benefit. Additional Tax Considerations for Qualified Contracts/Arrangements If you purchase an Annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than 5% owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Protected Annual Withdrawal Amount, which will cause us to recalculate the Protected Value and the Protected Annual Withdrawal Amount, resulting in a lower amount payable in future Annuity Years. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as required minimum distribution provisions under the tax law. GUARANTEED MINIMUM INCOME BENEFIT (GMIB) The Guaranteed Minimum Income Benefit is no longer available for new elections. The Guaranteed Minimum Income Benefit is an optional benefit that, after a seven-year waiting period, guarantees your ability to begin receiving income from your Annuity in the form of annuity payments based on a guaranteed minimum value (called the "Protected Income Value") that increases after the waiting period begins, regardless of the impact of Sub-account performance on your Account Value. The benefit may be appropriate for you if you anticipate using your Annuity as a future source of periodic fixed income payments for the remainder of your life and wish to ensure that the basis upon which your income payments will be calculated will achieve at least a minimum amount despite fluctuations in market performance. There is an additional charge if you elected the GMIB benefit. Key Feature - Protected Income Value The Protected Income Value is the minimum amount that we guarantee will be available (net of any applicable tax charge), after a waiting period of at least seven years, as a basis to begin receiving fixed annuity payments. The Protected Income Value is initially established on the effective date of the GMIB benefit and is equal to your Account Value on such date. Currently, since the GMIB benefit may only be elected at issue, the effective date is the Issue Date of your Annuity. The Protected Income Value is increased daily based on an annual growth rate of 5%, subject to the limitations described below. The Protected Income Value is referred to as the "Protected Value" in the rider we issue for this benefit. The 5% annual growth rate is referred to as the "Roll-Up Percentage" in the rider we issue for this benefit. The Protected Income Value is subject to a limit of 200% (2X) of the sum of the Protected Income Value established on the effective date of the GMIB benefit, or the effective date of any step-up value, plus any additional purchase payments (and any Credit that is applied to such purchase payments) made after the waiting period begins ("Maximum Protected Income Value"), minus the sum of any reductions in the Protected Income Value due to withdrawals you make from your Annuity after the waiting period begins. 55 . Subject to the maximum age/durational limits described immediately below, we will no longer increase the Protected Income Value by the 5% annual growth rate once you reach the Maximum Protected Income Value. However, we will increase the Protected Income Value by the amount of any additional purchase payments after you reach the Maximum Protected Income Value. Further, if you make withdrawals after you reach the Maximum Protected Income Value, we will reduce the Protected Income Value and the Maximum Protected Income Value by the proportional impact of the withdrawal on your Account Value. . Subject to the Maximum Protected Income Value, we will no longer increase the Protected Income Value by the 5% annual growth rate after the later of the anniversary date on or immediately following the Annuitant's 80/th/ birthday or the 7/th/ anniversary of the later of the effective date of the GMIB benefit or the effective date of the most recent step-up. However, we will increase the Protected Income Value by the amount of any additional purchase payments (and any Credit that is applied to such purchase payments). Further, if you make withdrawals after the Annuitant reaches the maximum age/duration limits, we will reduce the Protected Income Value and the Maximum Protected Income Value by the proportional impact of the withdrawal on your Account Value. . Subject to the Maximum Protected Income Value, if you make an additional purchase payment, we will increase the Protected Income Value by the amount of the purchase payment (and any Credit that is applied to such purchase payment) and will apply the 5% annual growth rate on the new amount from the date the purchase payment is applied. . As described below, after the waiting period begins, cumulative withdrawals each Annuity Year that are up to 5% of the Protected Income Value on the prior anniversary of your Annuity will reduce the Protected Income Value by the amount of the withdrawal. Cumulative withdrawals each Annuity Year in excess of 5% of the Protected Income Value on the prior anniversary of your Annuity will reduce the Protected Income Value proportionately. All withdrawals after the Maximum Protected Income Value is reached will reduce the Protected Income Value proportionately. The 5% annual growth rate will be applied to the reduced Protected Income Value from the date of the withdrawal. Stepping-Up the Protected Income Value - You may elect to "step-up" or "reset" your Protected Income Value if your Account Value is greater than the current Protected Income Value. Upon exercise of the step-up provision, your initial Protected Income Value will be reset equal to your current Account Value. From the date that you elect to step-up the Protected Income Value, we will apply the 5% annual growth rate to the stepped-up Protected Income Value, as described above. You can exercise the step-up provision twice while the GMIB benefit is in effect, and only while the Annuitant is less than age 76. . A new seven-year waiting period will be established upon the effective date of your election to step-up the Protected Income Value. You cannot exercise your right to begin receiving annuity payments under the GMIB benefit until the end of the new waiting period. In light of this waiting period upon resets, it is not recommended that you reset your GMIB if the required beginning date under IRS minimum distribution requirements would commence during the 7 year waiting period. See "Tax Considerations" section in this prospectus for additional information on IRS requirements. . The Maximum Protected Income Value will be reset as of the effective date of any step-up. The new Maximum Protected Income Value will be equal to 200% of the sum of the Protected Income Value as of the effective date of the step-up plus any subsequent purchase payments (and any Credit that is applied to such purchase payments), minus the impact of any withdrawals after the date of the step-up. . When determining the guaranteed annuity purchase rates for annuity payments under the GMIB benefit, we will apply such rates based on the number of years since the most recent step-up. . If you elect to step-up the Protected Income Value under the benefit, and on the date you elect to step-up, the charges under the GMIB benefit have changed for new purchasers, your benefit may be subject to the new charge going forward. . A step-up will increase the dollar-for-dollar limit on the anniversary of the Issue Date of the Annuity following such step-up. Impact of Withdrawals on the Protected Income Value - Cumulative withdrawals each Annuity Year up to 5% of the Protected Income Value will reduce the Protected Income Value on a "dollar-for-dollar" basis (the Protected Income Value is reduced by the actual amount of the withdrawal). Cumulative withdrawals in any Annuity Year in excess of 5% of the Protected Income Value will reduce the Protected Income Value proportionately (see the examples of this calculation below). The 5% annual withdrawal amount is determined on each anniversary of the Issue Date (or on the Issue Date for the first Annuity Year) and applies to any withdrawals during the Annuity Year. This means that the amount available for withdrawals each Annuity Year on a "dollar-for-dollar" basis is adjusted on each Annuity anniversary to reflect changes in the Protected Income Value during the prior Annuity Year. The following examples of dollar-for-dollar and proportional reductions assume that: 1.) the Issue Date and the effective date of the GMIB benefit are October 13, 2005; 2.) an initial Purchase Payment of $250,000 (includes any Credits); 3.) an initial Protected Income Value of $250,000; and 4.) a dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for GMIB or any other fees and charges. Example 1. Dollar-For-Dollar Reduction A $10,000 withdrawal is taken on November 13, 2005 (in the first Annuity Year). No prior withdrawals have been taken. Immediately prior to the withdrawal, the Protected Income Value is $251,038.10 (the initial value accumulated for 31 days at an annual effective rate of 5%). As the amount withdrawn is less than the dollar-for-dollar limit: . The Protected Income Value is reduced by the amount withdrawn (i.e., by $10,000, from $251,038.10 to $241,038.10). 56 . The remaining dollar-for-dollar limit ("Remaining Limit") for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $12,500 to $2,500). Example 2. Dollar-For-Dollar and Proportional Reductions A second $10,000 withdrawal is taken on December 13, 2005 (still within the first Annuity Year). Immediately before the withdrawal, the Account Value is $220,000 and the Protected Income Value is $242,006.64. As the amount withdrawn exceeds the Remaining Limit of $2,500 from Example 1: . The Protected Income Value is first reduced by the Remaining Limit (from $242,006.64 to $239,506.64); . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or $7,500). -- B is the Account Value less the Remaining Limit ($220,000 - $2,500, or $217,500). The resulting Protected Income Value is: $239,506.64 X (1 - $7,500 / $217,500), or $231,247.79. . The Remaining Limit is set to zero (0) for the balance of the first Annuity Year. Example 3. Reset of the Dollar-For-Dollar Limit A $10,000 withdrawal is made on the first anniversary of the Issue Date, October 13, 2006 (second Annuity Year). Prior to the withdrawal, the Protected Income Value is $240,838.37. The Remaining Limit is reset to 5% of this amount, or $12,041.92. As the amount withdrawn is less than the dollar-for-dollar limit: . The Protected Income Value is reduced by the amount withdrawn (i.e., reduced by $10,000, from $240,838.37 to $230,838.37). . The Remaining Limit for the balance of the second Annuity Year is also reduced by the amount withdrawn (from $12,041.92 to $2,041.92). Key Feature - GMIB Annuity Payments You can elect to apply the Protected Income Value to one of the available GMIB Annuity Payment Options on any anniversary date following the initial waiting period, or any subsequent waiting period established upon your election to step-up the Protected Income Value. Once you have completed the waiting period, you will have a 30-day period each year, after the Annuity anniversary, during which you may elect to begin receiving annuity payments under one of the available GMIB Annuity Payment Options. You must elect one of the GMIB Annuity Payment Options by the anniversary of the Annuity's Issue Date on or immediately following the Annuitant's or your 95/th/ birthday or whichever is sooner, except for Annuities used as a funding vehicle for an IRA, SEP IRA or 403(b), in which case you must elect one of the GMIB Annuity Payment Options by the anniversary of the Annuity's Issue Date on or immediately following the Annuitant's 92/nd/ birthday. The amount of each GMIB Annuity Payment will be determined based on the age and, where permitted by law, sex of the Annuitant by applying the Protected Income Value (net of any applicable tax charge that may be due) to the GMIB Annuity Payment Option you choose. We use special annuity purchase rates to calculate the amount of each payment due under the GMIB Annuity Payment Options. These special rates for the GMIB Annuity Payment Options are calculated using an assumed interest rate factor that provides for lower growth in the value applied to produce annuity payments than if you elected an annuity payment option that is not part of the GMIB benefit. These special rates also are calculated using other factors such as "age setbacks" (use of an age lower than the Annuitant's actual age) that result in lower payments than would result if you elected an annuity payment option that is not part of the GMIB benefit. Use of an age setback entails a longer assumed life for the Annuitant which in turn results in lower annuity payments. On the date that you elect to begin receiving GMIB Annuity Payments, we guarantee that your payments will be calculated based on your Account Value and our then current annuity purchase rates if the payment amount calculated on this basis would be higher than it would be based on the Protected Income Value and the special GMIB annuity purchase rates. GMIB Annuity Payment Option 1 - Payments for Life with a Certain Period Under this option, monthly annuity payments will be made until the death of the Annuitant. If the Annuitant dies before having received 120 monthly annuity payments, the remainder of the 120 monthly annuity payments will be made to the Beneficiary. GMIB Annuity Payment Option 2 - Payments for Joint Lives with a Certain Period Under this option, monthly annuity payments will be made until the death of both the Annuitant and the Joint Annuitant. If the Annuitant and the Joint Annuitant die before having received 120 monthly annuity payments, the remainder of the 120 monthly annuity payments will be made to the Beneficiary. . If the Annuitant dies first, we will continue to make payments until the later of the death of the Joint Annuitant and the end of the period certain. However, if the Joint Annuitant is still receiving annuity payments following the end of the certain period, we will reduce the amount of each subsequent payment to 50% of the original payment amount. 57 . If the Joint Annuitant dies first, we will continue to make payments until the later of the death of the Annuitant and the end of the period certain. You cannot withdraw your Account Value or the Protected Income Value under either GMIB Annuity Payment Option once annuity payments have begun. We may make other payout frequencies available, such as quarterly, semi-annually or annually. Other Important Considerations You should note that GMIB is designed to provide a type of insurance that serves as a safety net only in the event your Account Value declines significantly due to negative investment performance. If your Account Value is not significantly affected by negative investment performance, it is unlikely that the purchase of the GMIB will result in your receiving larger annuity payments than if you had not purchased GMIB. This is because the assumptions that we use in computing the GMIB, such as the annuity purchase rates, (which include assumptions as to age-setbacks and assumed interest rates), are more conservative than the assumptions that we use in computing annuity payout options outside of GMIB. Therefore, you may generate higher income payments if you were to annuitize a lower Account Value at the current annuity purchase rates, than if you were to annuitize under the GMIB with a higher Protected Value than your Account Value but, at the annuity purchase rates guaranteed under the GMIB. The GMIB benefit does not directly affect an Annuity's Account Value, Surrender Value or the amount payable under either the basic Death Benefit provision of the Annuity or any optional Death Benefit provision. If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Income Value. The Protected Income Value is only applicable if you elect to begin receiving annuity payments under one of the GMIB annuity options after the waiting period. . Each Annuity offers other annuity payment options that you can elect which do not impose an additional charge, but which do not offer to guarantee a minimum value on which to make annuity payments. . Where allowed by law, we reserve the right to limit subsequent purchase payments if we determine, at our sole discretion, that based on the timing of your purchase payments and withdrawals, your Protected Income Value is increasing in ways we did not intend. In determining whether to limit purchase payments, we will look at Purchase Payments which are disproportionately larger than your initial Purchase Payment and other actions that may artificially increase the Protected Income Value. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Moreover, if you are invested in prohibited investment options and seek to acquire the benefit, we will ask you to reallocate to permitted investment options as a prerequisite to acquiring the benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. . If you change the Annuitant after the effective date of the GMIB benefit, the period of time during which we will apply the 5% annual growth rate may be changed based on the age of the new Annuitant. If the new Annuitant would not be eligible to elect the GMIB benefit based on his or her age at the time of the change, then the GMIB benefit will terminate. . Annuity payments made under the GMIB benefit are subject to the same tax treatment as any other annuity payment. . At the time you elect to begin receiving annuity payments under the GMIB benefit or under any other annuity payment option we make available, the protection provided by an Annuity's basic Death Benefit or any optional Death Benefit provision you elected will no longer apply. Election of the Benefit The GMIB benefit is no longer available. The Annuitant must have been age 75 or less as of the effective date of the GMIB benefit. Termination of the Benefit The GMIB benefit cannot be terminated by the Owner once elected. The GMIB benefit automatically terminates as of the date your Annuity is fully surrendered, on the date the Death Benefit is payable to your Beneficiary (unless your surviving spouse elects to continue your Annuity), or on the date that your Account Value is transferred to begin making annuity payments. The GMIB benefit may also be terminated if you designate a new Annuitant who would not be eligible to elect the GMIB benefit based on his or her age at the time of the change. Upon termination of the GMIB benefit we will deduct the charge from your Account Value for the portion of the Annuity Year since the prior anniversary of the Annuity's Issue Date (or the Issue Date if in the first Annuity Year). Charges under the Benefit Currently, we deduct a charge equal to 0.50% per year of the average Protected Income Value for the period the charge applies. Because the charge is calculated based on the average Protected Income Value, it does not increase or decrease based on changes to the Annuity's Account Value due to market performance. The dollar amount you pay each year will increase in any year the Protected Income Value increases, and it will decrease in any year the Protected Income Value decreases due to withdrawal, irrespective of whether your Account Value increases or decreases. The charge is deducted annually in arrears each Annuity Year on the anniversary of the Issue Date of an Annuity. We deduct the amount of the charge pro-rata from the Account Value allocated to the Sub-accounts and the Fixed Allocations. No MVA will 58 apply to Account Value deducted from a Fixed Allocation. If you surrender your Annuity, begin receiving annuity payments under the GMIB benefit or any other annuity payment option we make available during an Annuity Year, or the GMIB benefit terminates, we will deduct the charge for the portion of the Annuity Year since the prior anniversary of the Annuity's Issue Date (or the Issue Date if in the first Annuity Year). No charge applies after the Annuity Date. LIFETIME FIVE/SM/ INCOME BENEFIT (LIFETIME FIVE/SM/) The Lifetime Five Income Benefit is no longer being offered. Lifetime Five could be elected only where the Annuitant and the Owner were the same person or, if the Annuity Owner is an entity, where there was only one Annuitant. The Annuitant must be at least 45 years old when the benefit is elected. The Lifetime Five Income Benefit was not available if you elected any other optional living benefit. As long as your Lifetime Five Income Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available option(s) with this benefit. The benefit guarantees your ability to withdraw amounts equal to a percentage of an initial principal value (called the "Protected Withdrawal Value"), regardless of the impact of market performance on your Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. There are two options - one is designed to provide an annual withdrawal amount for life (the "Life Income Benefit") and the other is designed to provide a greater annual withdrawal amount as long as there is Protected Withdrawal Value (adjusted as described below) (the "Withdrawal Benefit"). If there is no Protected Withdrawal Value, the withdrawal benefit will be zero. You do not choose between these two options; each option will continue to be available as long as your Annuity has an Account Value and the Lifetime Five is in effect. Certain benefits under Lifetime Five may remain in effect even if the Account Value of your Annuity is zero. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity and wish to ensure that market performance will not affect your ability to receive annual payments. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to determine the amount of each annual payment under the Life Income Benefit and the Withdrawal Benefit. The initial Protected Withdrawal Value is determined as of the date you make your first withdrawal under your Annuity following your election of Lifetime Five. The initial Protected Withdrawal Value is equal to the greater of (A) the Account Value on the date you elect Lifetime Five, plus any additional purchase payments, as applicable, each growing at 5% per year from the date of your election of the benefit, or application of the Purchase Payment to your Annuity, until the date of your first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier (B) the Account Value on the date of the first withdrawal from your Annuity, prior to the withdrawal, and (C) the highest Account Value on each Annuity anniversary, plus subsequent purchase payments prior to the first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier. With respect to (A) and (C) above, after the 10th anniversary of the benefit effective date, each value is increased by the amount of any subsequent purchase payments. Credits are added to purchase payments for purposes of calculating the Protected Withdrawal Value, the Annual Income Amount and the Annual Withdrawal Amount (see below for a description of Annual Income Amount and Annual Withdrawal Amount). . If you elect the Lifetime Five benefit at the time you purchase your Annuity, the Account Value will be your initial Purchase Payment. . For existing Owners who are electing the Lifetime Five benefit, the Account Value on the date of your election of the Lifetime Five benefit will be used to determine the initial Protected Withdrawal Value. . If you make additional purchase payments after your first withdrawal, the Protected Withdrawal Value will be increased by the amount of each additional purchase payment. The Protected Withdrawal Value is reduced each time a withdrawal is made on a dollar-for-dollar basis up to 7% per Annuity Year of the Protected Withdrawal Value and on the greater of a dollar-for-dollar basis or a pro rata basis for withdrawals in an Annuity Year in excess of that amount until the Protected Withdrawal Value is reduced to zero. At that point the Annual Withdrawal Amount will be zero until such time (if any) as the Annuity reflects a Protected Withdrawal Value (for example, due to a step-up or additional purchase payments being made into the Annuity). Step-Up of the Protected Withdrawal Value You may elect to step-up your Protected Withdrawal Value if, due to positive market performance, your Account Value is greater than the Protected Withdrawal Value. If you elected the Lifetime Five benefit on or after March 20, 2006: . you are eligible to step-up the Protected Withdrawal Value on or after the 1/st/ anniversary of the first withdrawal under the Lifetime Five benefit . the Protected Withdrawal Value can be stepped up again on or after the 1/st/ anniversary of the preceding step-up 59 If you elect to step-up the Protected Withdrawal Value under the benefit, and on the date you elect to step-up, the charges under the Lifetime Five benefit have changed for new purchasers, your benefit may be subject to the new charge at the time of step-up. Upon election of the step-up, we increase the Protected Withdrawal Value to be equal to the then current Account Value. For example, assume your initial Protected Withdrawal Value was $100,000 and you have made cumulative withdrawals of $40,000, reducing the Protected Withdrawal Value to $60,000. On the date you are eligible to step-up the Protected Withdrawal Value, your Account Value is equal to $75,000. You could elect to step-up the Protected Withdrawal Value to $75,000 on the date you are eligible. If your current Annual Income Amount and Annual Withdrawal Amount are less than they would be if we did not reflect the step-up in Protected Withdrawal Value, then we will increase these amounts to reflect the step-up as described below. An optional automatic step-up ("Auto Step-Up") feature is available for this benefit. This feature may be elected at the time the benefit is elected or at any time while the benefit is in force. If you elected the Lifetime Five benefit and have also elected the Auto Step-Up feature: . the first Auto Step-Up opportunity will occur on the 1/st/ Annuity Anniversary that is at least one year after the later of (1) the date of the first withdrawal under the Lifetime Five benefit or (2) the most recent step-up . your Protected Withdrawal Value will only be stepped-up if 5% of the Account Value is greater than the Annual Income Amount by any amount . if at the time of the first Auto Step-Up opportunity, 5% of the Account Value is not greater than the Annual Income Amount, an Auto Step-Up opportunity will occur on each successive Annuity Anniversary until a step-up occurs . once a step-up occurs, the next Auto Step-Up opportunity will occur on the 1/st/ Annuity Anniversary that is at least one year after the most recent step-up If on the date that we implement an Auto Step-Up to your Protected Withdrawal Value, the charge for Lifetime Five has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Subject to our rules and restrictions, you will still be permitted to manually step-up the Protected Withdrawal Value even if you elect the Auto Step-Up feature. Key Feature - Annual Income Amount under the Life Income Benefit The initial Annual Income Amount is equal to 5% of the initial Protected Withdrawal Value. Under the Lifetime Five benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. A withdrawal can be considered Excess Income under the Life Income Benefit even though it does not exceed the Annual Withdrawal Amount under the Withdrawal Benefit. When you elect a step-up (or an auto step-up is effected), your Annual Income Amount increases to equal 5% of your Account Value after the step-up if such amount is greater than your Annual Income Amount. Your Annual Income Amount also increases if you make additional purchase payments. The amount of the increase is equal to 5% of any additional purchase payments (and any associated Credit with respect to Optimum XTra). Any increase will be added to your Annual Income Amount beginning on the day that the step-up is effective or the Purchase Payment is made. A determination of whether you have exceeded your Annual Income Amount is made at the time of each withdrawal; therefore a subsequent increase in the Annual Income Amount will not offset the effect of a withdrawal that exceeded the Annual Income Amount at the time the withdrawal was made. Key Feature - Annual Withdrawal Amount under the Withdrawal Benefit The initial Annual Withdrawal Amount is equal to 7% of the initial Protected Withdrawal Value. Under the Lifetime Five benefit, if your cumulative withdrawals each Annuity Year are less than or equal to the Annual Withdrawal Amount, your Protected Withdrawal Value will be reduced on a dollar-for-dollar basis. If your cumulative withdrawals are in excess of the Annual Withdrawal Amount ("Excess Withdrawal"), your Annual Withdrawal Amount will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Withdrawal to the Account Value immediately prior to such withdrawal (see the examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. When you elect a step-up (or an auto step-up is effected), your Annual Withdrawal Amount increases to equal 7% of your Account Value after the step-up if such amount is greater than your Annual Withdrawal Amount. Your Annual Withdrawal Amount also increases if you make additional purchase payments. The amount of the increase is equal to 7% of any additional purchase payments (and any associated Credit). A determination of whether you have exceeded your Annual Withdrawal Amount is made at the time of each withdrawal; therefore, a subsequent increase in the Annual Withdrawal Amount will not offset the effect of a withdrawal that exceeded the Annual Withdrawal Amount at the time the withdrawal was made. The Lifetime Five benefit does not affect your ability to make withdrawals under your Annuity or limit your ability to request withdrawals that exceed the Annual Income Amount and the Annual Withdrawal Amount. You are not required to withdraw all or any portion of the Annual Withdrawal Amount or Annual Income Amount in each Annuity Year. 60 . If, cumulatively, you withdraw an amount less than the Annual Withdrawal Amount under the Withdrawal Benefit in any Annuity Year, you cannot carry-over the unused portion of the Annual Withdrawal Amount to subsequent Annuity Years. However, because the Protected Withdrawal Value is only reduced by the actual amount of withdrawals you make under these circumstances, any unused Annual Withdrawal Amount may extend the period of time until the remaining Protected Withdrawal Value is reduced to zero. . If, cumulatively, you withdraw an amount less than the Annual Income Amount under the Life Income Benefit in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. However, because the Protected Withdrawal Value is only reduced by the actual amount of withdrawals you make under these circumstances, any unused Annual Income Amount may extend the period of time until the remaining Protected Withdrawal Value is reduced to zero. Examples of Withdrawal The following examples of dollar-for-dollar and proportional reductions of the Protected Withdrawal Value, Annual Withdrawal Amount and Annual Income Amount assume: 1.) the Issue Date and the Effective Date of the Lifetime Five benefit are February 1, 2005; 2.) an initial Purchase Payment of $250,000; 3.) the Account Value on February 1, 2006 is equal to $265,000; and 4.) the first withdrawal occurs on March 1, 2006 when the Account Value is equal to $263,000;. The values set forth here are purely hypothetical, and do not reflect the charge for Lifetime Five or any other fees and charges. The initial Protected Withdrawal Value is calculated as the greatest of (a), (b) and (c): (a)Purchase payment accumulated at 5% per year from February 1, 2005 until March 1, 2006 (393 days) = $250,000 X 1.05/(393/365)/ = $263,484.33 (b)Account Value on March 1, 2006 (the date of the first withdrawal) = $263,000 (c)Account Value on February 1, 2006 (the first Annuity Anniversary) = $265,000 Therefore, the initial Protected Withdrawal Value is equal to $265,000. The Annual Withdrawal Amount is equal to $18,550 under the Withdrawal Benefit (7% of $265,000). The Annual Income Amount is equal to $13,250 under the Life Income Benefit (5% of $265,000). Example 1. Dollar-For-Dollar reduction If $10,000 was withdrawn (less than both the Annual Income Amount and the Annual Withdrawal Amount) on March 1, 2006, then the following values would result: . Remaining Annual Withdrawal Amount for current Annuity Year = $18,550 - $10,000 = $8,550 Annual Withdrawal Amount for future Annuity Years remains at $18,550 . Remaining Annual Income Amount for current Annuity Year = $13,250 - $10,000 = $3,250. . Annual Income Amount for future Annuity Years remains at $13,250 . Protected Withdrawal Value is reduced by $10,000 from $265,000 to $255,000 Example 2. Dollar-For-Dollar and Proportional Reductions (a)If $15,000 was withdrawn (more than the Annual Income Amount but less than the Annual Withdrawal Amount) on March 1, 2006, then the following values would result: . Remaining Annual Withdrawal Amount for current Annuity Year = $18,550 - $15,000 = $3,550 . Annual Withdrawal Amount for future Annuity Years remains at $18,550 . Remaining Annual Income Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Income Amount ($15,000 - $13,250 = $1,750) reduces Annual Income Amount for future Annuity Years. . Reduction to Annual Income Amount = Excess Income/ Account Value before Excess Income X Annual Income Amount = $1,750/($263,000 - $13,250) X $13,250 = $93. Annual Income Amount for future Annuity Years = $13,250 - $93 = $13,157 . Protected Withdrawal Value is reduced by $15,000 from $265,000 to $250,000 (b)If $25,000 was withdrawn (more than both the Annual Income Amount and the Annual Withdrawal Amount) on March 1, 2006, then the following values would result: . Remaining Annual Withdrawal Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Withdrawal Amount ($25,000 - $18,550 = $6,450) reduces Annual Withdrawal Amount for future Annuity Years. . Reduction to Annual Withdrawal Amount = Excess Withdrawal/Account Value before Excess Withdrawal X Annual Withdrawal Amount = $6,450/($263,000 - $18,550) X $18,550 = $489 61 Annual Withdrawal Amount for future Annuity Years = $18,550 - $489 = $18,061 . Remaining Annual Income Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Income Amount ($25,000 - $13,250 = $11,750) reduces Annual Income Amount for future Annuity Years. . Reduction to Annual Income Amount = Excess Income/ Account Value before Excess Income X Annual Income Amount = $11,750/($263,000 - $13,250) X $13,250 = $623 Annual Income Amount for future Annuity Years = $13,250 - $623 = $12,627 . Protected Withdrawal Value is first reduced by the Annual Withdrawal Amount ($18,550) from $265,000 to $246,450. It is further reduced by the greater of a dollar-for-dollar reduction or a proportional reduction. Dollar-for-dollar reduction = $25,000 - $18,550 = $6,450 . Proportional reduction = Excess Withdrawal/Account Value before Excess Withdrawal X Protected Withdrawal Value = $6,450/($263,000 - $18,550) X $246,450 = $6,503. Protected Withdrawal Value = $246,450 - max {$6,450, $6,503} = $239,947 BENEFITS UNDER THE LIFETIME FIVE BENEFIT . If your Account Value is equal to zero, and the cumulative withdrawals in the current Annuity Year are greater than the Annual Withdrawal Amount, the Lifetime Five benefit will terminate. To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount and amounts are still payable under both the Life Income Benefit and the Withdrawal Benefit, you will be given the choice of receiving the payments under the Life Income Benefit or under the Withdrawal Benefit. Thus, in that scenario, the remaining amounts under the Life Income Benefit and the Withdrawal Benefit would be payable even though your Account Value was reduced to zero. Once you make this election we will make an additional payment for that Annuity Year equal to either the remaining Annual Income Amount or Annual Withdrawal Amount for the Annuity Year, if any, depending on the option you choose. In subsequent Annuity Years we make payments that equal either the Annual Income Amount or the Annual Withdrawal Amount as described in this Prospectus. You will not be able to change the option after your election and no further purchase payments will be accepted under your Annuity. If you do not make an election, we will pay you annually under the Life Income Benefit. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount but less than or equal to the Annual Withdrawal Amount and amounts are still payable under the Withdrawal Benefit, you will receive the payments under the Withdrawal Benefit. In the year of a withdrawal that reduced your Account Value to zero, we will make an additional payment to equal any remaining Annual Withdrawal Amount and make payments equal to the Annual Withdrawal Amount in each subsequent year (until the Protected Withdrawal Value is depleted). Once your Account Value equals zero no further purchase payments will be accepted under your Annuity. . If annuity payments are to begin under the terms of your Annuity or if you decide to begin receiving annuity payments and there is any Annual Income Amount due in subsequent Annuity Years or any remaining Protected Withdrawal Value, you can elect one of the following three options: (1)apply your Account Value to any annuity option available; or (2)request that, as of the date annuity payments are to begin, we make annuity payments each year equal to the Annual Income Amount. We make such annuity payments until the Annuitant's death; or (3)request that, as of the date annuity payments are to begin, we pay out any remaining Protected Withdrawal Value as annuity payments. Each year such annuity payments will equal the Annual Withdrawal Amount or the remaining Protected Withdrawal Value if less. We make such annuity payments until the earlier of the Annuitant's death or the date the Protected Withdrawal Value is depleted. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a single life fixed annuity with five payments certain using the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such annuity payments will be the greater of: (1)the present value of future Annual Income Amount payments. Such present value will be calculated using the greater of the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will determine a Protected Withdrawal Value and calculate an Annual Income Amount and an Annual Withdrawal Amount as if you made your first withdrawal on the date the annuity payments are to begin. 62 Other Important Considerations . Withdrawals under the Lifetime Five benefit are subject to all of the terms and conditions of your Annuity, including any applicable CDSC. . Withdrawals made while the Lifetime Five benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under your Annuity. The Lifetime Five benefit does not directly affect your Annuity's Account Value or Surrender Value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Withdrawal Value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Lifetime Five program. The Lifetime Five benefit provides a guarantee that if your Account Value declines due to Sub-account performance, you will be able to receive your Protected Withdrawal Value or Annual Income Amount in the form of periodic benefit payments. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Moreover, if you are invested in prohibited investment options and seek to acquire the benefit, we will ask you to reallocate to permitted investment options as a prerequisite to acquiring the benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. Election of the Benefit We no longer permit elections of Lifetime Five. If you wish, you may cancel the Lifetime Five benefit. You may then elect Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator, Spousal Highest Daily Lifetime 7 Plus, or Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option (or any other currently available living benefit) on the Valuation Day after you have cancelled the Lifetime Five benefit provided, the request is received in good order (subject to state availability and in accordance with any applicable age requirements). Once the Lifetime Five benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Lifetime Five benefit provided that the benefit you are looking to elect is available on a post- issue basis. If you cancel Lifetime Five, you lose all guarantees under the benefit and will base any guarantees under the new benefit based on your Account Value. Any such benefit may be more expensive. Termination of the Benefit The benefit terminates automatically when your Protected Withdrawal Value and Annual Income Amount equal zero. You may terminate the benefit at any time by notifying us. If you terminate the program, any guarantee provided by the benefit will terminate as of the date the termination is effective. The benefit terminates upon your surrender of your Annuity, upon the death of the Annuitant, upon a change in ownership of your Annuity that changes the tax identification number of the Owner, upon change in the Annuitant or upon your election to begin receiving annuity payments. While you may terminate your benefit at any time, we may not terminate the benefit other than in the circumstances listed above. The charge for the Lifetime Five benefit will no longer be deducted from your Account Value upon termination of the benefit. Additional Tax Considerations If you purchase an Annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the Owner's lifetime. The amount required under the Code may exceed the Annual Withdrawal Amount and the Annual Income Amount, which will cause us to increase the Annual Income Amount and the Annual Withdrawal Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. Any such payments will reduce your Protected Withdrawal Value. In addition, the amount and duration of payments under the annuity payment and Death Benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of this prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. 63 SPOUSAL LIFETIME FIVE/SM/ INCOME BENEFIT (SPOUSAL LIFETIME FIVE/SM/) The Spousal Lifetime Five benefit is no longer being offered. Spousal Lifetime Five must have been elected based on two Designated Lives, as described below. Each Designated Life must have been at least 55 years old when the benefit was elected. The Spousal Lifetime Five benefit was not available if you elected any other optional living benefit or optional death benefit. As long as your Spousal Lifetime Five Income Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available option(s) with this program. The benefit guarantees until the later death of two natural persons that are each other's spouses at the time of election of Spousal Lifetime Five and at the first death of one of them (the "Designated Lives", each a "Designated Life") the ability to withdraw an annual amount ("Spousal Life Income Benefit") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of market performance on the Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. The Spousal Life Income Benefit may remain in effect even if the Account Value of the Annuity is zero. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, wish to ensure that market performance will not affect your ability to receive annual payments, and wish either spouse to be able to continue the Spousal Life Income Benefit after the death of the first. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. Key Feature - Initial Protected withdrawal Value The Protected Withdrawal Value is used to determine the amount of each annual payment under the Spousal Life Income Benefit. The initial Protected Withdrawal Value is determined as of the date you make your first withdrawal under the Annuity following your election of Spousal Lifetime Five. The initial Protected Withdrawal Value is equal to the greater of (A) the Account Value on the date you elect Spousal Lifetime Five, plus any additional purchase payments as applicable, each growing at 5% per year from the date of your election of the benefit, or application of the Purchase Payment to your Annuity, until the date of your first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier (B) the Account Value on the date of the first withdrawal from your Annuity, prior to the withdrawal, and (C) the highest Account Value on each Annuity anniversary, plus subsequent purchase payments prior to the first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier. With respect to (A) and (C) above, after the 10/th/ anniversary of the benefit effective date, each value is increased by the amount of any subsequent purchase payments. Credits are added to purchase payments for purposes of calculating the Protected Withdrawal Value and the Annual Income Amount (see below for a description of Annual Income Amount). Key Feature - Annual Income Amount under the Spousal Life Income Benefit The initial Annual Income Amount is equal to 5% of the initial Protected Withdrawal Value. Under the Spousal Lifetime Five benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount under the Spousal Life Income Benefit in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. The Spousal Lifetime Five benefit does not affect your ability to make withdrawals under your Annuity or limit your ability to request withdrawals that exceed the Annual Income Amount. Step-Up of Annual Income Amount You may elect to step-up your Annual Income Amount if, due to positive market performance, 5% of your Account Value is greater than the Annual Income Amount. You are eligible to step-up the Annual Income Amount on or after the 1/st/ anniversary of the first withdrawal under the Spousal Lifetime Five benefit. The Annual Income Amount can be stepped up again on or after the 1/st/ anniversary of the preceding step-up. If you elect to step-up the Annual Income Amount under the benefit, and on the date you elect to step-up, the charges under the Spousal Lifetime Five benefit have changed for new purchasers, your benefit may be subject to the new charge at the time of such step-up. When you elect a step-up, your Annual Income Amount increases to equal 5% of your Account Value after the step-up. Your Annual Income Amount also increases if you make additional Purchase Payments. The amount of the increase is equal to 5% of any additional Purchase Payments (plus any Credit). Any increase will be added to your Annual Income Amount beginning on the day that the step-up is effective or the Purchase Payment is made. A determination of whether you have exceeded your Annual Income Amount is made at the time of each withdrawal; therefore a subsequent increase in the Annual Income Amount will not offset the effect of a withdrawal that exceeded the Annual Income Amount at the time the withdrawal was made. An optional automatic step-up ("Auto Step-Up") feature is available for this benefit. This feature may be elected at the time the benefit is elected or at any time while the benefit is in force. If you elect this feature, the first Auto Step-Up opportunity will occur on the 1/st/ Annuity Anniversary that is at least one year after the later of (1) the date of the first withdrawal under the Spousal Lifetime Five benefit or (2) the most recent step-up. At this time, your Annual Income Amount will be stepped-up if 5% of your 64 Account Value is greater than the Annual Income Amount by any amount. If 5% of the Account Value does not exceed the Annual Income Amount, then an Auto Step-Up opportunity will occur on each successive Annuity Anniversary until a step-up occurs. Once a step-up occurs, the next Auto Step-Up opportunity will occur on the 1/st/ Annuity Anniversary that is at least 1 year after the most recent step-up. If, on the date that we implement an Auto Step-Up to your Annual Income Amount, the charge for Spousal Lifetime Five has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Subject to our rules and restrictions, you will still be permitted to manually step-up the Annual Income Amount even if you elect the Auto Step-Up feature. Examples of Withdrawals and Step-Up The following examples of dollar-for-dollar and proportional reductions and the step-up of the Annual Income Amount assume: 1) the Issue Date and the Effective Date of the Spousal Lifetime Five benefit are February 1, 2005; 2) an initial Purchase Payment of $250,000; 3) the Account Value on February 1, 2006 is equal to $265,000; 4) the first withdrawal occurs on March 1, 2006 when the Account Value is equal to $263,000; and 5) the Account Value on February 1, 2010 is equal to $280,000. The values set forth here are purely hypothetical, and do not reflect the charge for the Spousal Lifetime Five or any other fees and charges. The initial Protected Withdrawal Value is calculated as the greatest of (a), (b) and (c): (a)Purchase payment accumulated at 5% per year from February 1, 2005 until March 1, 2006 (393 days) = $250,000 X 1.05/(393/365)/ = $263,484.33 (b)Account Value on March 1, 2006 (the date of the first withdrawal) = $263,000 (c)Account Value on February 1, 2006 (the first Annuity Anniversary) = $265,000 Therefore, the initial Protected Withdrawal Value is equal to $265,000. The Annual Income Amount is equal to $13,250 under the Spousal Life Income Benefit (5% of $265,000). Example 1. Dollar-For-Dollar Reduction If $10,000 was withdrawn (less than the Annual Income Amount) on March 1, 2006, then the following values would result: . Remaining Annual Income Amount for current Annuity Year = $13,250 - $10,000 = $3,250 . Annual Income Amount for future Annuity Years remains at $13,250 Example 2. Dollar-For-Dollar and Proportional Reductions (a)If $15,000 was withdrawn (more than the Annual Income Amount) on March 1, 2006, then the following values would result: . Remaining Annual Income Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Income Amount ($15,000 - $13,250 = $1,750) reduces Annual Income Amount for future Annuity Years. . Reduction to Annual Income Amount = Excess Income/ Account Value before Excess Income X Annual Income Amount = $1,750 / ($263,000 - $13,250) X $13,250 = $93 . Annual Income Amount for future Annuity Years = $13,250 - $93 = $13,157 Example 3. Step-Up of the Annual Income Amount If a step-up of the Annual Income Amount is requested on February 1, 2010 or the Auto Step-Up feature was elected, the step-up would occur because 5% of the Account Value, which is $14,000 (5% of $280,000), is greater than the Annual Income Amount of $13,250. The new Annual Income Amount will be equal to $14,000. BENEFITS UNDER THE SPOUSAL LIFETIME FIVE BENEFIT To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount and amounts are still payable under the Spousal Life Income Benefit, we will make an additional payment for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year, if any. Thus, in that scenario, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this Prospectus. No further purchase payments will be accepted under your Annuity. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Spousal Life Income Benefit terminates and no additional payments will be made. . If annuity payments are to begin under the terms of your Annuity or if you decide to begin receiving annuity payments and there is any Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any annuity option available; or (2)request that, as of the date annuity payments are to begin, we make annuity payments each year equal to the Annual Income Amount. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. 65 We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a joint and survivor or single (as applicable) life fixed annuity with five payments certain using the same basis that is used to calculate the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such annuity payments will be the greater of: (1)the present value of future Annual Income Amount payments. Such present value will be calculated using the same basis that is used to calculate the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will determine an initial Protected Withdrawal Value and calculate an Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. Other Important Considerations . Withdrawals under the Spousal Lifetime Five benefit are subject to all of the terms and conditions of the Annuity, including any CDSC. . Withdrawals made while the Spousal Lifetime Five benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Spousal Lifetime Five benefit does not directly affect the Annuity's Account Value or Surrender Value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Withdrawal Value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Spousal Lifetime Five benefit. The Spousal Lifetime Five benefit provides a guarantee that if your Account Value declines due to Sub-account performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Moreover, if you are invested in prohibited investment options and seek to acquire the benefit, we will ask you to reallocate to permitted investment options as a prerequisite to acquiring the benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. . There may be circumstances where you will continue to be charged the full amount for the Spousal Lifetime Five benefit even when the benefit is only providing a guarantee of income based on one life with no survivorship. . In order for the Surviving Designated Life to continue the Spousal Lifetime Five benefit upon the death of an owner, the Designated Life must elect to assume ownership of the Annuity under the spousal continuation option. When the Annuity is owned by a Custodial Account, in order for Spousal Lifetime Five to be continued after the death of the first Designated Life (the Annuitant), the Custodial Account must elect to continue the Annuity and the second Designated Life (the Contingent Annuitant) will be named as the new Annuitant. See "Spousal Designations" and "Spousal - Assumption of Annuity" in this Prospectus. Election of and Designations under the Benefit We no longer permit elections of Spousal Lifetime Five - whether for those who currently participate in Spousal Lifetime Five or for those who are buying an Annuity for the first time. If you wish, you may cancel the Spousal Lifetime Five benefit. You may then elect Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator, Spousal Highest Daily Lifetime 7 Plus, or Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option (or any other currently available living benefit) on the Valuation Day after have you cancelled the Spousal Lifetime Five benefit, provided the request is received in good order (subject to state availability and any applicable age requirements). Once the Spousal Lifetime Five benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Spousal Lifetime Five benefit provided that the benefit you are looking to elect is available on a post-issue basis. If you cancel the benefit, you lose all guarantees under the benefit, and your guarantee under any new benefit you elect will be based on your Account Value at that time. Spousal Lifetime Five could only be elected based on two Designated Lives. Designated Lives must be natural persons who are each other's spouses at the time of election of the benefit and at the death of the first of the Designated Lives to die. Spousal Lifetime Five only could be elected where the Owner, Annuitant, and Beneficiary designations are as follows: . One Annuity Owner, where the Annuitant and the Owner are the same person and the beneficiary is the Owner's spouse. The Owner/Annuitant and the beneficiary each must be at least 59 1/2 years old at the time of election; or . Co-Annuity Owners, where the Owners are each other's spouses. The beneficiary designation must be the surviving spouse, or the spouses named equally. One of the owners must be the Annuitant. Each Owner must each be at least 59 1/2 years old at the time of election; or 66 . One Annuity Owner, where the Owner is a custodial account established to hold retirement assets for the benefit of the Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code (or any successor Code section thereto) ("Custodial Account"), the beneficiary is the Custodial Account, and the spouse of the Annuitant is the Contingent Annuitant. Both the Annuitant and the Contingent Annuitant each must be at least 59 1/2 years old at the time of election. We do not permit a change of Owner under this benefit, except as follows: (a)if one Owner dies and the surviving spousal Owner assumes the Annuity or (b)if the Annuity initially is co-owned, but thereafter the Owner who is not the Annuitant is removed as Owner. We permit changes of beneficiary under this benefit. If the Designated Lives divorce, the Spousal Lifetime Five benefit may not be divided as part of the divorce settlement or judgment. Nor may the divorcing spouse who retains ownership of the Annuity appoint a new Designated Life upon re-marriage. Termination of the Benefit The benefit terminates automatically when your Annual Income Amount equals zero. You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective. The benefit terminates upon your surrender of the Annuity, upon the first Designated Life to die if the Annuity is not continued, upon the second Designated Life to die or upon your election to begin receiving annuity payments. The charge for the Spousal Lifetime Five benefit will no longer be deducted from your Account Value upon termination of the benefit. Additional Tax Considerations If you purchase an Annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or an employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than 5 percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the Owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. Any such payments will reduce your Protected Withdrawal Value. In addition, the amount and duration of payments under the annuity payment and Death Benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. HIGHEST DAILY LIFETIME FIVE/SM/ INCOME BENEFIT (HD5/SM/) The Highest Daily Lifetime Five benefit is no longer being offered for new elections. The income benefit under Highest Daily Lifetime Five currently is based on a single "designated life" who is at least 55 years old on the date that the benefit is acquired. The Highest Daily Lifetime Five Benefit was not available if you elected any other optional living benefit, although you may elect any optional death benefit (other than the Highest Daily Value Death Benefit). Any DCA program that transfers Account Value from a Fixed Allocation is also not available as Fixed Allocations are not permitted with the benefit. As long as your Highest Daily Lifetime Five Benefit is in effect, you must allocate your Account Value in accordance with the then-permitted and available investment option(s) with this benefit. The benefit that guarantees until the death of the single designated life the ability to withdraw an annual amount (the "Total Annual Income Amount") equal to a percentage of an initial principal value (the "Total Protected Withdrawal Value") regardless of the impact of Sub-account performance on the Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, and wish to ensure that Sub-account performance will not affect your ability to receive annual payments. You are not required to make withdrawals as part of the program - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer program in order to participate in Highest Daily Lifetime Five, and in Appendix D to this Prospectus, we set forth the formula under which we make those asset transfers. As discussed below, a key component of Highest Daily Lifetime Five is the Total Protected Withdrawal Value, which is an amount that is distinct from Account Value. Because each of the Total Protected Withdrawal Value and Total Annual Income Amount is 67 determined in a way that is not solely related to Account Value, it is possible for Account Value to fall to zero, even though the Total Annual Income Amount remains. You are guaranteed to be able to withdraw the Total Annual Income Amount for the rest of your life, provided that you have not made "excess withdrawals." Excess withdrawals, as discussed below, will reduce your Total Annual Income Amount. Thus, you could experience a scenario in which your Account Value was zero, and, due to your excess withdrawals, your Total Annual Income Amount also was reduced to zero. In that scenario, no further amount would be payable under Highest Daily Lifetime Five. Key Feature - Total Protected Withdrawal Value The Total Protected Withdrawal Value is used to determine the amount of the annual payments under Highest Daily Lifetime Five. The Total Protected Withdrawal Value is equal to the greater of the Protected Withdrawal Value and any Enhanced Protected Withdrawal Value that may exist. We describe how we determine Enhanced Protected Withdrawal Value, and when we begin to calculate it, below. If you do not meet the conditions described below for obtaining Enhanced Protected Withdrawal Value then Total Protected Withdrawal Value is simply equal to Protected Withdrawal Value. The Protected Withdrawal Value initially is equal to the Account Value on the date that you elect Highest Daily Lifetime Five. On each Valuation Day thereafter, until the earlier of the first withdrawal or ten years after the date of your election of the benefit, we recalculate the Protected Withdrawal Value. Specifically, on each such Valuation Day (the "Current Valuation Day"), the Protected Withdrawal Value is equal to the greater of: . the Protected Withdrawal Value for the immediately preceding Valuation Day (the "Prior Valuation Day"), appreciated at the daily equivalent of 5% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any Purchase Payment (including any associated credit) made on the Current Valuation Day; and . the Account Value. If you have not made a withdrawal prior to the tenth anniversary of the date you elected Highest Daily Lifetime Five (which we refer to as the "Tenth Anniversary"), we will continue to calculate a Protected Withdrawal Value. On or after the Tenth Anniversary and up until the date of the first withdrawal, your Protected Withdrawal Value is equal to the greater of the Protected Withdrawal Value on the Tenth Anniversary or your Account Value. The Enhanced Protected Withdrawal Value is only calculated if you do not take a withdrawal prior to the Tenth Anniversary. Thus, if you do take a withdrawal prior to the Tenth Anniversary, you are not eligible to receive Enhanced Protected Withdrawal Value. If so, then on or after the Tenth Anniversary up until the date of the first withdrawal, the Enhanced Protected Withdrawal Value is equal to the sum of: (a)200% of the Account Value on the date you elected Highest Daily Lifetime Five; (b)200% of all purchase payments (and any associated Credits) made during the one-year period after the date you elected Highest Daily Lifetime Five; and (c)100% of all purchase payments (and any associated Credits) made more than one year after the date you elected Highest Daily Lifetime Five, but prior to the date of your first withdrawal. We cease these daily calculations of the Protected Withdrawal Value and Enhanced Protected Withdrawal Value (and therefore, the Total Protected Withdrawal Value) when you make your first withdrawal. However, as discussed below, subsequent purchase payments (and any associated Credits) will increase the Total Annual Income Amount, while "excess" withdrawals (as described below) may decrease the Total Annual Income Amount. Key Feature - Total Annual Income Amount under the Highest Daily Lifetime Five Benefit The initial Total Annual Income Amount is equal to 5% of the Total Protected Withdrawal Value. For purposes of the mathematical formula described below, we also calculate a Highest Daily Annual Income Amount, which is initially equal to 5% of the Protected Withdrawal Value. Under the Highest Daily Lifetime Five benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Total Annual Income Amount, they will not reduce your Total Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Total Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Total Annual Income Amount ("Excess Income"), your Total Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. A Purchase Payment that you make will increase the then-existing Total Annual Income Amount and Highest Daily Annual Income Amount by an amount equal to 5% of the Purchase Payment (including the amount of any associated Credits). An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as part of this benefit. As detailed in this paragraph, the Highest Quarterly Auto Step-Up feature can result in a larger Total Annual Income Amount if your Account Value increases subsequent to your first withdrawal. We begin examining the Account Value for purposes of this feature starting with the 68 anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on the Valuation Days corresponding to the end of each quarter that (i) is based on your Annuity Year, rather than a calendar year; (ii) is subsequent to the first withdrawal; and (iii) falls within the immediately preceding Annuity Year. If the end of any such quarter falls on a holiday or a weekend, we use the next Valuation Day. We multiply each of those quarterly Account Values by 5%, adjust each such quarterly value for subsequent withdrawals and purchase payments, and then select the highest of those values. If the highest of those values exceeds the existing Total Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Total Annual Income Amount intact. In later years, (i.e., after the first Annuity Anniversary after the first withdrawal) we determine whether an automatic step-up should occur on each Annuity Anniversary, by performing a similar examination of the Account Values on the end of the four immediately preceding quarters. If, on the date that we implement a Highest Quarterly Auto Step-Up to your Total Annual Income Amount, the charge for Highest Daily Lifetime Five has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Highest Daily Lifetime Five upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. The Highest Daily Lifetime Five benefit does not affect your ability to make withdrawals under your annuity, or limit your ability to request withdrawals that exceed the Total Annual Income Amount. Under Highest Daily Lifetime Five, if your cumulative withdrawals in an Annuity Year are less than or equal to the Total Annual Income Amount, they will not reduce your Total Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Total Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Total Annual Income Amount in any Annuity Year, you cannot carry-over the unused portion of the Total Annual Income Amount to subsequent Annuity Years. Examples of dollar-for-dollar and proportional reductions, and the Highest Quarterly Auto Step-Up are set forth below. The values depicted here are purely hypothetical, and do not reflect the charges for the Highest Daily Lifetime Five benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2006 . The Highest Daily Lifetime Five benefit is elected on March 5, 2007. Dollar-For-Dollar Reductions On May 2, 2007, the Total Protected Withdrawal Value is $120,000, resulting in a Total Annual Income Amount of $6,000 (5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Total Annual Income Amount for that Annuity Year (up to and including December 1, 2007) is $3,500. This is the result of a dollar-for-dollar reduction of the Total Annual Income Amount - $6,000 less $2,500 = $3,500. Proportional Reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on August 6, 2007 and the Account Value at the time of this withdrawal is $110,000. The first $3,500 of this withdrawal reduces the Total Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount - $1,500 - reduces the Total Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there were other withdrawals in that Annuity Year, each would result in another proportional reduction to the Total Annual Income Amount). Here is the calculation: Account Value before withdrawal $110,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $106,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $106,500.00 Ratio 1.41% Total Annual Income Amount $ 6,000.00 Less ratio of 1.41% $ 84.51 Total Annual Income Amount for future Annuity Years $ 5,915.49
Highest Quarterly Auto Step-Up On each Annuity Anniversary date, the Total Annual Income Amount is stepped-up if 5% of the highest quarterly value since your first withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional purchase payments, is higher than the Total Annual Income Amount, adjusted for excess withdrawals and additional purchase payments (plus any Credits). 69 Continuing the same example as above, the Total Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces this amount to $5,915.49 for future years (see above). For the next Annuity Year, the Total Annual Income Amount will be stepped-up if 5% of the highest quarterly Account Value, adjusted for withdrawals, is higher than $5,915.49. Here are the calculations for determining the quarterly values. Only the June 1 value is being adjusted for excess withdrawals as the September 1 and December 1 Valuation Days occur after the excess withdrawal on August 6.
Highest Quarterly Value (adjusted with Adjusted Total Annual withdrawal and purchase Income Amount (5% of the Date* Account value payments)** Highest Quarterly Value) ----- ------------- ----------------------- ------------------------ June 1, 2007 $118,000.00 $118,000.00 $5,900.00 August 6, 2007 $110,000.00 $112,885.55 $5,644.28 September 1, 2007 $112,000.00 $112,885.55 $5,644.28 December 1, 2007 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly valuation dates are every three months thereafter - March 1, June 1, September 1, and December 1. In this example, we do not use the March 1 date as the first withdrawal took place after March 1. The Annuity Anniversary Date of December 1 is considered the fourth and final quarterly valuation date for the year. ** In this example, the first quarterly value after the first withdrawal is $118,000 on June 1, yielding an adjusted Total Annual Income Amount of $5,900.00. This amount is adjusted on August 6 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $118,000 on June 1 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Total Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $114,500 before the excess withdrawal. . This amount ($114,500) is further reduced by 1.41% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Quarterly Value of $112,885.55. The adjusted Total Annual Income Amount is carried forward to the next quarterly anniversary date of September 1. At this time, we compare this amount to 5% of the Account Value on September 1. Since the June 1 adjusted Total Annual Income Amount of $5,644.28 is higher than $5,600.00 (5% of $112,000), we continue to carry $5,644.28 forward to the next and final quarterly anniversary date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,644.28, the adjusted Total Annual Income Amount is reset to $5,950.00. In this example, 5% of the December 1 value yields the highest amount of $5,950.00. Since this amount is higher than the current year's Total Annual Income Amount of $5,915.49 adjusted for excess withdrawals, the Total Annual Income Amount for the next Annuity Year, starting on December 2, 2007 and continuing through December 1, 2008, will be stepped-up to $5,950.00. Benefits under the Highest Daily Lifetime Five Benefit . To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Total Annual Income Amount and amounts are still payable under Highest Daily Lifetime Five, we will make an additional payment, if any, for that Annuity Year equal to the remaining Total Annual Income Amount for the Annuity Year. Thus, in that scenario, the remaining Total Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Total Annual Income Amount as described in this section. We will make payments until the death of the single designated life. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Total Annual Income Amount, the Highest Daily Lifetime Five benefit terminates, and no additional payments will be made. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is a Total Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Total Annual Income Amount. We will make payments until the death of the single designated life. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments in the form of a single life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Total Annual Income Amount payments. Such present value will be calculated using the greater of the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. 70 . If no withdrawal was ever taken, we will calculate the Total Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. . Please note that if your Annuity has a maximum Annuity Date requirement, payments that we make under this benefit as of that date will be treated as annuity payments. Other Important Considerations . Withdrawals under the Highest Daily Lifetime Five benefit are subject to all of the terms and conditions of the Annuity, including any CDSC. . Withdrawals made while the Highest Daily Lifetime Five Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Highest Daily Lifetime Five Benefit does not directly affect the Account Value or surrender value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity you will receive the current surrender value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Highest Daily Lifetime Five benefit. The Highest Daily Lifetime Five benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Total Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the Permitted Sub-accounts. However, the formula component of the benefit as described below may transfer Account Value to the Benefit Fixed Rate Account as of the effective date of the benefit in some circumstances. . You cannot allocate purchase payments or transfer Account Value to or from a Fixed Allocation if you elect this benefit. . Transfers to and from the Sub-accounts and the Benefit Fixed Rate Account triggered by the formula component of the benefit will not count toward the maximum number of free transfers allowable under an Annuity. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Moreover, if you are invested in prohibited investment options and seek to acquire the benefit, we will ask you to reallocate to permitted investment options as a prerequisite to acquiring the benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. . The charge for Highest Daily Lifetime Five is 0.60% annually, assessed against the average daily net assets of the Sub-accounts and as a reduction to the interest rate credited under the Benefit Fixed Rate Account. This charge is in addition to any other fees under the annuity. Election of and Designations under the Benefit For Highest Daily Lifetime Five, there must be either a single Owner who is the same as the Annuitant, or if the Annuity is entity-owned, there must be a single natural person Annuitant. In either case, the Annuitant must be at least 55 years old. Any change of the Annuitant under the Annuity will result in cancellation of Highest Daily Lifetime Five. Similarly, any change of Owner will result in cancellation of Highest Daily Lifetime Five, except if (a) the new Owner has the same taxpayer identification number as the previous owner (b) both the new Owner and previous Owner are entities or (c) the previous Owner is a natural person and the new Owner is an entity. We no longer permit elections of Highest Daily Lifetime Five. If you wish, you may cancel the Highest Daily Lifetime Five benefit. You may then elect Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator, Spousal Highest Daily Lifetime 7 Plus, or Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option (or any other currently available living benefit) on the Valuation Day after you have cancelled the Highest Daily Lifetime Five benefit, provided the request is received in good order (subject to state availability and any applicable age requirements). Upon cancellation of the Highest Daily Lifetime Five benefit, any Account Value allocated to the Benefit Fixed Rate Account used with the formula will be reallocated to the Permitted Sub-Accounts according to your most recent allocation instructions or, in absence of such instructions, pro-rata. Once the Highest Daily Lifetime Five benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Highest Daily Lifetime Five benefit provided that the benefit you are looking to elect is available on a post-issue basis. If you cancel the benefit, you lose all guarantees under the benefit, and your guarantee under any new benefit you elect will be based on your Account Value at that time. Any such new benefit may be more expensive. Termination of the Benefit You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election will apply as described above. The benefit terminates: (i) upon your termination of the benefit (ii) upon your surrender of the Annuity (iii) upon your election to begin receiving annuity payments (iv) upon the death of the Annuitant (v) if both the Account Value and Total Annual Income Amount equal zero or (vi) if you fail to meet our requirements for issuing the benefit. If you terminate the benefit, you will lose the Protected Withdrawal Value, Annual Income Amount, as well as any Enhanced Protected Withdrawal Value and Return of Principal Guarantees. 71 Upon termination of Highest Daily Lifetime Five, we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the Benefit Fixed Rate Account (as defined below) to your variable investment options, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). Upon termination, we may limit or prohibit investment in the Fixed Allocations. Return of Principal Guarantee If you have not made a withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: (a)your Account Value on the day that you elected Highest Daily Lifetime Five; and (b)the sum of each Purchase Payment you made (including any Credits with respect to Optimum XTra) during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of your variable investment options and the Benefit Fixed Rate Account (described below), in the same proportion that each such investment option bears to your total Account Value, immediately prior to the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Total Protected Withdrawal Value, your death benefit, or the amount of any other or optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. This potential addition to Account Value is available only if you have elected Highest Daily Lifetime Five and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. Mathematical Formula Component of Highest Daily Lifetime Five As indicated above, we limit the sub-accounts to which you may allocate Account Value if you elect Highest Daily Lifetime Five. For purposes of this benefit, we refer to those permitted sub-accounts as the "Permitted Sub-accounts". As a requirement of participating in Highest Daily Lifetime Five, we require that you participate in our mathematical formula under which we may transfer Account Value between the Permitted Sub-accounts and a fixed interest rate account that is part of our general account (the "Benefit Fixed Rate Account"). We determine whether to make a transfer, and the amount of any transfer, under a non-discretionary formula, discussed below. The Benefit Fixed Rate Account is available only with this benefit, and thus you may not allocate purchase payments to or transfer Account Value to or from the Benefit Fixed Rate Account. The interest rate that we pay with respect to the Benefit Fixed Rate Account is reduced by an amount that corresponds generally to the charge that we assess against your variable Sub-accounts for Highest Daily Lifetime Five. The Benefit Fixed Rate Account is not subject to the Investment Company Act of 1940 or the Securities Act of 1933. Under the formula component of Highest Daily Lifetime Five, we monitor your Account Value daily and, if necessary, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the Benefit Fixed Rate Account. Any transfer would be made in accordance with the formula, which is set forth in the schedule supplement to the endorsement for this benefit (and also appears in the Appendices to this prospectus). Speaking generally, the formula, which we apply each Valuation Day, operates as follows. The formula starts by identifying your Protected Withdrawal Value for that day and then multiplies that figure by 5%, to produce a projected (i.e., hypothetical) Highest Daily Annual Income Amount. Then, using our actuarial tables, we produce an estimate of the total amount we would target in our allocation model, based on the projected Highest Daily Annual Income Amount each year for the rest of your life. In the formula, we refer to that value as the "Target Value" or "L". If you have already made a withdrawal, your projected Annual Income Amount (and thus your Target Value) would take into account any automatic step-up that was scheduled to occur according to the step-up formula described above. Next, the formula subtracts from the Target Value the amount held within the Benefit Fixed Rate Account on that day, and divides that difference by the amount held within the Permitted Sub-accounts. That ratio, which essentially isolates the amount of your Target Value that is not offset by amounts held within the Benefit Fixed Rate Account, is called the "Target Ratio" or "r". If the Target Ratio exceeds a certain percentage (currently 83%) it means essentially that too much Target Value is not offset by assets within the Benefit Fixed Rate Account, and therefore we will transfer an amount from your Permitted Sub-accounts to the Benefit Fixed Rate Account. Conversely, if the Target Ratio falls below a certain percentage (currently 77%), then a transfer from the Benefit Fixed Rate Account to the Permitted Sub-accounts would occur. Note that the formula is calculated with reference to the Highest Daily Annual Income Amount, rather than with reference to the Annual Income Amount. If you elect the new mathematical formula, see the discussion below regarding the 90% cap. As you can glean from the formula, poor investment performance of your Account Value may result in a transfer of a portion of your variable Account Value to the Benefit Fixed Rate Account, because such poor investment performance will tend to increase the Target Ratio. Moreover, "flat" investment returns of your Account Value over a period of time also could result in the transfer 72 of your Account Value to the Benefit Fixed Rate Account. Because the amount allocated to the Benefit Fixed Rate Account and the amount allocated to the Permitted Sub-accounts each is a variable in the formula, the investment performance of each affects whether a transfer occurs for your Annuity. In deciding how much to transfer, we use another formula, which essentially seeks to re-balance amounts held in the Permitted Sub-accounts and the Benefit Fixed Rate Account so that the Target Ratio meets a target, which currently is equal to 80%. Once you elect Highest Daily Lifetime Five, the ratios we use will be fixed. For newly issued annuities that elect Highest Daily Lifetime Five and existing annuities that elect Highest Daily Lifetime Five, however, we reserve the right to change the ratios. While you are not notified when the formula dictates a transfer, you will receive a confirmation statement indicating the transfer of a portion of your Account Value either to or from the Benefit Fixed Rate Account. The formula is designed primarily to mitigate the financial risks that we incur in providing the guarantee under Highest Daily Lifetime Five. Depending on the results of the formula calculation, we may, on any day: . Not make any transfer between the Permitted Sub-accounts and the Benefit Fixed Rate Account; or . If a portion of your Account Value was previously allocated to the Benefit Fixed Rate Account, transfer all or a portion of those amounts to the Permitted Sub-accounts, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). Amounts taken out of the Benefit Fixed Rate Account will be withdrawn for this purpose on a last-in, first-out basis (an amount renewed into a new guarantee period under the Benefit Fixed Rate Account will be deemed a new investment for purposes of this last-in, first-out rule); or . Transfer all or a portion of your Account Value in the Permitted Sub-accounts pro-rata to the Benefit Fixed Rate Account. The interest that you earn on such transferred amount will be equal to the annual rate that we have set for that day, and we will credit the daily equivalent of that annual interest until the earlier of one year from the date of the transfer or the date that such amount in the Benefit Fixed Rate Account is transferred back to the Permitted Sub-accounts. Therefore, at any given time, some, none, or all of your Account Value may be allocated to the Benefit Fixed Rate Account. If your entire Account Value is transferred to the Benefit Fixed Rate Account, then based on the way the formula operates, the formula will not transfer amounts out of the Benefit Fixed Rate Account to the Permitted Sub-accounts and the entire Account Value would remain in the Benefit Rate Fixed Account. If you make additional purchase payments to your Annuity, they will be allocated to the Sub-accounts according to your allocation instructions. Such additional purchase payments may or may not cause the formula to transfer money in or out of the Benefit Fixed Rate Account. Once the purchase payments are allocated to your Annuity, they will also be subject to the formula, which may result in immediate transfers to or from the Benefit Fixed Rate Account, if dictated by the formula. The amounts of any such transfer will vary, as dictated by the formula, and will depend on the factors listed below. The amount that is transferred to and from the Benefit Fixed Rate Account pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . How long you have owned Highest Daily Lifetime Five; . The performance of the Permitted Sub-accounts you have chosen; . The performance of the Benefit Fixed Rate Account (i.e., the amount of interest credited to the Benefit Fixed Rate Account); . The amount allocated to each of the Permitted Sub-accounts you have chosen; . The amount allocated to the Benefit Fixed Rate Account; . Additional purchase payments, if any, you make to your Annuity; . Withdrawals, if any, you take from your Annuity (withdrawals are taken pro rata from your Account Value). Any Account Value in the Benefit Fixed Rate Account will not be available to participate in the investment experience of the Permitted Sub-accounts if there is a recovery until it is moved out of the Benefit Fixed Rate Account. The more of your Account Value allocated to the Benefit Fixed Rate Account under the formula, the greater the impact of the performance of the Benefit Fixed Rate Account (i.e., the amount of interest credited to the Benefit Fixed Rate Account) in determining whether (and how much) of your Account Value is transferred back to the Permitted Sub-accounts. Further, it is possible under the formula, that if a significant portion your Account Value is allocated to the Benefit Fixed Rate Account and that Account has good performance but the performance of your Permitted Sub-accounts is negative, that the formula might transfer your Account Value to the Permitted Sub-accounts. Thus, the converse is true too (the more you have allocated to the Permitted Sub-accounts, the greater the impact of the performance of those Sub-accounts will have on any transfer to the Benefit Fixed Rate Account). Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 73 401(a) plan for which the participant is not a greater than 5 percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Total Annual Income Amount, which will cause us to increase the Total Annual Income Amount in any Annuity Year that Required Minimum Distributions due from your Annuity that are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Please note, however, that any withdrawal you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive Enhanced Protected Withdrawal Value and an amount under the Return of Principal Guarantee. Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. However, we do note that if you participate in Highest Daily Lifetime Five through a non-qualified annuity, and your annuity has received Enhanced Protected Withdrawal Value and/or an additional amount under the Return of Principal Guarantee, as with all withdrawals, once all purchase payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Optional 90% Cap Rule Feature for the Formula Under Highest Daily Lifetime Five. If you currently participate in the Highest Daily Lifetime Five Income Benefit, you can elect this feature which utilizes a new mathematical formula. The new formula is described below and will (if you elect it) replace the "Transfer Calculation" portion of the mathematical formula currently used in connection with your benefit on a prospective basis. There is no cost to adding this feature to your Annuity. This election may only be made once and may not be revoked once elected. This feature is available subject to state approval. The new formula is found in Appendix D. Under the new formula, the formula will not execute a transfer to the Benefit Fixed Rate Account that results in more than 90% of your Account Value being allocated to the Benefit Fixed Rate Account ("90% cap" or "90% cap rule"). Thus, on any Valuation Day, if the formula would require a transfer into the Benefit Fixed Rate Account that would result in more than 90% of the Account Value being allocated to the Benefit Fixed Rate Account, only the amount that results in exactly 90% of the Account Value being allocated to the Benefit Fixed Rate Account will be transferred. Additionally, future transfers into the Benefit Fixed Rate Account will not be made (regardless of the performance of the Benefit Fixed Rate Account and the Permitted Sub-accounts) at least until there is first a transfer out of the Benefit Fixed Rate Account. Once this transfer occurs out of the Benefit Fixed Rate Account, future amounts may be transferred to or from the Benefit Fixed Rate Account if dictated by the formula (subject to the 90% cap). At no time will the formula make a transfer to the Benefit Fixed Rate Account that results in greater than 90% of your Account Value being allocated to the Benefit Fixed Rate Account. However, it is possible that, due to the investment performance of your allocations in the Benefit Fixed Rate Account and your allocations in the Permitted Sub-accounts you have selected, your Account Value could be more than 90% invested in the Benefit Fixed Rate Account. If you make additional purchase payments to your Annuity while the 90% cap is in effect, the formula will not transfer any of such additional purchase payments to the Benefit Fixed Rate Account at least until there is first a transfer out of the Benefit Fixed Rate Account, regardless of how much of your Account Value is in the Permitted Sub-accounts. This means that there could be scenarios under which, because of the additional purchase payments you make, less than 90% of your entire Account Value is allocated to the Benefit Fixed Rate Account, and the formula will still not transfer any of your Account Value to the Benefit Fixed Rate Account (at least until there is first a transfer out of the Benefit Fixed Rate Account). For example: . March 19, 2009 - a transfer is made to the Benefit Fixed Rate Account that results in the 90% cap being met and now $90,000 is allocated to the Benefit Fixed Rate Account and $10,000 is allocated to the Permitted Sub-accounts. . March 20, 2009 - you make an additional purchase payment of $10,000. No transfers have been made from the Benefit Fixed Rate Account to the Permitted Sub-accounts since the cap went into effect on March 19, 2009. . As of March 20, 2009 (and at least until first a transfer is made out of the Benefit Fixed Rate Account under the formula) - the $10,000 payment is allocated to the Permitted Sub-accounts and now you have 82% in the Benefit Fixed Rate Account and 18% in the Permitted Sub-accounts (such that $20,000 is allocated to the Permitted Sub-accounts and $90,000 is allocated to the Benefit Fixed Rate Account). . Once there is a transfer out of the Benefit Fixed Rate Account (of any amount), the formula will operate as described above, meaning that the formula could transfer amounts to or from the Benefit Fixed Rate Account if dictated by the formula (subject to the 90% cap). Under the operation of the formula, the 90% cap may come into existence and may be removed multiple times while you participate in the benefit. We will continue to monitor your Account Value daily and, if dictated by the formula, systematically 74 transfer amounts between the Permitted Sub-accounts you have chosen and the Benefit Fixed Rate Account as dictated by the formula. Once you elect this feature, the new transfer formula described above and set forth in Appendix D will be the formula for your Annuity. In the event that more than ninety percent (90%) of your Account Value is allocated to the Benefit Fixed Rate Account and you have elected this feature, up to ten percent (10%) of your Account Value currently allocated to the Benefit Fixed Rate Account will be transferred to your Permitted Sub-accounts, such that after the transfer, 90% of your Account Value on the date of the transfer is in the Benefit Fixed Rate Account. The transfer to the Permitted Sub-accounts will be based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). Amounts taken out of the Benefit Fixed Rate Account will be withdrawn for this purpose on a last-in, first-out basis (an amount renewed into a new guarantee period under the Benefit Fixed Rate Account will be deemed a new investment for purposes of this last-in, first-out rule). It is possible that additional transfers might occur after this initial transfer if dictated by the formula. The amounts of such additional transfer(s) will vary. Once the 90% cap rule is met, future transfers into the Benefit Fixed Rate Account will not be made (regardless of the performance of the Benefit Fixed Rate Account and the Permitted Sub-accounts) at least until there is a first transfer out of the Benefit Fixed Rate Account. Once this transfer occurs out of the Benefit Fixed Rate Account, future amounts may be transferred to or from the Benefit Fixed Rate Account if dictated by the formula. Important Considerations When Electing the New Formula: . At any given time, some, most or none of your Account Value may be allocated to the Benefit Fixed Rate Account. . Please be aware that because of the way the new 90% cap formula operates, it is possible that more than or less than 90% of your Account Value may be allocated to the Benefit Fixed Rate Account. . Because the charge for Highest Daily Lifetime Five is assessed against the average daily net assets of the Sub-accounts, that charge will be assessed against all assets transferred into the Permitted Sub-accounts. . If this feature is elected, any Account Value transferred to the Permitted Sub-accounts is subject to the investment performance of those Sub-accounts. Your Account Value can go up or down depending of the performance of the Permitted Sub-accounts you select. HIGHEST DAILY LIFETIME SEVEN/SM/ INCOME BENEFIT (HD7/SM/) The income benefit under Highest Daily Lifetime Seven currently is based on a single "designated life" who is at least 55 years old on the date that the benefit is acquired. The Highest Daily Lifetime Seven Benefit is not available if you elect any other optional living benefit, although you may elect any optional death benefit other than the Highest Daily Value death benefit. As long as your Highest Daily Lifetime Seven Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. For a more detailed description of the permitted investment options, see the Investment options section of this prospectus. Highest Daily Lifetime Seven is only available in those states that have not yet approved Highest Daily Lifetime 7 Plus. We offer a benefit that guarantees until the death of the single designated life the ability to withdraw an annual amount (the "Annual Income Amount") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of market performance on the Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, and wish to ensure that market performance will not affect your ability to receive annual payments. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer program in order to participate in Highest Daily Lifetime Seven, and in Appendix G to this prospectus, we set forth the formula under which we make those asset transfers. As discussed below, a key component of Highest Daily Lifetime Seven is the Protected Withdrawal Value. Because each of the Protected Withdrawal Value and Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for the Account Value to fall to zero, even though the Annual Income Amount remains. You are guaranteed to be able to withdraw the Annual Income Amount for the rest of your life, provided that you have not made "excess withdrawals." Excess withdrawals, as discussed below, will reduce your Annual Income Amount. Thus, you could experience a scenario in which your Account Value was zero, and, due to your excess withdrawals, your Annual Income Amount also was reduced to zero. In that scenario, no further amount would be payable under Highest Daily Lifetime Seven. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to calculate the initial Annual Income Amount. On the effective date of the benefit , the Protected Withdrawal Value is equal to your Account Value. On each Valuation Day thereafter, until the earlier of the tenth anniversary of benefit election (the "Tenth Anniversary Date") or the date of the first withdrawal, the Protected Withdrawal Value is equal to the "Periodic Value" described in the next paragraph. 75 The "Periodic Value" initially is equal to the Account Value on the effective date of the benefit. On each Valuation Day thereafter, until the earlier of the first withdrawal or the Tenth Anniversary Date, we recalculate the Periodic Value. We stop determining the Periodic Value upon the earlier of your first withdrawal after the effective date of the benefit or the Tenth Anniversary Date. On each Valuation Day (the "Current Valuation Day"), the Periodic Value is equal to the greater of: (1)the Periodic Value for the immediately preceding business day (the "Prior Valuation Day") appreciated at the daily equivalent of 7% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any adjusted Purchase Payment made on the Current Valuation Day; and (2)the Account Value. If you make a withdrawal prior to the Tenth Anniversary Date, the Protected Withdrawal Value on the date of the withdrawal is equal to the greatest of: (1)the Account Value; or (2)the Periodic Value on the date of the withdrawal. If you have not made a withdrawal on or before the Tenth Anniversary Date, your Protected Withdrawal Value subsequent to the Tenth Anniversary Date is equal to the greatest of: (1)the Account Value; or (2)the Periodic Value on the Tenth Anniversary Date, increased for subsequent adjusted purchase payments; or (3)the sum of: (a)200% of the Account Value on the effective date of the benefit; (b)200% of all adjusted purchase payments made within one year after the effective date of the benefit; and (c)all adjusted purchase payments made after one year following the effective date of the benefit up to the date of the first withdrawal. On and after the date of your first withdrawal, your Protected Withdrawal Value is increased by the amount of any subsequent purchase payments, is reduced by withdrawals, including your first withdrawal (as described below), and is increased if you qualify for a step-up (as described below). Irrespective of these calculations, your Protected Withdrawal Value will always be at least equal to your Account Value. Key Feature - Annual Income Amount under the Highest Daily Lifetime Seven Benefit The Annual Income Amount is equal to a specified percentage of the Protected Withdrawal Value. The percentage depends on the age of the Annuitant on the date of the first withdrawal after election of the benefit. The percentages are: 5% for ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. Under the Highest Daily Lifetime Seven benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Withdrawals of any amount up to and including the Annual Income Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the same ratio as the reduction to the Annual Income Amount. A Purchase Payment that you make will (i) increase the then-existing Annual Income Amount by an amount equal to a percentage of the Purchase Payment (including the amount of any associated Credits) based on the age of the Annuitant at the time of the first withdrawal (the percentages are: 5% for ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older) and (ii) increase the Protected Withdrawal Value by the amount of the Purchase Payment (including the amount of any associated Credits). An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as part of this benefit. As detailed in this paragraph, the Highest Quarterly Auto Step-Up feature can result in a larger Annual Income Amount if your Account Value increases subsequent to your first withdrawal. We begin examining the Account Value for purposes of the Highest Quarterly Step-Up starting with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on the Valuation Days corresponding to the end of each quarter that (i) is based on your Annuity Year, rather than a calendar year; (ii) is subsequent to the first withdrawal; and (iii) falls within the immediately preceding Annuity Year. If the end of any such quarter falls on a holiday or a weekend, we use the next Valuation Day. Having identified each of those quarter-end Account Values, we then multiply each such value by a percentage that varies based on the age of the Annuitant on the Annuity Anniversary as of which the step-up would 76 occur. The percentages are 5% for ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. Thus, we multiply each quarterly value by the applicable percentage, adjust each such quarterly value for subsequent withdrawals and purchase payments, and then select the highest of those values. If the highest of those values exceeds the existing Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Annual Income Amount intact. In later years, (i.e., after the first Annuity Anniversary after the first withdrawal) we determine whether an automatic step-up should occur on each Annuity Anniversary, by performing a similar examination of the Account Values on the end of the four immediately preceding quarters. At the time that we increase your Annual Income Amount, we also increase your Protected Withdrawal Value to equal the highest quarterly value upon which your step-up was based. If, on the date that we implement a Highest Quarterly Auto Step-Up to your Annual Income Amount, the charge for Highest Daily Lifetime Seven has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Highest Daily Lifetime Seven upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. The Highest Daily Lifetime Seven benefit does not affect your ability to make withdrawals under your Annuity, or limit your ability to request withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime Seven, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. Examples of dollar-for-dollar and proportional reductions, and the Highest Quarterly Auto Step-Up are set forth below. The values depicted here are purely hypothetical, and do not reflect the charges for the Highest Daily Lifetime Seven benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2007 . The Highest Daily Lifetime Seven benefit is elected on March 5, 2008 . The Annuitant was 70 years old when he/she elected the Highest Daily Lifetime Seven benefit. Dollar-for-dollar reductions On May 2, 2008, the Protected Withdrawal Value is $120,000, resulting in an Annual Income Amount of $6,000 (since the Annuitant is younger than 75 at the time of the 1/st/ withdrawal, the Annual Income Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Annual Income Amount for that Annuity Year (up to and including December 1, 2008) is $3,500. This is the result of a dollar-for-dollar reduction of the Annual Income Amount - $6,000 less $2,500 = $3,500. Proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on August 6, 2008 and the Account Value at the time of this withdrawal is $110,000. The first $3,500 of this withdrawal reduces the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount - $1,500 - reduces the Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there were other withdrawals in that Annuity Year, each would result in another proportional reduction to the Annual Income Amount). Here is the calculation: Account Value before withdrawal $110,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $106,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $106,500.00 Ratio 1.41% Annual Income Amount $ 6,000.00 Less ratio of 1.41% $ 84.51 Annual Income Amount for future Annuity Years $ 5,915.49
Highest Quarterly Auto Step-Up On each Annuity Anniversary date, the Annual Income Amount is stepped-up if the appropriate percentage (based on the Annuitant's age on the Annuity Anniversary) of the highest quarterly value since your first withdrawal (or last Annuity 77 Anniversary in subsequent years), adjusted for withdrawals and additional purchase payments, is higher than the Annual Income Amount, adjusted for excess withdrawals and additional purchase payments (plus any Credits). Continuing the same example as above, the Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces this amount to $5,915.49 for future years (see above). For the next Annuity Year, the Annual Income Amount will be stepped-up if 5% (since the youngest Designated Life is younger than 75 on the date of the potential step-up) of the highest quarterly Account Value adjusted for withdrawals, is higher than $5,915.49. Here are the calculations for determining the quarterly values. Only the June 1 value is being adjusted for excess withdrawals as the September 1 and December 1 Valuation Days occur after the excess withdrawal on August 6.
Highest Quarterly Value (adjusted with Adjusted Annual withdrawal and purchase Income Amount (5% of the Date* Account Value payments)** Highest Quarterly Value) ----- ------------- ----------------------- ------------------------ June 1, 2008 $118,000.00 $118,000.00 $5,900.00 August 6, 2008 $110,000.00 $112,885.55 $5,644.28 September 1, 2008 $112,000.00 $112,885.55 $5,644.28 December 1, 2008 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly valuation dates are every three months thereafter - March 1, June 1, September 1, and December 1. In this example, we do not use the March 1 date as the first withdrawal took place after March 1. The Annuity Anniversary Date of December 1 is considered the fourth and final quarterly valuation date for the year. ** In this example, the first quarterly value after the first withdrawal is $118,000 on June 1, yielding an adjusted Annual Income Amount of $5,900.00. This amount is adjusted on August 6 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $118,000 on June 1 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $114,500 before the excess withdrawal. . This amount ($114,500) is further reduced by 1.41% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Quarterly Value of $112,885.55. . The adjusted Annual Income Amount is carried forward to the next quarterly anniversary date of September 1. At this time, we compare this amount to 5% of the Account Value on September 1. Since the June 1 adjusted Annual Income Amount of $5,644.28 is higher than $5,600.00 (5% of $112,000), we continue to carry $5,644.28 forward to the next and final quarterly anniversary date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,644.28, the adjusted Annual Income Amount is reset to $5,950.00. In this example, 5% of the December 1 value yields the highest amount of $5,950.00. Since this amount is higher than the current year's Annual Income Amount of $5,915.49 adjusted for excess withdrawals, the Annual Income Amount for the next Annuity Year, starting on December 2, 2008 and continuing through December 1, 2009, will be stepped-up to $5,950.00. Benefits Under The Highest Daily Lifetime Seven Benefit . To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount or as a result of the fee that we assess for Highest Daily Lifetime Seven, and amounts are still payable under Highest Daily Lifetime Seven, we will make an additional payment, if any, for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year. Thus, in that scenario, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section. We will make payments until the death of the single designated life. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Highest Daily Lifetime Seven benefit terminates, and no additional payments are made. However, if a withdrawal in the latter scenario was taken to meet required minimum distribution requirements under the Annuity, then the benefit will not terminate, and we will continue to pay the Annual Income Amount in the form of a fixed annuity. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is a Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Annual Income Amount. We will make payments until the death of the single designated life. We must receive your request in a form acceptable to us at our office. In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments in the form of a single life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Annual Income Amount payments. Such present value will be calculated using the greater of the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. 78 . If no withdrawal was ever taken, we will calculate the Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. . Please note that payments that we make under this benefit after the Annuity Anniversary coinciding with or next following the annuitant's 95/th/ birthday will be treated as annuity payments. Other Important Considerations . Withdrawals under the Highest Daily Lifetime Seven benefit are subject to all of the terms and conditions of the Annuity, including any CDSC that may apply. Note that if your withdrawal of the Annual Income Amount in a given Annuity Year exceeds the applicable free withdrawal amount under the Annuity (but is not considered Excess Income), we will not impose any CDSC on the amount of that withdrawal. However, we may impose a CDSC on the portion of a withdrawal that is deemed Excess Income. . Withdrawals made while the Highest Daily Lifetime Seven Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Highest Daily Lifetime Seven Benefit does not directly affect the Account Value or surrender value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity you will receive the current surrender value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Highest Daily Lifetime Seven benefit. The Highest Daily Lifetime Seven benefit provides a guarantee that if your Account Value declines due to Sub-account performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the permitted Sub-accounts. . You cannot allocate purchase payments or transfer Account Value to or from the AST Investment Grade Bond Portfolio Sub-account (see description below) if you elect this benefit. A summary description of the AST Investment Grade Bond Portfolio appears within the Prospectus section entitled "What Are The Investment Objectives and Policies of The Portfolios?". Upon the initial transfer of your Account Value into the AST Investment Grade Bond Portfolio, we will send a prospectus for that Portfolio to you, along with your confirmation. In addition, you can find a copy of the AST Investment Grade Bond Portfolio prospectus by going to www.prudentialannuities.com. . Transfers to and from the elected Sub-accounts and an AST Investment Grade Bond Portfolio Sub-account triggered by the mathematical formula component of the benefit will not count toward the maximum number of free transfers allowable under an Annuity. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this benefit. Moreover, if you are invested in prohibited investment options and seek to acquire the benefit, we will ask you to reallocate to permitted investment options as a prerequisite to acquiring the benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. . If you elect this benefit, and in connection with that election you are required to reallocate to different investment options permitted under this benefit, then on the Valuation Day on which we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly-elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly-elected benefit will not arise until the close of business on the following Valuation Day. . The fee for Highest Daily Lifetime Seven is 0.60% annually of the Protected Withdrawal Value. We deduct this fee at the end of each quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.15% of the Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Portfolio Sub-account. Since this fee is based on the Protected Withdrawal Value the fee for Highest Daily Lifetime Seven may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described above. Election of and Designations under the Benefit For Highest Daily Lifetime Seven, there must be either a single Owner who is the same as the Annuitant, or if the Annuity is entity owned, there must be a single natural person Annuitant. In either case, the Annuitant must be at least 55 years old. Any change of the Annuitant under the Annuity will result in cancellation of Highest Daily Lifetime Seven. Similarly, any change of Owner will result in cancellation of Highest Daily Lifetime Seven, except if (a) the new Owner has the same taxpayer identification number as the previous owner (b) ownership is transferred from a custodian to the Annuitant, or vice versa or (c) ownership is transferred from one entity to another entity. If you wish, you may cancel any Highest Daily Lifetime Seven benefit. You may then elect Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator, Spousal 79 Highest Daily Lifetime 7 Plus, or Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option (or any other currently available living benefit) on the Valuation Day after you have cancelled the Highest Daily Lifetime Seven benefit, provided the request is received in good order (subject to state availability and any applicable age requirements). Upon cancellation of any Highest Daily Lifetime Seven benefit, any Account Value allocated to the AST Investment Grade Bond Portfolio Sub-account used with the formula will be reallocated to the Permitted Sub-Accounts according to your most recent allocation instructions or, in absence of such instructions, pro rata. You should be aware that upon termination of Highest Daily Lifetime Seven, you will lose the Protected Withdrawal Value (including the Tenth Anniversary Date Guarantee), Annual Income Amount, and the Return of Principal Guarantee that you had accumulated under the benefit. Thus, the initial guarantees under any newly-elected benefit will be based on your current Account Value at the time you elect a new benefit. Once the Highest Daily Lifetime Seven benefit is canceled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Highest Daily Lifetime Seven benefit provided that the benefit you are looking to elect is available on a post-issue basis. If you cancel the benefit, you lose all guarantees under the benefit, and your guarantee under any new benefit you elect will be based on your Account Value at that time. Any such new benefit may be more expensive. Return of Principal Guarantee If you have not made a withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: a) your Account Value on the day that you elected Highest Daily Lifetime Seven; and b) the sum of each Purchase Payment you made (including any Credits for Optimum XTra) during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of your variable investment options (including the bond Sub-account used with this benefit), in the same proportion that each such Sub-account bears to your total Account Value, immediately before the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Protected Withdrawal Value, your death benefit, or the amount of any optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. This potential addition to Account Value is available only if you have elected Highest Daily Lifetime Seven and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. The Return of Principal Guarantee is not available in the State of Washington. Termination of the Benefit You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election will apply as described above. The benefit terminates: (i) upon your termination of the benefit (ii) upon your surrender of the Annuity (iii) upon your election to begin receiving annuity payments (although if you have elected to the Annual Income Amount in the form of Annuity payments, we will continue to pay the Annual Income Amount) (iv) upon the death of the Annuitant (v) if both the Account Value and Annual Income Amount equal zero or (vi) if you cease to meet our requirements for issuing the benefit (see Elections and Designations under the Benefit). Upon termination of Highest Daily Lifetime Seven other than upon the death of the Annuitant, we impose any accrued fee for the benefit (i.e., the fee for the pro-rated portion of the year since the fee was last assessed), and thereafter we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the AST Investment Grade Bond Portfolio Sub-account to your variable investment options, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). Mathematical Formula Component of Highest Daily Lifetime Seven As indicated above, we limit the Sub-accounts to which you may allocate Account Value if you elect Highest Daily Lifetime Seven. For purposes of the benefit, we refer to those permitted Sub-accounts as the "Permitted Sub-accounts". As a requirement of participating in Highest Daily Lifetime Seven, we require that you participate in our mathematical formula, under which we may transfer Account Value between the Permitted Sub-accounts and a specified bond fund within the Advanced Series Trust (the "AST Investment Grade Bond Sub-account"). We determine whether to make a transfer, and the amount of any transfer, under a non-discretionary formula, discussed below. The AST Investment Grade Bond Sub-account is available only with this benefit, and thus you may not allocate purchase payments to the AST Investment Grade Bond Sub-account. Under the formula component of Highest Daily Lifetime Seven, we monitor your Account Value daily and, if dictated by the formula, systematically transfer 80 amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account. Any transfer would be made in accordance with a formula, which is set forth in Appendix G to this prospectus. Speaking generally, the formula, which we apply each Valuation Day, operates as follows. The formula starts by identifying an income basis for that day and then multiplies that figure by 5%, to produce a projected (i.e., hypothetical) income amount. Note that we use 5% in the formula, irrespective of the Annuitant's attained age. Then we produce an estimate of the total amount we would target in our allocation model, based on the projected income amount and factors set forth in the formula. In the formula, we refer to that value as the "Target Value" or "L". If you have already made a withdrawal, your projected income amount (and thus your Target Value) would take into account any automatic step-up, any subsequent purchase payments, and any excess withdrawals. Next, the formula subtracts from the Target Value the amount held within the AST Investment Grade Bond Sub-account on that day, and divides that difference by the amount held within the Permitted Sub-accounts. That ratio, which essentially isolates the amount of your Target Value that is not offset by amounts held within the AST Investment Grade Bond Sub-account, is called the "Target Ratio" or "r". If the Target Ratio exceeds a certain percentage (currently 83%), it means essentially that too much Target Value is not offset by assets within the AST Investment Grade Bond Sub-account, and therefore we will transfer an amount from your Permitted Sub-accounts to the AST Investment Grade Bond Sub-account. Conversely, if the Target Ratio falls below a certain percentage (currently 77%), then a transfer from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts would occur. If you elect the new formula (90% Cap Rule), see discussion below. As you can glean from the formula, poor investment performance of your Account Value may result in a transfer of a portion of your variable Account Value to the AST Investment Grade Bond Sub-account because such poor investment performance will tend to increase the Target Ratio. Moreover, "flat" investment returns of your Account Value over a period of time also could result in the transfer of your Account Value from the Permitted Sub-accounts to the AST Investment Grade Bond Sub-account. Because the amount allocated to the AST Investment Grade Bond Sub-account and the amount allocated to the Permitted Sub-accounts each is a variable in the formula, the investment performance of each affects whether a transfer occurs for your Annuity. In deciding how much to transfer, we use another formula, which essentially seeks to re-balance amounts held in the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account so that the Target Ratio meets a target, which currently is equal to 80%. Once you elect Highest Daily Lifetime Seven, the ratios we use will be fixed. For newly-issued Annuities that elect Highest Daily Lifetime Seven and existing Annuities that elect Highest Daily Lifetime Seven, however, we reserve the right, subject to any required regulatory approval, to change the ratios. While you are not notified when your Annuity reaches a reallocation trigger, you will receive a confirmation statement indicating the transfer of a portion of your Account Value either to or from the AST Investment Grade Bond Sub-account. The formula by which the reallocation triggers operate is designed primarily to mitigate the financial risks that we incur in providing the guarantee under Highest Daily Lifetime Seven. Depending on the results of the calculation relative to the reallocation triggers, we may, on any day: . Not make any transfer between the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account; or . If a portion of your Account Value was previously allocated to the AST Investment Grade Bond Sub-account, transfer all or a portion of those amounts to the Permitted Sub-accounts, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options); or . Transfer all or a portion of your Account Value in the Permitted Sub-accounts pro rata to the AST Investment Grade Bond Sub-account. Therefore, at any given time, some, none, or all of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. If your entire Account Value is transferred to the AST Investment Grade Bond Sub-account, then based on the way the formula operates, the formula will not transfer amounts out of the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts and the entire Account Value would remain in the AST Investment Grade Bond Sub-account. If you make additional purchase payments to your Annuity, they will be allocated to the Sub-accounts according to your allocation instructions. Such additional purchase payments may or may not cause the formula to transfer money in or out of the AST Investment Grade Bond Sub-account. Once the purchase payments are allocated to your Annuity, they will also be subject to the formula, which may result in immediate transfers to or from the AST Investment Grade Bond Sub-accounts, if dictated by the formula. The amounts of any such transfers will vary (and in some instances, could be large), as dictated by the formula, and will depend on the factors listed below. The amount that is transferred to and from the AST Investment Grade Bond Sub-account pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . How long you have owned Highest Daily Lifetime Seven; 81 . The performance of the Permitted Sub-accounts you have chosen; . The performance of the AST Investment Grade Bond Sub-account; . The amount allocated to each of the Permitted Sub-accounts you have chosen; . The amount allocated to the AST Investment Grade Bond Sub-account; . Additional purchase payments, if any, you make to your Annuity; . Withdrawals, if any, you take from your Annuity (withdrawals are taken pro rata from your Account Value). Any Account Value in the AST Investment Grade Bond Sub-account will not be available to participate in the investment experience of the Permitted Sub-accounts if there is a recovery until it is moved out of the AST Investment Grade Bond Sub-account. The more of your Account Value allocated to the AST Investment Grade Bond Sub-account under the formula, the greater the impact of the performance of that Sub-account in determining whether (and how much) of your Account Value is transferred back to the Permitted Sub-accounts. Further, it is possible under the formula, that if a significant portion your Account Value is allocated to the AST Investment Grade Bond Sub-account and that Sub-account has good performance but the performance of your Permitted Sub-accounts is negative, that the formula might transfer your Account Value to the Permitted Sub-accounts. Thus, the converse is true too (the more you have allocated to the Permitted Sub-accounts, the greater the impact of the performance of those Sub-accounts will have on any transfer to the AST Investment Grade Bond Sub-account). Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Please note, however, that any withdrawal you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive the Return of Principal Guarantee and the guaranteed amount described above under "Key Feature - Protected Withdrawal Value". Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. However, we do note that if you participate in Highest Daily Lifetime Seven through a non-qualified annuity, as with all withdrawals, once all purchase payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Highest Daily Lifetime Seven with Beneficiary Income Option/SM/ There is an optional death benefit feature under this benefit, the amount of which is linked to your Annual Income Amount. We refer to this optional death benefit as the Beneficiary Income Option or ("BIO"). You may choose Highest Daily Lifetime Seven without also selecting the Beneficiary Income Option death benefit. You must elect the Beneficiary Income Option death benefit at the time you elect Highest Daily Lifetime Seven. Highest Daily Lifetime Seven with Beneficiary Income Option is only available in states that have not yet approved Highest Daily Lifetime 7 Plus with Beneficiary Income Option. If you terminate your Highest Daily Lifetime Seven benefit to elect the Highest Daily Lifetime Seven with Beneficiary Income Option benefit, you will lose the guarantees that you had accumulated under your Highest Daily Lifetime Seven benefit and will begin new guarantees under the Highest Daily Lifetime Seven with BIO benefit based on the Account Value as of the date the new benefit becomes active. This benefit may be elected, provided that all owners and beneficiaries are natural persons or an agent acting for a natural person. If you elect this death benefit, you may not elect any other optional death benefit. You may elect the Beneficiary Income Option death benefit so long as the Annuitant is no older than age 75 at the time of election. For purposes of this optional death benefit, we calculate the Annual Income Amount and Protected Withdrawal Value in the same manner that we do under Highest Daily Lifetime Seven itself. Because the fee for this benefit is based on the Protected Withdrawal Value, the fee for Highest Daily Lifetime Seven with the Beneficiary Income Option may be greater than it would have been based on the Account Value alone. 82 Upon a death that triggers payment of a death benefit under the Annuity, we identify the following amounts: (a) the amount of the basic Death Benefit under the Annuity (b) the Protected Withdrawal Value and (c) the Annual Income Amount. If there were no withdrawals prior to the date of death, then we calculate the Protected Withdrawal Value for purposes of this death benefit as of the date of death, and we calculate the Annual Income Amount as if there were a withdrawal on the date of death. If there were withdrawals prior to the date of death, then we set the Protected Withdrawal Value and Annual Income Amount for purposes of this death benefit as of the date that we receive due proof of death. If there is one beneficiary, he/she must choose to receive either the basic Death Benefit (in a lump sum or other permitted form of distribution) or the Beneficiary Income Option death benefit (in the form of periodic payments of the Annual Income Amount - such payments may be annual or at other intervals that we permit). If there are multiple beneficiaries, each beneficiary is presented with the same choice. Thus, each beneficiary can choose to take his/her portion of either (a) the basic death benefit or (b) the Beneficiary Income Option death benefit. In order to receive the Beneficiary Income Option death benefit, each beneficiary's share of the death benefit proceeds must be allocated as a percentage of the total death benefit to be paid. We allow a beneficiary who has opted to receive the Annual Income Amount to designate another beneficiary, who would receive any remaining payments upon the former beneficiary's death. Note also that the final payment, exhausting the Protected Withdrawal Value, may be less than the Annual Income Amount. Here is an example to illustrate how the death benefit may be paid: . Assume that (i) the basic death benefit is $50,000, the Protected Withdrawal Value is $100,000, and the Annual Income Amount is $5,000: (ii) there are two beneficiaries (the first designated to receive 75% of the death benefit and the second designated to receive 25% of the death benefit); (iii) the first beneficiary chooses to receive his/her portion of the death benefit in the form of the Annual Income Amount, and the second beneficiary chooses to receive his/her portion of the death benefit with reference to the basic death benefit. . Under those assumptions, the first beneficiary will be paid a pro-rated portion of the Annual Income Amount for 20 years (the 20 year payout period is derived from the $5,000 Annual Income Amount, paid each year until it exhausts the entire $100,000 Protected Withdrawal Value). The pro-rated portion of the Annual Income Amount, equal to $3,750 annually (i.e., the first beneficiary's 75% share multiplied by $5000), is then paid each year for the 20 year period. Payment of $3,750 for 20 years results in total payments of $75,000 (i.e., the first beneficiary's 75% share of the $100,000 Protected Withdrawal Value). The second beneficiary would receive 25% of the basic death benefit amount (or $12,500). If you elect to terminate Highest Daily Lifetime Seven with Beneficiary Income Option, both Highest Daily Lifetime Seven and that death benefit option will be terminated. You may not terminate the death benefit option without terminating the entire benefit. If you terminate Highest Daily Lifetime Seven with Beneficiary Income Option, your ability to elect other optional living benefits will be affected as indicated in the "Election and Designations under the Program" section, above. Highest Daily Lifetime Seven with Lifetime Income Accelerator/SM/. Subject to regulatory approval, the following benefit may be elected: There is another version of Highest Daily Lifetime Seven that we call Highest Daily Lifetime Seven with Lifetime Income Accelerator ("Highest Daily Lifetime Seven with LIA"). Highest Daily Lifetime Seven with Lifetime Income Accelerator is only available in states where Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator is not yet approved. Highest Daily Lifetime Seven with LIA is offered as an alternative to other lifetime withdrawal options. If you elect this benefit, you may not elect any other optional benefit. The income benefit under Highest Daily Lifetime Seven with LIA currently is based on a single "designated life" who is between the ages of 55 and 75 on the date that the benefit is elected. If you terminate your Highest Daily Lifetime Seven Benefit to elect the Highest Daily Lifetime Seven with LIA benefit, you will lose the guarantees that you had accumulated under your Highest Daily Lifetime Seven benefit and will begin the new guarantees under the Highest Daily Lifetime Seven benefit with LIA based on the account value as of the date the new benefit becomes active. Highest Daily Lifetime Seven with LIA is not long-term care insurance and should not be purchased as a substitute for long-term care insurance. The income you receive through the Lifetime Income Accelerator may be used for any purpose, and it may or may not be sufficient to address expenses you may incur for long-term care. You should seek professional advice to determine your financial needs for long-term care. Highest Daily Lifetime Seven with LIA guarantees, until the death of the single designated life, the ability to withdraw an amount equal to double the Annual Income Amount (which we refer to as the "LIA Amount") if you meet the conditions set forth below. If you choose the Highest Daily Lifetime Seven with LIA, the maximum charge is 2.00% of Protected Withdrawal Value ("PWV") annually. We deduct the current charge (0.95% of PWV) at the end of each quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.2375% of the Protected Withdrawal Value at the end of the quarter. We 83 deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Portfolio Sub-account. Since this fee is based on the protected withdrawal value, the fee for Highest Daily Lifetime Seven with LIA may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described below. If this benefit is being elected on an Annuity held as a 403 (b) plan, then in addition to meeting the eligibility requirements listed below for the LIA Amount you must separately qualify for distributions from the 403 (b) plan itself. You may choose Highest Daily Lifetime Seven without also electing LIA, however you may not elect LIA without Highest Daily Lifetime Seven. All terms and conditions of Highest Daily Lifetime Seven apply to this version of the benefit, except as described herein. Currently, if you elect Highest Daily Lifetime Seven with LIA and subsequently terminate the benefit, you will be able to re-elect Highest Daily Lifetime Seven with LIA but all conditions of the benefit described below must be met, and you may be subject to a waiting period until you can elect this or another lifetime withdrawal benefit. Eligibility Requirements for LIA Amount. Both a waiting period of 36 months, from the benefit effective date, and an elimination period of 120 days, from the date of notification that one or both of the requirements described immediately below have been met, apply before you can become eligible for the LIA Amount. Assuming the 36 month waiting period has been met and we have received the notification referenced in the immediately preceding sentence, the LIA amount would be available for withdrawal on the Valuation Day immediately after the 120/th/ day. The waiting period and the elimination period may run concurrently. In addition to satisfying the waiting and elimination period, either or both of the following requirements ("LIA conditions") must be met. It is not necessary to meet both conditions: (1)The designated life is confined to a qualified nursing facility. A qualified nursing facility is a facility operated pursuant to law or any state licensed facility providing medically necessary in-patient care which is prescribed by a licensed physician in writing and based on physical limitations which prohibit daily living in a non-institutional setting. (2)The designated life is unable to perform two or more basic abilities of caring for oneself or "activities of daily living." We define these basic abilities as: i. Eating: Feeding oneself by getting food into the body from a receptacle (such as a plate, cup or table) or by a feeding tube or intravenously. ii.Dressing: Putting on and taking off all items of clothing and any necessary braces, fasteners or artificial limbs. iii.Bathing: Washing oneself by sponge bath; or in either a tub or shower, including the task of getting into or out of the tub or shower. iv.Toileting: Getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene. v. Transferring: Moving into or out of a bed, chair or wheelchair. vi.Continence: Maintaining control of bowel or bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform personal hygiene (including caring for catheter or colostomy bag). You must notify us when the LIA conditions have been met. If, when we receive such notification, there are more than 120 days remaining until the end of the waiting period described above, you will not be eligible for the LIA Amount. If there are 120 days or less remaining until the end of the waiting period when we receive notification that the LIA conditions are met, we will determine eligibility for the LIA Amount through our then current administrative process, which may include, but is not limited to, documentation verifying the LIA conditions and/or an assessment by a third party of our choice. Such assessment may be in person and we will assume any costs associated with the aforementioned assessment. Once eligibility is determined, the LIA Amount is equal to double the Annual Income Amount as described in this prospectus under the Highest Daily Lifetime Seven Benefit. Additionally, we will reassess your eligibility on an annual basis although your LIA benefit for the year that immediately precedes our reassessment will not be affected if it is determined that you are no longer eligible. Your first reassessment may occur in the same year as your initial assessment. If we determine you are no longer eligible to receive the LIA Amount, upon the next Annuity Anniversary the Annual Income Amount would replace the LIA Amount. There is no limit on the number of times you can become eligible for the LIA Amount, however, each time would require the completion of the 120-day elimination period, notification that the designated life meets the LIA conditions, and determination, through our then current administrative process, that you are eligible for the LIA Amount, each as described above. You should also keep in mind that, at the time you are experiencing the LIA conditions that would qualify you for the LIA Amount, you may also be experiencing other disabilities that could impede your ability to conduct your affairs. You may wish to consult with a legal advisor to determine whether you should authorize a fiduciary who could notify us if you meet the LIA conditions and apply for the benefit. LIA amount at the first Withdrawal. If your first withdrawal subsequent to election of Highest Daily Lifetime Seven with LIA occurs while you are eligible for the LIA Amount, the available LIA Amount is equal to double the Annual Income Amount. 84 LIA amount after the First Withdrawal. If you become eligible for the LIA Amount after you have taken your first withdrawal, the available LIA amount for the current and subsequent Annuity Years is equal to double the then current Annual Income Amount, however the available LIA amount in the current Annuity Year is reduced by any withdrawals that have been taken in the current Annuity Year. Cumulative withdrawals in an Annuity Year which are less than or equal to the LIA Amount (when eligible for the LIA amount) will not reduce your LIA Amount in subsequent Annuity Years, but any such withdrawals will reduce the LIA Amount on a dollar-for-dollar basis in that Annuity Year. Withdrawals In Excess of the LIA amount. If your cumulative withdrawals in an Annuity Year are in excess of the LIA Amount when you are eligible ("Excess Withdrawal"), your LIA Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the excess portion of the withdrawal to the Account Value immediately prior to the Excess Withdrawal. Reductions include the actual amount of the withdrawal, including any CDSC that may apply. Withdrawals of any amount up to and including the LIA Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Excess Withdrawals will reduce the Protected Withdrawal Value by the same ratio as the reduction to the LIA Amount. Any withdrawals that are less than or equal to the LIA amount (when eligible) but in excess of the free withdrawal amount available under this Annuity will not incur a CDSC. Withdrawals are not required. However, subsequent to the first withdrawal, the LIA Amount is not increased in subsequent Annuity Years if you decide not to take a withdrawal in an Annuity Year or take withdrawals in an Annuity Year that in total are less than the LIA Amount. Purchase Payments. If you are eligible for the LIA Amount as described under "Eligibility Requirements for LIA Amount" and you make an additional Purchase Payment, we will increase your LIA Amount by double the amount we add to your Annual Income Amount. Step Ups. If your Annual Income Amount is stepped up, your LIA Amount will be stepped up to equal double the stepped up Annual Income Amount. Guarantee Payments. If your Account Value is reduced to zero as a result of cumulative withdrawals that are equal to or less than the LIA Amount, or as a result of the fee that we assess for Highest Daily Lifetime Seven with LIA, and there is still a LIA Amount available, we will make an additional payment for that Annuity Year equal to the remaining LIA Amount. Thus, in that scenario, the remaining LIA Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the LIA Amount as described in this section. We will make payments until the death of the single designated life. Should the designated life no longer qualify for the LIA amount (as described under "Eligibility Requirements for LIA Amount" above), the Annual Income Amount would continue to be available. Subsequent eligibility for the LIA Amount would require the completion of the 120 day elimination period as well as meeting the LIA conditions listed above under "Eligibility Requirements for LIA Amount". To the extent that cumulative withdrawals in the current Annuity Year that reduce your Account Value to zero are more than the LIA Amount (except in the case of required minimum distributions), Highest Daily Lifetime Seven with LIA terminates, and no additional payments are made. Annuity Options. In addition to the Highest Daily Lifetime Seven Annuity Options described above, after the 10/th/ benefit anniversary you may also request that we make annuity payments each year equal to the Annual Income Amount. In any year that you are eligible for the LIA Amount, we make annuity payments equal to the LIA Amount. If you would receive a greater payment by applying your Account Value to receive payments for life under your Annuity, we will pay the greater amount. Prior to the 10/th/ benefit anniversary this option is not available. We will continue to make payments until the death of the Designated Life. If this option is elected, the Annual Income Amount and LIA Amount will not increase after annuity payments have begun. If you elect Highest Daily Lifetime Seven with LIA, and never meet the eligibility requirements you will not receive any additional payments based on the LIA Amount. Optional 90% Cap Rule Feature for Formula for Highest Daily Lifetime Seven We allow those who currently participate in Highest Daily Lifetime Seven to choose, as part of the benefit, a formula that differs from the formula introduced originally with this benefit, subject to regulatory approval. The new formula appears in Appendix G of this Prospectus. The new formula is described below and will replace the "Transfer Calculation" portion of the formula currently used in connection with your benefit on a prospective basis. This election may only be made once and may not be revoked once elected. Under the new formula, the formula will not execute a transfer to the AST Investment Grade Bond Sub-account that results in more than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account ("90% cap" or "90% Cap Rule"). Thus, on any Valuation Day, if the formula would require a transfer to the AST Investment Grade Bond Sub-account that 85 would result in more than 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account, only the amount that results in exactly 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account will be transferred. Additionally, future transfers into the AST Investment Grade Bond Sub-account will not be made (regardless of the performance of the AST Investment Grade Bond Sub-account and the Permitted Sub-accounts) at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. Once this transfer occurs out of the AST Investment Grade Bond Sub-account, future amounts may be transferred to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). At no time will the formula make a transfer to the AST Investment Grade Bond Sub-account that results in greater than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account. However, it is possible that, due to the investment performance of your allocations in the AST Investment Grade Bond Sub-account and your allocations in the Permitted Sub-accounts you have selected, your Account Value could be more than 90% invested in the AST Investment Grade Bond Sub-account. If you make additional purchase payments to your Annuity while the 90% cap is in effect, the formula will not transfer any of such additional purchase payments to the AST Investment Grade Bond Sub-account at least until there is first a transfer out of the AST Investment Grade Bond Sub-account, regardless of how much of your Account Value is in the Permitted Sub-accounts. This means that there could be scenarios under which, because of the additional purchase payments you make, less than 90% of your entire Account Value is allocated to the AST Investment Grade Bond Sub-account, and the formula will still not transfer any of your Account Value to the AST Investment Grade Bond Sub-account (at least until there is first a transfer out of the AST Investment Grade Bond Sub-account). For example, . March 19, 2009 - a transfer is made that results in the 90% cap being met and now $90,000 is allocated to the AST Investment Grade Bond Sub-account and $10,000 is allocated to the Permitted Sub-accounts. . March 20, 2009 - you make an additional purchase payment of $10,000. No transfers have been made from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts since the cap went into effect on March 19, 2009. . As of March 20, 2009 (and at least until first a transfer is made out of the AST Investment Grade Bond Sub-account under the formula) - the $10,000 payment is allocated to the Permitted Sub-accounts and now you have 82% in the AST Investment Grade Bond Sub-account and 18% in the Permitted Sub-accounts (such that $20,000 is allocated to the Permitted Sub-accounts and $90,000 is allocated to the AST Investment Grade Bond Sub-account). . Once there is a transfer out of the AST Investment Grade Bond Sub-account (of any amount), the formula will operate as described above, meaning that the formula could transfer amounts to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). Under the operation of the formula, the 90% cap may come into existence and may be removed multiple times while you participate in the benefit. We will continue to monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account as dictated by the formula. Once you elect this feature, the new transfer formula described above and set forth in Appendix G will be the formula for your Annuity. In the event that more than ninety percent (90%) of your Account Value is allocated to the AST Investment Grade Bond Sub-account and you have elected this feature, up to ten percent (10%) of your Account Value currently allocated to the AST Investment Grade Bond Sub-account will be transferred to your Permitted Sub-accounts, such that after the transfer, 90% of your Account Value on the date of the transfer is in the AST Investment Grade Bond Sub-account. The transfer to the Permitted Sub-accounts will be based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). It is possible that additional transfers might occur after this initial transfer if dictated by the formula. The amounts of such additional transfer(s) will vary. If on the date this feature is elected 100% of your Account Value is allocated to the AST Investment Grade Bond Sub-account, a transfer of an amount equal to 10% of your Account Value will be made to your Permitted Sub-accounts. It is possible that an additional transfer to the permitted Sub-accounts could occur following the Valuation Day, and in some instances (based on the formula) this additional transfer could be large. Once the 90% cap rule is met, future transfers into the AST Investment Grade Bond Sub-account will not be made (regardless of the performance of the AST Investment Grade Bond Sub-account and the Permitted Sub-accounts) at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. Once this transfer occurs out of the AST Investment Grade Bond Sub-account, future amounts may be transferred to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). Important Consideration When Electing the New Formula: . At any given time, some, most or none of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. . Please be aware that because of the way the 90% cap formula operates, it is possible that more than or less than 90% of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. 86 . If this feature is elected, any Account Value transferred to the Permitted Sub-accounts is subject to the investment performance of those Sub-accounts. Your Account Value can go up or down depending of the performance of the Permitted Sub-accounts you select. SPOUSAL HIGHEST DAILY LIFETIME SEVEN/SM/ INCOME BENEFIT (SHD7/SM/) Spousal Highest Daily Lifetime Seven is the spousal version of Highest Daily Lifetime Seven. Spousal Highest Daily Lifetime Seven is only available in those states that have not yet approved Spousal Highest Daily Lifetime 7 Plus. Spousal Highest Daily Lifetime Seven must be elected based on two Designated Lives, as described below. Each Designated Life must be at least 59 1/2 years old when the benefit is elected. Spousal Highest Daily Lifetime Seven is not available if you elect any other optional living benefit or optional death benefit. As long as your Spousal Highest Daily Lifetime Seven Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. For a more detailed description of permitted investment options, see the Investment options section of this prospectus. The benefit that guarantees until the later death of two natural persons who are each other's spouses at the time of election of the benefit and at the first death of one of them (the "Designated Lives", and each, a "Designated Life") the ability to withdraw an annual amount (the "Annual Income Amount") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of Sub-account performance on the Account Value, subject to our benefit rules regarding the timing and amount of withdrawals. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, wish to ensure that Sub-account performance will not affect your ability to receive annual payments, and wish either spouse to be able to continue the Spousal Highest Daily Lifetime Seven benefit after the death of the first spouse. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer program in order to participate in Spousal Highest Daily Lifetime Seven, and in Appendix G to this prospectus, we set forth the formula under which we make those asset transfers. As discussed below, a key component of Spousal Highest Daily Lifetime Seven is the Protected Withdrawal Value. Because each of the Protected Withdrawal Value and Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for the Account Value to fall to zero, even though the Annual Income Amount remains. You are guaranteed to be able to withdraw the Annual Income Amount until the death of the second Designated Life, provided that there have not been "excess withdrawals." Excess withdrawals, as discussed below, will reduce your Annual Income Amount. Thus, you could experience a scenario in which your Account Value was zero, and, due to your excess withdrawals, your Annual Income Amount also was reduced to zero. In that scenario, no further amount would be payable under Spousal Highest Daily Lifetime Seven. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to calculate the initial Annual Income Amount. On the effective date of the benefit, the Protected Withdrawal Value is equal to your Account Value. On each Valuation Day thereafter, until the earlier of the tenth anniversary of benefit election (the "Tenth Anniversary Date") or the date of the first withdrawal, the Protected Withdrawal Value is equal to the "Periodic Value" described in the next paragraph. The "Periodic Value" initially is equal to the Account Value on the effective date of the benefit. On each Valuation Day thereafter, until the earlier of the first withdrawal or the Tenth Anniversary Date, we recalculate the Periodic Value. We stop determining the Periodic Value upon the earlier of your first withdrawal after the effective date of the benefit or the Tenth Anniversary Date. On each Valuation Day (the "Current Valuation Day"), the Periodic Value is equal to the greater of: (1)the Periodic Value for the immediately preceding business day (the "Prior Valuation Day") appreciated at the daily equivalent of 7% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any adjusted Purchase Payment made on the Current Valuation Day; and (2)the Account Value. If you make a withdrawal prior to the Tenth Anniversary Date, the Protected Withdrawal Value on the date of the withdrawal is equal to the greatest of: (a)the Account Value; or (b)the Periodic Value on the date of the withdrawal. If you have not made a withdrawal on or before the Tenth Anniversary Date, your Protected Withdrawal Value subsequent to the Tenth Anniversary Date is equal to the greatest of: (1)the Account Value; or 87 (2)the Periodic Value on the Tenth Anniversary Date, increased for subsequent adjusted purchase payments; or (3)the sum of: (a)200% of the Account Value on the effective date of the benefit; (b)200% of all adjusted purchase payments made within one year after the effective date of the benefit; and (c)all adjusted purchase payments made after one year following the effective date of the benefit up to the date of the first withdrawal. On and after the date of your first withdrawal, your Protected Withdrawal Value is increased by the amount of any subsequent purchase payments, is reduced by withdrawals, including your first withdrawal (as described below), and is increased if you qualify for a step-up (as described below). Irrespective of these calculations, your Protected Withdrawal Value will always be at least equal to your Account Value. Key Feature - Annual Income Amount under the Spousal Highest Daily Lifetime Seven Benefit The Annual Income Amount is equal to a specified percentage of the Protected Withdrawal Value. The percentage depends on the age of the youngest Designated Life on the date of the first withdrawal after election of the benefit. The percentages are: 5% for ages 79 and younger, 6% for ages 80 to 84, 7% for ages 85 to 89, and 8% for ages 90 and older. We use the age of the youngest Designated Life even if that Designated Life is no longer a participant under the Annuity due to death or divorce. Under the Spousal Highest Daily Lifetime Seven benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Withdrawals of any amount up to and including the Annual Income Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the same ratio as the reduction to the Annual Income Amount. A Purchase Payment that you make will (i) increase the then-existing Annual Income Amount by an amount equal to a percentage of the Purchase Payment (including the amount of any associated Credits) based on the age of the Annuitant at the time of the first withdrawal (the percentages are: 5% for ages 79 and younger, 6% for ages 80-84, 7% for ages 85-89, and 8% for ages 90 and older) and (ii) increase the Protected Withdrawal Value by the amount of the Purchase Payment (including the amount of any associated Credits). Note that if your withdrawal of the Annual Income Amount in a given Annuity Year exceeds the applicable free withdrawal amount under the Annuity (but is not considered Excess Income), we will not impose any CDSC on the amount of that withdrawal. An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as part of this benefit. As detailed in this paragraph, the Highest Quarterly Auto Step-Up feature can result in a larger Annual Income Amount if your Account Value increases subsequent to your first withdrawal. We begin examining the Account Value for purposes of the Highest Quarterly Step-Up starting with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on the Valuation Days corresponding to the end of each quarter that (i) is based on your Annuity Year, rather than a calendar year; (ii) is subsequent to the first withdrawal; and (iii) falls within the immediately preceding Annuity Year. If the end of any such quarter falls on a holiday or a weekend, we use the next Valuation Day. Having identified each of those quarter-end Account Values, we then multiply each such value by a percentage that varies based on the age of the youngest Designated Life on the Annuity Anniversary as of which the step-up would occur. The percentages are 5% for ages 79 and younger, 6% for ages 80-84, 7% for ages 85-89, and 8% for ages 90 and older. Thus, we multiply each quarterly value by the applicable percentage, adjust each such quarterly value for subsequent withdrawals and purchase payments, and then select the highest of those values. If the highest of those values exceeds the existing Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Annual Income Amount intact. In later years, (i.e., after the first Annuity Anniversary after the first withdrawal) we determine whether an automatic step-up should occur on each Annuity Anniversary, by performing a similar examination of the Account Values on the end of the four immediately preceding quarters. At the time that we increase your Annual Income Amount, we also increase your Protected Withdrawal Value to equal the highest quarterly value upon which your step-up was based. If, on the date that we implement a Highest Quarterly Auto Step-Up to your Annual Income Amount, the charge for Spousal Highest Daily Lifetime Seven has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Spousal Highest Daily Lifetime Seven upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. The Spousal Highest Daily Lifetime Seven benefit does not affect your ability to make withdrawals under your annuity, or limit your ability to request withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily Lifetime Seven, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. 88 If, cumulatively, you withdraw an amount less than the Annual Income Amount in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. Examples of dollar-for-dollar and proportional reductions, and the Highest Quarterly Auto Step-Up are set forth below. The values depicted here are purely hypothetical, and do not reflect the charges for the Spousal Highest Daily Lifetime Seven benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2007 . The Spousal Highest Daily Lifetime Seven benefit is elected on March 5, 2008. . The youngest Designated Life was 70 years old when he/she elected the Spousal Highest Daily Lifetime Seven benefit. Dollar-for-dollar reductions On May 2, 2008, the Protected Withdrawal Value is $120,000, resulting in an Annual Income Amount of $6,000 (since the youngest Designated Life is younger than 80 at the time of the 1/st/ withdrawal, the Annual Income Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Annual Income Amount for that Annuity Year (up to and including December 1, 2008) is $3,500. This is the result of a dollar-for-dollar reduction of the Annual Income Amount - $6,000 less $2,500 = $3,500. Proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on August 6, 2008 and the Account Value at the time of this withdrawal is $110,000. The first $3,500 of this withdrawal reduces the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount - $1,500 - reduces the Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there were other withdrawals in that Annuity Year, each would result in another proportional reduction to the Annual Income Amount). Here is the calculation: Account Value before withdrawal $110,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $106,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $106,500.00 Ratio 1.41% Annual Income Amount $ 6,000.00 Less ratio of 1.41% $ 84.51 Annual Income Amount for future Annuity Years $ 5,915.49
Highest Quarterly Auto Step-Up On each Annuity Anniversary date, the Annual Income Amount is stepped-up if the appropriate percentage (based on the youngest Designated Life's age on the Annuity Anniversary) of the highest quarterly value since your first withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional purchase payments, is higher than the Annual Income Amount, adjusted for excess withdrawals and additional purchase payments (plus any Credits). Continuing the same example as above, the Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces this amount to $5,915.49 for future years (see above). For the next Annuity Year, the Annual Income Amount will be stepped-up if 5% (since the youngest Designated Life is younger than 80 on the date of the potential step-up) of the highest quarterly Account Value adjusted for withdrawals, is higher than $5,915.49. Here are the calculations for determining the quarterly values. Only the June 1 value is being adjusted for excess withdrawals as the September 1 and December 1 Valuation Days occur after the excess withdrawal on August 6.
Highest Quarterly Value (adjusted with Adjusted Annual withdrawal and purchase Income Amount (5% of the Date* Account Value payments)** Highest Quarterly Value) ----- ------------- ----------------------- ------------------------ June 1, 2008 $118,000.00 $118,000.00 $5,900.00 August 6, 2008 $110,000.00 $112,885.55 $5,644.28 September 1, 2008 $112,000.00 $112,885.55 $5,644.28 December 1, 2008 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly valuation dates are every three months thereafter - March 1, June 1, September 1, and December 1. In this example, we do not use the March 1 date as the first withdrawal took place after March 1. The Annuity Anniversary Date of December 1 is considered the fourth and final quarterly valuation date for the year. 89 ** In this example, the first quarterly value after the first withdrawal is $118,000 on June 1, yielding an adjusted Annual Income Amount of $5,900.00. This amount is adjusted on August 6 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $118,000 on June 1 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $114,500 before the excess withdrawal. . This amount ($114,500) is further reduced by 1.41% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Quarterly Value of $112,885.55. The adjusted Annual Income Amount is carried forward to the next quarterly anniversary date of September 1. At this time, we compare this amount to 5% of the Account Value on September 1. Since the June 1 adjusted Annual Income Amount of $5,644.28 is higher than $5,600.00 (5% of $112,000), we continue to carry $5,644.28 forward to the next and final quarterly anniversary date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,644.28, the adjusted Annual Income Amount is reset to $5,950.00. In this example, 5% of the December 1 value yields the highest amount of $5,950.00. Since this amount is higher than the current year's Annual Income Amount of $5,915.49 adjusted for excess withdrawals, the Annual Income Amount for the next Annuity Year, starting on December 2, 2008 and continuing through December 1, 2009, will be stepped-up to $5,950.00. Benefits Under The Spousal Highest Daily Lifetime Seven Benefit . To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount or as a result of the fee that we assess for Spousal Highest Daily Lifetime Seven, and amounts are still payable under Spousal Highest Daily Lifetime Seven, we will make an additional payment, if any, for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year. Thus, in that scenario, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section. We will make payments until the death of the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Spousal Highest Daily Lifetime Seven benefit terminates, and no additional payments will be made. However, if a withdrawal in the latter scenario was taken to meet required minimum distribution requirements under the Annuity, then the benefit will not terminate, and we will continue to pay the Annual Income Amount in the form of a fixed annuity. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is a Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Annual Income Amount. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. If, due to death of a Designated Life or divorce prior to annuitization, only a single Designated Life remains, then Annuity payments will be made as a life annuity for the lifetime of the Designated Life. We must receive your request in a form acceptable to us at our office. In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a joint and survivor or single (as applicable) life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Annual Income Amount payments. Such present value will be calculated using the greater of the joint and survivor or single (as applicable) life fixed annuity rates then currently available or the joint and survivor or single (as applicable) life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will calculate the Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. . Please note that payments that we make under this benefit after the Annuity Anniversary coinciding with or next following the older of the owner or Annuitant's 95/th/ birthday, will be treated as annuity payments. Other Important Considerations . Withdrawals under the Spousal Highest Daily Lifetime Seven benefit are subject to all of the terms and conditions of the Annuity, including any CDSC that may apply. Note that if your withdrawal of the Annual Income Amount in a given 90 Annuity Year exceeds the applicable free withdrawal amount under the Annuity (but is not considered Excess Income), we will not impose any CDSC on the amount of that withdrawal. However, we may impose a CDSC on the portion of a withdrawal that is deemed Excess Income. . Withdrawals made while the Spousal Highest Daily Lifetime Seven Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Spousal Highest Daily Lifetime Seven Benefit does not directly affect the Account Value or surrender value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity you will receive the current surrender value. . Upon inception of the benefit, 100% of your Account Value must be allocated to the permitted Sub-accounts. . You cannot allocate purchase payments or transfer Account Value to or from the AST Investment Grade Bond Portfolio Sub-account (as described below) if you elect this benefit. A summary description of the AST Investment Grade Bond Portfolio appears within the prospectus section entitled "What Are The Investment Objectives and Policies of The Portfolios?". Upon the initial transfer of your Account Value into the AST Investment Grade Bond Portfolio, we will send a prospectus for that Portfolio to you, along with your confirmation. In addition, you can find a copy of the AST Investment Grade Bond Portfolio prospectus by going to www.prudentialannuities.com. . You can make withdrawals from your Annuity without purchasing the Spousal Highest Daily Lifetime Seven benefit. The Spousal Highest Daily Lifetime Seven benefit provides a guarantee that if your Account Value declines due to Sub-account performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Transfers to and from the elected Sub-accounts and the AST Investment Grade Bond Portfolio Sub-account triggered by the mathematical formula component of the benefit will not count toward the maximum number of free transfers allowable under an Annuity. . You must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the Spousal Highest Daily Lifetime Seven benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly adopted requirements. . If you elect this benefit, and in connection with that election you are required to reallocate to different investment options permitted under this benefit, then on the Valuation Day on which we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly-elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly-elected benefit will not arise until the close of business on the following Valuation Day. . The fee for Spousal Highest Daily Lifetime Seven is 0.75% annually of the Protected Withdrawal Value. We deduct this fee at the end of each quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.1875% of the Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Sub-account. Since this fee is based on the Protected Withdrawal Value, the fee for Spousal Highest Daily Lifetime Seven may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described above. Election of and Designations under the Benefit Spousal Highest Daily Lifetime Seven can only be elected based on two Designated Lives. Designated Lives must be natural persons who are each other's spouses at the time of election of the benefit and at the death of the first of the Designated Lives to die. Currently, Spousal Highest Daily Lifetime Seven only may be elected where the Owner, Annuitant, and Beneficiary designations are as follows: . One Annuity Owner, where the Annuitant and the Owner are the same person and the beneficiary is the Owner's spouse. The Owner/Annuitant and the beneficiary each must be at least 59 1/2 years old at the time of election; or . Co-Annuity Owners, where the Owners are each other's spouses. The beneficiary designation must be the surviving spouse, or the spouses named equally. One of the owners must be the Annuitant. Each Owner must each be at least 59 1/2 years old at the time of election; or . One Annuity Owner, where the Owner is a custodial account established to hold retirement assets for the benefit of the Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code (or any successor Code section thereto) ("Custodial Account"), the beneficiary is the Custodial Account, and the spouse of the Annuitant is the Contingent Annuitant. Both the Annuitant and the Contingent Annuitant each must be at least 59 1/2 years old at the time of election. We do not permit a change of Owner under this benefit, except as follows: (a)if one Owner dies and the surviving spousal Owner assumes the Annuity or 91 (b)if the Annuity initially is co-owned, but thereafter the Owner who is not the Annuitant is removed as Owner. We permit changes of beneficiary under this benefit. If the Designated Lives divorce, the Spousal Highest Daily Lifetime Seven benefit may not be divided as part of the divorce settlement or judgment. Nor may the divorcing spouse who retains ownership of the Annuity appoint a new Designated Life upon re-marriage. If you wish, you may cancel any Spousal Highest Daily Lifetime Seven benefit. You may then elect Spousal Highest Daily Lifetime 7 Plus, Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option, Highest Daily Lifetime 7 Plus, Highest Daily Lifetime 7 Plus with Beneficiary Income Option, or Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator (or any other currently available living benefit) on any Valuation Day after you have cancelled the Spousal Highest Daily Lifetime Seven benefit, provided the request is received in good order (subject to state availability and any applicable age requirements). Upon cancellation of any Spousal Highest Daily Lifetime Seven benefit, any Account Value allocated to the AST Investment Grade Bond Portfolio Sub-account used with the formula will be reallocated to the Permitted Sub-Accounts according to your most recent allocation instruction or in absence of such instruction, pro-rata. You should be aware that upon termination of Spousal Highest Daily Lifetime Seven, you will lose the Protected Withdrawal Value (including the Tenth Anniversary Date Guarantee), Annual Income Amount, and the Return of Principal Guarantee that you had accumulated under the benefit. Thus, the initial guarantees under any newly-elected benefit will be based on your current Account Value. Once the Spousal Highest Daily Lifetime Seven benefit is cancelled you are not required to re-elect another optional living benefit and any subsequent benefit election may be made on or after the first Valuation Day following the cancellation of the Spousal Highest Daily Lifetime Seven benefit provided that the benefit you are looking to elect is available on a post-issue basis. Any such benefit may be more expensive. Return of Principal Guarantee If you have not made a withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: a) your Account Value on the day that you elected Spousal Highest Daily Lifetime Seven; and b) the sum of each Purchase Payment you made (including any Credits for Optimum XTra) during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of your variable investment options (including the bond Sub-account used with this benefit), in the same proportion that each such Sub-account bears to your total Account Value, immediately before the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Protected Withdrawal Value, your death benefit, or the amount of any optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. This potential addition to Account Value is available only if you have elected Spousal Highest Daily Lifetime Seven and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. The Return of Principal guarantee is not available in Washington State. Termination of the Benefit You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election will apply as described above. The benefit terminates: (i) if upon the death of the first Designated Life, the surviving Designated Life opts to take the death benefit under the Annuity (thus, the benefit does not terminate solely because of the death of the first Designated Life) (ii) upon the death of the second Designated Life, (iii) upon your termination of the benefit (although if you have elected to take annuity payments in the form of the Annual Income Amount, we will continue to pay the Annual Income Amount) (iv) upon your surrender of the Annuity (v) upon your election to begin receiving annuity payments (vi) if both the Account Value and Annual Income Amount equal zero or (vii) if you cease to meet our requirements for issuing the benefit (see Election of and Designations under the Benefit). Upon termination of Spousal Highest Daily Lifetime Seven other than upon death of a Designated Life, we impose any accrued fee for the benefit (i.e., the fee for the pro-rated portion of the year since the fee was last assessed), and thereafter we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the AST Investment Grade Bond Portfolio Sub-account (as defined below) to your variable investment options, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). Mathematical Formula Component of Spousal Highest Daily Lifetime Seven As indicated above, we limit the Sub-accounts to which you may allocate Account Value if you elect Spousal Highest Daily Lifetime Seven. For purposes of the benefit, we refer to those permitted Sub-accounts as the "Permitted Sub-accounts". As a 92 requirement of participating in Spousal Highest Daily Lifetime Seven, we require that you participate in our specialized formula, under which we may transfer Account Value between the Permitted Sub-accounts and a specified bond fund within the Advanced Series Trust (the "AST Investment Grade Bond Sub-account"). We determine whether to make a transfer, and the amount of any transfer, under a non-discretionary formula, discussed below. The AST Investment Grade Bond Sub-account is available only with this benefit, and thus you may not allocate purchase payments to the AST Investment Grade Bond Sub-account. Under the formula component of Spousal Highest Daily Lifetime Seven, we monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account. Any transfer would be made in accordance with a formula, which is set forth in the Appendices to this prospectus. Speaking generally, the formula, which we apply each Valuation Day, operates as follows. The formula starts by identifying an income basis for that day and then multiplies that figure by 5%, to produce a projected (i.e., hypothetical) income amount. Note that we use 5% in the formula, irrespective of the Annuitant's attained age. Then we produce an estimate of the total amount we would target in our allocation model, based on the projected income amount and factors set forth in the formula. In the formula, we refer to that value as the "Target Value" or "L". If you have already made a withdrawal, your projected income amount (and thus your Target Value) would take into account any automatic step-up, any subsequent purchase payments, and any excess withdrawals. Next, the formula subtracts from the Target Value the amount held within the AST Investment Grade Bond Sub-account on that day, and divides that difference by the amount held within the Permitted Sub-accounts. That ratio, which essentially isolates the amount of your Target Value that is not offset by amounts held within the AST Investment Grade Bond Sub-account, is called the "Target Ratio" or "r". If the Target Ratio exceeds a certain percentage (currently 83%), it means essentially that too much Target Value is not offset by assets within the AST Investment Grade Bond Sub-account, and therefore we will transfer an amount from your Permitted Sub-accounts to the AST Investment Grade Bond Sub-account. Conversely, if the Target Ratio falls below a certain percentage (currently 77%), then a transfer from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts would occur. If you elect the new formula (90% Cap Rule), see the discussion below. As you can glean from the formula, poor investment performance of your Account Value may result in a transfer of a portion of your variable Account Value to the AST Investment Grade Bond Sub-account because such poor investment performance will tend to increase the Target Ratio. Moreover, "flat" investment returns of your Account Value over a period of time also could result in the transfer of your Account Value from the Permitted Sub-accounts to the AST Investment Grade Bond Sub-account. Because the amount allocated to the AST Investment Grade Bond Sub-account and the amount allocated to the Permitted Sub-accounts each is a variable in the formula, the investment performance of each affects whether a transfer occurs for your Annuity. In deciding how much to transfer, we use another formula, which essentially seeks to re-balance amounts held in the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account so that the Target Ratio meets a target, which currently is equal to 80%. Once you elect Spousal Highest Daily Lifetime Seven, the ratios we use will be fixed. For newly-issued Annuities that elect Spousal Highest Daily Lifetime Seven and existing Annuities that elect Spousal Highest Daily Lifetime Seven, however, we reserve the right, subject to regulatory approval, to change the ratios. While you are not notified when your Annuity reaches a reallocation trigger, you will receive a confirmation statement indicating the transfer of a portion of your Account Value either to or from the AST Investment Grade Bond Sub-account. The formula by which the reallocation trigger operates is designed primarily to mitigate the financial risks that we incur in providing the guarantee under Spousal Highest Daily Lifetime Seven. Depending on the results of the calculation relative to the reallocation triggers, we may, on any day: . Not make any transfer between the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account; or . If a portion of your Account Value was previously allocated to the AST Investment Grade Bond Sub-account, transfer all or a portion of those amounts to the Permitted Sub-accounts, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options); or . Transfer all or a portion of your Account Value in the Permitted Sub-accounts pro-rata to the AST Investment Grade Bond Sub-account. Therefore, at any given time, some, none, or all of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. If your entire Account Value is transferred to the AST Investment Grade Bond Sub-account, then based on the way the formula operates, the formula will not transfer amounts out of the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts and the entire Account Value would remain in the AST Investment Grade Bond Sub-account. If you make additional purchase payments to your Annuity, they will be allocated to the Sub-accounts according to your allocation instructions. Such additional purchase payments may or may not cause the formula to transfer money in or out of the AST Investment Grade Bond Sub-account. Once the purchase payments are allocated to your Annuity, they will also be subject to the formula, which may result in immediate transfers to or from the AST Investment Grade Bond Sub-accounts, if dictated by the formula. The amount of any such transfers will vary (and in some instances could be large) as dictated by the formula, and will depend on the factors listed below. 93 The amount that is transferred to and from the AST Investment Grade Bond Sub-account pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . How long you have owned Spousal Highest Daily Lifetime Seven; . The performance of the Permitted Sub-accounts you have chosen; . The performance of the AST Investment Grade Bond Sub-account; . The amount you have allocated to each of the Permitted Sub-accounts you have chosen; . The amount you have allocated to the AST Investment Grade Bond Sub-account; . Additional purchase payments, if any, you make to your Annuity; . Withdrawals, if any, you take from your Annuity (withdrawals are taken pro rata from your Account Value). Any Account Value in the AST Investment Grade Bond Sub-account will not be available to participate in the investment experience of the Permitted Sub-accounts if there is a recovery until it is moved out of the AST Investment Grade Bond Sub-account. The more of your Account Value allocated to the AST Investment Grade Bond Sub-account under the formula, the greater the impact of the performance of that Sub-account in determining whether (and how much) of your Account Value is transferred back to the Permitted Sub-accounts. Further, it is possible under the formula, that if a significant portion your Account Value is allocated to the AST Investment Grade Bond Sub-account and that Sub-account has good performance but the performance of your Permitted Sub-accounts is negative, that the formula might transfer your Account Value to the Permitted Sub-accounts. Thus, the converse is true too (the more you have allocated to the Permitted Sub-accounts, the greater the impact of the performance of those Sub-accounts will have on any transfer to the AST Investment Grade Bond Sub-account). Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Please note, however, that any withdrawal you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive the Return of Principal Guarantee and the guaranteed amount described above under "Key Feature - Protected Withdrawal Value". Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this benefit here. However, we do note that if you participate in Spousal Highest Daily Lifetime Seven through a non-qualified annuity, as with all withdrawals, once all purchase payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Spousal Highest Daily Lifetime Seven/SM/ with Beneficiary Income Option There is an optional death benefit feature under this benefit, the amount of which is linked to your Annual Income Amount. You may choose Spousal Highest Daily Lifetime Seven without also selecting the Beneficiary Income Option death benefit ("BIO"). If you elect Spousal Highest Daily Lifetime Seven without the Beneficiary Income Option and would like to add this feature later, you must terminate the Spousal Highest Daily Lifetime Seven benefit and elect the Spousal Highest Daily Lifetime Seven with Beneficiary Income Option. Spousal Highest Daily Lifetime Seven with Beneficiary Income Option is only available in those states where Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option is not yet approved. If you terminate your Spousal Highest Daily Lifetime Seven benefit to elect the Spousal Highest Daily Lifetime Seven with Beneficiary Income Option benefit, you will lose all guarantees under the Spousal Highest Daily Lifetime Seven benefit, and will begin new guarantees under the Spousal Highest Daily Lifetime Seven with BIO based on the Account Value as of the date the new benefit becomes active. If you elect the Beneficiary Income Option death benefit, you may not elect any other optional benefit. You may elect the Beneficiary Income Option death benefit so long as each Designated Life is no older than age 75 at the time of election. This death 94 benefit is not transferable in the event of a divorce, nor may the benefit be split in accordance with any divorce proceedings or similar instrument of separation. Since this fee is based on the Protected Withdrawal Value, the fee for Spousal Highest Daily Lifetime Seven with BIO may be greater than it would have been, had it been based on the Account Value alone. For purposes of the Beneficiary Income Option death benefit, we calculate the Annual Income Amount and Protected Withdrawal Value in the same manner that we do under Spousal Highest Daily Lifetime Seven itself. Upon the first death of a Designated Life, no amount is payable under the Beneficiary Income Option death benefit. Upon the second death of a Designated Life, we identify the following amounts: (a) the amount of the base death benefit under the Annuity (b) the Protected Withdrawal Value and (c) the Annual Income Amount. If there were no withdrawals prior to the date of death, then we calculate the Protected Withdrawal Value for purposes of this death benefit as of the date of death, and we calculate the Annual Income Amount as if there were a withdrawal on the date of death. If there were withdrawals prior to the date of death, then we set the Protected Withdrawal Value and Annual Income Amount for purposes of this death benefit as of the date that we receive due proof of death. If there is one beneficiary, he/she must choose to receive either the base death benefit (in a lump sum or other permitted form of distribution) or the Beneficiary Income Option death benefit (in the form of annual payment of the Annual Income Amount--such payments may be annual or at other intervals that we permit). If there are multiple beneficiaries, each beneficiary is presented with the same choice. Thus, each beneficiary can choose to take his/her portion of either (a) the basic death benefit or (b) the Beneficiary Income Option death benefit. In order to receive the Beneficiary Income Option death benefit, each beneficiary's share of the death benefit proceeds must be allocated as a percentage of the total death benefit to be paid. We allow a beneficiary who has opted to receive the Annual Income Amount to designate another beneficiary, who would receive any remaining payments upon the former beneficiary's death. Note also that the final payment, exhausting the Protected Withdrawal Value, may be less than the Annual Income Amount. Here is an example to illustrate how the death benefit may be paid: . Assume that (i) the basic death benefit is $50,000, the Protected Withdrawal Value is $100,000, and the Annual Income Amount is $5,000; (ii) there are two beneficiaries (the first designated to receive 75% of the death benefit and the second designated to receive 25% of the death benefit); (iii) the first beneficiary chooses to receive his/her portion of the death benefit in the form of the Annual Income Amount, and the second beneficiary chooses to receive his/her portion of the death benefit with reference to the basic death benefit. . Under those assumptions, the first beneficiary will be paid a pro-rated portion of the Annual Income Amount for 20 years (the 20 year pay out period is derived from the $5,000 Annual Income Amount, paid each year until it exhausts the entire $100,000 Protected Withdrawal Value). The pro-rated portion of the Annual Income Amount equal to $3,750 (i.e., the first beneficiary's 75% share multiplied by $5,000) is then paid each year for the 20 year period. Payment of $3,750 for 20 years results in total payments of $75,000 (i.e., the first beneficiary's 75% share of the $100,000 Protected Withdrawal Value). The second beneficiary would receive 25% of the basic death benefit amount (or $12,500). If you elect to terminate Spousal Highest Daily Lifetime Seven with Beneficiary Income Option, both Spousal Highest Daily Lifetime Seven and that death benefit option will be terminated. You may not terminate the death benefit option without terminating the entire benefit. If you terminate Spousal Highest Daily Lifetime Seven with Beneficiary Income Option, your ability to elect other optional living benefits will be affected as indicated in the "Election of and Designations under the Benefit" section, above. Optional 90% Cap Rule Feature for Spousal Highest Daily Lifetime Seven If you currently own an Annuity and have elected Spousal Highest Daily Lifetime Seven Income Benefit (including Spousal Highest Daily Lifetime Seven with Beneficiary Income Option), you can elect this feature which utilizes a new mathematical formula. The new formula is described below and will replace the "Transfer Calculation" portion of the formula currently used in connection with your benefit on a prospective basis. This election may only be made once and may not be revoked once elected. The new formula appears in Appendix G of this prospectus. Under the new formula, the formula will not execute a transfer to the AST Investment Grade Bond Sub-account that results in more than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account ("90% cap" or "90% Cap Rule"). Thus, on any Valuation Day, if the formula would require a transfer to the AST Investment Grade Bond Sub-account that would result in more than 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account, only the amount that results in exactly 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account will be transferred. Additionally, future transfers into the AST Investment Grade Bond Sub-account will not be made (regardless of the performance of the AST Investment Grade Bond Sub-account and the Permitted Sub-accounts) at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. Once this transfer occurs out of the AST Investment Grade Bond Sub-account, future amounts may be transferred to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). At no time will the formula make a transfer to the AST Investment Grade Bond Sub-account that results 95 in greater than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account. However, it is possible that, due to the investment performance of your allocations in the AST Investment Grade Bond Sub-account and your allocations in the Permitted Sub-accounts you have selected, your Account Value could be more than 90% invested in the AST Investment Grade Bond Sub-account. If you make additional purchase payments to your Annuity while the 90% cap is in effect, the formula will not transfer any of such additional purchase payments to the AST Investment Grade Bond Sub-account at least until there is first a transfer out of the AST Investment Grade Bond Sub-account, regardless of how much of your Account Value is in the Permitted Sub-accounts. This means that there could be scenarios under which, because of the additional purchase payments you make, less than 90% of your entire Account Value is allocated to the AST Investment Grade Bond Sub-account, and the formula will still not transfer any of your Account Value to the AST Investment Grade Bond Sub-account (at least until there is first a transfer out of the AST Investment Grade Bond Sub-account). For example, . March 19, 2009 - a transfer is made that results in the 90% cap being met and now $90,000 is allocated to the AST Investment Grade Bond Sub-account and $10,000 is allocated to the Permitted Sub-accounts. . March 20, 2009 - you make an additional purchase payment of $10,000. No transfers have been made from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts since the cap went into effect on March 19, 2009. . As of March 20, 2009 (and at least until first a transfer is made out of the AST Investment Grade Bond Sub-account under the formula) - the $10,000 payment is allocated to the Permitted Sub-accounts and now you have 82% in the AST Investment Grade Bond Sub-account and 18% in the Permitted Sub-accounts (such that $20,000 is allocated to the Permitted Sub-accounts and $90,000 is allocated to the AST Investment Grade Bond Sub-account). . Once there is a transfer out of the AST Investment Grade Bond Sub-account (of any amount), the formula will operate as described above, meaning that the formula could transfer amounts to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). Under the operation of the formula, the 90% cap may come into existence and may be removed multiple times while you participate in the benefit. We will continue to monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account as dictated by the formula. Once you elect this feature, the new transfer formula described above and set forth in appendix - will be the formula for your Annuity. In the event that more than ninety percent (90%) of your Account Value is allocated to the AST Investment Grade Bond Sub-account and you have elected this feature, up to ten percent (10%) of your Account Value currently allocated to the AST Investment Grade Bond Sub-account will be transferred to your Permitted Sub-accounts, such that after the transfer, 90% of your Account Value on the date of the transfer is in the AST Investment Grade Bond Sub-account. The transfer to the Permitted Sub-accounts will be based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). It is possible that additional transfers might occur after this initial transfer if dictated by the formula. The amounts of such additional transfer(s) will vary. If on the date this feature is elected 100% of your Account Value is allocated to the AST Investment Grade Bond Sub-account, a transfer of an amount equal to 10% of your Account Value will be made to your Permitted Sub-accounts. It is possible that an additional transfer to the permitted Sub-accounts could occur following the Valuation Day, and in some instances (based on the formula) this additional transfer could be large. Once the 90% cap rule is met, future transfers into the AST Investment Grade Bond Sub-account will not be made (regardless of the performance of the AST Investment Grade Bond Sub-account and the Permitted Sub-accounts) at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. Once this transfer occurs out of the AST Investment Grade Bond Sub-account, future amounts may be transferred to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). Important Consideration When Electing The New Formula: . At any given time, some, most or none of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. . Please be aware that because of the way the 90% cap formula operates, it is possible that more than or less than 90% of your Account Value may be allocated to the AST Investment Grade Bond Sub-account. . If this feature is elected, any Account Value transferred to the Permitted Sub-accounts is subject to the investment performance of those Sub-accounts. Your Account Value can go up or down depending of the performance of the Permitted Sub-accounts you select. HIGHEST DAILY LIFETIME 7 PLUS/SM/ INCOME BENEFIT (HD 7 Plus)/ SM/ Highest Daily Lifetime 7 Plus is offered as a replacement to Highest Daily Lifetime Seven in those jurisdictions where we have received regulatory approval. Currently, if you elect Highest Daily Lifetime 7 Plus and subsequently terminate the benefit, you may elect another lifetime withdrawal benefit, subject to our current rules. See "Election of and Designations under the Benefit" 96 and "Termination of Existing Benefits and Election of New Benefits" below for details. Please note that if you terminate Highest Daily Lifetime 7 Plus and elect another lifetime benefit, you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. The income benefit under Highest Daily Lifetime 7 Plus currently is based on a single "designated life" who is at least 45 years old on the date that the benefit is acquired. The Highest Daily Lifetime 7 Plus Benefit is not available if you elect any other optional living benefit, although you may elect any optional death benefit other than the Highest Daily Value death benefit. As long as your Highest Daily Lifetime 7 Plus Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. For a more detailed description of the permitted investment options, see the "Investment Options" section in this prospectus. We offer a benefit that guarantees until the death of the single designated life (the Annuitant) the ability to withdraw an annual amount (the "Annual Income Amount") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of Sub-account performance on the Account Value, subject to our rules regarding the timing and amount of withdrawals. You are guaranteed to be able to withdraw the Annual Income Amount for the rest of your life ("Lifetime Withdrawals"), provided that you have not made "excess withdrawals" that have resulted in your Account Value being reduced to zero. We also permit you to make a one-time Non-Lifetime Withdrawal from your Annuity prior to taking Lifetime Withdrawals under the benefit. Highest Daily Lifetime 7 Plus may be appropriate if you intend to make periodic withdrawals from your Annuity, and wish to ensure that Sub-account performance will not affect your ability to receive annual payments. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer program in order to participate in Highest Daily Lifetime 7 Plus. Although you are guaranteed the ability to withdraw your Annual Income Amount for life even if your Account Value falls to zero, if you take an excess withdrawal that brings your Account Value to zero, it is possible that your Annual Income Amount could also fall to zero. In that scenario, no further amount would be payable under the Highest Daily Lifetime 7 Plus benefit. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to calculate the initial Annual Income Amount. The Protected Withdrawal Value is separate from your Account Value and not available as cash or a lump sum. On the effective date of the benefit, the Protected Withdrawal Value is equal to your Account Value. On each Valuation Day thereafter until the date of your first Lifetime Withdrawal (excluding any Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is equal to the "Periodic Value" described in the next paragraphs. The "Periodic Value" initially is equal to the Account Value on the effective date of the benefit. On each Valuation Day thereafter until the first Lifetime Withdrawal, we recalculate the Periodic Value. We stop determining the Periodic Value upon your first Lifetime Withdrawal after the effective date of the benefit. On each Valuation Day (the "Current Valuation Day"), the Periodic Value is equal to the greater of: (1)the Periodic Value for the immediately preceding business day (the "Prior Valuation Day") appreciated at the daily equivalent of 7% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any adjusted Purchase Payment made on the Current Valuation Day (the Periodic Value is proportionally reduced for any Non-Lifetime Withdrawal); and (2)the Account Value. If you have not made a Lifetime Withdrawal on or before the 10/th/, 20/th/, or 25/th/ Anniversary of the effective date of the benefit, your Periodic Value on the 10/th/, 20/th/, or 25/th/ Anniversary of the benefit effective date is equal to the greater of: (1)the Periodic Value described above or, (2)the sum of (a), (b) and (c) below (proportionally reduced for any Non-Lifetime Withdrawals): (a)200% (on the 10/th/ anniversary), 400% (on the 20/th/ anniversary) or 600% (on the 25/th/ anniversary) of the Account Value on the effective date of the benefit; (b)200% (on the 10/th/ anniversary), 400% (on the 20/th/ anniversary) or 600% (on the 25/th/ anniversary) of all adjusted purchase payments made within one year following the effective date of the benefit; and (c)all adjusted purchase payments made after one year following the effective date of the benefit. If you elect Highest Daily Lifetime 7 Plus with Beneficiary Income Option ("BIO") (see below), we will stop determining the Periodic Value (as described above) on the earlier of your first Lifetime Withdrawal after the effective date of the benefit or the Tenth Anniversary of the effective date of the benefit ("Tenth Anniversary"). This means that under the Highest Daily Lifetime 7 Plus with BIO benefit you will not be eligible for the guaranteed minimum Periodic Values described above on the 20/th/ and 25/th/ Anniversary of the Benefit Effective Date. 97 On and after the date of your first Lifetime Withdrawal, your Protected Withdrawal Value is increased by the amount of any subsequent purchase payments, is reduced by withdrawals, including your first Lifetime Withdrawal (as described below), and may be increased if you qualify for a step-up (as described below). Return of Principal Guarantee If you have not made a Lifetime Withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: a) your Account Value on the day that you elected Highest Daily Lifetime 7 Plus proportionally reduced for any Non-Lifetime Withdrawal; and b) the sum of each Purchase Payment proportionally reduced for any subsequent Non-Lifetime Withdrawal (including the amount of any associated Credits) you made during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of your variable investment options (including the AST Investment Grade Bond Sub-account), in the same proportion that each such Sub-account bears to your total Account Value, immediately before the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Protected Withdrawal Value, your death benefit, or the amount of any optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. Because the amount is added to Account Value, it will also be subject to each charge under your Annuity based on Account Value. This potential addition to Account Value is available only if you have elected Highest Daily Lifetime 7 Plus and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal (other than a Non-Lifetime Withdrawal) prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. The Return of Principal Guarantee is referred to as the Guaranteed Minimum Account Value Credit in the benefit rider. Key Feature - Annual Income Amount under the Highest Daily Lifetime 7 Plus Benefit The Annual Income Amount is equal to a specified percentage of the Protected Withdrawal Value. The percentage initially depends on the age of the Annuitant on the date of the first Lifetime Withdrawal after election of the benefit. The percentages are: 4% for ages 45 - less than 59 1/2, 5% for ages 59 1/2-74, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. Under the Highest Daily Lifetime 7 Plus benefit, if your cumulative Lifetime Withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative Lifetime Withdrawals in an Annuity Year are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions for this Annuity that comply with our rules) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions are based on the actual amount of the withdrawal, including any CDSC that may apply. Lifetime Withdrawals of any amount up to and including the Annual Income Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the same ratio as the reduction to the Annual Income Amount. Note that if your withdrawal of the Annual Income Amount in a given Annuity Year exceeds the applicable free withdrawal amount under the Annuity (but is not considered Excess Income), we will not impose any CDSC on the amount of that withdrawal. You may use the Systematic Withdrawal program to make withdrawals of the Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime Withdrawal under this benefit. Any Purchase Payment that you make subsequent to the election of Highest Daily Lifetime 7 Plus will (i) increase the then-existing Annual Income Amount by an amount equal to a percentage of the Purchase Payment (including the amount of any associated Credits) based on the age of the Annuitant at the time of the first Lifetime Withdrawal (the percentages are: 4% for ages 45 - less than 59 1/2, 5% for ages 59 1/2-74, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older) and (ii) increase the Protected Withdrawal Value by the amount of the Purchase Payment (including the amount of any associated Credits). Highest Daily Auto Step-Up An automatic step-up feature ("Highest Daily Auto Step-Up") is part of Highest Daily Lifetime 7 Plus. As detailed in this paragraph, the Highest Daily Auto Step-Up feature can result in a larger Annual Income Amount subsequent to your first Lifetime Withdrawal. The Highest Daily Auto Step-Up starts with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first Lifetime Withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on each Valuation Day within the immediately preceding Annuity Year after your first Lifetime Withdrawal. Having identified the highest daily value (after all daily values have been adjusted for subsequent purchase payments and withdrawals), we then multiply that value by a percentage that varies based on the age of the Annuitant on the Annuity Anniversary as of which the step-up would occur. The percentages are: 4% for ages 45 - less than 59 1/2, 5% for ages 98 59 1/2-74, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. If that value exceeds the existing Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Annual Income Amount intact. The Account Value on the Annuity Anniversary is considered the last daily step-up value of the Annuity Year. All daily valuations and annual step-ups will only occur on a Valuation Day. In later years (i.e., after the first Annuity Anniversary after the first Lifetime Withdrawal), we determine whether an automatic step-up should occur on each Annuity Anniversary, by performing a similar examination of the Account Values that occurred on Valuation Days during the year. At the time that we increase your Annual Income Amount, we also increase your Protected Withdrawal Value to equal the highest daily value upon which your step-up was based only if that results in an increase to the Protected Withdrawal Value. Your Protected Withdrawal Value will never be decreased as a result of an income step-up. If, on the date that we implement a Highest Daily Auto Step-Up to your Annual Income Amount, the charge for Highest Daily Lifetime 7 Plus has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Highest Daily Lifetime 7 Plus upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. If you establish a Systematic Withdrawal program, we will not automatically increase the withdrawal amount when there is an increase to the Annual Income Amount. The Highest Daily Lifetime 7 Plus benefit does not affect your ability to make withdrawals under your Annuity, or limit your ability to request withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime 7 Plus, if your cumulative Lifetime Withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount in any Annuity Year, you cannot carry over the unused portion of the Annual Income Amount to subsequent Annuity Years. Because each of the Protected Withdrawal Value and Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for the Account Value to fall to zero, even though the Annual Income Amount remains. Examples of dollar-for-dollar and proportional reductions, and the Highest Daily Auto Step-Up are set forth below. The values shown here are purely hypothetical, and do not reflect the charges for the Highest Daily Lifetime 7 Plus benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2008 . The Highest Daily Lifetime 7 Plus benefit is elected on March 5, 2009 . The Annuitant was 70 years old when he/she elected the Highest Daily Lifetime 7 Plus benefit. Example of dollar-for-dollar reductions On November 24, 2009, the Protected Withdrawal Value is $120,000, resulting in an Annual Income Amount of $6,000 (since the Annuitant is between the ages of 59 1/2 and 74 at the time of the first Lifetime Withdrawal, the Annual Income Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Annual Income Amount for that Annuity Year (up to and including December 1, 2009) is $3,500. This is the result of a dollar-for-dollar reduction of the Annual Income Amount ($6,000 less $2,500 = $3,500). Example of proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on November 27, 2009 and the Account Value at the time and immediately prior to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount of $1,500 - reduces the Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there are other future withdrawals in that Annuity Year, each would result in another proportional reduction to the Annual Income Amount). Here is the calculation: Account Value before Lifetime Withdrawal $118,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $114,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $114,500.00 Ratio 1.31% Annual Income Amount $ 6,000.00 Less ratio of 1.31% $ 78.60 Annual Income Amount for future Annuity Years $ 5,921.40
99 Example of highest daily auto step-up On each Annuity Anniversary date, the Annual Income Amount is stepped-up if the appropriate percentage (based on the Annuitant's age on the Annuity Anniversary) of the highest daily value since your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional purchase payments, is higher than the Annual Income Amount, adjusted for excess withdrawals and additional purchase payments (including the amount of any associated Credits). Continuing the same example as above, the Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on November 27 reduces the amount to $5,921.40 for future years (see above). For the next Annuity Year, the Annual Income Amount will be stepped up if 5% (since the designated life is between 59 1/2 and 74 on the date of the potential step-up) of the highest daily Account Value adjusted for withdrawals and purchase payments (including the amount of any associated Credits), is higher than $5,921.40. Here are the calculations for determining the daily values. Only the November 25 value is being adjusted for excess withdrawals as the November 30 and December 1 Valuation Days occur after the excess withdrawal on November 27.
Highest Daily Value (adjusted with Adjusted Annual withdrawal and Purchase Income Amount (5% of the Date* Account value Payments)** Highest Daily Value) ----- ------------- ----------------------- ------------------------ November 25, 2009 $119,000.00 $ 119,000.00 $5,950.00 November 26, 2009 Thanksgiving Day November 27, 2009 $113,000.00 $ 113,986.95 $5,699.35 November 30, 2009 $113,000.00 $ 113,986.95 $5,699.35 December 01, 2009 $119,000.00 $ 119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The Valuation Dates are every day following the first Lifetime Withdrawal. In subsequent Annuity Years Valuation Dates will be every day following the Annuity Anniversary. The Annuity Anniversary Date of December 1 is considered the final Valuation Date for the Annuity Year. ** In this example, the first daily value after the first Lifetime Withdrawal is $119,000 on November 25, resulting in an adjusted Annual Income Amount of $5,950.00. This amount is adjusted on November 27 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $119,000 on November 25 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $115,500 before the excess withdrawal. . This amount ($115,500) is further reduced by 1.31% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Daily Value of $113,986.95. . The adjusted Annual Income Amount is carried forward to the next Valuation Date of November 30. At this time, we compare this amount to 5% of the Account Value on November 30. Since the November 27 adjusted Annual Income Amount of $5,699.35 is higher than $5,650.00 (5% of $113,000), we continue to carry $5,699.35 forward to the next and final Valuation Date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,699.35, the adjusted Annual Income Amount is reset to $5,950.00. In this example, 5% of the December 1 value results in the highest amount of $5,950.00. Since this amount is higher than the current year's Annual Income Amount of $5,921.40 adjusted for excess withdrawals, the Annual Income Amount for the next Annuity Year, starting on December 2, 2009 and continuing through December 1, 2010, will be stepped-up to $5,950.00. Non-Lifetime Withdrawal Feature You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal") under Highest Daily Lifetime 7 Plus. It is an optional feature of the benefit that you can only elect at the time of your first withdrawal. The amount of the Non-Lifetime Withdrawal cannot be more than the amount that would cause the Annuity to be taken below the minimum Surrender Value after a withdrawal for your Annuity. This Non-Lifetime Withdrawal will not establish your initial Annual Income Amount and the Periodic Value described above will continue to be calculated. However, the total amount of the withdrawal will proportionally reduce all guarantees associated with the Highest Daily Lifetime 7 Plus benefit. You must tell us if your withdrawal is intended to be the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under the Highest Daily Lifetime 7 Plus benefit. If you don't elect the Non-Lifetime Withdrawal, the first withdrawal you make will be the first Lifetime Withdrawal that establishes your Protected Withdrawal Value and Annual Income Amount. Once you elect to take the Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime Withdrawals may be taken. The Non-Lifetime Withdrawal will proportionally reduce the Protected Withdrawal Value, the Return of Principal guarantee, and the Periodic Value guarantees on the tenth, twentieth and twenty-fifth anniversaries of the benefit effective date, described above, by the percentage the total withdrawal amount (including any applicable CDSC) represents of the then current Account Value immediately prior to the withdrawal. If you are participating in a Systematic Withdrawal program, the first withdrawal under the program cannot be classified as the Non-Lifetime Withdrawal. The first partial withdrawal in payment of any third party investment advisory service from your Annuity also cannot be classified as the Non-Lifetime Withdrawal. Example - Non-Lifetime Withdrawal (proportional reduction) This example is purely hypothetical and does not reflect the charges for the benefit or any other fees and charges. It is intended to illustrate the proportional reduction of the Non-Lifetime Withdrawal under this benefit. 100 Assume the following: . The Issue Date is December 1, 2008 . The Highest Daily Lifetime 7 Plus benefit is elected on March 5, 2009 . The Account Value at benefit election was $105,000 . The Annuitant was 70 years old when he/she elected the Highest Daily Lifetime 7 Plus benefit. . No previous withdrawals have been taken under the Highest Daily Lifetime 7 Plus benefit. On May 2, 2009, the Protected Withdrawal Value is $125,000, the 10/th/ benefit year minimum Periodic Value guarantee is $210,000, the 10/th/ benefit year Return of Principal guarantee is $105,000, the 20/th/ benefit year minimum Periodic Value guarantee is $420,000, the 25/th/ benefit year minimum Periodic Value guarantee is $630,000 and the Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on May 2, 2009 and is designated as a Non-Lifetime Withdrawal, all guarantees associated with the Highest Daily Lifetime 7 Plus benefit will be reduced by the ratio the total withdrawal amount represents of the Account Value just prior to the withdrawal being taken. Here is the calculation: Withdrawal Amount divided by $ 15,000 Account Value before withdrawal $120,000 Equals ratio 12.5% All guarantees will be reduced by the above ratio (12.5%) Protected Withdrawal Value $109,375 10/th/ benefit year Return of Principal $ 91,875 10/th/ benefit year Minimum Periodic Value $183,750 20/th/ benefit year Minimum Periodic Value $367,500 25/th/ benefit year Minimum Periodic Value $551,250
Required Minimum Distributions Withdrawals that exceed the Annual Income Amount, but which you are required to take as a required minimum distribution for this Annuity, will not reduce the Annual Income Amount for future years. No additional Annual Income Amounts will be available in an Annuity Year due to required minimum distributions unless the required minimum distribution amount is greater than the Annual Income Amount. Any withdrawal you take that exceeds the Annual Income Amount in Annuity Years that your required minimum distribution amount is not greater than the Annual Income Amount will be treated as an Excess Withdrawal under the benefit. If the required minimum distribution (as calculated by us for your Annuity and not previously withdrawn in the current calendar year) is greater than the Annual Income Amount, an amount equal to the remaining Annual Income Amount plus the difference between the required minimum distribution amount not previously withdrawn in the current calendar year and the Annual Income Amount will be available in the current Annuity Year without it being considered an excess withdrawal. In the event that a required minimum distribution is calculated in a calendar year that crosses more than one Annuity Year and you choose to satisfy the entire required minimum distribution for that calendar year in the next Annuity Year, the distribution taken in the next Annuity Year will reduce your Annual Income Amount in that Annuity Year on a dollar by dollar basis. If the required minimum distribution not taken in the prior Annuity Year is greater than the Annual Income Amount as guaranteed by the benefit in the current Annuity Year, the total required minimum distribution amount may be taken without being treated as an excess withdrawal. Example - required minimum distributions The following example is purely hypothetical and is intended to illustrate a scenario in which the required minimum distribution amount in a given Annuity Year is greater than the Annual Income Amount. Annual Income Amount = $5,000 Remaining Annual Income Amount = $3,000 Required Minimum Distribution = $6,000 The amount you may withdraw in the current Annuity Year without it being treated as an Excess Withdrawal is $4,000. ($3,000 + ($6,000 - $5,000) = $4,000). If the $4,000 withdrawal is taken, the remaining Annual Income Amount will be zero and the remaining required minimum distribution amount of $2,000 may be taken in the subsequent Annuity Year (when your Annual Income Amount is reset to $5,000) without proportionally reducing all of the guarantees associated with the Highest Daily Lifetime 7 Plus benefit as described above. The amount you may withdraw in the subsequent Annuity Year if you choose not to satisfy the required minimum distribution in the current Annuity Year (assuming the Annual Income Amount in the subsequent Annuity Year is $5,000), without being treated as an Excess Withdrawal is $6,000. This withdrawal must comply with all IRS guidelines in order to satisfy the required minimum distribution for the current calendar year. 101 Benefits Under Highest Daily Lifetime 7 Plus . To the extent that your Account Value was reduced to zero as a result of cumulative Lifetime Withdrawals in an Annuity Year that are less than or equal to the Annual Income Amount or as a result of the fee that we assess for Highest Daily Lifetime 7 Plus, and amounts are still payable under Highest Daily Lifetime 7 Plus, we will make an additional payment, if any, for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year. If you have not begun taking Lifetime Withdrawals and your Account Value is reduced to zero as a result of the fee we assess for Highest Daily Lifetime 7 Plus, we will calculate the Annual Income Amount as if you made your first Lifetime Withdrawal on the date the Account Value was reduced to zero and Lifetime Withdrawals will begin on the next Annuity anniversary. If this were to occur, you are not permitted to make additional purchase payments to your Annuity. Thus, in these scenarios, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section. We will make payments until the death of the single designated life. To the extent that cumulative withdrawals in the Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Highest Daily Lifetime 7 Plus benefit terminates, and no additional payments are made. However, if a withdrawal in the latter scenario was taken to satisfy a required minimum distribution under the Annuity, then the benefit will not terminate, and we will continue to pay the Annual Income Amount in subsequent Annuity Years until the death of the Designated Life. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is an Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Annual Income Amount. If this option is elected, the Annual Income Amount will not increase after annuity payments have begun. We will make payments until the death of the single Designated Life. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments in the form of a single life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Annual Income Amount payments. Such present value will be calculated using the greater of the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no Lifetime Withdrawal was ever taken, we will calculate the Annual Income Amount as if you made your first Lifetime Withdrawal on the date the annuity payments are to begin. . Please note that payments that we make under this benefit after the Annuity Anniversary coinciding with or next following the annuitant's 95/th/ birthday will be treated as annuity payments. Other Important Considerations . Withdrawals under the Highest Daily Lifetime 7 Plus benefit are subject to all of the terms and conditions of the Annuity, including any applicable CDSC for the Non-Lifetime Withdrawal as well as withdrawals that exceed the Annual Income Amount. . Withdrawals made while the Highest Daily Lifetime 7 Plus Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Highest Daily Lifetime 7 Plus benefit. The Highest Daily Lifetime 7 Plus benefit provides a guarantee that if your Account Value is reduced to zero (subject to our rules regarding time and amount of withdrawals), you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the Permitted Sub-accounts. . You cannot allocate purchase payments or transfer Account Value to or from the AST Investment Grade Bond Portfolio Sub-account (see description below) if you elect this benefit. A summary description of the AST Investment Grade Bond Portfolio appears within the prospectus section entitled "What Are The Investment Objectives and Policies of The Portfolios?". Upon the initial transfer of your Account Value into the AST Investment Grade Bond Portfolio, we will send a prospectus for that Portfolio to you, along with your confirmation statement. In addition, you can find a copy of the AST Investment Grade Bond Portfolio prospectus by going to www.prudentialannuities.com. . Transfers to and from the elected Sub-accounts and the AST Investment Grade Bond Portfolio Sub-account triggered by the Highest Daily Lifetime 7 Plus asset transfer program will not count toward the maximum number of free transfers allowable under an Annuity. . You must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the Highest Daily Lifetime 7 Plus benefit. If, subsequent to your election of the benefit, we change 102 our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly adopted requirements. Subject to any change in requirements, transfer of Account Value and allocation of additional purchase payments may be subject to new investment limitations. . If you elect this benefit and in connection with that election you are required to reallocate to permitted investment options, then on the Valuation Day we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in the permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly elected benefit will not arise until the close of business on the following Valuation Day. . The maximum charge for Highest Daily Lifetime 7 Plus is 1.50% annually of the greater of Account Value and the Protected Withdrawal Value (PWV). The current charge is 0.75% annually of the greater of Account Value and the Protected Withdrawal Value. We deduct this fee at the end of each benefit quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.1875% of the greater of the prior day's Account Value or the prior day's Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Portfolio Sub-account. Since this fee is based on the greater of the Account Value or the Protected Withdrawal Value, the fee for Highest Daily Lifetime 7 Plus may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the Account Value at the benefit quarter, we will charge the remainder of the Account Value for the benefit and continue the benefit as described above. Election of and Designations under the Benefit For Highest Daily Lifetime 7 Plus, there must be either a single Owner who is the same as the Annuitant, or if the Annuity is entity owned, there must be a single natural person Annuitant. In either case, the Annuitant must be at least 45 years old. Any change of the Annuitant under the Annuity will result in cancellation of Highest Daily Lifetime 7 Plus. Similarly, any change of Owner will result in cancellation of Highest Daily Lifetime 7 Plus, except if (a) the new Owner has the same taxpayer identification number as the previous owner, (b) ownership is transferred from a custodian to the Annuitant, or vice versa or (c) ownership is transferred from one entity to another entity that is satisfactory to us. Highest Daily Lifetime 7 Plus can be elected at the time that you purchase your Annuity or after the Issue Date, subject to our eligibility rules and restrictions. If you elect Highest Daily Lifetime 7 Plus and terminate it, you can re-elect it, subject to our current rules. Additionally, if you currently own an Annuity with a living benefit, you may terminate your existing benefit rider and elect any available benefits subject to our current rules. Please note that if you terminate a living benefit and elect a new living benefit, you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. We reserve the right to waive, change and/or further limit the election frequency in the future. Termination of the Benefit You may terminate Highest Daily Lifetime 7 Plus at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election may apply. The benefit automatically terminates: (i) upon your termination of the benefit, (ii) upon your surrender of the Annuity, (iii) upon your election to begin receiving annuity payments (although if you have elected to receive the Annual Income Amount in the form of Annuity payments, we will continue to pay the Annual Income Amount), (iv) upon our receipt of due proof of the death of the Annuitant, (v) if both the Account Value and Annual Income Amount equal zero, or (vi) if you cease to meet our requirements as described in Elections of and Designations under the Benefit". Upon termination of Highest Daily Lifetime 7 Plus other than upon the death of the Annuitant, we impose any accrued fee for the benefit (i.e., the fee for the pro-rated portion of the year since the fee was last assessed), and thereafter we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the AST Investment Grade Bond Portfolio Sub-account to your variable investment options, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). If a surviving spouse elects to continue the Annuity, the Highest Daily Lifetime 7 Plus benefit terminates. The spouse may elect the benefit subject to the restrictions discussed above. How Highest Daily Lifetime 7 Plus Transfers Account Value Between Your Permitted Sub-accounts and the AST Investment Grade Bond Sub-Account As indicated above, we limit the Sub-accounts to which you may allocate Account Value if you elect Highest Daily Lifetime 7 Plus. For purposes of this benefit, we refer to those permitted investment options as the "Permitted Sub-accounts". 103 An integral part of Highest Daily Lifetime 7 Plus is the pre-determined mathematical formula used to transfer Account Value between the Permitted Sub-Accounts and a specified bond fund within the Advanced Series Trust (the "AST Investment Grade Bond Sub-Account"). The AST Investment Grade Bond Sub-account is available only with this benefit, and thus you may not allocate purchase payments to or make transfers to or from the AST Investment Grade Bond Sub-account. The mathematical formula monitors your Account Value daily and, if dictated by the formula, systematically transfers amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account. The formula is set forth in Appendix H. Speaking generally, the formula, which is applied each Valuation Day, operates as follows. The formula starts by identifying an income basis for that day and then multiplies that figure by 5%, to produce a projected (i.e., hypothetical) income amount. Note that 5% is used in the formula, irrespective of the Annuitant's attained age. Then it produces an estimate of the total amount targeted in our allocation model, based on the projected income amount and factors set forth in the formula. In the formula, we refer to that value as the "Target Value" or "L". If you have already made a withdrawal, your projected income amount (and thus your Target Value) would take into account any automatic step-up, any subsequent purchase payments, and any excess withdrawals. Next, the formula subtracts from the Target Value the amount held within the AST Investment Grade Bond Sub-account on that day, and divides that difference by the amount held within the Permitted Sub-accounts. That ratio, which essentially isolates the amount of your Target Value that is not offset by amounts held within the AST Investment Grade Bond Sub-account, is called the "Target Ratio" or "r". If, on each of three consecutive Valuation Days, the Target Ratio is greater than 83% but less than or equal to 84.5%, the formula will, on such third Valuation Day, make a transfer from the Permitted Sub-accounts in which you are invested (subject to the 90% cap discussed below) to the AST Investment Grade Bond Sub-account. Once a transfer is made, the three consecutive Valuation Days begin again. If, however, on any Valuation Day, the Target Ratio is above 84.5%, it will make a transfer from the Permitted Sub-accounts (subject to the 90% cap) to the AST Investment Grade Bond Sub-account (as described above). If the Target Ratio falls below 78% on any Valuation Day, then a transfer from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts will occur. The formula will not execute a transfer to the AST Investment Grade Bond Sub-account that results in more than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account ("90% cap"). Thus, on any Valuation Day, if the formula would require a transfer to the AST Investment Grade Bond Sub-account that would result in more than 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account, only the amount that results in exactly 90% of the Account Value being allocated to the AST Investment Grade Bond Sub-account will be transferred. Additionally, future transfers into the AST Investment Grade Bond Sub-account will not be made (regardless of the performance of the AST Investment Grade Bond Sub-account and the Permitted Sub-accounts) at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. Once this transfer occurs out of the AST Investment Grade Bond Sub-account, future amounts may be transferred to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). At no time will the formula make a transfer to the AST Investment Grade Bond Sub-account that results in greater than 90% of your Account Value being allocated to the AST Investment Grade Bond Sub-account. However, it is possible that, due to the investment performance of your allocations in the AST Investment Grade Bond Sub-account and your allocations in the Permitted Sub-accounts you have selected, your Account Value could be more than 90% invested in the AST Investment Grade Bond Sub-account. If you make additional purchase payments to your Annuity while the 90% cap is in effect, the formula will not transfer any of such additional purchase payments to the AST Investment Grade Bond Sub-account at least until there is first a transfer out of the AST Investment Grade Bond Sub-account, regardless of how much of your Account Value is in the Permitted Sub-accounts. This means that there could be scenarios under which, because of the additional purchase payments you make, less than 90% of your entire Account Value is allocated to the AST Investment Grade Bond Sub-account, and the formula will still not transfer any of your Account Value to the AST Investment Grade Bond Sub-account (at least until there is first a transfer out of the AST Investment Grade Bond Sub-account). For example, . March 19, 2009 a transfer is made to the AST Investment Grade Bond Sub-account that results in the 90% cap being met and now $90,000 is allocated to the AST Investment Grade Bond Sub-account and $10,000 is allocated to the Permitted Sub-accounts. . March 20, 2009 - you make an additional purchase payment of $10,000. No transfers have been made from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts since the cap went into effect on March 19, 2009. . On March 20, 2009 (and at least until first a transfer is made out of the AST Investment Grade Bond Sub-account under the formula) - the $10,000 payment is allocated to the Permitted Sub-accounts and on this date you have 82% in the AST Investment Grade Bond Sub-account and 18% in the Permitted Sub-accounts (such that $20,000 is allocated to the Permitted Sub-accounts and $90,000 to the AST Investment Grade Bond Sub-account). . Once there is a transfer out of the AST Investment Grade Bond Sub-account (of any amount), the formula will operate as described above, meaning that the formula could transfer amounts to or from the AST Investment Grade Bond Sub-account if dictated by the formula (subject to the 90% cap). Under the operation of the formula, the 90% cap may come into existence and be removed multiple times while you participate in the benefit. We will continue to monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account as dictated by the formula. 104 As you can glean from the formula, poor or flat investment performance of your Account Value may result in a transfer of a portion of your Account Value in the Permitted Sub-accounts to the AST Investment Grade Bond Sub-account because such poor investment performance will tend to increase the Target Ratio. Because the amount allocated to the AST Investment Grade Bond Sub-account and the amount allocated to the Permitted Sub-accounts each is a variable in the formula, the investment performance of each affects whether a transfer occurs for your Annuity. In deciding how much to transfer, we use another formula, which essentially seeks to re-balance amounts held in the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account so that the Target Ratio meets a target, which currently is equal to 80%. Once you elect Highest Daily Lifetime 7 Plus, the values we use to compare to the Target Ratio will be fixed. For newly-issued Annuities that elect Highest Daily Lifetime 7 Plus and existing Annuities that elect Highest Daily Lifetime 7 Plus in the future, however, we reserve the right to change such values. Additionally, on each monthly Annuity Anniversary (if the monthly Annuity Anniversary does not fall on a Valuation Day, the next Valuation Day will be used), following all of the above described daily calculations, a transfer may be made from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts. Any such transfer will be based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). This transfer will automatically occur provided that the Target Ratio, as described above, would be less than 83% after the transfer. The formula will not execute a transfer if the Target Ratio after this transfer would occur would be greater than or equal to 83%. The amount of the transfer will be equal to the lesser of: a) The total value of all your Account Value in the AST Investment Grade Bond Sub-account, or b) An amount equal to 5% of your total Account Value. While you are not notified when your Annuity reaches a transfer trigger under the formula, you will receive a confirmation statement indicating the transfer of a portion of your Account Value either to or from the AST Investment Grade Bond Sub-account. The formula by which the transfer operates is designed primarily to mitigate some of the financial risks that we incur in providing the guarantee under Highest Daily Lifetime 7 Plus. Depending on the results of the calculations of the formula, we may, on any Valuation Day: . Not make any transfer between the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account; or . If a portion of your Account Value was previously allocated to the AST Investment Grade Bond Sub-account, transfer all or a portion of those amounts to the Permitted Sub-accounts, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options).; or . Transfer a portion of your Account Value in the Permitted Sub-accounts pro rata to the AST Investment Grade Bond Sub-account. The amount and timing of transfers to and from the AST Investment Grade Bond Sub-account pursuant to the formula depends upon a number of factors unique to your Annuity (and is not necessarily directly correlated with the securities markets, bond markets, or interest rates, in general) including: . The difference between your Account Value and your Protected Withdrawal Value; . How long you have owned Highest Daily Lifetime 7 Plus or Spousal Highest Daily Lifetime 7 Plus; . The performance of the Permitted Sub-accounts you have chosen; . The performance of the AST Investment Grade Bond Sub-account; . The amount allocated to each of the Permitted Sub-accounts you have chosen; . The amount allocated to the AST Investment Grade Bond Sub-account; . Additional purchase payments, if any, you make to your Annuity; and . Withdrawals, if any, you take from your Annuity (withdrawals are taken pro rata from your Account Value). At any given time, some, most or none of your Account Value will be allocated to the AST Investment Grade Bond Sub-account, as dictated by the formula. The more of your Account Value allocated to the AST Investment Grade Bond Sub-account under the formula, the greater the impact of the performance of that Sub-account in determining whether (and how much) your Account Value is transferred back to the Permitted Sub-accounts. Further, it is possible under the formula that, if a significant portion of your Account Value is allocated to the AST Investment Grade Bond Sub-account and that Sub-account has good performance but the performance of your Permitted Sub-accounts is negative, that the formula might transfer your Account Value to the Permitted Sub-accounts. Similarly, the more you have allocated to the Permitted Sub-accounts, the greater the impact of the performance of those Permitted Sub-accounts will have on any transfer to the AST Investment Grade Bond Sub-account. If you make additional purchase payments to your Annuity, they will be allocated according to your allocation instructions. Once they are allocated to your Annuity, they will also be subject to the formula described above and therefore may be transferred to the AST Investment Grade Bond Portfolio, if dictated by the formula. Any Account Value in the AST Investment Grade Bond Sub-account will not be available to participate in the investment experience of the Permitted Sub-accounts regardless of whether there is a subsequent Sub-account decline or recovery until it is transferred out of the AST Investment Grade Bond Sub-account. 105 Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the required minimum distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that required minimum distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as required minimum distribution provisions under the tax law. Please note, however, that any withdrawal (except the Non-Lifetime Withdrawal) you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive the Return of Principal Guarantee and the guaranteed amount described above under "Key Feature - Protected Withdrawal Value". Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this benefit here. However, we do note that if you participate in Highest Daily Lifetime 7 Plus through a non-qualified annuity, as with all withdrawals, once all purchase payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Highest Daily Lifetime 7 Plus/SM/ with Beneficiary Income Option We offer an optional death benefit feature under Highest Daily Lifetime 7 Plus, the amount of which is linked to your Annual Income Amount. We refer to this optional death benefit as the Beneficiary Income Option or BIO. This version is only being made available in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. You may choose Highest Daily Lifetime 7 Plus with or without also selecting the Beneficiary Income Option death benefit. However, you may not elect the Beneficiary Income Option without Highest Daily Lifetime 7 Plus and you must elect the Beneficiary Income Option death benefit at the time you elect Highest Daily Lifetime 7 Plus. If you elect Highest Daily Lifetime 7 Plus without the Beneficiary Income Option and would like to add the feature later, you must terminate the Highest Daily Lifetime 7 Plus benefit and elect the Highest Daily Lifetime 7 Plus with Beneficiary Income Option (subject to availability and benefit re-election provisions). Please note that if you terminate Highest Daily Lifetime 7 Plus and elect the Highest Daily Lifetime 7 Plus with BIO you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. As long as your Highest Daily Lifetime 7 Plus with Beneficiary Income Option is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. This benefit may be elected, provided that all owners and beneficiaries are natural persons or an agent acting for a natural person. If you elect this death benefit, you may not elect any other optional benefit. You may elect the Beneficiary Income Option death benefit so long as the Annuitant is no older than age 75 at the time of election and meet the Highest Daily Lifetime 7 Plus age requirements. For purposes of this optional death benefit, we calculate the Annual Income Amount and Protected Withdrawal Value in the same manner that we do under Highest Daily Lifetime 7 Plus itself. However, we will stop determining the Periodic Value (as described above) on the earlier of your first Lifetime Withdrawal after the effective date of the benefit or the Tenth Anniversary Date. This means that under the Highest Daily Lifetime 7 Plus with BIO benefit you will not be eligible for the guaranteed minimum Periodic Values described above on the 20/th/ and 25/th/ Anniversary of the Benefit Effective Date. If you choose the Highest Daily Lifetime 7 Plus with BIO, the maximum charge is 2.00% of the greater of Account Value and the Protected Withdrawal Value ("PWV") annually. The current charge is 1.10% annually of the greater of the Account Value and the PWV. We deduct this charge at the end of each benefit quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.275% of the greater of the prior day's Account Value or the prior day's Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Sub-account. Because the fee for this benefit is based on the greater of the Account Value or the Protected Withdrawal Value, the fee for Highest Daily Lifetime 7 Plus with the Beneficiary Income Option may be greater than it would have been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero and, continue the benefit as described below. Upon a death that triggers payment of a death benefit under the Annuity, we identify the following amounts: (a) the amount of the basic death benefit under the Annuity, (b) the Protected Withdrawal Value, and (c) the Annual Income Amount. If there were no Lifetime Withdrawals prior to the date of death, then we calculate the Protected Withdrawal Value for purposes of this death 106 benefit as of the date of death, and we calculate the Annual Income Amount as if there were a withdrawal on the date of death. If there were Lifetime Withdrawals prior to the date of death, then we set the Protected Withdrawal Value and Annual Income Amount for purposes of this death benefit as of the date that we receive due proof of death. If there is one beneficiary, he/she must choose to receive either the basic death benefit (in a lump sum or other permitted form of distribution) or the Beneficiary Income Option death benefit (in the form of periodic payments of the Annual Income Amount - such payments may be annual or at other intervals that we permit). If there are multiple beneficiaries, each beneficiary is presented with the same choice. Each beneficiary can choose to take his/her portion of either (a) the basic death benefit, or (b) the Beneficiary Income Option death benefit. In order to receive the Beneficiary Income Option death benefit, each beneficiary's share of the death benefit proceeds must be allocated as a percentage of the total death benefit to be paid. We allow a beneficiary who has opted to receive the Annual Income Amount to designate another beneficiary, who would receive any remaining payments upon the former beneficiary's death. Note also that the final payment, exhausting the Protected Withdrawal Value, may be less than the Annual Income Amount. Here is an example to illustrate how the death benefit may be paid: . Assume that (i) the basic death benefit is $50,000, the Protected Withdrawal Value is $100,000, and the Annual Income Amount is $5,000; (ii) there are two beneficiaries (the first designated to receive 75% of the death benefit and the second designated to receive 25% of the death benefit); (iii) the first beneficiary chooses to receive his/her portion of the death benefit in the form of the Annual Income Amount, and the second beneficiary chooses to receive his/her portion of the death benefit with reference to the basic death benefit. . Under those assumptions, the first beneficiary will be paid a pro-rated portion of the Annual Income Amount for 20 years (the 20 year pay out period is derived from the $5,000 Annual Income Amount, paid each year until it exhausts the entire $100,000 Protected Withdrawal Value). The pro-rated portion of the Annual Income Amount, equal to $3,750 annually (i.e., the first beneficiary's 75% share multiplied by $5,000), is then paid each year for the 20 year period. Payment of $3,750 for 20 years results in total payments of $75,000 (i.e., the first beneficiary's 75% share of the $100,000 Protected Withdrawal Value). The second beneficiary would receive 25% of the basic death benefit amount (or $12,500). If you elect to terminate Highest Daily Lifetime 7 Plus with Beneficiary Income Option, both Highest Daily Lifetime 7 Plus and that death benefit option will be terminated. You may not terminate the death benefit option without terminating the entire benefit. If you terminate Highest Daily Lifetime 7 Plus with Beneficiary Income Option, your ability to elect other optional living benefits will be affected as indicated in the "Election of and Designations under the Benefit" section above. Highest Daily Lifetime 7 Plus/SM/ with Lifetime Income Accelerator We offer another version of Highest Daily Lifetime 7 Plus that we call Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator ("Highest Daily Lifetime 7 Plus with LIA"). This version is only being offered in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. You may choose Highest Daily Lifetime 7 Plus with or without also electing LIA, however you may not elect LIA without Highest Daily Lifetime 7 Plus and you must elect the LIA benefit at the time you elect Highest Daily Lifetime 7 Plus. If you elect Highest Daily Lifetime 7 Plus without LIA and would like to add the feature later, you must terminate the Highest Daily Lifetime 7 Plus benefit and elect the Highest Daily Lifetime 7 Plus with LIA (subject to availability and benefit re-election provisions). Please note that if you terminate Highest Daily Lifetime 7 Plus and elect the Highest Daily Lifetime 7 Plus with LIA you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. Highest Daily Lifetime 7 Plus with LIA is offered as an alternative to other lifetime withdrawal options. If you elect this benefit, you may not elect any other optional benefit. As long as your Highest Daily Lifetime 7 Plus with LIA benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. The income benefit under Highest Daily Lifetime 7 Plus with LIA currently is based on a single "designated life" who is between the ages of 45 and 75 on the date that the benefit is elected. All terms and conditions of Highest Daily Lifetime 7 Plus apply to this version of the benefit, except as described herein. Highest Daily Lifetime 7 Plus with LIA is not long-term care insurance and should not be purchased as a substitute for long-term care insurance. The income you receive through the Lifetime Income Accelerator may be used for any purpose, and it may or may not be sufficient to address expenses you may incur for long-term care. You should seek professional advice to determine your financial needs for long-term care. Highest Daily Lifetime 7 Plus with LIA guarantees, until the death of the single designated life, the ability to withdraw an amount equal to double the Annual Income Amount (which we refer to as the "LIA Amount") if you meet the conditions set forth below. If you choose the Highest Daily Lifetime 7 Plus with LIA, the maximum charge is 2.00% of the greater of Account Value and the Protected Withdrawal Value ("PWV") annually. The current charge is 1.10% annually of the greater of Account Value and the PWV. We deduct this charge at the end of each benefit quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.275% of the greater of the prior day's Account Value, or the prior day's Protected 107 Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Sub-account. Since this fee is based on the greater of Account Value or the Protected Withdrawal Value, the fee for Highest Daily Lifetime 7 Plus with LIA may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described below. If this benefit is being elected on an Annuity held as a 403(b) plan, then in addition to meeting the eligibility requirements listed below for the LIA Amount you must separately qualify for distributions from the 403(b) plan itself. Eligibility Requirements for LIA Amount. Both a waiting period of 36 months from the benefit effective date, and an elimination period of 120 days from the date of notification that one or both of the requirements described immediately below have been met, apply before you can become eligible for the LIA Amount. Assuming the 36 month waiting period has been met and we have received the notification referenced in the immediately preceding sentence, the LIA amount would be available for withdrawal on the Valuation Day immediately after the 120/th/ day. The waiting period and the elimination period may run concurrently. In addition to satisfying the waiting and elimination period, at least one of the following requirements ("LIA conditions") must be met. (1)The designated life is confined to a qualified nursing facility. A qualified nursing facility is a facility operated pursuant to law or any state licensed facility providing medically necessary in-patient care which is prescribed by a licensed physician in writing and based on physical limitations which prohibit daily living in a non-institutional setting. (2)The designated life is unable to perform two or more basic abilities of caring for oneself or "activities of daily living." We define these basic abilities as: i. Eating: Feeding oneself by getting food into the body from a receptacle (such as a plate, cup or table) or by a feeding tube or intravenously. ii.Dressing: Putting on and taking off all items of clothing and any necessary braces, fasteners or artificial limbs. iii.Bathing: Washing oneself by sponge bath; or in either a tub or shower, including the task of getting into or out of the tub or shower. iv.Toileting: Getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene. v. Transferring: Moving into or out of a bed, chair or wheelchair. vi.Continence: Maintaining control of bowel or bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform personal hygiene (including caring for catheter or colostomy bag). You must notify us when the LIA conditions have been met. If, when we receive such notification, there are more than 120 days remaining until the end of the waiting period described above, you will not be eligible for the LIA Amount. If there are 120 days or less remaining until the end of the waiting period when we receive notification that the LIA conditions are met, we will determine eligibility for the LIA Amount through our then current administrative process, which may include, but is not limited to, documentation verifying the LIA conditions and/or an assessment by a third party of our choice. Such assessment may be in person and we will assume any costs associated with the aforementioned assessment. Once eligibility is determined, the LIA Amount is equal to double the Annual Income Amount as described above under the Highest Daily Lifetime 7 Plus benefit. Additionally, once eligibility is determined, we will reassess your eligibility on an annual basis although your LIA benefit for the year that immediately precedes our reassessment will not be affected if it is determined that you are no longer eligible. Your first reassessment may occur in the same year as your initial assessment. If we determine that you are no longer eligible to receive the LIA Amount, upon the next Annuity Anniversary the Annual Income Amount would replace the LIA Amount. There is no limit on the number of times you can become eligible for the LIA Amount, however, each time would require the completion of the 120-day elimination period, notification that the designated life meets the LIA conditions, and determination, through our then current administrative process, that you are eligible for the LIA Amount, each as described above. LIA amount at the first Lifetime Withdrawal. If your first Lifetime Withdrawal subsequent to election of Highest Daily Lifetime 7 Plus with LIA occurs while you are eligible for the LIA Amount, the available LIA Amount is equal to double the Annual Income Amount. LIA amount after the first Lifetime Withdrawal. If you become eligible for the LIA Amount after you have taken your first Lifetime Withdrawal, the available LIA amount for the current and subsequent Annuity Years is equal to double the then current Annual Income Amount, however the available LIA amount in the current Annuity Year is reduced by any Lifetime Withdrawals that have been taken in the current Annuity Year. Cumulative Lifetime Withdrawals in an Annuity Year which are less than or equal to the LIA Amount (when eligible for the LIA amount) will not reduce your LIA Amount in subsequent Annuity Years, but any such withdrawals will reduce the LIA Amount on a dollar-for-dollar basis in that Annuity Year. Withdrawals In Excess of the LIA amount. If your cumulative Lifetime Withdrawals in an Annuity Year are in excess of the LIA Amount when you are eligible ("Excess Withdrawal"), your LIA Amount in subsequent years will be reduced (except with 108 regard to required minimum distributions) by the result of the ratio of the excess portion of the withdrawal to the Account Value immediately prior to the Excess Withdrawal. Reductions include the actual amount of the withdrawal, including any CDSC that may apply. Withdrawals of any amount (excluding the Non-Lifetime Withdrawal) up to and including the LIA Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Excess Withdrawals will reduce the Protected Withdrawal Value by the same ratio as the reduction to the LIA Amount. Any withdrawals that are less than or equal to the LIA amount (when eligible) but in excess of the free withdrawal amount available under this Annuity will not incur a CDSC. Withdrawals are not required. However, subsequent to the first Lifetime Withdrawal, the LIA Amount is not increased in subsequent Annuity Years if you decide not to take a withdrawal in an Annuity Year or take withdrawals in an Annuity Year that in total are less than the LIA Amount. Purchase Payments. If you are eligible for the LIA Amount as described under "Eligibility Requirements for LIA Amount" and you make an additional Purchase Payment, we will increase your LIA Amount by double the amount we add to your Annual Income Amount. Step Ups. If your Annual Income Amount is stepped up, your LIA Amount will be stepped up to equal double the stepped up Annual Income Amount. Guarantee Payments. If your Account Value is reduced to zero as a result of cumulative withdrawals that are equal to or less than the LIA Amount when you are eligible, or as a result of the fee that we assess for Highest Daily Lifetime 7 Plus with LIA, and there is still a LIA Amount available, we will make an additional payment for that Annuity Year equal to the remaining LIA Amount. If you have not begun taking Lifetime Withdrawals and your Account Value is reduced to zero as a result of the fee we assess for Highest Daily Lifetime 7 Plus with LIA, we will calculate the Annual Income Amount and any LIA amount if you are eligible, as if you made your first Lifetime Withdrawal on the date the Account Value was reduced to zero and Lifetime Withdrawals will begin on the next Annuity Anniversary. If this were to occur, you are not permitted to make additional purchase payments to your Annuity. Thus, in these scenarios, the remaining LIA Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the LIA Amount as described in this section. We will make payments until the death of the single designated life. Should the designated life no longer qualify for the LIA amount (as described under "Eligibility Requirements for LIA Amount" above), the Annual Income Amount would continue to be available. Subsequent eligibility for the LIA Amount would require the completion of the 120 day elimination period as well as meeting the LIA conditions listed above under "Eligibility Requirements for LIA Amount". To the extent that cumulative withdrawals in the current Annuity Year that reduce your Account Value to zero are more than the LIA Amount (except in the case of required minimum distributions), Highest Daily Lifetime 7 Plus with LIA terminates, and no additional payments are made. Annuity Options. In addition to the Highest Daily Lifetime 7 Plus Annuity Options described above, after the Tenth Anniversary you may also request that we make annuity payments each year equal to the Annual Income Amount. In any year that you are eligible for the LIA Amount, we make annuity payments equal to the LIA Amount. If you would receive a greater payment by applying your Account Value to receive payments for life under your Annuity, we will pay the greater amount. Annuitization prior to the Tenth Anniversary will forfeit any present or future LIA amounts. We will continue to make payments until the death of the Designated Life. If this option is elected, the Annual Income Amount and LIA Amount will not increase after annuity payments have begun. If you elect Highest Daily Lifetime 7 Plus with LIA, and never meet the eligibility requirements you will not receive any additional payments based on the LIA Amount. SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS/SM /INCOME BENEFIT (SHD7 Plus)/SM/ Spousal Highest Daily Lifetime 7 Plus is the spousal version of Highest Daily Lifetime 7 Plus. This version is only being offered in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. Currently, if you elect Spousal Highest Daily Lifetime 7 Plus and subsequently terminate the benefit, you may elect another lifetime withdrawal benefit, subject to our current rules. See "Termination of Existing Benefits and Election New Benefits". Please note that if you terminate Spousal Highest Daily Lifetime 7 Plus and elect another benefit, you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. Spousal Highest Daily Lifetime 7 Plus must be elected based on two Designated Lives, as described below. The youngest Designated Life must be at least 50 years old and the oldest Designated Life must be at least 55 years old when the benefit is elected. Spousal Highest Daily Lifetime 7 Plus is not available if you elect any other optional benefit. As long as your Spousal Highest Daily Lifetime 7 Plus Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. For a more detailed description of permitted investment options, see the "Investment Options" section in this prospectus. We offer a benefit that guarantees until the later death of two natural persons who are each other's spouses at the time of election of the benefit and at the first death of one of them (the "Designated Lives", and each, a "Designated Life") the ability to withdraw an 109 annual amount (the "Annual Income Amount") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of Sub-account performance on the Account Value, subject to our rules regarding the timing and amount of withdrawals. You are guaranteed to be able to withdraw the Annual Income Amount for the lives of the Designated Lives ("Lifetime Withdrawals") provided you have not made "excess withdrawals" that have resulted in your Account Value being reduced to zero. We also permit a one-time Non-Lifetime Withdrawal from your Annuity prior to taking Lifetime Withdrawals under the benefit. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, wish to ensure that Sub-account performance will not affect your ability to receive annual payments, and wish either spouse to be able to continue the Spousal Highest Daily Lifetime 7 Plus benefit after the death of the first spouse. You are not required to make withdrawals as part of the benefit - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer program in order to participate in Spousal Highest Daily Lifetime 7 Plus. Although you are guaranteed the ability to withdraw your Annual Income Amount for life even if your Account Value falls to zero, if you take an excess withdrawal that brings your Account Value to zero, it is possible that your Annual Income Amount could also fall to zero. In that scenario, no further amount would be payable under Spousal Highest Daily Lifetime 7 Plus. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to calculate the initial Annual Income Amount. The Protected Withdrawal Value is separate from your Account Value and not available as cash or a lump sum. On the effective date of the benefit, the Protected Withdrawal Value is equal to your Account Value. On each Valuation Day thereafter until the date of your first Lifetime Withdrawal (excluding any Non-Lifetime Withdrawal discussed below), the Protected Withdrawal Value is equal to the "Periodic Value" described in the next paragraph. The "Periodic Value" initially is equal to the Account Value on the effective date of the benefit. On each Valuation Day thereafter until the first Lifetime Withdrawal, we recalculate the Periodic Value. We stop determining the Periodic Value upon your first Lifetime Withdrawal after the effective date of the benefit. On each Valuation Day (the "Current Valuation Day"), the Periodic Value is equal to the greater of: (1)the Periodic Value for the immediately preceding business day (the "Prior Valuation Day") appreciated at the daily equivalent of 7% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any adjusted Purchase Payment made on the Current Valuation Day (the Periodic Value is proportionally reduced for any Non-Lifetime Withdrawal); and (2)the Account Value. If you have not made a Lifetime Withdrawal on or before the 10/th/, 20/th/, or 25/th/ Anniversary of the effective date of the benefit, your Periodic Value on the 10/th/, 20/th/, or 25/th/ Anniversary of the benefit effective date is equal to the greater of: (1)the Periodic Value described above or, (2)the sum of (a), (b) and (c) (proportionally reduced for any Non-Lifetime Withdrawal): (a)200% (on the 10/th/ anniversary), 400% (on the 20/th/ anniversary) or 600% (on the 25/th/ anniversary) of the Account Value on the effective date of the benefit; (b)200% (on the 10/th/ anniversary), 400% (on the 20/th/ anniversary) or 600% (on the 25/th/ anniversary) of all adjusted purchase payments made within one year following the effective date of the benefit; and (c)All adjusted purchase payments made after one year following the effective date of the benefit. If you elect Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option ("BIO") (see below), we will stop determining the Periodic Value (as described above) on the earlier of your first Lifetime Withdrawal after the effective date of the benefit or the Tenth Anniversary of the effective date of the benefit ("Tenth Anniversary"). This means that under the Spousal Highest Daily Lifetime 7 Plus with BIO benefit you will not be eligible for the guaranteed minimum Periodic Values described above on the 20/th/ and 25/th/ Anniversary of the Benefit Effective Date. On and after the date of your first Lifetime Withdrawal, your Protected Withdrawal Value is increased by the amount of any subsequent purchase payments, is reduced by withdrawals, including your first Lifetime Withdrawal (as described below), and may be increased if you qualify for a step-up (as described below). Return of Principal Guarantee If you have not made a Lifetime Withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: 110 a) your Account Value on the day that you elected Spousal Highest Daily Lifetime 7 Plus proportionally reduced for any Non-Lifetime Withdrawal; and b) the sum of each Purchase Payment proportionally reduced for any subsequent Non-Lifetime Withdrawal (including the amount of any associated Credits) you made during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of your variable investment options (including the AST Investment Grade Bond Sub-account used with this benefit), in the same proportion that each such Sub-account bears to your total Account Value, immediately before the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Protected Withdrawal Value, your death benefit, or the amount of any optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. Because the amount is added to your Account Value, it will also be subject to each charge under your Annuity based on Account Value. This potential addition to Account Value is available only if you have elected Spousal Highest Daily Lifetime 7 Plus and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal, including a required minimum distribution, (other than a Non-Lifetime Withdrawal) prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. The Return of Principal Guarantee is referred to as the Guaranteed Minimum Account Value Credit in the benefit rider. Key Feature - Annual Income Amount under the Spousal Highest Daily Lifetime 7 Plus Benefit The Annual Income Amount is equal to a specified percentage of the Protected Withdrawal Value. The percentage initially depends on the age of the youngest Designated Life on the date of the first Lifetime Withdrawal after election of the benefit. The percentages are: 4% for ages 50 - less than 59 1/2, 5% for ages 59 1/2 - 79, 6% for ages 80 to 84, 7% for ages 85 to 89, and 8% for ages 90 and older. We use the age of the youngest Designated Life even if that Designated Life is no longer a participant under the Annuity due to death or divorce. Under the Spousal Highest Daily Lifetime 7 Plus benefit, if your cumulative Lifetime Withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative Lifetime Withdrawals in an Annuity Year are in excess of the Annual Income Amount for any Annuity Year ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions for this Annuity that comply with our rules) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions are based on the actual amount of the withdrawal, including any CDSC that may apply. Lifetime Withdrawals of any amount up to and including the Annual Income Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the same ratio as the reduction to the Annual Income Amount. Note that if your withdrawal of the Annual Income Amount in a given Annuity Year exceeds the applicable free withdrawal amount under the Annuity (but is not considered Excess Income), we will not impose any CDSC on the amount of that withdrawal. You may use the Systematic Withdrawal program to make withdrawals of the Annual Income Amount. Any systematic withdrawal will be deemed a Lifetime Withdrawal under this benefit. Any Purchase Payment that you make subsequent to the election of Spousal Highest Daily Lifetime 7 Plus will (i) increase the then-existing Annual Income Amount by an amount equal to a percentage of the Purchase Payment (including the amount of any associated Credit) based on the age of the younger Annuitant at the time of the first Lifetime Withdrawal (the percentages are: 4% for ages 50 - less than 59 1/2, 5% for ages 59 1/2 - 79, 6% for ages 80-84, 7% for ages 85-89, and 8% for ages 90 and older), and (ii) increase the Protected Withdrawal Value by the amount of the Purchase Payment (including the amount of any associated Credit). Highest Daily Auto Step-Up An automatic step-up feature ("Highest Daily Auto Step-Up") is part of this benefit. As detailed in this paragraph, the Highest Daily Auto Step-Up feature can result in a larger Annual Income Amount subsequent to your first Lifetime Withdrawal. The Highest Daily Step-Up starts with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first Lifetime Withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on each Valuation Day within the immediately preceding Annuity Year after your first Lifetime Withdrawal. Having identified the highest daily value (after all daily values have been adjusted for subsequent purchase payments and withdrawals), we then multiply that value by a percentage that varies based on the age of the youngest Designated Life on the Annuity Anniversary as of which the step-up would occur. The percentages are 4% for ages 50 - less than 59 1/2, 5% for ages 59 1/2 - 79, 6% for ages 80-84, 7% for ages 85-89, and 8% for ages 90 and older. If that value exceeds the existing Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Annual Income Amount intact. The Account Value on the Annuity Anniversary is considered the last daily step-up value of the Annuity Year. In later years (i.e., after the first Annuity Anniversary after the first Lifetime Withdrawal), we determine whether an automatic step-up should occur on each Annuity 111 Anniversary by performing a similar examination of the Account Values that occurred on Valuation Days during the year. At the time that we increase your Annual Income Amount, we also increase your Protected Withdrawal Value to equal the highest daily value upon which your step-up was based only if that results in an increase to the Protected Withdrawal Value. Your Protected Withdrawal Value will never be decreased as a result of an income step-up. If, on the date that we implement a Highest Daily Auto Step-Up to your Annual Income Amount, the charge for Spousal Highest Daily Lifetime 7 Plus has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Spousal Highest Daily Lifetime 7 Plus upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. If you establish a Systematic Withdrawal program, we will not automatically increase the withdrawal amount when there is an increase to the Annual Income Amount. The Spousal Highest Daily Lifetime 7 Plus benefit does not affect your ability to make withdrawals under your Annuity, or limit your ability to request withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily Lifetime 7 Plus, if your cumulative Lifetime Withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. Because each of the Protected Withdrawal Value and Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for the Account Value to fall to zero, even though the Annual Income Amount remains. Examples of dollar-for-dollar and proportional reductions, and the Highest Daily Auto Step-Up are set forth below. The values shown here are purely hypothetical, and do not reflect the charges for the Spousal Highest Daily Lifetime 7 Plus benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2008 . The Spousal Highest Daily Lifetime 7 Plus benefit is elected on March 5, 2009 . The younger Designated Life was 70 years old when he/she elected the Spousal Highest Daily Lifetime 7 Plus benefit. Example of dollar-for-dollar reductions On November 24, 2009, the Protected Withdrawal Value is $120,000, resulting in an Annual Income Amount of $6,000 (since the youngest designated life is between the ages of 59 1/2 and 79 at the time of the first Lifetime Withdrawal, the Annual Income Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Annual Income Amount for that Annuity Year (up to and including December 1, 2009) is $3,500. This is the result of a dollar-for-dollar reduction of the Annual Income Amount ($6,000 less $2,500 = $3,500). Example of proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on November 27, 2009 and the Account Value at the time and immediately prior to this withdrawal is $118,000. The first $3,500 of this withdrawal reduces the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount of $1,500 - reduces the Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there were other withdrawals in that Annuity Year, each would result in another proportional reduction to the Annual Income Amount). Here is the calculation: Account Value before Lifetime Withdrawal $118,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $114,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $114,500.00 Ratio 1.31% Annual Income Amount $ 6,000.00 Less ratio of 1.31% $ 78.60 Annual Income Amount for future Annuity Years $ 5,921.40
112 Example of highest daily auto step-up On each Annuity Anniversary date, the Annual Income Amount is stepped-up if the appropriate percentage (based on the youngest Designated Life's age on the Annuity Anniversary) of the highest daily value since your first Lifetime Withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional purchase payments, is higher than the Annual Income Amount, adjusted for excess withdrawals and additional purchase payments (including the amount of any associated Credits). Continuing the same example as above, the Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on November 27 reduces the amount to $5,921.40 for future years (see above). For the next Annuity Year, the Annual Income Amount will be stepped up if 5% (since the youngest Designated Life is between 59 1/2 and 79 on the date of the potential step-up) of the highest daily Account Value adjusted for withdrawals and purchase payments (including credits), is higher than $5921.40. Here are the calculations for determining the daily values. Only the November 25 value is being adjusted for excess withdrawals as the November 30 and December 1 Valuation Days occur after the excess withdrawal on November 27.
Highest Daily Value (adjusted with Adjusted Annual withdrawal and purchase Income Amount (5% of the Date* Account value payments)** Highest Daily Value) ----- ------------- ----------------------- ------------------------ November 25, 2009 $119,000.00 $ 119,000.00 $5,950.00 November 26, 2009 Thanksgiving Day November 27, 2009 $113,000.00 $ 113,986.95 $5,699.35 November 30, 2009 $113,000.00 $ 113,986.95 $5,699.35 December 01, 2009 $119,000.00 $ 119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The Valuation Dates are every day following the first Lifetime Withdrawal. In subsequent Annuity Years Valuation Dates will be every day following the Annuity Anniversary. The Annuity Anniversary Date of December 1 is considered the final Valuation Date for the Annuity Year. ** In this example, the first daily value after the first Lifetime Withdrawal is $119,000 on November 25, resulting in an adjusted Annual Income Amount of $5,950.00. This amount is adjusted on November 27 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $119,000 on November 25 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $115,500 before the excess withdrawal. . This amount ($115,500) is further reduced by 1.31% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Daily Value of $113,986.95. . The adjusted Annual Income Amount is carried forward to the next Valuation Date of November 30. At this time, we compare this amount to 5% of the Account Value on November 30. Since the November 27 adjusted Annual Income Amount of $5,699.35 is higher than $5,650.00 (5% of $113,000), we continue to carry $5,699.35 forward to the next and final Valuation Date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,699.35, the adjusted Annual Income Amount is reset to $5,950.00. In this example, 5% of the December 1 value results in the highest amount of $5,950.00. Since this amount is higher than the current year's Annual Income Amount of $5,921.40 adjusted for excess withdrawals, the Annual Income Amount for the next Annuity Year, starting on December 2, 2009 and continuing through December 1, 2010, will be stepped-up to $5,950.00. Non-Lifetime Withdrawal Feature You may take a one-time non-lifetime withdrawal ("Non-Lifetime Withdrawal") under Spousal Highest Daily Lifetime 7 Plus. It is an optional feature of the benefit that you can only elect at the time of your first withdrawal. The amount of the Non-Lifetime Withdrawal cannot be more than the amount that would cause the Annuity to be taken below the minimum Surrender Value after a withdrawal for your Annuity. This Non-Lifetime Withdrawal will not establish our initial Annual Income Amount and the Periodic Value above will continue to be calculated. However, the total amount of the withdrawal will proportionally reduce all guarantees associated with the Spousal Highest Daily Lifetime 7 Plus benefit. You must tell us if your withdrawal is intended to be the Non-Lifetime Withdrawal and not the first Lifetime Withdrawal under the Spousal Highest Daily Lifetime 7 Plus benefit. If you don't elect the Non-Lifetime Withdrawal, the first withdrawal you make will be the first Lifetime Withdrawal that establishes your Protected Withdrawal Value and Annual Income Amount. Once you elect the Non-Lifetime Withdrawal or Lifetime Withdrawals, no additional Non-Lifetime withdrawals may be taken. The Non-Lifetime Withdrawal will proportionally reduce the Protected Withdrawal Value, the Return of Principal guarantee and the Periodic Value guarantees on the tenth, twentieth and twenty-fifth anniversaries of the benefit effective date, described above, by the percentage the total withdrawal amount (including any applicable CDSC) represents of the then current Account Value immediately prior to the time of the withdrawal. If you are participating in a Systematic Withdrawal program, the first withdrawal under the program cannot be classified as the Non-Lifetime Withdrawal. The first partial withdrawal in payment of any third party investment advisory service from your Annuity also cannot be classified as the Non-Lifetime Withdrawal. Example - Non-Lifetime Withdrawal (proportional reduction) This example is purely hypothetical and does not reflect the charges for the benefit or any other fees and charges. It is intended to illustrate the proportional reduction of the Non-Lifetime Withdrawal under this benefit. 113 Assume the following: . The Issue Date is December 1, 2008 . The Spousal Highest Daily Lifetime 7 Plus benefit is elected on March 5, 2009 . The Account Value at benefit election was $105,000 . The younger Designated Life was 70 years old when he/she elected the Spousal Highest Daily Lifetime 7 Plus benefit. . No previous withdrawals have been taken under the Spousal Highest Daily Lifetime 7 Plus benefit. On May 2, 2009, the Protected Withdrawal Value is $125,000, the 10/th/ benefit year minimum Periodic Value guarantee is $210,000, the 10/th/ benefit year Return of Principal guarantee is $105,000, the 20/th/ benefit year minimum Periodic Value guarantee is $420,000, the 25/th/ benefit year minimum Periodic Value guarantee is $630,000 and the Account Value is $120,000. Assuming $15,000 is withdrawn from the Annuity on May 2, 2009 and is designated as a Non-Lifetime Withdrawal, all guarantees associated with the Spousal Highest Daily Lifetime 7 Plus benefit will be reduced by the ratio the total withdrawal amount represents of the Account Value just prior to the withdrawal being taken. Here is the calculation: Withdrawal Amount divided by $ 15,000 Account Value before withdrawal $120,000 Equals ratio 12.5% All guarantees will be reduced by the above ratio (12.5%) Protected Withdrawal Value $109,375 10/th/ benefit year Return of Principal $ 91,875 10/th/ benefit year Minimum Periodic Value $183,750 20/th/ benefit year Minimum Periodic Value $367,500 25/th/ benefit year Minimum Periodic Value $551,250
Required Minimum Distributions Withdrawals that exceed the Annual Income Amount, but which you are required to take as a required minimum distribution for this Annuity, will not reduce the Annual Income Amount for future years. No additional Annual Income Amounts will be available in an Annuity Year due to required minimum distributions unless the required minimum distribution amount is greater than the Annual Income Amount. Any withdrawal you take that exceeds the Annual Income Amount in Annuity Years that your required minimum distribution amount is not greater than the Annual Income Amount will be treated as an Excess Withdrawal under the benefit. If the required minimum distribution (as calculated by us for your Annuity and not previously withdrawn in the current calendar year) is greater than the Annual Income Amount, an amount equal to the remaining Annual Income Amount plus the difference between the required minimum distribution amount not previously withdrawn in the current calendar year and the Annual Income Amount will be available in the current Annuity Year without it being considered an excess withdrawal. In the event that a required minimum distribution is calculated in a calendar year that crosses more than one Annuity Year and you choose to satisfy the entire required minimum distribution for that calendar year in the next Annuity Year, the distribution taken in the next Annuity Year will reduce your Annual Income Amount in that Annuity Year on a dollar for dollar basis. If the required minimum distribution not taken in the prior Annuity Year is greater than the Annual Income Amount as guaranteed by the benefit in the current Annuity Year, the total required minimum distribution amount may be taken without being treated as an excess withdrawal. Example - required minimum distributions The following example is purely hypothetical and is intended to illustrate a scenario in which the required minimum distribution amount in a given Annuity Year is greater than the Annual Income Amount. Annual Income Amount = $5,000 Remaining Annual Income Amount = $3,000 Required Minimum Distribution = $6,000 The amount you may withdraw in the current Annuity Year without it being treated as an Excess Withdrawal is $4,000. ($3,000 + ($6,000 - $5,000) = $4,000). If the $4,000 withdrawal is taken, the remaining Annual Income Amount will be zero and the remaining required minimum distribution amount of $2,000 may be taken in the subsequent Annuity Year (when your Annual Income Amount is reset to $5,000) without proportionally reducing all guarantees associated with the Spousal Highest Daily Lifetime 7 Plus benefit as described above. The amount you may withdraw in the subsequent Annuity Year if you choose not to satisfy the required minimum distribution in the current Annuity Year (assuming the Annual Income Amount in the subsequent Annuity Year is $5,000) without being treated as an Excess Withdrawal is $6,000. This withdrawal must comply with all IRS guidelines in order to satisfy the required minimum distribution for the current calendar year. 114 Benefits Under Spousal Highest Daily Lifetime 7 Plus . To the extent that your Account Value was reduced to zero as a result of cumulative Lifetime Withdrawals in an Annuity Year that are equal to or less than the Annual Income Amount or as a result of the fee that we assess for Spousal Highest Daily Lifetime 7 Plus, and amounts are still payable under Spousal Highest Daily Lifetime 7 Plus, we will make an additional payment, if any, for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year. If you have not begun taking Lifetime Withdrawals and your Account Value is reduced to zero as a result of the fee we assess for Spousal Highest Daily Lifetime 7 Plus, we will calculate the Annual Income Amount as if you made your first Lifetime Withdrawal on the date the Account Value was reduced to zero and Lifetime Withdrawals will begin on the next Annuity Anniversary. If this were to occur, you are not permitted to make additional purchase payments to your Annuity. Thus, in these scenarios, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section. We will make payments until the death of the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. To the extent that cumulative withdrawals in the Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Spousal Highest Daily Lifetime 7 Plus benefit terminates, and no additional payments will be made. However, if a withdrawal in the latter scenario was taken to satisfy a required minimum distribution under the Annuity the benefit will not terminate, and we will continue to pay the Annual Income Amount in subsequent Annuity Years until the death of the second Designated Life provided the Designated lives were spouses at the death of the first Designated Life. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is an Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Annual Income Amount. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. If, due to death of a Designated Life or divorce prior to annuitization, only a single Designated Life remains, then Annuity payments will be made as a life annuity for the lifetime of the Designated Life. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a joint and survivor or single (as applicable) life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Annual Income Amount payments. Such present value will be calculated using the greater of the joint and survivor or single (as applicable) life fixed annuity rates then currently available or the joint and survivor or single (as applicable) life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no Lifetime Withdrawal was ever taken, we will calculate the Annual Income Amount as if you made your first Lifetime Withdrawal on the date the annuity payments are to begin. . Please note that payments that we make under this benefit after the Annuity Anniversary coinciding with or next following the older of the owner or Annuitant's 95/th/ birthday will be treated as annuity payments. Other Important Considerations . Withdrawals under the Spousal Highest Daily Lifetime 7 Plus benefit are subject to all of the terms and conditions of the Annuity, including any applicable CDSC for the Non-Lifetime Withdrawal as well as withdrawals that exceed the Annual Income Amount. . Withdrawals made while the Spousal Highest Daily Lifetime 7 Plus benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Spousal Highest Daily Lifetime 7 Plus benefit. The Spousal Highest Daily Lifetime 7 Plus benefit provides a guarantee that if your Account Value is reduced to zero (subject to program rules regarding the timing and amount of withdrawals), you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the Permitted Sub-accounts. . You cannot allocate purchase payments or transfer Account Value to or from the AST Investment Grade Bond Portfolio Sub-account (as described below) if you elect this benefit. A summary description of the AST Investment Grade Bond Portfolio appears in the prospectus section entitled "What Are The Investment Objectives and Policies of The Portfolios?". Upon the initial transfer of your Account Value into the AST Investment Grade Bond Portfolio, we will send a prospectus for that Portfolio to you, along with your confirmation statement. In addition, you can find a copy of the AST Investment Grade Bond Portfolio prospectus by going to www.prudentialannuities.com. 115 . You can make withdrawals from your Annuity without purchasing the Spousal Highest Daily Lifetime 7 Plus benefit. The Spousal Highest Daily Lifetime 7 Plus benefit provides a guarantee that if your Account Value declines due to Sub-account performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Transfers to and from the elected Sub-accounts and the AST Investment Grade Bond Portfolio Sub-account triggered by the Spousal Highest Daily Lifetime 7 Plus asset transfer program will not count toward the maximum number of free transfers allowable under an Annuity. . You must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the Highest Daily Lifetime 7 Plus benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly adopted requirements. Subject to any change in requirements, transfer of Account Value and allocation of additional purchase payments may be subject to new investment limitations. . If you elect this benefit and in connection with that election you are required to reallocate to permitted investment options, then on the Valuation Day we receive your request in Good Order, we will (i) sell units of the non-permitted investment options and (ii) invest the proceeds of those sales in the permitted investment options that you have designated. During this reallocation process, your Account Value allocated to the Sub-accounts will remain exposed to investment risk, as is the case generally. The newly elected benefit will commence at the close of business on the following Valuation Day. Thus, the protection afforded by the newly elected benefit will not arise until the close of business on the following Valuation Day. . The maximum fee for Spousal Highest Daily Lifetime 7 Plus is 1.50% annually of the greater of Account Value and the Protected Withdrawal Value. The current fee for Spousal Highest Daily Lifetime 7 Plus is 0.90% annually of the greater of Account Value and the Protected Withdrawal Value. We deduct this fee at the end of each benefit quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.225% of the greater of the prior day's Account Value, or the prior day's Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Sub-account. Since this fee is based on the greater of the Account Value and the Protected Withdrawal Value, the fee for Spousal Highest Daily Lifetime 7 Plus may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the Account Value, we will reduce the Account Value to zero, and continue the benefit as described above. Election of and Designations under the Benefit Spousal Highest Daily Lifetime 7 Plus can only be elected based on two Designated Lives. Designated Lives must be natural persons who are each other's spouses at the time of election of the benefit and at the death of the first of the Designated Lives to die. Currently, Spousal Highest Daily Lifetime 7 Plus only may be elected where the Owner, Annuitant, and Beneficiary designations are as follows: . One Annuity Owner, where the Annuitant and the Owner are the same person and the beneficiary is the Owner's spouse. The youngest Owner/Annuitant and the beneficiary must be at least 50 years old and the oldest must be at least 55 years old at the time of election; or . Co-Annuity Owners, where the Owners are each other's spouses. The beneficiary designation must be the surviving spouse, or the spouses named equally. One of the owners must be the Annuitant. The youngest Owner must be at least 50 years old and the oldest owner must be at least 55 years old at the time of election; or . One Annuity Owner, where the Owner is a custodial account established to hold retirement assets for the benefit of the Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code (or any successor Code section thereto) ("Custodial Account"), the beneficiary is the Custodial Account, and the spouse of the Annuitant is the Contingent Annuitant. The youngest of the Annuitant and the Contingent Annuitant must be at least 50 years old and the oldest must be at least 55 years old at the time of election. We do not permit a change of Owner under this benefit, except as follows: (a) if one Owner dies and the surviving spousal Owner assumes the Annuity, or (b) if the Annuity initially is co-owned, but thereafter the Owner who is not the Annuitant is removed as Owner. We permit changes of beneficiary under this benefit. If the Designated Lives divorce, the Spousal Highest Daily Lifetime 7 Plus benefit may not be divided as part of the divorce settlement or judgment. Nor may the divorcing spouse who retains ownership of the Annuity appoint a new Designated Life upon re-marriage. Spousal Highest Daily Lifetime 7 Plus can be elected at the time that you purchase your Annuity or after the Issue Date, subject to our eligibility rules and restrictions. See "Termination of Existing Benefits and Election of New Benefits" below for information pertaining to elections, termination and re-election of benefits. Please note that if you terminate a living benefit and elect a new living benefit, you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elected based on your Account Value as of the date the new benefit becomes active. We reserve the right to waive, change and/or further limit the election frequency in the future. Termination of the Benefit You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election may apply. The benefit automatically 116 terminates: (i) if upon the death of the first Designated Life, the surviving Designated Life opts to take the death benefit under the Annuity (thus, the benefit does not terminate solely because of the death of the first Designated Life), (ii) upon the death of the second Designated Life, (iii) upon your termination of the benefit, (iv) upon your surrender of the Annuity, (v) upon your election to begin receiving annuity payments (although if you have elected to take annuity payments in the form of the Annual Income Amount, we will continue to pay the Annual Income Amount), (vi) if both the Account Value and Annual Income Amount equal zero, or (vii) if you cease to meet our requirements as described in "Election of and Designations under the Benefit". Upon termination of Spousal Highest Daily Lifetime 7 Plus other than upon death of a Designated Life, we impose any accrued fee for the benefit (i.e., the fee for the pro-rated portion of the year since the fee was last assessed), and thereafter we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the AST Investment Grade Bond Portfolio Sub-account (as defined below) to your variable investment options based on your existing allocation instructions or (in the absence of such instruction) pro rata (i.e. in the same proportion as the current balances in your variable investment options). How Spousal Highest Daily Lifetime 7 Plus Transfers Account Value between Your Permitted Sub-accounts and the AST Investment Grade Bond Sub-account See "How Highest Daily Lifetime 7 Plus Transfers Account Value Between Your Permitted Sub-accounts and the AST Investment Grade Bond Sub-account" in this Prospectus for information regarding this component of the benefit. Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the required minimum distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that required minimum distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as required minimum distribution provisions under the tax law. Please note, however, that any withdrawal (except the Non-Lifetime Withdrawal) you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive the Return of Principal Guarantee and the guaranteed amount described above under "Key Feature - Protected Withdrawal Value". Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. We will continue to treat the calculated amount that would have been a required minimum distribution if not for the suspension as the amount available for withdrawal if you so choose. As indicated, withdrawals made while this benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this benefit here. However, we do note that if you participate in Spousal Highest Daily Lifetime 7 Plus through a non-qualified annuity, as with all withdrawals, once all purchase payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Spousal Highest Daily Lifetime 7 Plus/SM/ with Beneficiary Income Option We offer an optional death benefit feature under Spousal Highest Daily Lifetime 7 Plus, the amount of which is linked to your Annual Income Amount . We refer to this optional death benefit as the Beneficiary Income Option or BIO. This version is only being made available in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. You may choose Spousal Highest Daily Lifetime 7 Plus with or without also selecting the Beneficiary Income Option death benefit. However, you may not elect the Beneficiary Income Option without Spousal Highest Daily Lifetime 7 Plus and you must elect the Beneficiary Income Option death benefit at the time you elect Spousal Highest Daily Lifetime 7 Plus. If you elect Spousal Highest Daily Lifetime 7 Plus without the Beneficiary Income Option and would like to add the feature later, you must terminate the Spousal Highest Daily Lifetime 7 Plus benefit and elect the Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option (subject to availability and benefit re-election provisions). Please note that if you terminate Spousal Highest Daily Lifetime 7 Plus and elect the Spousal Highest Daily Lifetime 7 Plus with BIO you lose the guarantees that you had accumulated under your existing benefit and will begin the new guarantees under the new benefit you elect based on your Account Value as of the date the new benefit becomes active. As long as your Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this benefit. 117 If you elect the Beneficiary Income Option death benefit, you may not elect any other optional benefit. You may elect the Beneficiary Income Option death benefit so long as each Designated Life is no older than age 75 at the time of election and the Spousal Highest Daily Lifetime 7 Plus age requirements are met. This death benefit is not transferable in the event of a divorce, nor may the benefit be split in accordance with any divorce proceedings or similar instrument of separation. If you choose the Spousal Highest Daily Lifetime 7 Plus with BIO, the maximum charge is 2.00% of the greater of Account Value and the Protected Withdrawal Value ("PWV") annually. The current charge is 1.10% annually of the greater of Account Value and the PWV. We deduct this charge at the end of each benefit quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.275% of the greater of the prior day's Account Value or the prior day's Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts, including the AST Investment Grade Bond Sub-account. Because the fee for this benefit is based on the greater of the Account Value or the Protected Withdrawal Value, the fee for Spousal Highest Daily Lifetime 7 Plus with the Beneficiary Income Option may be greater than it would have been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described below. For purposes of this optional death benefit, we calculate the Annual Income Amount and Protected Withdrawal Value in the same manner that we do under Spousal Highest Daily Lifetime 7 Plus itself. However, we will stop determining the Periodic Value (as described above) on the earlier of your first Lifetime Withdrawal after the effective date of the benefit or the Tenth Anniversary Date. This means that under the Spousal Highest Daily Lifetime 7 Plus with BIO benefit you will not be eligible for the guaranteed minimum Periodic Values described above on the 20/th/ and 25/th/ Anniversary of the Benefit Effective Date. Upon the first death of a Designated Life, no amount is payable under the Beneficiary Income Option death benefit. Upon the second death of a Designated Life, we identify the following amounts: (a) the amount of the basic death benefit under the Annuity, (b) the Protected Withdrawal Value (less any credits associated with purchase payments applied within 12 months prior to the date of death), and (c) the Annual Income Amount. If there were no Lifetime Withdrawals prior to the date of death of the second Designated Life, then we calculate the Protected Withdrawal Value for purposes of this death benefit as of the date of death of the second Designated Life, and we calculate the Annual Income Amount as if there were a Lifetime Withdrawal on the date of death of the second Designated Life. If there were Lifetime Withdrawals prior to the date of death of the second Designated Life, then we set the Protected Withdrawal Value and Annual Income Amount for purposes of this death benefit as of the date that we receive due proof of death. If there is one beneficiary, he/she must choose to receive either the basic death benefit (in a lump sum or other permitted form of distribution) or the Beneficiary Income Option death benefit (in the form of annual payments of the Annual Income Amount - such payments may be annual or at other intervals that we permit). If there are multiple beneficiaries, each beneficiary is presented with the same choice. Thus, each beneficiary can choose to take his/her portion of either (a) the basic Death Benefit, or (b) the Beneficiary Income Option death benefit. In order to receive the Beneficiary Income Option Death Benefit, each beneficiary's share of the death benefit proceeds must be allocated as a percentage of the total death benefit to be paid. We allow a beneficiary who has opted to receive the Annual Income Amount to designate another beneficiary, who would receive any remaining payments upon the former beneficiary's death. Note also that the final payment, exhausting the Protected Withdrawal Value, may be less than the Annual Income Amount. Here is an example to illustrate how the death benefit may be paid: . Assume that (i) the basic death benefit is $50,000, the Protected Withdrawal Value is $100,000, and the Annual Income Amount is $5,000; (ii) there are two beneficiaries (the first designated to receive 75% of the death benefit and the second designated to receive 25% of the death benefit); (iii) the first beneficiary chooses to receive his/her portion of the death benefit in the form of the Annual Income Amount, and the second beneficiary chooses to receive his/her portion of the death benefit with reference to the basic death benefit. . Under those assumptions, the first beneficiary will be paid a pro-rated portion of the Annual Income Amount for 20 years (the 20 year pay out period is derived from the $5,000 Annual Income Amount, paid each year until it exhausts the entire $100,000 Protected Withdrawal Value). The pro-rated portion of the Annual Income Amount equal to $3,750 (i.e., the first beneficiary's 75% share multiplied by $5,000) is then paid each year for the 20 year period. Payment of $3,750 for 20 years results in total payments of $75,000 (i.e., the first beneficiary's 75% share of the $100,000 Protected Withdrawal Value). The second beneficiary would receive 25% of the basic death benefit amount (or $12,500). If you elect to terminate Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option, both Spousal Highest Daily Lifetime 7 Plus and that death benefit option will be terminated. You may not terminate the death benefit option without terminating the entire benefit. If you terminate Spousal Highest Daily Lifetime 7 Plus with Beneficiary Income Option, your ability to elect other optional living benefits will be affected as indicated in the "Election of and Designations under the Benefit" section. 118 DEATH BENEFIT WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT? The Annuity provides a Death Benefit during its accumulation period. If an Annuity is owned by one or more natural persons, the Death Benefit is payable upon the first death of an Owner. If an Annuity is owned by an entity, the Death Benefit is payable upon the Annuitant's death, if there is no Contingent Annuitant. Generally, if a Contingent Annuitant was designated before the Annuitant's death and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a Death Benefit will not be paid at that time. The person upon whose death the Death Benefit is paid is referred to below as the "decedent." BASIC DEATH BENEFIT The Annuity provides a basic Death Benefit at no additional charge. The Insurance Charge we deduct daily from your Account Value allocated to the Sub-accounts is used, in part, to pay us for the risk we assume in providing the basic Death Benefit guarantee under an Annuity. The Annuity also offers two different optional Death Benefits that can be purchased for an additional charge. The additional charge is deducted to compensate Prudential Annuities for providing increased insurance protection under the optional Death Benefits. Notwithstanding the additional protection provided under the optional Death Benefits, the additional cost has the impact of reducing the net performance of the investment options. In addition, under certain circumstances, your Death Benefit may be reduced by the amount of any Credits we applied to your purchase payments. (See "How are Credits Applied to My Account Value".) Considerations for Contingent Annuitants: We may allow the naming of a contingent annuitant when a Nonqualified Annuity contract is held by a pension plan or a tax favored retirement plan. In such a situation, the Annuity may no longer qualify for tax deferral where the Annuity contract continues after the death of the Annuitant. In some of our Annuities we allow for the naming of a co-annuitant, which also is used to mean the successor annuitant (and not another life used for measuring the duration of an annuity payment option). Like in the case of a contingent annuitant, the Annuity may no longer qualify for tax deferral where the contract continues after the death of the Annuitant. For Optimum XTra Annuities, the existing basic Death Benefit (for all decedent ages) is the greater of: . The sum of all purchase payments (not including any Credits) less the sum of all proportional withdrawals. . The sum of your Account Value in the Sub-accounts, the Benefit Fixed Rate Account and your Interim Value in the MVA Fixed Allocations (less the amount of any Credits applied within 12-months prior to the date of death). "Proportional withdrawals" are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. For example, a withdrawal of 50% of Account Value would be considered as a 50% reduction in Purchase Payments for purposes of calculating the basic Death Benefit. OPTIONAL DEATH BENEFITS Several optional Death Benefits are offered for purchase with your Annuity to provide an enhanced level of protection for your beneficiaries. Currently, these benefits are only offered in those jurisdictions where we have received regulatory approval and must be elected at the time that you purchase your Annuity. We may, at a later date, allow existing Annuity Owners to purchase an optional Death Benefit subject to our rules and any changes or restrictions in the benefits. The "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit may only be elected individually, and cannot be elected in combination with any other optional Death Benefit. If you elect Spousal Lifetime Five, Spousal Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime 7 Plus or the BIO feature of Highest Daily Lifetime Seven or Highest Daily Lifetime 7 Plus, you are not permitted to elect an optional Death Benefit. With respect to Optimum XTra, under certain circumstances, each Optional Death Benefit that you elect may be reduced by the amount of Credits applied to your purchase payments. Investment Restrictions may apply if you elect certain optional death benefits. Enhanced Beneficiary Protection Optional Death Benefit The Enhanced Beneficiary Protection Optional Death Benefit is no longer available for new elections. It provides additional amounts to your Beneficiary that may be used to offset federal and state taxes payable on any taxable gains in your Annuity at the time of your death. Whether this benefit is appropriate for you may depend on your particular circumstances, including other financial resources that may be available to your Beneficiary to pay taxes on your Annuity should you die during the accumulation period. No benefit is payable if death occurs on or after the Annuity Date. The Enhanced Beneficiary Protection Optional Death Benefit provided a benefit payable in addition to the basic Death Benefit and certain other optional death benefits you may elect in conjunction with this benefit. If the Annuity has one Owner, the Owner had to be age 75 or less at the time the benefit is purchased. If an Annuity has joint Owners, the oldest Owner had to be age 75 or less. If an Annuity is owned by an entity, the Annuitant had to be age 75 or less. 119 Calculation Of Enhanced Beneficiary Protection Optional Death Benefit If you purchase the Enhanced Beneficiary Protection Optional Death Benefit, the Death Benefit is calculated as follows: 1. the basic Death Benefit described above; PLUS 2. 40% of your "Growth" under an Annuity, as defined below. "Growth" means the sum of your Account Value in the Sub-accounts and your Interim Value in the MVA Fixed Allocations, minus the total of all Purchase Payments (less the amount of any Credits applied within 12-months prior to the date of death, with respect to Optimum XTra) reduced by the sum of all proportional withdrawals. "Proportional withdrawals" are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. For example, a withdrawal of 50% of Account Value would be considered as a 50% reduction in purchase payments. The Enhanced Beneficiary Protection Optional Death Benefit is subject to a maximum of 100% of all purchase payments applied to an Annuity at least 12 months prior to the death of the decedent that triggers the payment of the Death Benefit. The Enhanced Beneficiary Protection Optional Death Benefit was offered in those jurisdictions where we received regulatory approval. Please refer to the section entitled "Tax Considerations" for a discussion of special tax considerations for purchasers of this benefit. The Enhanced Beneficiary Protection Death Benefit was not available if you elected the "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit or the Spousal Lifetime Five Income Benefit, Spousal Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime 7 Plus or the BIO feature. See Appendix B for examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated. Highest Anniversary Value Death Benefit ("HAV") If an Annuity has one Owner, the Owner must be age 79 or less at the time the Highest Anniversary Value Optional Death Benefit is purchased. If an Annuity has joint Owners, the oldest Owner must be age 79 or less. If an Annuity is owned by an entity, the Annuitant must be age 79 or less. Certain of the Portfolios offered as Sub-accounts under the Annuity are not available if you elect the Highest Anniversary Value Death Benefit. Calculation of Highest Anniversary Value Death Benefit The HAV Death Benefit depends on whether death occurs before or after the Death Benefit Target Date. If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above; and 2. the Highest Anniversary Value as of the Owner's date of death. If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above; and 2. the Highest Anniversary Value on the Death Benefit Target Date plus the sum of all purchase payments (including any Credits applied to such purchase payments more than twelve (12) months prior to date of death) less the sum of all proportional withdrawals since the Death Benefit Target Date. The amount determined by this calculation is increased by any purchase payments received after the Owner's date of death and decreased by any proportional withdrawals since such date. The Highest Anniversary Value Death Benefit described above is currently being offered in those jurisdictions where we have received regulatory approval. The Highest Anniversary Value Death Benefit is not available if you have elected "Combination 5% Roll-up and Highest Anniversary Value" or the "Highest Daily Value" Death Benefit. It is also not available with Spousal Lifetime Five, Spousal Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime 7 Plus or the BIO feature. 120 Please refer to the definition of Death Benefit Target Date below. This death benefit may not be an appropriate feature where the Owner's age is near the age specified in the Death Benefit Target Date. This is because the benefit may not have the same potential for growth as it otherwise would, since there will be fewer contract anniversaries before the death benefit target date is reached. The death benefit target date under this death benefit is earlier than the death benefit target date under the Combination 5% Roll-up and Highest Anniversary Value Death Benefit for Owners who are age 76 or older when an Annuity is issued, which may result in a lower value on the death benefit, since there will be fewer contract anniversaries before the death benefit target date is reached. See Appendix B for examples of how the Highest Anniversary Value Death Benefit is calculated. Combination 5% Roll-up and Highest Anniversary Value Death Benefit If an Annuity has one Owner, the Owner must be age 79 or less at the time the Combination 5% Roll-up and HAV Optional Death Benefit is purchased. If an Annuity has joint Owners, the oldest Owner must be age 79 or less. If the Annuity is owned by an entity, the Annuitant must be age 79 or less. Certain Portfolios offered as Sub-accounts under an Annuity are not available if you elect the Combination 5% Roll-up and HAV Death Benefit. If you elect this benefit, you must allocate your Account Value in accordance with the then permitted and available option(s). In addition, we reserve the right to require you to use certain asset allocation model(s) if you elect this Death Benefit. Calculation of the Combination 5% Roll-up and Highest Anniversary Value Death Benefit The Combination 5% Roll-up and HAV Death Benefit equals the greatest of: 1. the basic Death Benefit described above; and 2. the Highest Anniversary Value Death Benefit described above; and 3. 5% Roll-up described below. Thecalculation of the 5% Roll-up depends on whether death occurs before or after the Death Benefit Target Date. If the Owner dies before the Death Benefit Target Date the 5% Roll up is equal to: . all purchase payments (including any Credits applied to such purchase payments more than twelve (12) months prior to date of death) increasing at an annual effective interest rate of 5% starting on the date that each Purchase Payment is made and ending on the Owner's date of death; MINUS . the sum of all withdrawals, dollar for dollar up to 5% of the Death Benefit's value as of the prior contract anniversary (or Issue Date if the withdrawal is in the first contract year). Any withdrawals in excess of the 5% dollar for dollar limit are proportional. If the Owner dies on or after the Death Benefit Target Date the 5% Roll-up is equal to: . the 5% Roll-up value as of the Death Benefit Target Date increased by total purchase payments (including any Credits applied to such purchase payments more than twelve (12) months prior to date of death) made after the Death Benefit Target Date; MINUS . the sum of all withdrawals which reduce the 5% Roll-up proportionally. The amounts calculated in Items 1, 2 and 3 above (before, on or after the Death Benefit Target Date) may be reduced by any Credits under certain circumstances. Please refer to the definitions of Death Benefit Target Date below. This Death Benefit may not be an appropriate feature where the Owner's age is near the age specified in the Death Benefit Target Date. This is because the benefit may not have the same potential for growth as it otherwise would, since there will be fewer Annuity anniversaries before the Death Benefit Target Date is reached. The "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit described above is currently being offered in those jurisdictions where we have received regulatory approval. The "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit is not available if you elect any other optional Death Benefit or elect Spousal Lifetime Five, Spousal Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime 7 Plus or the BIO feature. 121 See Appendix B for examples of how the "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit is calculated. Key Terms Used with the Highest Anniversary Value Death Benefit and the Combination 5% Roll-up and Highest Anniversary Value Death Benefit: . The Death Benefit Target Date for the Highest Anniversary Value Death Benefit is the contract anniversary on or after the 80/th/ birthday of the current Owner, the oldest of either joint Owner or the Annuitant, if entity owned. . The Death Benefit Target Date for the Combination 5% Roll-up and HAV Death Benefit is the later of the contract anniversary on or after the 80/th/ birthday of the current Owner, the oldest of either joint Owner or the Annuitant, if entity owned, or five years after the Issue Date of an Annuity. . The Highest Anniversary Value equals the highest of all previous "Anniversary Values" less proportional withdrawals since such anniversary and plus any Purchase Payments (including any Credits applied to such Purchase Payments more than twelve (12) months prior to the date of death) since such anniversary. . The Anniversary Value is the Account Value in the Sub-accounts plus the Interim Value in any MVA Fixed Allocations as of each anniversary of the Issue Date of an Annuity. The Anniversary Value on the Issue Date is equal to your purchase payment. (including any Credits applied to such purchase payments more than twelve (12) months prior to the date of death). . Proportional Withdrawals are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. Proportional withdrawals result in a reduction to the Highest Anniversary Value or 5% Roll-up value by reducing such value in the same proportion as the Account Value was reduced by the withdrawal as of the date the withdrawal occurred. For example, if your Highest Anniversary Value or 5% Roll-up value is $125,000 and you subsequently withdraw $10,000 at a time when your Account Value is equal to $100,000 (a 10% reduction), when calculating the optional Death Benefit we will reduce your Highest Anniversary Value ($ 125,000) by 10% or $12,500. Highest Daily Value Death Benefit ("HDV") The Highest Daily Value Death Benefit is no longer available for new elections. If an Annuity has one Owner, the Owner must have been age 79 or less at the time the Highest Daily Value Death Benefit was elected. If an Annuity has joint Owners, the older Owner must have been age 79 or less. If there are joint Owners, death of the Owner refers to the first to die of the joint Owners. If an Annuity is owned by an entity, the Annuitant must have been age 79 or less and death of the Owner refers to the death of the Annuitant. If you elected this benefit, you must allocate your Account Value in accordance with the permitted and available option(s) with this benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement would apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly-adopted requirements. Subsequent to any change in requirements, transfers of Account Value and allocation of additional purchase payments may be subject to the new investment limitations. The HDV Death Benefit depends on whether death occurs before or after the Death Benefit Target Date (see the definitions below). If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above (including any Credits applied to such purchase payments more than twelve (12) months prior to the date of death); and 2. the HDV as of the Owner's date of death. If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above; and 2. the HDV on the Death Benefit Target Date plus the sum of all purchase payments (including any Credits applied to such purchase payments more than twelve (12) months prior to the date of death) less the sum of all proportional withdrawals since the Death Benefit Target Date. The amount determined by this calculation is increased by any purchase payments received after the Owner's date of death and decreased by any proportional withdrawals since such date. 122 The Highest Daily Value Death Benefit described above was offered in those jurisdictions where we received regulatory approval. The Highest Daily Value Death Benefit was not available if you elected the Guaranteed Return Option Plus 2008, Highest Daily GRO, Spousal Lifetime Five, Highest Daily Lifetime Five, Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime Seven, the Highest Daily Lifetime 7 Plus benefits, the "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit, or the Highest Anniversary Value Death Benefit. Key Terms Used with the Highest Daily Value Death Benefit: . The Death Benefit Target Date for the Highest Daily Value Death Benefit is the later of an Annuity anniversary on or after the 80/th/ birthday of the current Owner, or the older of either the joint Owner or the Annuitant, if entity owned, or five years after the Issue Date of an Annuity. . The Highest Daily Value equals the highest of all previous "Daily Values" less proportional withdrawals since such date and plus any purchase payments (plus associated Credits) since such date. . The Daily Value is the Account Value as of the end of each Valuation Day. The Daily Value on the Issue Date is equal to your Purchase Payment (plus associated Credits applied more than twelve (12) months prior to the date of death). . Proportional Withdrawals are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. Proportional withdrawals result in a reduction to the Highest Daily Value by reducing such value in the same proportion as the Account Value was reduced by the withdrawal as of the date the withdrawal occurred. For example, if your Highest Daily Value is $125,000 and you subsequently withdraw $10,000 at a time when your Account Value is equal to $100,000 (a 10% reduction), when calculating the optional Death Benefit we will reduce your Highest Daily Value ($125,000) by 10% or $12,500. Please see Appendix B to this prospectus for a hypothetical example of how the HDV Death Benefit is calculated. Annuities with Joint Owners For Annuities with joint Owners, the Death Benefits are calculated as shown above except that the age of the oldest of the joint Owners is used to determine the Death Benefit Target Date. NOTE: If you and your spouse own your Annuity jointly, we will pay the Death Benefit to the Beneficiary. If the sole primary Beneficiary is the surviving spouse, then the surviving spouse can elect to assume ownership of your Annuity and continue the Annuity instead of receiving the Death Benefit. Annuities Owned by Entities For Annuities owned by an entity, the Death Benefits are calculated as shown above except that the age of the Annuitant is used to determine the Death Benefit Target Date. Payment of the Death Benefit is based on the death of the Annuitant (or Contingent Annuitant, if applicable). Can I Terminate the Optional Death Benefits? Do the Optional Death Benefits Terminate under other Circumstances? You can terminate the Enhanced Beneficiary Protection Death Benefit and the Highest Anniversary Value Death Benefit at any time. The "Combination 5% Roll-up and HAV Death Benefit" and the HDV Death Benefit may not be terminated once elected. The optional Death Benefits will terminate automatically on the Annuity Date. We may also terminate any optional Death Benefit if necessary to comply with our interpretation of the Code and applicable regulations. For jointly owned Annuities, the optional death benefits are payable upon the first death of either Owner and therefore terminate and do not continue if a surviving spouse continues the Annuity. Where an Annuity is structured so that it is owned by a grantor trust but the annuitant is not the grantor, then the Annuity is required to terminate upon the death of the grantor if the grantor pre-deceases the annuitant under Section 72(s) of the Code. Under this circumstance, the Account Value will be paid to the beneficiary and it is not eligible for the death benefit provided under the Annuity. What are the Charges for the Optional Death Benefits? For elections of the Highest Anniversary Value Death Benefit and the Combination 5% Roll-Up and HAV Death Benefit made on or after May 1, 2009, we impose a charge equal to 0.40% and 0.80%, respectively, per year of the average daily net assets of the Sub-accounts. For elections of the Highest Anniversary Value Death Benefit and the Combination 5% Roll-Up and HAV Death Benefit that were made prior to May 1, 2009, we impose a charge equal to 0.25% and 0.50%, respectively, per year of the average daily net assets of the Sub-accounts. We deduct a charge equal to 0.25% per year of the average daily net assets of the Sub-accounts for the Enhanced Beneficiary Protection Death Benefit and 0.50% per year of the average daily net assets of the Sub-accounts for the HDV Death Benefit. We deduct the charge for each of these benefits to compensate Prudential Annuities for providing increased insurance protection under the optional Death Benefits. The additional annual charge is deducted daily against your Account Value allocated to the Sub-accounts. Please refer to the section entitled "Tax Considerations" for additional considerations in relation to the optional Death Benefit. 123 PRUDENTIAL ANNUITIES' ANNUITY REWARDS What is the Annuity Rewards Benefit? The Annuity Rewards Benefit offers Owners the ability to capture any market gains since the Issue Date of their Annuity as an enhancement to their current Death Benefit so their beneficiaries will not receive less than an Annuity's value as of the effective date of the benefit. Under the Annuity Rewards Benefit, Prudential Annuities guarantees that the Death Benefit will not be less than: . your Account Value in the Sub-accounts plus the Interim Value in any MVA Fixed Allocations as of the effective date of the benefit . MINUS any proportional withdrawals following the effective date of the benefit . PLUS any additional purchase payments applied to your Annuity following the effective date of the benefit. The Annuity Rewards Death Benefit enhancement does not affect the calculation of the basic Death Benefit or any Optional Death Benefits available under an Annuity. If the Death Benefit amount payable under your Annuity's basic Death Benefit or any Optional Death Benefits you purchase is greater than the enhanced Death Benefit under the Annuity Rewards Benefit on the date the Death Benefit is calculated, your beneficiary will receive the higher amount. Who is Eligible for the Annuity Rewards Benefit? Owners can elect the Annuity Rewards Death Benefit enhancement when the original CDSC period is over. However, the Account Value on the date that the Annuity Rewards benefit is effective, must be greater than the amount that would be payable to the Beneficiary under the Death Benefit (including any amounts payable under any Optional Death Benefit then in effect). The effective date must occur before annuity payments begin. There can only be one effective date for the Annuity Rewards Death Benefit enhancement. There is no additional charge for electing the Annuity Rewards Death Benefit enhancement. PAYMENT OF DEATH BENEFITS Alternative Death Benefit Payment Options - Annuities owned by Individuals (not associated with Tax-Favored Plans) Except in the case of a spousal assumption as described below, upon your death, certain distributions must be made under the Annuity. The required distributions depend on whether you die before you start taking annuity payments under the Annuity or after you start taking annuity payments under the Annuity. If you die on or after the Annuity Date, the remaining portion of the interest in the Annuity must be distributed at least as rapidly as under the method of distribution being used as of the date of death. In the event of your death before the Annuity Date, the Death Benefit must be distributed: . within five (5) years of the date of death; or . as a series of payments not extending beyond the life expectancy of the beneficiary or over the life of the beneficiary. Payments under this option must begin within one year of the date of death. Unless you have made an election prior to Death Benefit proceeds becoming due, a beneficiary can elect to receive the Death Benefit proceeds under the Beneficiary Continuation Option as described below in the section entitled "Beneficiary Continuation Option," as a series of required distributions. Upon our receipt of proof of death, we will send to the beneficiary materials that list these payment options. Alternative Death Benefit Payment Options - Annuities held by Tax-Favored Plans The Code provides for alternative death benefit payment options when an Annuity is used as an IRA, 403(b) or other "qualified investment" that requires minimum distributions. Upon your death under an IRA, 403(b) or other "qualified investment", the designated Beneficiary may generally elect to continue the Annuity and receive Required Minimum Distributions under the Annuity instead of receiving the death benefit in a single payment. The available payment options will depend on whether you die before the date Required Minimum Distributions under the Code were to begin, whether you have named a designated beneficiary and whether the Beneficiary is your surviving spouse. . If you die after a designated beneficiary has been named, the death benefit must be distributed by December 31/st/ of the year including the five year anniversary of the date of death, or as periodic payments not extending beyond the life expectancy of the designated beneficiary (provided such payments begin by December 31/st/ of the year following the year of death). However, if your surviving spouse is the beneficiary, the death benefit can be paid out over the life expectancy 124 of your spouse with such payments beginning no later than December 31/st/ of the year following the year of death or December 31/st/ of the year in which you would have reached age 70 1/2, which ever is later. Additionally, if the contract is payable to (or for the benefit of) your surviving spouse, that portion of the Annuity may be continued with your spouse as the owner. Note that the Worker, Retiree and Employer Recovery Act of 2008 suspended Required Minimum Distributions for 2009. This means that if your beneficiary receives payment as periodic payments, no payment is required in 2009. If your beneficiary elects to receive full distribution by December 31/st/ of the year including the five year anniversary of the date of death, 2009 shall not be included in the five year requirement period. This effectively extends this period to December 31/st/ of the year including the six year anniversary date of death. . If you die before a designated beneficiary is named and before the date Required Minimum Distributions must begin under the Code, the death benefit must be paid out by December 31/st/ of the year including the five year anniversary of the date of death. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31/st/ of the year following the year of death, such contract is deemed to have no designated beneficiary. For this distribution requirement also, 2009 shall not be included in the five year requirement period. . If you die before a designated beneficiary is named and after the date Required Minimum Distributions must begin under the Code, the death benefit must be paid out at least as rapidly as under the method then in effect. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31/st/ of the year following the year of death, such contract is deemed to have no designated beneficiary. A beneficiary has the flexibility to take out more each year than mandated under the Required Minimum Distribution rules. Until withdrawn, amounts in an IRA, 403(b) or other "qualified investment" continue to be tax deferred. Amounts withdrawn each year, including amounts that are required to be withdrawn under the Required Minimum Distribution rules, are subject to tax. You may wish to consult a professional tax advisor for tax advice as to your particular situation. For a Roth IRA, if death occurs before the entire interest is distributed, the death benefit must be distributed under the same rules applied to IRAs where death occurs before the date Required Minimum Distributions must begin under the Code. The tax consequences to the beneficiary may vary among the different death benefit payment options. See the Tax Considerations section of this prospectus, and consult your tax advisor. Beneficiary Continuation Option Instead of receiving the death benefit in a single payment, or under an Annuity Option, a beneficiary may take the death benefit under an alternative death benefit payment option, as provided by the Code and described above under the sections entitled "Payment of Death Benefits" and "Alternative Death Benefit Payment Options - Annuities Held by Tax-Favored Plans." This "Beneficiary Continuation Option" is described below and is available for both qualified Annuities (i.e. annuities sold to an IRA, Roth IRA, SEP IRA, or 403(b)) and non-qualified Annuities. Under the Beneficiary Continuation Option: . The beneficiary must apply at least $15,000 to the Beneficiary Continuation Option. . The Owner's Annuity will be continued in the Owner's name, for the benefit of the beneficiary. . Beginning on the date we receive an election by the beneficiary to take the death benefit in a form other than a lump sum, the beneficiary will incur a Settlement Service Charge which is an annual charge assessed on a daily basis against the average assets allocated to the Sub-accounts. For non-qualified Annuities the charge is 1.00% per year, and for qualified Annuities the charge is 1.40% per year. . Beginning on the date we receive an election by the beneficiary to take the death benefit in a form other than a lump sum, the beneficiary will incur an annual maintenance fee equal to the lesser of $30 or 2% of Account Value. For non-qualified annuities, the fee will only apply if the Account Value is less than $25,000 at the time the fee is assessed. The fee will not apply if it is assessed 30 days prior to a surrender request. . The initial Account Value will be equal to any death benefit (including any optional death benefit) that would have been payable to the beneficiary if the beneficiary had taken a lump sum distribution. . The available Sub-accounts will be among those available to the Owner at the time of death, however certain Sub-Accounts may not be available. . The beneficiary may request transfers among Sub-accounts, subject to the same limitations and restrictions that applied to the Owner. Transfers in excess of 20 per year will incur a $10 transfer fee. . No Fixed Allocations or fixed interest rate options will be offered for the non-qualified Beneficiary Continuation Options. However, for qualified Annuities, the Fixed Allocations will be those offered at the time the Beneficiary Continuation Option is elected. . No additional purchase payments can be applied to the Annuity. . The basic death benefit and any optional benefits elected by the Owner will no longer apply to the beneficiary. 125 . The beneficiary can request a withdrawal of all or a portion of the Account Value at any time, unless the Beneficiary Continuation Option was the payout predetermined by the Owner and the Owner restricted the beneficiary's withdrawal rights. . Withdrawals are not subject to CDSC. . Upon the death of the beneficiary, any remaining Account Value will be paid in a lump sum to the person(s) named by the beneficiary (successor), unless the successor chooses to continue receiving payments. Currently only Investment Options corresponding to Portfolios of the Advanced Series Trust are available under the Beneficiary Continuation Option. In addition to the materials referenced above, the Beneficiary will be provided with a prospectus and a settlement agreement describing the Beneficiary Continuation Option. We may pay compensation to the broker-dealer of record on the Annuity based on amounts held in the Beneficiary Continuation Option. Please contact us for additional information on the availability, restrictions and limitations that will apply to a beneficiary under the Beneficiary Continuation Option. Spousal Assumption of Annuity You may name your spouse as your beneficiary. If you and your spouse own your Annuity jointly, we assume that the sole primary beneficiary will be the surviving spouse unless you elect an alternative Beneficiary Designation. Unless you elect an alternative Beneficiary Designation, the spouse beneficiary may elect to assume ownership of the Annuity instead of taking the Death Benefit payment. Any Death Benefit (including any optional Death Benefits) that would have been payable to the beneficiary will become the new Account Value as of the date we receive due proof of death and any required proof of a spousal relationship. As of the date the assumption is effective, the surviving spouse will have all the rights and benefits that would be available under the Annuity to a new purchaser of the same attained age. For purposes of determining any future Death Benefit for the surviving spouse, the new Account Value will be considered as the initial Purchase Payment. No CDSC will apply to the new Account Value. However, any additional purchase payments applied after the date the assumption is effective will be subject to all provisions of the Annuity, including any CDSC that may apply to the additional purchase payments. See the section entitled "Managing Your Annuity" - "Spousal Designations" and "Contingent Annuitant" for a discussion of the treatment of a spousal Contingent Annuitant in the case of the death of the Annuitant in an Annuity owned by a Custodial Account. Are there any Exceptions to these Rules for Paying the Death Benefit? Yes, there are exceptions that apply no matter how your Death Benefit is calculated. There are exceptions to the Death Benefit if the decedent was not the Owner or Annuitant as of the Issue Date (or within 60 days thereafter) and did not become the Owner or Annuitant due to the prior Owner's or Annuitant's death. Any Death Benefit (including any optional Death Benefit) that applies will be suspended for a two-year period from the date he or she first became Owner or Annuitant. After the two-year suspension period is completed, the Death Benefit is the same as if this person had been an Owner or Annuitant on the Issue Date. When do you determine the Death Benefit? We determine the amount of the Death Benefit as of the date we receive "due proof of death" (and in certain limited circumstances as of the date of death), any instructions we require to determine the method of payment and any other written representations we require to determine the proper payment of the Death Benefit. "Due proof of death" may include a certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death or other satisfactory proof of death. Upon our receipt of "due proof of death" we automatically transfer the Death Benefit to the AST Money Market Sub-account until we further determine the universe of eligible Beneficiaries. Once the universe of eligible Beneficiaries has been determined each eligible Beneficiary may allocate his or her eligible share of the Death Benefit to an eligible annuity payment option. Each Beneficiary must make an election as to the method they wish to receive their portion of the Death Benefit. Absent an election of a Death Benefit payment method, no Death Benefit can be paid to the Beneficiary. We may require written acknowledgment of all named Beneficiaries before we can pay the Death Benefit. During the period from the date of death until we receive all required paper work, the amount of the Death Benefit may be subject to market fluctuations. 126 VALUING YOUR INVESTMENT HOW IS MY ACCOUNT VALUE DETERMINED? During the accumulation period, your Annuity has an Account Value. The Account Value is determined separately for each Sub-account allocation and for each Fixed Allocation. The Account Value is the sum of the values of each Sub-account allocation and the value of each Fixed Allocation. For Annuities with a Highest Daily Lifetime Five election, Account Value also includes the value of any allocation to the Benefit Fixed Rate Account. See the "Living Benefits - Highest Daily Lifetime Five" section of the Prospectus for a description of the Benefit Fixed Rate Account. The Account Value does not reflect any CDSC that may apply to a withdrawal or surrender. The Account Value includes any Credits we applied to your Purchase Payments which we are entitled to take back under certain circumstances. When determining the Account Value on a day more than 30 days prior to an MVA Fixed Allocation's Maturity Date, the Account Value may include any Market Value Adjustment that would apply to an MVA Fixed Allocation (if withdrawn or transferred) on that day. WHAT IS THE SURRENDER VALUE OF MY ANNUITY? The Surrender Value of your Annuity is the value available to you on any day during the accumulation period. The Surrender Value is defined under "Glossary of Terms" above. HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS? When you allocate Account Value to a Sub-account, you are purchasing units of the Sub-account. Each Sub-account invests exclusively in shares of an underlying Portfolio. The value of the Units fluctuates with the market fluctuations of the Portfolios. The value of the Units also reflects the daily accrual for the Insurance Charge, the Distribution Charge (if applicable), and if you elected one or more optional benefits whose annual charge is deducted daily, the additional charge made for such benefits. There may be several different Unit Prices for each Sub-account to reflect the Insurance Charge, any Distribution Charge and the charges for any optional benefits. The Unit Price for the Units you purchase will be based on the total charges for the benefits that apply to your Annuity. See the section entitled "What Happens to My Units When There is a Change in Daily Asset-Based Charges?" for a detailed discussion of how Units are purchased and redeemed to reflect changes in the daily charges that apply to your Annuity. Each Valuation Day, we determine the price for a Unit of each Sub-account, called the "Unit Price." The Unit Price is used for determining the value of transactions involving Units of the Sub-accounts. We determine the number of Units involved in any transaction by dividing the dollar value of the transaction by the Unit Price of the Sub-account as of the Valuation Day. Example Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the Sub-account. Assume that later, you wish to transfer $3,000 of your Account Value out of that Sub-account and into another Sub-account. On the Valuation Day you request the transfer, the Unit Price of the original Sub-account has increased to $16.79 and the Unit Price of the new Sub-account is $17.83. To transfer $3,000, we sell 178.677 Units at the current Unit Price, leaving you 158.477 Units. We then buy $3,000 of Units of the new Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of the new Sub-account. HOW DO YOU VALUE FIXED ALLOCATIONS? During the Guarantee Period, we use the concept of an Interim Value. The Interim Value can be calculated on any day and is equal to the initial value allocated to an MVA Fixed Allocation plus all interest credited to an MVA Fixed Allocation as of the date calculated. The Interim Value does not include the impact of any Market Value Adjustment. If you made any transfers or withdrawals from an MVA Fixed Allocation, the Interim Value will reflect the withdrawal of those amounts and any interest credited to those amounts before they were withdrawn. To determine the Account Value of an MVA Fixed Allocation on any day more than 30 days prior to its Maturity Date, we multiply the Account Value of the MVA Fixed Allocation times the Market Value Adjustment factor. WHEN DO YOU PROCESS AND VALUE TRANSACTIONS? Prudential Annuities is generally open to process financial transactions on those days that the New York Stock Exchange (NYSE) is open for trading. There may be circumstances where the NYSE does not open on a regularly scheduled date or time or closes at an earlier time than scheduled (normally 4:00 p.m. EST). Generally, financial transactions requested before the close of the NYSE which meet our requirements will be processed according to the value next determined following the close of business. Financial transactions requested on a non-Valuation Day or after the close of the NYSE will be processed based on the value next computed on the next Valuation Day. There may be circumstances when the opening or closing time of the NYSE is different than other major stock exchanges, such as NASDAQ or the American Stock Exchange. Under such circumstances, the closing time of the NYSE will be used when valuing and processing transactions. There may be circumstances where the NYSE is open, however, due to inclement weather, natural disaster or other circumstances beyond our control, our offices may be closed or our business processing capabilities may be restricted. Under those circumstances, your Account Value may fluctuate based on changes in the Unit Values, but you may not be able to transfer Account Value, or make a purchase or redemption request. 127 The NYSE is closed on the following nationally recognized holidays: New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. On those dates, we will not process any financial transactions involving purchase or redemption orders. Prudential Annuities will also not process financial transactions involving purchase or redemption orders or transfers on any day that: . trading on the NYSE is restricted; . an emergency as determined by the SEC, exists making redemption or valuation of securities held in the separate account impractical; or . the SEC, by order, permits the suspension or postponement for the protection of security holders. Initial Purchase Payments: We are required to allocate your initial Purchase Payment to the Sub-accounts within two (2) Valuation Days after we receive all of our requirements at our office to issue an Annuity. If we do not have all the required information to allow us to issue your Annuity, we may retain the Purchase Payment while we try to reach you or your representative to obtain all of our requirements. If we are unable to obtain all of our required information within five (5) Valuation Days, we are required to return the Purchase Payment to you at that time, unless you specifically consent to our retaining the Purchase Payment while we gather the required information. Once we obtain the required information, we will invest the Purchase Payment (and any associated Credits with respect to Optimum XTra) and issue an Annuity within two (2) Valuation Days. With respect to both your initial Purchase Payment and any subsequent Purchase Payment that is pending investment in our separate account, we may hold the amount temporarily in our general account and may earn interest on such amount. You will not be credited with interest during that period. Additional Purchase Payments: We will apply any additional Purchase Payments (and any associated Credit with respect to Optimum XTra) on the Valuation Day that we receive the Purchase Payment at our office with satisfactory allocation instructions. Scheduled Transactions: Scheduled transactions include transfers made in connection with dollar cost averaging, the asset allocation program, auto-rebalancing, systematic withdrawals, systematic investments, required minimum distributions, substantially equal periodic payments under Section 72(t) of the Code, or annuity payments. Scheduled transactions are processed and valued as of the date they are scheduled, unless the scheduled day is not a Valuation Day. In that case, the transaction will be processed and valued on the next Valuation Day, unless (with respect to required minimum distributions, substantially equal periodic payments under Section 72(t) of the Code, systematic withdrawals and annuity payments only), the next Valuation Day falls in the subsequent calendar year, in which case the transaction will be processed and valued on the prior Valuation Day. Unscheduled Transactions: "Unscheduled" transactions include any other non-scheduled transfers and requests for Partial Withdrawals or Free Withdrawals or Surrenders. Unscheduled transactions are processed and valued as of the Valuation Day we receive the request at our Office and have all of the required information. We may postpone paying any amount for a full or partial surrender to authenticate the signature on a request. In the event that we postpone payment, the request will not be effective until we have validated the signature on the request to our satisfaction. Once accepted, the request for a full or partial surrender will be paid within seven days. Medically-Related Surrenders & Death Benefits: Medically-related surrender requests and Death Benefit claims require our review and evaluation before processing. We price such transactions as of the date we receive at our Office all supporting documentation we require for such transactions and that are satisfactory to us. We are generally required by law to pay any surrender request or death benefit claims from the Separate Account within 7 days of our receipt of your request in good order. WHAT HAPPENS TO MY UNITS WHEN THERE IS A CHANGE IN DAILY ASSET-BASED CHARGES? Termination of Optional Benefits: Except for the Guaranteed Minimum Income Benefit, generally the "Combination 5% Roll-up and Highest Anniversary Value Death Benefit" and the Highest Daily Value Death Benefit, which cannot be terminated by the owner once elected, if any optional benefit terminates, we will no longer deduct the charge we apply to purchase the optional benefit. Certain optional benefits may be added after you have purchased your Annuity. On the date a charge no longer applies or a charge for an optional benefit begins to be deducted, your Annuity will become subject to a different daily asset-based charge. This change may result in the number of Units attributed to your Annuity and the value of those Units being different than it was before the change; however, the adjustment in the number of Units and Unit Price will not affect your Account Value (although the change in charges that are deducted will affect your Account Value). 128 TAX CONSIDERATIONS The tax considerations associated with an annuity vary depending on whether the contract is (i) owned by an individual or non-natural person, and not associated with a tax-favored retirement plan, or (ii) held under a tax-favored retirement plan. We discuss the tax considerations for these categories of contracts below. The discussion is general in nature and describes only federal income tax law (not state or other tax laws). It is based on current law and interpretations, which may change. The information provided is not intended as tax advice. You should consult with a qualified tax advisor for complete information and advice. References to purchase payments below relate to your cost basis in your contract. Generally, your cost basis in a contract not associated with a tax-favored retirement plan is the amount you pay into your contract, or into annuities exchanged for your contract, on an after-tax basis less any withdrawals of such payments. Cost basis for a tax-favored retirement plan is provided only in limited circumstances, such as for contributions to a Roth IRA or nondeductible IRA contributions. The discussion includes a description of certain spousal rights under the contract, and our administration of such spousal rights and related tax reporting accords with our understanding of the Defense of Marriage Act (which defines a "marriage" as a legal union between a man and a woman and a "spouse" as a person of the opposite sex). Depending on the state in which your annuity is issued, we may offer certain spousal benefits to civil union couples or same-sex marriages. You should be aware, however, that federal tax law does not recognize civil unions or same-sex marriages. Therefore, we cannot permit a civil union partner or same-sex spouse to continue the annuity upon the death of the first partner under the annuity's "spousal continuance" provision. Civil union couples and same-sex marriage spouses should consider that limitation before selecting a spousal benefit under the annuity. NONQUALIFIED ANNUITY CONTRACTS In general, as used in this prospectus, a Nonqualified Annuity is owned by an individual or non-natural person and is not associated with a tax-favored retirement plan. Taxes Payable by You We believe this annuity is an annuity contract for tax purposes. Accordingly, as a general rule, you should not pay any tax until you receive money under the contract. Generally, annuity contracts issued by the same company (and affiliates) to you during the same calendar year must be treated as one annuity contract for purposes of determining the amount subject to tax under the rules described below. Charges for investment advisory fees that are taken from the contract are treated as a partial withdrawal from the contract and will be reported as such to the contract owner. It is possible that the Internal Revenue Service (IRS) would assert that some or all of the charges for the optional benefits under the contract should be treated for federal income tax purposes as a partial withdrawal from the contract. If this were the case, the charge for this benefit could be deemed a withdrawal and treated as taxable to the extent there are earnings in the contract. Additionally, for owners under age 59 1/2, the taxable income attributable to the charge for the benefit could be subject to a tax penalty. If the IRS determines that the charges for one or more benefits under the contract are taxable withdrawals, then the sole or surviving owner will be provided with a notice from us describing available alternatives regarding these benefits. You must commence annuity payments no later than the first day of the calendar month next following the maximum Annuity Date for your contract. For some of our contracts, you are able to choose to defer the Annuity Date beyond the default Annuity Date described in your contract. However, the IRS may not then consider your contract to be an annuity under the tax law. Taxes on Withdrawals and Surrender If you make a withdrawal from your contract or surrender it before annuity payments begin, the amount you receive will be taxed as ordinary income, rather than as return of purchase payments, until all gain has been withdrawn. Once all gain has been withdrawn, payments will be treated as a nontaxable return of purchase payments until all purchase payments have been returned. After all purchase payments are returned, all subsequent amounts will be taxed as ordinary income. You will generally be taxed on any withdrawals from the contract while you are alive even if the withdrawal is paid to someone else. Withdrawals under any of the optional living benefits or as a systematic payment are taxed under these rules. If you assign or pledge all or part of your contract as collateral for a loan, the part assigned generally will be treated as a withdrawal. If you transfer your contract for less than full consideration, such as by gift, you will also trigger tax on any gain in the contract. This rule does not apply if you transfer the contract to your spouse or under most circumstances if you transfer the contract incident to divorce. If you choose to receive payments under an interest payment option, or a beneficiary chooses to receive a death benefit under an interest payment option, that election will be treated, for tax purposes, as surrendering your annuity and will immediately subject any gain in the contract to income tax. Taxes on Annuity Payments A portion of each annuity payment you receive will be treated as a partial return of your purchase payments and will not be taxed. The remaining portion will be taxed as ordinary income. Generally, the nontaxable portion is determined by multiplying the 129 annuity payment you receive by a fraction, the numerator of which is your purchase payments (less any amounts previously received tax-free) and the denominator of which is the total expected payments under the contract. After the full amount of your purchase payments have been recovered tax-free, the full amount of the annuity payments will be taxable. If annuity payments stop due to the death of the annuitant before the full amount of your purchase payments have been recovered, a tax deduction may be allowed for the unrecovered amount. Please refer to your Annuity Contract for the maximum Annuity Date. Tax Penalty for Early Withdrawal from a Nonqualified Annuity Contract You may owe a 10% tax penalty on the taxable part of distributions received from your Nonqualified annuity contract before you attain age 59 1/2. Amounts are not subject to this tax penalty if: . the amount is paid on or after you reach age 59 1/2 or die; . the amount received is attributable to your becoming disabled; . generally the amount paid or received is in the form of substantially equal payments not less frequently than annually (please note that substantially equal payments must continue until the later of reaching age 59 1/2 or 5 years and modification of payments during that time period will result in retroactive application of the 10% tax penalty); or . the amount received is paid under an immediate annuity contract (in which annuity payments begin within one year of purchase). Other exceptions to this tax may apply. You should consult your tax advisor for further details. Special Rules in Relation to Tax-free Exchanges Under Section 1035 Section 1035 of the Internal Revenue Code of 1986, as amended (Code), permits certain tax-free exchanges of a life insurance, annuity or endowment contract for an annuity. Partial surrenders may be treated in the same way as tax-free 1035 exchanges of entire contracts, therefore avoiding current taxation of any gains in the contract as well as the 10% tax penalty on pre-age 59 1/2 withdrawals. The IRS has reserved the right to treat transactions it considers abusive as ineligible for this favorable partial 1035 exchange treatment. In Revenue Procedure 2008-24, the IRS has indicated that where there is a surrender or distribution from either the initial annuity contract or receiving annuity contract within 12 months of the date on which the partial exchange was completed, the transfer will retroactively be treated as a taxable distribution from the initial annuity contract and a contribution to the receiving annuity contract. Tax free exchange treatment will be retained if the subsequent surrender or distribution would be eligible for an exception to the 10% federal income tax penalty, other than the exceptions for substantially equal periodic payments or distributions under an immediate annuity. It is unclear how the IRS will treat a partial exchange from a life insurance, endowment, or annuity contract into an immediate annuity. As of the date of this prospectus, we will accept a partial 1035 exchange from a non-qualified annuity into an immediate annuity as a "tax-free" exchange for future tax reporting purposes, except to the extent that we, as a reporting and withholding agent, believe that we would be expected to deem the transaction to be abusive. However, some insurance companies may not recognize these partial surrenders as tax-free exchanges and may report them as taxable distributions to the extent of any gain distributed as well as subjecting the taxable portion of the distribution to the 10% tax penalty. We strongly urge you to discuss any transaction of this type with your tax advisor before proceeding with the transaction. If an annuity is purchased through a tax-free exchange of a life insurance, annuity or endowment contract that was purchased prior to August 14, 1982, then any purchase payments made to the original contract prior to August 14, 1982 will be treated as made to the new contract prior to that date. Generally, such pre-August 14, 1982 withdrawals are treated as a recovery of your investment in the contract first until purchase payments made before August 14, 1982 are withdrawn. Moreover, any income allocable to purchase payments made before August 14, 1982, is not subject to the 10% tax penalty. Taxes Payable by Beneficiaries The Death Benefit options are subject to income tax to the extent the distribution exceeds the cost basis in the contract. The value of the Death Benefit, as determined under federal law, is also included in the owner's estate. Generally, the same tax rules described above would also apply to amounts received by your beneficiary. Choosing any option other than a lump sum Death Benefit may defer taxes. Certain minimum distribution requirements apply upon your death, as discussed further below in the Annuity Qualification section. Tax consequences to the beneficiary vary depending upon the Death Benefit payment option selected. Generally, for payment of the Death Benefit . As a lump sum payment: the beneficiary is taxed on gain in the contract. . Within 5 years of death of owner: the beneficiary is taxed as amounts are withdrawn (in this case gain is treated as being distributed first). . Under an annuity or annuity settlement option with distribution beginning within one year of the date of death of the owner: the beneficiary is taxed on each payment (part will be treated as gain and part as return of purchase payments). Considerations for Contingent Annuitants We may allow the naming of a contingent annuitant when a Nonqualified annuity contract is held by a pension plan or a tax favored retirement plan. In such a situation, the annuity may no longer qualify for tax deferral where the annuity contract continues after the death of the Annuitant. 130 Reporting and Withholding on Distributions Taxable amounts distributed from an annuity are subject to federal and state income tax reporting and withholding. In general, we will withhold federal income tax from the taxable portion of such distribution based on the type of distribution. In the case of an annuity or similar periodic payment, we will withhold as if you are a married individual with three (3) exemptions unless you designate a different withholding status. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In the case of all other distributions, we will withhold at a 10% rate. You may generally elect not to have tax withheld from your payments. An election out of withholding must be made on forms that we provide. State income tax withholding rules vary and we will withhold based on the rules of your State of residence. Special tax rules apply to withholding for nonresident aliens, and we generally withhold income tax for nonresident aliens at a 30% rate. A different withholding rate may be applicable to a nonresident alien based on the terms of an existing income tax treaty between the United States and the nonresident alien's country. Please refer to the discussion below regarding withholding rules for a Qualified annuity. Regardless of the amount withheld by us, you are liable for payment of federal and state income tax on the taxable portion of annuity distributions. You should consult with your tax advisor regarding the payment of the correct amount of these income taxes and potential liability if you fail to pay such taxes. Entity Owners Where a contract is held by a non-natural person (e.g. a corporation), other than as an agent or nominee for a natural person (or in other limited circumstances), the contract will not be taxed as an annuity and increases in the value of the contract over its cost basis will be subject to tax annually. Where a contract is structured so that it is owned by a grantor trust but the annuitant is not the grantor, then the contract is required to terminate upon the death of the grantor if the grantor pre-deceases the annuitant under Section 72(s) of the Code. Under this circumstance, the contract value will be paid out to the beneficiary and it is not eligible for the death benefit provided under the contract. Annuity Qualification Diversification And Investor Control. In order to qualify for the tax rules applicable to annuity contracts described above, the assets underlying the Sub-accounts of an annuity must be diversified, according to certain rules under the Internal Revenue Code. Each portfolio is required to diversify its investments each quarter so that no more than 55% of the value of its assets is represented by any one investment, no more than 70% is represented by any two investments, no more than 80% is represented by any three investments, and no more than 90% is represented by any four investments. Generally, securities of a single issuer are treated as one investment and obligations of each U.S. Government agency and instrumentality (such as the Government National Mortgage Association) are treated as issued by separate issuers. In addition, any security issued, guaranteed or insured (to the extent so guaranteed or insured) by the United States or an instrumentality of the U.S. will be treated as a security issued by the U.S. Government or its instrumentality, where applicable. We believe the portfolios underlying the variable investment options of the annuity meet these diversification requirements. An additional requirement for qualification for the tax treatment described above is that we, and not you as the contract owner, must have sufficient control over the underlying assets to be treated as the owner of the underlying assets for tax purposes. While we also believe these investor control rules will be met, the Treasury Department may promulgate guidelines under which a variable annuity will not be treated as an annuity for tax purposes if persons with ownership rights have excessive control over the investments underlying such variable annuity. It is unclear whether such guidelines, if in fact promulgated, would have retroactive effect. It is also unclear what effect, if any, such guidelines might have on transfers between the investment options offered pursuant to this Prospectus. We reserve the right to take any action, including modifications to your annuity or the investment options, required to comply with such guidelines if promulgated. Any such changes will apply uniformly to affected owners and will be made with such notice to affected owners as is feasible under the circumstances. Required Distributions Upon Your Death for Nonqualified Annuity Contracts. Upon your death, certain distributions must be made under the contract. The required distributions depend on whether you die before you start taking annuity payments under the contract or after you start taking annuity payments under the contract. If you die on or after the Annuity Date, the remaining portion of the interest in the contract must be distributed at least as rapidly as under the method of distribution being used as of the date of death. If you die before the Annuity Date, the entire interest in the contract must be distributed within 5 years after the date of death, or as periodic payments over a period not extending beyond the life or life expectancy of such designated beneficiary (provided such payments begin within one year of your death). Your designated beneficiary is the person to whom benefit rights under the contract pass by reason of death, and must be a natural person in order to elect a periodic payment option based on life expectancy or a period exceeding five years. Additionally, if the annuity is payable to (or for the benefit of) your surviving spouse, that portion of the contract may be continued with your spouse as the owner. For Nonqualified annuity contracts owned by a non-natural person, the required distribution rules apply upon the death of the annuitant. This means that for a contract held by a non-natural person (such as a trust) for which there is named a co-annuitant, then such required distributions will be triggered by the death of the first co-annuitants to die. 131 Changes In Your Annuity. We reserve the right to make any changes we deem necessary to assure that your annuity qualifies as an annuity contract for tax purposes. Any such changes will apply to all contract owners and you will be given notice to the extent feasible under the circumstances. Qualified Annuity Contracts In general, as used in this prospectus, a Qualified annuity is an annuity contract with applicable endorsements for a tax-favored plan or a Nonqualified annuity contract held by a tax-favored retirement plan. The following is a general discussion of the tax considerations for Qualified annuity contracts. This annuity may or may not be available for all types of the tax-favored retirement plans discussed below. This discussion assumes that you have satisfied the eligibility requirements for any tax-favored retirement plan. Please consult your Financial Professional prior to purchase to confirm if this contract is available for a particular type of tax-favored retirement plan or whether we will accept the type of contribution you intend for this contract. A Qualified annuity may typically be purchased for use in connection with: . Individual retirement accounts and annuities (IRAs) which are subject to Sections 408(a) and 408(b) of the Code; . Roth IRAs under Section 408A of the Code; . A corporate Pension or Profit-sharing plan (subject to 401(a) of the Code); . H.R. 10 plans (also known as Keogh Plans, subject to 401(a) of the Code); . Tax Sheltered Annuities (subject to 403(b) of the Code, also known as Tax Deferred Annuities or TDAs); . Section 457 plans (subject to 457 of the Code). A Nonqualified annuity may also be purchased by a 401(a) trust or custodial IRA or Roth IRA account or a Section 457 plan, which can hold other permissible assets. The terms and administration of the trust or custodial account or plan in accordance with the laws and regulations for 401(a) plans, IRAs or Roth IRAs or a Section 457 plan, as applicable, are the responsibility of the applicable trustee or custodian. You should be aware that tax favored plans such as IRAs generally provide income tax deferral regardless of whether they invest in annuity contracts. This means that when a tax favored plan invests in an annuity contract, it generally does not result in any additional tax benefits (such as income tax deferral and income tax free transfers). Types Of Tax-Favored Plans IRAs. If you buy an annuity for use as an IRA, we will provide you a copy of the prospectus and contract. The "IRA Disclosure Statement" and "Roth IRA Disclosure Statement" which accompany the prospectus contain information about eligibility, contribution limits, tax particulars, and other IRA information. In addition to this information (some of which is summarized below), the IRS requires that you have a "free look" after making an initial contribution to the contract. During this time, you can cancel the annuity by notifying us in writing, and we will refund all of the purchase payments under the annuity (or, if provided by applicable state law, the amount credited under the annuity, if greater), less any applicable federal and state income tax withholding. Contributions Limits/Rollovers. Subject to the minimum purchase payment requirements of an annuity, you may purchase an annuity for an IRA in connection with a "rollover" of amounts from a qualified retirement plan, as a transfer from another IRA, by making a single contribution consisting of your IRA contributions and catch-up contributions, if applicable, attributable to the prior year and the current year during the period from January 1 to April 15, or as a current year contribution. In 2009 the contribution limit is $5,000. The contribution amount is indexed for inflation. The tax law also provides for a catch-up provision for individuals who are age 50 and above, allowing these individuals an additional $1,000 contribution each year. The catch-up amount is not indexed for inflation. The "rollover" rules under the Code are fairly technical; however, an individual (or his or her surviving spouse) may generally "roll over" certain distributions from tax favored retirement plans (either directly or within 60 days from the date of these distributions) if he or she meets the requirements for distribution. Once you buy an annuity, you can make regular IRA contributions under the annuity (to the extent permitted by law). However, if you make such regular IRA contributions, you should note that you will not be able to treat the contract as a "conduit IRA," which means that you will not retain possible favorable tax treatment if you subsequently "roll over" the contract funds originally derived from a qualified retirement plan or TDA into another Section 401(a) plan or TDA. In some circumstances, non-spouse beneficiaries may directly roll over to an IRA amounts due from qualified plans, 403(b) plans, and governmental 457(b) plans. The rollover rules applicable to non-spouse beneficiaries under the Code are more restrictive than the rollover rules applicable to owner/participants and spouse beneficiaries. Generally, non-spouse beneficiaries may roll over distributions from tax favored retirement plans only as a direct rollover, and if permitted by the plan. Under the Worker, Retiree and Employer Recovery Act of 2008, employer retirement plans are required to permit non-spouse beneficiaries to roll over funds to an inherited IRA for plan years beginning after December 31, 2009. Like other property, an IRA may be transferred upon death to a survivor, by operation of a will or otherwise (i.e., an IRA may be inherited). An inherited IRA must be directly rolled over from the employer plan or IRA and must be titled in the name of the deceased (i.e., John Doe deceased for the benefit of Jane Doe). No additional contributions can be made to a Beneficiary IRA. 132 Required Provisions. Contracts that are IRAs (or endorsements that are part of the contract) must contain certain provisions: . You, as owner of the contract, must be the "annuitant" under the contract (except in certain cases involving the division of property under a decree of divorce); . Your rights as owner are non-forfeitable; . You cannot sell, assign or pledge the contract; . The annual contribution you pay cannot be greater than the maximum amount allowed by law, including catch-up contributions if applicable (which does not include any rollover amounts); . The date on which required minimum distributions must begin cannot be later than April 1/st/ of the calendar year after the calendar year you turn age 70 1/2; and . Death and annuity payments must meet "required minimum distribution" rules described below. Usually, the full amount of any distribution from an IRA (including a distribution from this contract) which is not a rollover is taxable. As taxable income, these distributions are subject to the general tax withholding rules described earlier regarding a Nonqualified annuity. In addition to this normal tax liability, you may also be liable for the following, depending on your actions: . A 10% early withdrawal penalty described below; . Liability for "prohibited transactions" if you, for example, borrow against the value of an IRA; or . Failure to take a required minimum distribution, also described below. SEPs. SEPs are a variation on a standard IRA, and contracts issued to a SEP must satisfy the same general requirements described under IRAs (above). There are, however, some differences: . If you participate in a SEP, you generally do not include in income any employer contributions made to the SEP on your behalf up to the lesser of (a) $49,000 in 2009 ($46,000 in 2008) or (b) 25% of your taxable compensation paid by the contributing employer (not including the employer's SEP contribution as compensation for these purposes). However, for these purposes, compensation in excess of certain limits established by the IRS will not be considered. In 2009, this limit is $245,000 ($230,000 for 2008); . SEPs must satisfy certain participation and nondiscrimination requirements not generally applicable to IRAs; and . SEPs that contain a salary reduction or "SARSEP" provision prior to 1997 may permit salary deferrals up to $16,500 in 2009 with the employer making these contributions to the SEP. However, no new "salary reduction" or "SARSEPs" can be established after 1996. Individuals participating in a SARSEP who are age 50 or above by the end of the year will be permitted to contribute an additional $5,500 in 2009. These amounts are indexed for inflation. These annuities are not available for SARSEPs. You will also be provided the same information, and have the same "free look" period, as you would have if you purchased the contract for a standard IRA. ROTH IRAs. The "Roth IRA Disclosure Statement" contains information about eligibility, contribution limits, tax particulars and other Roth IRA information. Like standard IRAs, income within a Roth IRA accumulates tax-free, and contributions are subject to specific limits. Roth IRAs have, however, the following differences: . Contributions to a Roth IRA cannot be deducted from your gross income; . "Qualified distributions" from a Roth IRA are excludable from gross income. A "qualified distribution" is a distribution that satisfies two requirements: (1) the distribution must be made (a) after the owner of the IRA attains age 59 1/2; (b) after the owner's death; (c) due to the owner's disability; or (d) for a qualified first time homebuyer distribution within the meaning of Section 72(t)(2)(F) of the Code; and (2) the distribution must be made in the year that is at least five tax years after the first year for which a contribution was made to any Roth IRA established for the owner or five years after a rollover, transfer, or conversion was made from a traditional IRA to a Roth IRA. Distributions from a Roth IRA that are not qualified distributions will be treated as made first from contributions and then from earnings and earnings will be taxed generally in the same manner as distributions from a traditional IRA. . If eligible (including meeting income limitations and earnings requirements), you may make contributions to a Roth IRA after attaining age 70 1/2, and distributions are not required to begin upon attaining such age or at any time thereafter. Subject to the minimum purchase payment requirements of an annuity, if you meet certain income limitations you may purchase an annuity for a Roth IRA in connection with a "rollover" of amounts of another traditional IRA, conduit IRA, SEP, SIMPLE-IRA or Roth IRA by making a single contribution consisting of your Roth IRA contributions and catch-up contributions, if applicable, attributable to the prior year and the current year during the period from January 1 to April 15 of the current year, or with a current contribution. The Code permits persons who meet certain income limitations (generally, adjusted gross income under $100,000) who are not married filing a separate return and who receive certain qualifying distributions from such non-Roth IRAs, to directly rollover or make, within 60 days, a "rollover" of all or any part of the amount of such distribution to a Roth IRA which they establish. Beginning January 2008, an individual receiving an eligible rollover distribution from an employer sponsored retirement plan under sections 401(a) or 403(b) of the Code can directly roll over contributions to a Roth IRA, subject to the same income limits. This conversion triggers current taxation (but is not subject to a 10% early distribution penalty). Once an annuity has been purchased, regular Roth IRA contributions will be accepted to the extent permitted by law. In addition, an individual receiving an eligible rollover distribution from a designated Roth account under an employer plan may roll over the distribution to a Roth IRA even if the individual is not eligible to make regular contributions to a Roth IRA. Until 2010, participants with an adjusted gross income greater than $100,000 are not permitted to roll over funds from an employer plan, other than a Roth 401(k) or Roth 403(b) distribution, to a Roth IRA. 133 Non-spouse beneficiaries receiving a distribution from an employer sponsored retirement plan under sections 401(a) or 403(b) of the Code can also directly roll over contributions to a Roth IRA, subject to the same income limits. However, it is our understanding of the Code that non-spouse beneficiaries cannot "rollover" benefits from a traditional IRA to a Roth IRA. TDAs. You may own a Tax Deferred Annuity (also known as a TDA, Tax Sheltered Annuity (TSA), 403(b) plan or 403(b) annuity) generally if you are an employee of a tax-exempt organization (as defined under Code Section 501(c)(3)) or a public educational organization, and you may make contributions to a TDA so long as your employer maintains such a plan and your rights to the annuity are nonforfeitable. Contributions to a TDA, and any earnings, are not taxable until distribution. You may also make contributions to a TDA under a salary reduction agreement, generally up to a maximum of $16,500 in 2009. Individuals participating in a TDA who are age 50 or above by the end of the year will be permitted to contribute an additional $5,500 in 2009. This amount is indexed for inflation. Further, you may roll over TDA amounts to another TDA or an IRA. You may also roll over TDA amounts to a qualified retirement plan, a SEP and a 457 government plan. A contract may generally only qualify as a TDA if distributions of salary deferrals (other than "grandfathered" amounts held as of December 31, 1988) may be made only on account of: . Your attainment of age 59 1/2; . Your severance of employment; . Your death; . Your total and permanent disability; or . Hardship (under limited circumstances, and only related to salary deferrals, not including earnings attributable to these amounts). In any event, you must begin receiving distributions from your TDA by April 1/st/ of the calendar year after the calendar year you turn age 70 1/2 or retire, whichever is later. These distribution limits do not apply either to transfers or exchanges of investments under the contract, or to any "direct transfer" of your interest in the contract to another employer's TDA plan or mutual fund "custodial account" described under Code Section 403(b)(7). Employer contributions to TDAs are subject to the same general contribution, nondiscrimination, and minimum participation rules applicable to "qualified" retirement plans. Caution: Under recent IRS regulations we can accept contributions, transfers and rollovers only if we have entered into an information-sharing agreement, or its functional equivalent, with the applicable employer or its agent. In addition, in order to comply with the regulations, we will only process certain transactions (e.g, transfers, withdrawals, hardship distributions and, if applicable, loans) with employer approval. This means that if you request one of these transactions we will not consider your request to be in good order, and will not therefore process the transaction, until we receive the employer's approval in written or electronic form. Final regulations related to 403(b) contracts were issued in 2007. Under these final regulations, certain contract exchanges may be accepted only if the employer and the issuer have entered into the required information-sharing agreements. Such agreements must be in place by January 1, 2009. We do not currently accept transfers of funds under 403(b) contracts. Funds can only be added to the contract as a current salary deferral under an agreement with your employer or as a direct rollover from another employer plan. We intend to begin accepting such transfers in the future when we can comply with the new regulations. Required Minimum Distributions And Payment Options If you hold the contract under an IRA (or other tax-favored plan), required minimum distribution rules must be satisfied. This means that generally payments must start by April 1 of the year after the year you reach age 70 1/2 and must be made for each year thereafter. For a TDA or a 401(a) plan for which the participant is not a greater than 5% owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the Owner's lifetime. The amount of the payment must at least equal the minimum required under the IRS rules. Several choices are available for calculating the minimum amount. More information on the mechanics of this calculation is available on request. Please contact us at a reasonable time before the IRS deadline so that a timely distribution is made. Please note that there is a 50% tax penalty on the amount of any required minimum distribution not made in a timely manner. Note that under the Worker, Retiree and Employer Recovery Act of 2008, Required Minimum Distributions are suspended for 2009 and are scheduled to resume in 2010. Required minimum distributions are calculated based on the sum of the account value and the actuarial value of any additional death benefits and benefits from optional riders that you have purchased under the contract. As a result, the required minimum distributions may be larger than if the calculation were based on the account value only, which may in turn result in an earlier (but not before the required beginning date) distribution of amounts under the annuity and an increased amount of taxable income distributed to the annuity owner, and a reduction of death benefits and the benefits of any optional riders. You can use the Minimum Distribution option to satisfy the required minimum distribution rules for an annuity without either beginning annuity payments or surrendering the annuity. We will distribute to you the required minimum distribution amount, less any other partial withdrawals that you made during the year. Such amount will be based on the value of the contract as of December 31 of the prior year, but is determined without regard to other contracts you may own. If you have previously elected the 134 Minimum Distribution Option to satisfy your required minimum distributions, we will continue to make such distributions to you in 2009 based on this methodology, unless you tell us not to make a 2009 distribution. Although the IRS rules determine the required amount to be distributed from your IRA each year, certain payment alternatives are still available to you. If you own more than one IRA, you can choose to satisfy your minimum distribution requirement for each of your IRAs by withdrawing that amount from any of your IRAs. If you inherit more than one IRA or more than one Roth IRA from the same owner, similar rules apply. Required Distributions Upon Your Death for Qualified Annuity Contracts Upon your death under an IRA, Roth IRA, 403(b) or other employer sponsored plan, the designated beneficiary may generally elect to continue the contract and receive required minimum distributions under the contract instead of receiving the death benefit in a single payment. The available payment options will depend on whether you die before the date required minimum distributions under the Code were to begin, whether you have named a designated beneficiary and whether that beneficiary is your surviving spouse. . If you die after a designated beneficiary has been named, the death benefit must be distributed by December 31/st/ of the year including the five year anniversary of the date of death, or as periodic payments not extending beyond the life or life expectancy of the designated beneficiary (as long as payments begin by December 31/st/ of the year following the year of death). However, if your surviving spouse is the beneficiary, the death benefit can be paid out over the life or life expectancy of your spouse with such payments beginning no later than December 31/st/ of the year following the year of death or December 31/st/ of the year in which you would have reached age 70 1/2, which ever is later. Additionally, if the contract is payable to (or for the benefit of) your surviving spouse, that portion of the contract may be continued with your spouse as the owner. Note that the Worker, Retiree and Employer Recovery Act of 2008 suspended Required Minimum Distributions for 2009. This means that if your beneficiary receives payment as periodic payments, no payment is required in 2009. If your beneficiary elects to receive full distribution by December 31 of the year including the five year anniversary of the date of death, 2009 shall not be included in the five year requirement period. This effectively extends this period to December 31st of the six year anniversary of the date of death. . If you die before a designated beneficiary is named and before the date required minimum distributions must begin under the Code, the death benefit must be paid out by December 31/st/ of the year including the five year anniversary of the date of death. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31/st/ of the year following the year of death, such contract is deemed to have no designated beneficiary. A designated beneficiary may elect to apply the rules for no designated beneficiary if those would provide a smaller payment requirement. For this distribution requirement also, 2009 shall not be included in the five year requirement period. . If you die before a designated beneficiary is named and after the date required minimum distributions must begin under the Code, the death benefit must be paid out at least as rapidly as under the method then in effect. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31/st/ of the year following the year of death, such contract is deemed to have no designated beneficiary. A designated beneficiary may elect to apply the rules for no designated beneficiary if those would provide a smaller payment requirement. A beneficiary has the flexibility to take out more each year than mandated under the required minimum distribution rules. Until withdrawn, amounts in a Qualified annuity contract continue to be tax deferred. Amounts withdrawn each year, including amounts that are required to be withdrawn under the required minimum distribution rules, are subject to tax. You may wish to consult a professional tax advisor for tax advice as to your particular situation. For a Roth IRA, if death occurs before the entire interest is distributed, the death benefit must be distributed under the same rules applied to IRAs where death occurs before the date required minimum distributions must begin under the Code. Tax Penalty For Early Withdrawals From Qualified Annuity Contracts You may owe a 10% tax penalty on the taxable part of distributions received from an IRA, SEP, Roth IRA, TDA or qualified retirement plan before you attain age 59 1/2. Amounts are not subject to this tax penalty if: . the amount is paid on or after you reach age 59 1/2 or die; . the amount received is attributable to your becoming disabled; or . generally the amount paid or received is in the form of substantially equal payments not less frequently than annually. (Please note that substantially equal payments must continue until the later of reaching age 59 1/2 or 5 years. Modification of payments during that time period will result in retroactive application of the 10% tax penalty.) Other exceptions to this tax may apply. You should consult your tax advisor for further details. 135 Withholding We will withhold federal income tax at the rate of 20% for any eligible rollover distribution paid by us to or for a plan participant, unless such distribution is "directly" rolled over into another qualified plan, IRA (including the IRA variations described above), SEP, 457 government plan or TDA. An eligible rollover distribution is defined under the tax law as a distribution from an employer plan under 401(a), a TDA or a 457 governmental plan, excluding any distribution that is part of a series of substantially equal payments (at least annually) made over the life expectancy of the employee or the joint life expectancies of the employee and his designated beneficiary, any distribution made for a specified period of 10 years or more, any distribution that is a required minimum distribution and any hardship distribution. Regulations also specify certain other items which are not considered eligible rollover distributions. For all other distributions, unless you elect otherwise, we will withhold federal income tax from the taxable portion of such distribution at an appropriate percentage. The rate of withholding on annuity payments where no mandatory withholding is required is determined on the basis of the withholding certificate that you file with us. If you do not file a certificate, we will automatically withhold federal taxes on the following basis: For any annuity payments not subject to mandatory withholding, you will have taxes withheld by us as if you are a married individual, with 3 exemptions. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default; and For all other distributions, we will withhold at a 10% rate. We will provide you with forms and instructions concerning the right to elect that no amount be withheld from payments in the ordinary course. However, you should know that, in any event, you are liable for payment of federal income taxes on the taxable portion of the distributions, and you should consult with your tax advisor to find out more information on your potential liability if you fail to pay such taxes. There may be additional state income tax withholding requirements. Erisa Requirements ERISA (the "Employee Retirement Income Security Act of 1974") and the Code prevent a fiduciary and other "parties in interest" with respect to a plan (and, for these purposes, an IRA would also constitute a "plan") from receiving any benefit from any party dealing with the plan, as a result of the sale of the contract. Administrative exemptions under ERISA generally permit the sale of insurance/annuity products to plans, provided that certain information is disclosed to the person purchasing the contract. This information has to do primarily with the fees, charges, discounts and other costs related to the contract, as well as any commissions paid to any agent selling the contract. Information about any applicable fees, charges, discounts, penalties or adjustments may be found in the applicable sections of this Prospectus. Information about sales representatives and commissions may be found in the sections of this Prospectus addressing distribution of the annuities. Other relevant information required by the exemptions is contained in the contract and accompanying documentation. Please consult with your tax advisor if you have any questions about ERISA and these disclosure requirements. Spousal Consent Rules For Retirement Plans - Qualified Contracts If you are married at the time your payments commence, you may be required by federal law to choose an income option that provides survivor annuity income to your spouse, unless your spouse waives that right. Similarly, if you are married at the time of your death, federal law may require all or a portion of the Death Benefit to be paid to your spouse, even if you designated someone else as your beneficiary. A brief explanation of the applicable rules follows. For more information, consult the terms of your retirement arrangement. Defined Benefit Plans and Money Purchase Pension Plans. If you are married at the time your payments commence, federal law requires that benefits be paid to you in the form of a "qualified joint and survivor annuity" (QJSA), unless you and your spouse waive that right, in writing. Generally, this means that you will receive a reduced payment during your life and, upon your death, your spouse will receive at least one-half of what you were receiving for life. You may elect to receive another income option if your spouse consents to the election and waives his or her right to receive the QJSA. If your spouse consents to the alternative form of payment, your spouse may not receive any benefits from the plan upon your death. Federal law also requires that the plan pay a Death Benefit to your spouse if you are married and die before you begin receiving your benefit. This benefit must be available in the form of an annuity for your spouse's lifetime and is called a "qualified pre-retirement survivor annuity" (QPSA). If the plan pays Death Benefits to other beneficiaries, you may elect to have a beneficiary other than your spouse receive the Death Benefit, but only if your spouse consents to the election and waives his or her right to receive the QPSA. If your spouse consents to the alternate beneficiary, your spouse will receive no benefits from the plan upon your death. Any QPSA waiver prior to your attaining age 35 will become null and void on the first day of the calendar year in which you attain age 35, if still employed. Defined Contribution Plans (including 401(k) Plans and ERISA 403(b) Annuities). Spousal consent to a distribution is generally not required. Upon your death, your spouse will receive the entire Death Benefit, even if you designated someone else as your beneficiary, unless your spouse consents in writing to waive this right. Also, if you are married and elect an annuity as a periodic income option, federal law requires that you receive a QJSA (as described above), unless you and your spouse consent to waive this right. 136 IRAs, non-ERISA 403(b) Annuities, and 457 Plans. Spousal consent to a distribution usually is not required. Upon your death, any Death Benefit will be paid to your designated beneficiary. Additional Information For additional information about federal tax law requirements applicable to IRAs and Roth IRAs, see the IRA Disclosure Statement or Roth IRA Disclosure Statement, as applicable. Generation-Skipping Transfers If you transfer your contract to a person two or more generations younger than you (such as a grandchild or grandniece) or to a person that is more than 37 1/2 years younger than you, there may be generation-skipping transfer tax consequences. 137 GENERAL INFORMATION HOW WILL I RECEIVE STATEMENTS AND REPORTS? We send any statements and reports required by applicable law or regulation to you at your last known address of record. You should therefore give us prompt notice of any address change. We reserve the right, to the extent permitted by law and subject to your prior consent, to provide any prospectus, prospectus supplements, confirmations, statements and reports required by applicable law or regulation to you through our Internet Website at www. prudentialannuities.com or any other electronic means, including diskettes or CD ROMs. We send a confirmation statement to you each time a transaction is made affecting Account Value, such as making additional Purchase Payments, transfers, exchanges or withdrawals. We may also send quarterly statements detailing the activity affecting your Annuity during the calendar quarter. We may confirm regularly scheduled transactions, including, but not limited to, the Annual Maintenance Fee, Systematic Withdrawals (including 72(t) payments and required minimum distributions), electronic funds transfers, Dollar Cost Averaging, and static rebalancing, in quarterly statements instead of confirming them immediately. You should review the information in these statements carefully. You may request additional reports. We reserve the right to charge up to $50 for each such additional report. We will also send an annual report and a semi-annual report containing applicable financial statements for the Portfolios to Owners or, with your prior consent, make such documents available electronically through our Internet Website or other electronic means. WHO IS PRUDENTIAL ANNUITIES? Prudential Annuities Life Assurance Corporation, a Prudential Financial Company, ("Prudential Annuities") is a stock life insurance company incorporated under the laws of the State of Connecticut on July 26, 1988 and is domiciled in Connecticut with licenses in all 50 states, the District of Columbia and Puerto Rico. Prudential Annuities is a wholly-owned subsidiary of Prudential Annuities, Inc., whose ultimate parent is Prudential Financial, Inc. Prudential Annuities markets through and in conjunction with registered broker-dealers. Prudential Annuities offers a wide array of annuities, including (1) deferred variable annuities that are registered with the SEC, including fixed interest rate annuities that are offered as a companion to certain of our variable annuities and are registered because of their market value adjustment feature and (2) fixed annuities that are not registered with the SEC. In addition, Prudential Annuities has in force a relatively small block of variable life insurance policies and immediate variable annuities, but it no longer actively sells such policies. No company other than Prudential Annuities has any legal responsibility to pay amounts that it owes under its annuity and variable life insurance contracts. However, Prudential Financial exercises significant influence over the operations and capital structure of Prudential Annuities. Prudential Annuities conducts the bulk of its operations through staff employed by it or by affiliated companies within the Prudential Financial family. Certain discrete functions have been delegated to non-affiliates that could be deemed "service providers" under the Investment Company Act of 1940. The entities engaged by Prudential Annuities may change over time. As of December 31, 2008, non-affiliated entities that could be deemed service providers to Prudential Annuities and/or another insurer within the Prudential Annuities business unit consisted of the following: Alliance-One Services Inc. (administration of variable life policies) located at 55 Hartland Street East Hartford CT 06108, Ascensus (qualified plan administrator) located at 200 Dryden Road Dresher, PA 19025, Blue Frog Solutions, Inc. (order entry systems provider) located at 555 SW 12th Ave, Suite 202 Pompano Beach, FL 33069, Broadridge Investor Communication Solutions, Inc. (proxy tabulation services), 51 Mercedes Way, Edgewood, NY 11717, EBIX Inc. (order-entry system) located at 5 Concourse Parkway Suite 3200 Atlanta, GA 30328, Diversified Information Technologies Inc. (records management) located at 123 Wyoming Ave Scranton, PA 18503, Fosdick Fulfillment Corp. (fulfillment of prospectuses and marketing materials) located at 26 Barnes Industrial Park Road North Wallingford, CT 06492, Insurance Technologies (annuity illustrations) located at 38120 Amrheim Ave., Livonia, MI 48150, LASON Systems Inc. (contract printing and mailing) located at 1305 Stephenson Highway Troy, MI 48083, Morningstar Associates LLC (asset allocation recommendations) located at 225 West Wacker Drive Chicago, IL 60606, Pershing LLC (order-entry systems provider) located at One Pershing Plaza Jersey City, NJ 07399, Personix (printing and fulfillment of confirmations and client statements) located at 13100 North Promenade Boulevard Stafford, TX 77477, RR Donnelley Receivables Inc. (printing annual reports and prospectuses) located at 111 South Wacker Drive Chicago, IL 60606-4301, Stanton Group (qualified plan administrator) located at Two Pine Tree Drive Suite 400 Arden Hills, MN 55112 Attention: Alerus Retirement Solutions, State Street (accumulation unit value calculations) located at State Street Financial Center One Lincoln Street Boston, Massachusetts 02111, The Harty Press, Inc. (printing and fulfillment of marketing materials) located at 25 James Street New Haven, CT 06513, VG Reed & Sons Inc. (printing and fulfillment of annual reports) located at 1002 South 12/th/ Street Louisville, KY 40210, William B. Meyer (printing and fulfillment of prospectuses and marketing materials) located at 255 Long Beach Boulevard Stratford, CT 06615. WHAT ARE SEPARATE ACCOUNTS? The separate accounts are where Prudential Annuities sets aside and invests the assets of some of our annuities. These separate accounts were established under the laws of the State of Connecticut. The assets of each separate account are held in the name of Prudential Annuities, and legally belong to us. These assets are kept separate from all our other assets, and may not be charged with liabilities arising out of any other business we may conduct. Thus, income, gains and losses from assets allocated to a separate 138 account are credited to or charged against each such separate account, without regard to other income, gains, or losses of Prudential Annuities or of any other of our separate accounts. More detailed information about Prudential Annuities, including its audited consolidated financial statements, is provided in the Statement of Additional Information. Separate Account B During the accumulation period, the assets supporting obligations based on allocations to the Sub-accounts are held in Sub-accounts of Prudential Annuities Life Assurance Corporation Variable Account B, also referred to as "Separate Account B". Separate Account B was established by us pursuant to Connecticut law on November 25, 1987. Separate Account B also holds assets of other annuities issued by us with values and benefits that vary according to the investment performance of Separate Account B. Separate Account B consists of multiple Sub-accounts. Each Sub-account invests only in a single mutual fund or mutual fund portfolio. The name of each Sub-account generally corresponds to the name of the underlying Portfolio. Each Sub-account in Separate Account B may have several different Unit Prices to reflect the Insurance Charge, Distribution Charge (when applicable) and the charges for any optional benefits that are offered under the Annuities issued by us through Separate Account B. Separate Account B is registered with the SEC under the Investment Company Act of 1940 ("Investment Company Act") as a unit investment trust, which is a type of investment company. The SEC does not supervise investment policies, management or practices of Separate Account B. We may offer new Sub-accounts, eliminate Sub-accounts, or combine Sub-accounts at our sole discretion. We may also close Sub-accounts to additional purchase payments on existing Annuities or close Sub-accounts for Annuities purchased on or after specified dates. We will first notify you and receive any necessary SEC and/or state approval before making such a change. If an underlying mutual fund is liquidated, we will ask you to reallocate any amount in the liquidated fund. If you do not reallocate these amounts, we will reallocate such amounts only in accordance with SEC pronouncements and only after obtaining an order from the SEC, if required. If we make a fund substitution or change, we may change the Annuity contract to reflect the substitution or change. We do not control the underlying mutual funds, so we cannot guarantee that any of those funds will always be available. If you are enrolled in a Dollar Cost Averaging, Asset Rebalancing, or comparable programs while an underlying fund merger, substitution or liquidation takes place, unless otherwise noted in any communication from us, your Account Value invested in such underlying fund will be transferred automatically to the designated surviving fund in the case of mergers, the replacement fund in the case of substitutions, and an available Money Market Fund in the case of fund liquidations. Your enrollment instructions will be automatically updated to reflect the surviving fund, the replacement fund or a Money Market Fund for any continued and future investments. Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the underlying mutual funds or fund portfolios, as applicable. We do not guarantee the investment results of any Sub-account. Your Account Value allocated to the Sub-accounts may increase or decrease. You bear the entire investment risk. There is no assurance that the Account Value of your Annuity will equal or be greater than the total of the purchase payments you make to us. Separate Account D During the accumulation period, assets supporting our obligations based on Fixed Allocations are held in Prudential Annuities Life Assurance Corporation Separate Account D, also referred to as "Separate Account D". Such obligations are based on the fixed interest rates we credit to Fixed Allocations and the terms of the Annuities. These obligations do not depend on the investment performance of the assets in Separate Account D. Separate Account D was established by us pursuant to Connecticut law. There are no units in Separate Account D. The Fixed Allocations are guaranteed by our general account. An Annuity Owner who allocates a portion of their Account Value to Separate Account D does not participate in the investment gain or loss on assets maintained in Separate Account D. Such gain or loss accrues solely to us. We retain the risk that the value of the assets in Separate Account D may drop below the reserves and other liabilities we must maintain. Should the value of the assets in Separate Account D drop below the reserve and other liabilities we must maintain in relation to the annuities supported by such assets, we will transfer assets from our general account to Separate Account D to make up the difference. We have the right to transfer to our general account any assets of Separate Account D in excess of such reserves and other liabilities. We maintain assets in Separate Account D supporting a number of annuities we offer. We may employ investment managers to manage the assets maintained in Separate Account D. Each manager we employ is responsible for investment management of a different portion of Separate Account D. From time to time additional investment managers may be employed or investment managers may cease being employed. We are under no obligation to employ or continue to employ any investment manager(s) and have sole discretion over the investment managers we retain. We are not obligated to invest according to specific guidelines or strategies except as may be required by Connecticut and other state insurance laws. WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS? Each underlying mutual fund is registered as an open-end management investment company under the Investment Company Act. Shares of the underlying mutual fund portfolios are sold to separate accounts of life insurance companies offering variable annuity and variable life insurance products. The shares may also be sold directly to qualified pension and retirement plans. 139 Voting Rights We are the legal owner of the shares of the underlying mutual funds in which the Sub-accounts invest. However, under SEC rules, you have voting rights in relation to Account Value maintained in the Sub-accounts. If an underlying mutual fund portfolio requests a vote of shareholders, we will vote our shares based on instructions received from Owners with Account Value allocated to that Sub-account. Owners have the right to vote an amount equal to the number of shares attributable to their contracts. If we do not receive voting instructions in relation to certain shares, we will vote those shares in the same manner and proportion as the shares for which we have received instructions. This voting procedure is sometimes referred to as "mirror voting" because, as indicated in the immediately preceding sentence, we mirror the votes that are actually cast, rather than decide on our own how to vote. In addition, because all the shares of a given mutual fund held within our separate account are legally owned by us, we intend to vote all of such shares when that underlying fund seeks a vote of its shareholders. As such, all such shares will be counted towards whether there is a quorum at the underlying fund's shareholder meeting and towards the ultimate outcome of the vote. Thus, under "mirror voting," it is possible that the votes of a small percentage of contractholders who actually vote will determine the ultimate outcome. We will furnish those Owners who have Account Value allocated to a Sub-account whose underlying mutual fund portfolio has requested a "proxy" vote with proxy materials and the necessary forms to provide us with their voting instructions. Generally, you will be asked to provide instructions for us to vote on matters such as changes in a fundamental investment strategy, adoption of a new investment advisory agreement, or matters relating to the structure of the underlying mutual fund that require a vote of shareholders. Advanced Series Trust (the "Trust") has obtained an exemption from the Securities and Exchange Commission that permits its co-investment advisers, AST Investment Services, Inc. and Prudential Investments LLC, subject to approval by the Board of Trustees of the Trust, to change sub-advisors for a Portfolio and to enter into new sub-advisory agreements, without obtaining shareholder approval of the changes. This exemption (which is similar to exemptions granted to other investment companies that are organized in a similar manner as the Trust) is intended to facilitate the efficient supervision and management of the sub-advisors by AST Investment Services, Inc., Prudential Investments LLC and the Trustees. The Trust is required, under the terms of the exemption, to provide certain information to shareholders following these types of changes. We may add new Sub-accounts that invest in a series of underlying funds other than the Trust that is managed by an affiliate. Such series of funds may have a similar order from the SEC. You also should review the prospectuses for the other underlying funds in which various Sub-accounts invest as to whether they have obtained similar orders from the SEC. Material Conflicts It is possible that differences may occur between companies that offer shares of an underlying mutual fund portfolio to their respective separate accounts issuing variable annuities and/or variable life insurance products. Differences may also occur surrounding the offering of an underlying mutual fund portfolio to variable life insurance policies and variable annuity contracts that we offer. Under certain circumstances, these differences could be considered "material conflicts," in which case we would take necessary action to protect persons with voting rights under our variable annuity contracts and variable life insurance policies against persons with voting rights under other insurance companies' variable insurance products. If a "material conflict" were to arise between owners of variable annuity contracts and variable life insurance policies issued by us we would take necessary action to treat such persons equitably in resolving the conflict. "Material conflicts" could arise due to differences in voting instructions between owners of variable life insurance and variable annuity contracts of the same or different companies. We monitor any potential conflicts that may exist. Service Fees Payable to Prudential Annuities Prudential Annuities and/or our affiliates receive substantial and varying administrative service payments, Rule 12b-1 fees, and "revenue sharing" payments from certain underlying Portfolios or related parties. Rule 12b-1 fees compensate our affiliated principal underwriter for distribution, marketing, and/or servicing functions. Administrative services payments compensate us for providing administrative services with respect to Annuity Owners invested indirectly in the Portfolio, which include duties such as recordkeeping, shareholder services, and the mailing of periodic reports. We receive administrative services fees with respect to both affiliated underlying Portfolios and unaffiliated underlying Portfolios. The administrative services fees we receive from affiliates originate from the assets of the affiliated Portfolio itself and/or the assets of the Portfolio's investment adviser. In recognition of the administrative services provided by the relevant affiliated insurance companies, the investment advisers to certain affiliated Portfolios also make "revenue sharing" payments to such affiliated insurance companies. In any case, the existence of these fees tends to increase the overall cost of investing in the Portfolio. In addition, because these fees are paid to us, allocations you make to these affiliated underlying Portfolios benefit us financially. In addition to the payments that we receive from underlying funds and/or their affiliates, those same funds and/or their affiliates may make payments to us and/or other insurers within the Prudential Financial group related to the offering of investment options within variable annuities or life insurance offered by different Prudential business units. We collect these payments and fees under agreements between us and a Portfolio's principal underwriter, transfer agent, investment adviser and/or other entities related to the Portfolio. The 12b-1 fees and administrative services fees that we receive may vary among the different fund complexes that are part of our investment platform. Thus, the fees we collect may be greater or smaller, based on the Portfolios that you select. In addition, we may consider these payments and fees, among a number of factors, when deciding to add or keep a Portfolio on the "menu" of Portfolios that we offer through the Annuity. 140 Please see the table entitled "Underlying Mutual Fund Portfolio Annual Expenses" for a listing of the Portfolios that pay a 12b-1 fee. With respect to administrative services fees, the maximum fee that we receive is equal to 0.75% of the average assets allocated to the Portfolio(s) under the Annuity. We expect to make a profit on these fees. In addition, an investment adviser, sub-adviser or distributor of the underlying Portfolios may also compensate us by providing reimbursement, defraying the costs of, or paying directly for, among other things, marketing and/or administrative services and/or other services they provide in connection with the Annuity. These services may include, but are not limited to: sponsoring or co-sponsoring various promotional, educational or marketing meetings and seminars attended by distributors, wholesalers, and/or broker dealer firms' registered representatives, and creating marketing material discussing the contract, available options, and underlying Portfolios. The amounts paid depend on the nature of the meetings, the number of meetings attended by the adviser, sub-adviser, or distributor, the number of participants and attendees at the meetings, the costs expected to be incurred, and the level of the adviser's, sub-adviser's or distributor's participation. These payments or reimbursements may not be offered by all advisers, sub-advisers, or distributor and the amounts of such payments may vary between and among each adviser, sub-adviser and distributor depending on their respective participation. During 2008, with regard to amounts that were paid under the kinds of arrangements described immediately above, the amounts ranged from approximately $750 to approximately $1,138,481. These amounts may have been paid to one or more Prudential-affiliated insurers issuing individual variable annuities. WHO DISTRIBUTES ANNUITIES OFFERED BY PRUDENTIAL ANNUITIES? Prudential Annuities Distributors, Inc. (PAD), a wholly-owned subsidiary of Prudential Annuities, Inc., is the distributor and principal underwriter of the Annuities offered through this prospectus. PAD acts as the distributor of a number of annuity and life insurance products. PAD's principal business address is One Corporate Drive, Shelton, Connecticut 06484. PAD is registered as a broker-dealer under the Securities Exchange Act of 1934 (Exchange Act), and is a member of the Financial Industry Regulatory Authority (FINRA). Each Annuity is offered on a continuous basis. PAD enters into distribution agreements with broker-dealers who are registered under the Exchange Act and with entities that may offer the Annuities but are exempt from registration ("firms"). Applications for each Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance agents under state insurance law. In addition, PAD may offer the Annuities directly to potential purchasers. Prudential Annuities sells its annuity products through multiple distribution channels, including (1) independent broker-dealer firms and financial planners; (2) broker-dealers that are members of the New York Stock Exchange, including "wirehouse" and regional broker-dealer firms; and (3) broker-dealers affiliated with banks or that specialize in marketing to customers of banks. Although we are active in each of those distribution channels, the majority of our sales have come from the independent broker-dealer firms and financial planners. On June 1, 2006, The Prudential Insurance Company of America, an affiliate of Prudential Annuities, acquired the variable annuity business of The Allstate Corporation ("Allstate"), which included exclusive access to the Allstate affiliated broker-dealer until May 31, 2008. We began selling variable annuities through the Allstate affiliated broker-dealer registered representatives in the third quarter of 2006. Commissions are paid to firms on sales of the Annuities according to one or more schedules. The registered representative will receive a portion of the compensation, depending on the practice of his or her firm. Commissions are generally based on a percentage of Purchase Payments made, up to a maximum of 6.0% for Optimum XTra. Alternative compensation schedules are available that provide a lower initial commission plus ongoing annual compensation based on all or a portion of the Account Value. We may also provide compensation to the distributing firm for providing ongoing service to you in relation to your Annuity. Commissions and other compensation paid in relation to your Annuity do not result in any additional charge to you or to the Separate Account. In addition, in an effort to promote the sale of our products (which may include the placement of Prudential Annuities and/or the Annuities on a preferred or recommended company or product list and/or access to the firm's registered representatives), we or PAD may enter into compensation arrangements with certain broker-dealer firms (including LPL Financial Corporation) with respect to certain or all registered representatives of such firms under which such firms may receive separate compensation or reimbursement for, among other things, training of sales personnel and/or marketing and/or administrative services and/or other services they provide. These services may include, but are not limited to: educating customers of the firm on the Annuity's features; conducting due diligence and analysis, providing office access, operations and systems support; holding seminars intended to educate the firm's registered representatives and make them more knowledgeable about the Annuities; providing a dedicated marketing coordinator; providing priority sales desk support; and providing expedited marketing compliance approval. To the extent permitted by FINRA rules and other applicable laws and regulations, PAD may pay or allow other promotional incentives or payments in the form of cash or non-cash compensation. These arrangements may not be offered to all firms and the terms of such arrangements may differ between firms. In addition, we or our affiliates may provide such compensation, payments and/or incentives to firms arising out of the marketing, sale and/or servicing of variable annuities or life insurance offered by different Prudential business units. 141 You should note that firms and individual registered representatives and branch managers within some firms participating in one of these compensation arrangements might receive greater compensation for selling the Annuities than for selling a different annuity that is not eligible for these compensation arrangements. While compensation is generally taken into account as an expense in considering the charges applicable to an annuity product, any such compensation will be paid by us or PAD and will not result in any additional charge to you. Overall compensation paid to the distributing firm does not exceed, based on actuarial assumptions, 8.5% of the total purchase payments made. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Annuity. Further information about the firms that are part of these compensation arrangements appears in the Statement of Additional Information, which is available without charge upon request. We or PAD also may compensate third-party vendors, for services that such vendors render to broker-dealer firms. To the extent permitted by the FINRA rules and other applicable laws and regulations, PAD may pay or allow other promotional incentives or payments in the forms of cash or non-cash compensation. These arrangements may not be offered to all firms and the terms of such arrangements may differ between firms. The list below identifies three general types of payments that PAD pays which are broadly defined as follows: . Percentage Payments based upon "Assets under Management" or "AUM": This type of payment is a percentage payment that is based upon assets, subject to certain criteria in certain held in all Prudential Annuities products. . Percentage Payments based upon sales: This type of payment is a percentage payment that is based upon the total amount of money received as purchase payments under Prudential Annuities annuity products sold through the firm. . Fixed Payments: These types of payments are made directly to or in sponsorship of the firm (or its affiliated broker-dealers). Examples of arrangements under which such payments may be made currently include, but are not limited to: sponsorships, conferences (national, regional and top producer), speaker fees, promotional items and reimbursements to firms for marketing activities or services paid by the firms and/or their registered representatives. The amount of these payments varies widely because some payments may encompass only a single event, such as a conference, and others have a much broader scope. In addition, we may make payments periodically during the relationship for systems, operational and other support. The list below includes the names of the firms (or their affiliated broker/dealers) that we are aware (as of December 31, 2008) received payment with respect to annuity business during 2008 (or as to which a payment amount was accrued during 2008). The firms listed below include those receiving payments in connection with marketing of products issued by Prudential Annuities Life Assurance Corporation. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the contract. During 2008, the least amount paid, and greatest amount paid, were $3,106 and $7,256,316, respectively. Name of Firm:
1717 Capital Management Co. Cadaret, Grant & Co., Inc. Ferris Baker Watts, Inc. 1st Global Capital Corp. Calton & Associates, Inc. FFP Securities, Inc. A. G. Edwards & Sons, Inc. Cambridge Investment Research Financial Network Investment Corp. Advantage Capital Cambridge Legacy Securities, LLC Financial Planning Consultants Advisory Group Equity Services Agency Cantella & Co., Inc. Financial West Group AIG Retirement Advisors Capital Analysts Fintegra, LLC AIG Financial Advisors, Inc. Capital Financial Services, Inc. First Allied Securities, Inc. Allegheny Investments Ltd. Capital Investment Group, Inc. First Brokerage America, LLC Allmax Financial Solutions, LLC Capital One Investments, LLC First Montauk Securities Corp. Allstate Financial Services, LLC Centaurus Financial, Inc. First Wall Street Corp. American Financial Associates CFD Investments, Inc. First Western Advisors American General Securities Citigroup Global Markets, Inc. Fortune Financial Services, Inc. American Independent Securities City Securities Corp. Founders Financial Securities LLC Group, LLC Commonwealth Financial Network FSC Securities Corp. American Portfolios Financial Services Community Bankers Securities FSICGarden State Securities, Inc. Ameriprise Advisor Services, Inc. Comprehensive Asset Management Gary Goldberg & Co., Inc. Ameritas Investment Corp. Crown Capital Securities, LP Geneos Wealth Management, Inc. Associated Securities Corp. CUE Genworth Financial Securities Corp. AXA Advisors, LLC CUNA Brokerage Services, Inc. Girard Securities, Inc. Bancnorth Investment Group, Inc. CUSO Financial Services, LP Great American Advisors, Inc. BancorpSouth Investment Services, Inc. Dalton Strategic Inv. Svcs. Inc GunnAllen Financial, Inc. BCG Securities, Inc. David A. Noyes & Company GWN Securities, Inc. Beneficial Investment Services Inc Eagle One Investments, LLC H. Beck, Inc. Berthel Fisher & Company EDI Financial H.D. Vest Investment BFT Financial Group, LLC Ensemble Financial Services Inc Hantz Financial Services, Inc. Brecek & Young Advisors, Inc. ePLANNING Securities, Inc. Harbour Investments, Inc. Broker Dealer Financial Services Equity Services, Inc. HBW Securities LLC BrokersXpress LLC Essex National Securities, Inc. Hornor, Townsend & Kent, Inc. Brookstone Securities, Inc.
142
Howe Barnes Hoefer & Arnett Inc Morgan Stanley & Co Incorporated IFMG Securities, Inc. Multi-Financial Securities Corp. Signator Investors, Inc. IMS Securities Mutual Service Corporation SII Investments, Inc. Independent Financial Grp, LLC National Financial LLD SMH Capital, Inc. Infinex Investments, Inc. National Planning Corporation Source Capital Group, Inc. ING Financial Partners, Inc. National Retirement Partners Southwest Securities, Inc. Institutional Securities Corp. National Securities Corp. Stifel Nicolaus & Co., Inc. Intercarolina Financial Services Next Financial Group, Inc. Summit Brokerage Services, Inc. InterSecurities, Inc. NFP Securities, Inc. Summit Equities, Inc. Intervest International Equities Corp. North Ridge Securities Corp. Sunset Financial Services, Inc. Invest Financial Corporation NYLIFE Securities, Inc. Synergy Investment Group, LLC Investacorp OneAmerica Securities, Inc. TFS Securities, Inc. Investment Centers of America Oppenheimer & Co., Inc. (Fahnestock) The Investment Center, Inc. Investment Professionals Pacific West Securities, Inc. The Leaders Group, Inc. Investors Capital Corporation Packerland Brokerage Services, Inc. Tower Square Securities, Inc. J.J.B. Hilliard Lyons, Inc. Park Avenue Securities, LLC Traderight Securities J.P. Turner & Company, LLC Penn Plaza Brokerage, Ltd. Transamerica Financial Advisors J.W. Cole Financial, Inc. Penrod & Company Triad Advisors, Inc. Janney Montgomery Scott, LLC. PNC Investments, LLC Trinity Wealth Securities, LLC KCD Financial, Inc. Presidential Brokerage, Inc. Trustmont Financial Group, Inc. Key Investment Services LLC Prime Capital Services, Inc. UBS Financial Services, Inc. KMS Financial Services, Inc. PrimeVest Financial Services, Inc. United Planners Financial Services of LaSalle St. Securities, LLC Princor Financial Services Corp. America Legend Equities Corporation ProEquities, Inc. USA Financial Securities Corp. Legg Mason Wood Walker, Inc. Professional Asset Management UVEST Financial Services Group, Inc. Lincoln Financial Advisors QA3 Financial Corp. Vanderbilt Securities Lincoln Financial Securities Questar Capital Corporation Wachovia Securities Financial Corporation R. Seelaus & Company Inc Network, LLC Lincoln Investment Planning Raymond James & Associates, Inc. Wachovia Securities, Inc. (PCG)/PSI Lombard Securities, Inc. Raymond James Financial Services Wachovia Securities,LLC(BA) LPL Financial Corporation RBC Dain Rauscher, Inc. Wall Street Financial Group M Holdings Securities, Inc Regency Securities, Inc. Walnut Street Securities, Inc. McClurg Capital Corporation Resource Horizons Group Waterford Investor Services, Inc. McGinn, Smith & Co., INC. Robert W. Baird & Co., Inc. Waterstone Financial Group, Inc. Medallion Investment Services Royal Alliance Associates, Inc. Wayne Hummer Investments LLC Merrill Lynch Sage Rutty & Co., Inc. Webster Investment Services, Inc. Metropolitan Life Insurance Co. Sammons Securities Co., LLC Wells Fargo Investments, LLC Michigan Securities, Inc. Scottsdale Capital Advisors Wescom Financial Services LLC MML Investors Services, Inc. Securian Financial Services, Inc. Woodbury Financial Services, Inc. Money Concepts Capital Corp. Securities America, Inc. World Equity Group, Inc. Moors & Cabot, Inc. Securities Service Network, Inc. World Group Securities, Inc. Morgan Keegan & Company Sigma Financial Corporation WRP Investments, Inc. - -
On July 1, 2003, Prudential Financial 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 Richmond, Virginia. Wachovia is the majority owner and Prudential Financial, indirectly through subsidiaries, is a minority owner of Wachovia Securities. Prudential Financial has announced its intention to divest its interest in Wachovia Securities. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE Prudential Annuities Life Assurance Corporation incorporates by reference into the prospectus its latest annual report on Form 10-K filed pursuant to Section 13(a) or Section 15(d) of the Exchange Act since the end of the fiscal year covered by its latest annual report. In addition, all documents subsequently filed by us pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act also are incorporated into the prospectus by reference. We will provide to each person, including any beneficial owner, to whom a prospectus is delivered, a copy of any or all of the information that has been incorporated by reference into the prospectus but not delivered with the prospectus. Such information will be provided upon written or oral request at no cost to the requester by writing to Prudential Annuities Life Assurance Corporation, One Corporate Drive, Shelton, CT 06484 or by calling 888-PRU-2888. We file periodic reports as required under the Securities Exchange Act of 1934. The public may read and copy any materials that we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy, and information statements, and other information regarding issuers that file electronically with the SEC (see http://www.sec.gov). Our internet address is http://www.prudentialannuities.com. 143 FINANCIAL STATEMENTS The financial statements of the Separate Account and Prudential Annuities Life Assurance Corporation are included in the Statement of Additional Information. HOW TO CONTACT US You can contact us by: . calling our Customer Service Team at 1-888-PRU-2888 during our normal business hours, or our telephone automated response system at 1-800-766-4530. . writing to us via regular mail at Prudential Annuities - Variable Annuities, P.O. Box 7960, Philadelphia, PA 19176 OR for express mail Prudential Annuities - Variable Annuities, 2101 Welsh Road, Dresher, PA 19025. NOTE: Failure to send mail to the proper address may result in a delay in our receiving and processing your request. . sending an email to customerservice@prudential.com or visiting our Internet Website at www. prudentialannuities.com. . accessing information about your Annuity through our Internet Website at www. prudentialannuities.com. You can obtain account information by calling our automated response system and at www. prudentialannuities.com, our Internet Website. Our Customer Service representatives are also available during business hours to provide you with information about your account. You can request certain transactions through our telephone voice response system, our Internet Website or through a customer service representative. You can provide authorization for a third party, including your attorney-in-fact acting pursuant to a power of attorney or your Financial Professional, to access your account information and perform certain transactions on your account. You will need to complete a form provided by us which identifies those transactions that you wish to authorize via telephonic and electronic means and whether you wish to authorize a third party to perform any such transactions. Please note that unless you tell us otherwise, we deem that all transactions that are directed by your Financial Professional with respect to your Annuity have been authorized by you. We require that you or your representative provide proper identification before performing transactions over the telephone or through our Internet Website. This may include a Personal Identification Number (PIN) that will be provided to you upon issue of your Annuity or you may establish or change your PIN by calling our automated response system and at www. prudentialannuities.com, our Internet Website. Any third party that you authorize to perform financial transactions on your account will be assigned a PIN for your account. Transactions requested via telephone are recorded. To the extent permitted by law, we will not be responsible for any claims, loss, liability or expense in connection with a transaction requested by telephone or other electronic means if we acted on such transaction instructions after following reasonable procedures to identify those persons authorized to perform transactions on your Annuity using verification methods which may include a request for your Social Security number, PIN or other form of electronic identification. We may be liable for losses due to unauthorized or fraudulent instructions if we did not follow such procedures. Prudential Annuities does not guarantee access to telephonic, facsimile, Internet or any other electronic information or that we will be able to accept transaction instructions via such means at all times. Regular and/or express mail will be the only means by which we will accept transaction instructions when telephonic, facsimile, Internet or any other electronic means are unavailable or delayed. Prudential Annuities reserves the right to limit, restrict or terminate telephonic, facsimile, Internet or any other electronic transaction privileges at any time. INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. LEGAL PROCEEDINGS We are subject to legal and regulatory actions in the ordinary course of our businesses, including class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and proceedings generally applicable to business practices in the industry in which we operate. We are subject to class action lawsuits and other litigation alleging, among other things, that we made improper or inadequate disclosures in connection with the sale of annuity products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. We are also subject to litigation arising out of our general business activities, such as our investments and contracts, and could be exposed to claims or litigation concerning certain business or process patents. Regulatory authorities from time to time make inquiries and conduct investigations and examinations relating particularly to us and our products. In addition, we, along with other participants in the business in which we engage, may be subject from time to time to investigations, examinations and inquiries, in some cases industry-wide, concerning issues or matters upon which such regulators have determined to focus. In some of our pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of a litigation or regulatory matter, and the amount or range of potential loss at any particular time, is inherently uncertain. The following is a summary of certain pending proceedings. 144 We have substantially completed a remediation program to correct errors in the administration of approximately 11,000 annuity contracts issued by us. 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 the data integrity errors, as reflected on the annuities administrative system, all occurred before the acquisition of Prudential Annuities by Prudential Financial, Inc. (the "Acquisition"). The remediation and administrative costs of the remediation program are subject to the indemnification provisions of the agreement (the "Acquisition Agreement") pursuant to which Prudential Financial, Inc. acquired Prudential Annuities from Skandia Insurance Company Ltd. (publ) ("Skandia"). On April 17, 2009, AST Investment Services, Inc. ("ASISI") one of the Investment Managers of Advanced Series Trust, settled separate administrative proceedings brought by the SEC and the New York Attorney General's Office ("NYAG") regarding market timing activities of ASISI related to certain variable annuities and Advanced Series Trust. The settlements relate to conduct that generally occurred between January 1998 and September 2003. Prudential Financial, Inc. ("Prudential Financial") acquired ASISI, formerly named American Skandia Investment Services, Inc., from Skandia Insurance Company Ltd. (publ) in May 2003. Subsequent to the acquisition, Prudential Financial implemented controls, procedures and measures designed to protect customers from the types of activities involved in these settlements. Under the terms of the settlements, ASISI is paying a total of $34 million in disgorgement and an additional $34 million as a civil money penalty, and ASISI has undertaken that by the end of 2009 it will undergo a compliance review by an independent third party, who shall issue a report of its findings and recommendations to ASISI's Board of Directors, the Audit Committee of Advanced Series Trust and the Staff of the SEC. Prudential Investments LLC, the other Investment Manager of Advanced Series Trust, is not involved in the settlements. During the third quarter of 2004, we identified a system-generated calculation error in our annuity contract administration system that existed prior to the Acquisition. This error related to the calculation of amounts due to customers for certain transactions subject to a market value adjustment upon the surrender or transfer of monies out of their annuity contract's fixed allocation options. The error resulted in an underpayment to policyholders, as well as additional anticipated costs to us associated with remediation, breakage and other costs. Our consultants have developed the systems functionality to compute remediation amounts and are in the process of running the computations on affected contracts. We contacted state insurance regulators and commenced Phase I of our outreach to customers on November 12, 2007. Phase II commenced June 6, 2008. Phase III commenced December 5, 2008. A final phase is expected to rollout in April of 2009. We have advised Skandia that a portion of the remediation and related administrative costs are subject to the indemnification provisions of the Acquisition Agreement. From January 2006 to February 2008, thirty-one complaints were filed in 17th Judicial Circuit Court, Broward County, Florida alleging misrepresentations in the sale of annuities against us and in certain of the cases the two brokers who sold the annuities. The complaints allege that the brokers represented that any losses in the annuities would be insured or paid by a state guaranty fund and purport to state claims of breach of fiduciary duty, negligence, fraud, fraudulent inducement, negligent misrepresentation and seek damages in unspecified amounts but in excess of $15,000 per case. Thirty of the thirty-one lawsuits settled in December 2008. Skandia has indemnified us for the thirty settled matters, but has reserved the right to seek reimbursement of a portion of the total indemnified settlement amount pursuant to the provisions of the Acquisition Agreement. Our litigation and regulatory matters are subject to many uncertainties, and given its complexity and scope, their outcome cannot be predicted. It is possible that results of operations or cash flow of Prudential Annuities 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 our litigation and regulatory matters, it is also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation or regulatory matters could have a material adverse effect on our financial position. Management believes, however, that, based on information currently known to it, the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to indemnification, is not likely to have a material adverse effect on our financial position. 145 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The following are the contents of the Statement of Additional Information: General Information about Prudential Annuities Prudential Annuities Life Assurance Corporation Prudential Annuities Life Assurance Corporation Variable Account B Prudential Annuities Life Assurance Corporation Separate Account D Principal Underwriter/Distributor - Prudential Annuities Distributors, Inc. How the Unit Price is Determined Additional Information on Fixed Allocations How We Calculate the Market Value Adjustment General Information Voting Rights Modification Deferral of Transactions Misstatement of Age or Sex Ending the Offer Annuitization Experts Legal Experts Financial Statements
146 APPENDIX A - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B ACCUMULATION UNIT VALUES Separate Account B consists of multiple Sub-accounts that are available as investment options for the Prudential Annuities' Annuities. Each Sub-account invests only in a single mutual fund or mutual fund portfolio. All or some of these Sub-accounts are available as investment options for other variable annuities we offer pursuant to different prospectuses. Unit Prices And Numbers Of Units: The following tables show for each Annuity: (a) the historical Unit Price, corresponding to the Annuity features bearing the highest and lowest combinations of asset-based charges*, as of the dates shown, for Units in each of the Sub-accounts of Separate Account B that are being offered pursuant to this Prospectus**; and (b) the number of Units outstanding for each such Sub-account as of the dates shown. The period for each year begins on January 1 and ends on December 31. Since November 18, 2002, we have been determining, on a daily basis, multiple Unit Prices for each Sub-account of Separate Account B. We compute multiple Unit Prices because several of our variable annuities invest in the same Sub-accounts, and these annuities deduct varying charges that correspond to each combination of the applicable Insurance Charge, Distribution Charge (when applicable) and the charges for each optional benefit. Where an asset-based charge corresponding to a particular Sub-account within a new annuity product is identical to that in the same Sub-account within an existing annuity, the Unit Price for the new annuity will be identical to that of the existing annuity. In such cases, we will for reference purposes depict, in the condensed financial information for the new annuity, Unit Prices of the existing annuity. To the extent a Sub-account commenced operations during a particular calendar year, the Unit Price as of the end of the period reflects only the partial year results from the commencement of operations until December 31st of the applicable year. When a Unit Price was first calculated for a particular Sub-account, we set the price of that Unit at $10.00 per Unit. Thereafter, Unit Prices vary based on market performance. Unit Prices and Units are provided for Sub-accounts that commenced operations prior to January 1, 2009. * Note: While a unit price is reflected for the maximum combination of asset based charges for each Sub-account, not all Sub-accounts are available if you elect certain optional benefits. ** The remaining unit values appear in the Statement of Additional Information, which you may obtain free of charge by sending in the request form at the end of the Prospectus or contacting us at 1-888-PRU-2888. Optimum XTRA Prudential Annuities Life Assurance Corporation Prospectus ACCUMULATION UNIT VALUES: With No Optional Benefits (1.75%)
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period -------------------------------------------------------------------------------------------------------------- AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $13.63 $9.51 162,150 -------------------------------------------------------------------------------------------------------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $14.10 $9.96 371,815 -------------------------------------------------------------------------------------------------------------- AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.73 $7.90 4,352,710 -------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $10.04 $11.70 0 -------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $10.06 $12.53 0 -------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $10.08 $12.60 0 -------------------------------------------------------------------------------------------------------------- AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.79 $7.70 5,254,768 -------------------------------------------------------------------------------------------------------------- AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $21.71 $14.38 50,033 -------------------------------------------------------------------------------------------------------------- AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.78 $8.18 4,544,410 -------------------------------------------------------------------------------------------------------------- AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $21.30 $14.22 104,149
A-1
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period --------------------------------------------------------------------------------------------------------------- AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $17.45 $10.70 86,649 --------------------------------------------------------------------------------------------------------------- AST International Growth Portfolio 06/30/2008 to 12/31/2008 $21.21 $11.88 279,897 --------------------------------------------------------------------------------------------------------------- AST International Value Portfolio 06/30/2008 to 12/31/2008 $21.23 $13.65 149,062 --------------------------------------------------------------------------------------------------------------- AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $9.82 $10.72 12,969,535 --------------------------------------------------------------------------------------------------------------- AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $18.54 $11.98 113,373 --------------------------------------------------------------------------------------------------------------- AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.72 $8.83 276,477 --------------------------------------------------------------------------------------------------------------- AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $13.78 $10.62 187,186 --------------------------------------------------------------------------------------------------------------- AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $15.05 $9.68 585,331 --------------------------------------------------------------------------------------------------------------- AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $16.54 $10.84 84,121 --------------------------------------------------------------------------------------------------------------- AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $14.65 $9.90 101,558 --------------------------------------------------------------------------------------------------------------- AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.52 $10.54 4,924,789 --------------------------------------------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $18.31 $11.65 166,699 --------------------------------------------------------------------------------------------------------------- AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $18.09 $11.11 126,789 --------------------------------------------------------------------------------------------------------------- AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $16.13 $10.41 40,300 --------------------------------------------------------------------------------------------------------------- AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $11.15 $10.90 712,342 --------------------------------------------------------------------------------------------------------------- AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $11.90 $11.38 1,923,586 --------------------------------------------------------------------------------------------------------------- AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.81 $9.00 5,689,527 --------------------------------------------------------------------------------------------------------------- AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.52 $9.17 68,880 --------------------------------------------------------------------------------------------------------------- AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $16.10 $12.18 207,810 --------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $13.08 $12.35 196,898 --------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.40 $8.70 366,989 --------------------------------------------------------------------------------------------------------------- AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.06 $9.29 827,581 --------------------------------------------------------------------------------------------------------------- Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $16.80 $10.96 34,306 --------------------------------------------------------------------------------------------------------------- Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $14.72 $11.65 5,197
* Denotes the start date of these sub-accounts. A-2 Optimum XTRA Prudential Annuities Life Assurance Corporation Prospectus ACCUMULATION UNIT VALUES: With Lifetime Five and HDV or Lifetime Five and Combo 5% Roll-UP/HAV or Highest Daily LT5 and Combo 5% Roll-UP/HAV (2.85%)
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period -------------------------------------------------------------------------------------------------------------- AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $10.01 $6.94 0 -------------------------------------------------------------------------------------------------------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $9.97 $7.01 3,174 -------------------------------------------------------------------------------------------------------------- AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.32 40,353 -------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $10.04 $11.64 0 -------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $10.06 $12.46 0 -------------------------------------------------------------------------------------------------------------- AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $10.08 $12.53 0 -------------------------------------------------------------------------------------------------------------- AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.10 121,700 -------------------------------------------------------------------------------------------------------------- AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $10.02 $6.60 1,599 -------------------------------------------------------------------------------------------------------------- AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.54 48,464 -------------------------------------------------------------------------------------------------------------- AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $9.88 $6.56 731 -------------------------------------------------------------------------------------------------------------- AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $9.95 $6.07 0 -------------------------------------------------------------------------------------------------------------- AST International Growth Portfolio 06/30/2008 to 12/31/2008 $10.00 $5.57 1,409 -------------------------------------------------------------------------------------------------------------- AST International Value Portfolio 06/30/2008 to 12/31/2008 $10.01 $6.40 1,206 -------------------------------------------------------------------------------------------------------------- AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.87 0 -------------------------------------------------------------------------------------------------------------- AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $10.03 $6.44 0 -------------------------------------------------------------------------------------------------------------- AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.00 $6.90 3,128 -------------------------------------------------------------------------------------------------------------- AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $10.00 $7.66 0 -------------------------------------------------------------------------------------------------------------- AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $10.02 $6.41 3,515 -------------------------------------------------------------------------------------------------------------- AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $9.99 $6.51 0 -------------------------------------------------------------------------------------------------------------- AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $9.99 $6.71 0 -------------------------------------------------------------------------------------------------------------- AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.00 $9.96 0
A-3
Number of Accumulation Accumulation Accumulation Unit Value at Unit Value at Units Outstanding at Sub Accounts Beginning of Period End of Period End of Period --------------------------------------------------------------------------------------------------------------- AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $9.92 $6.28 0 --------------------------------------------------------------------------------------------------------------- AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $9.99 $6.10 0 --------------------------------------------------------------------------------------------------------------- AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $9.89 $6.35 0 --------------------------------------------------------------------------------------------------------------- AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $9.99 $9.71 0 --------------------------------------------------------------------------------------------------------------- AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $9.99 $9.50 0 --------------------------------------------------------------------------------------------------------------- AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $9.99 $8.26 187,167 --------------------------------------------------------------------------------------------------------------- AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $9.91 $6.69 710 --------------------------------------------------------------------------------------------------------------- AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $9.89 $7.44 1,276 --------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $9.94 $9.33 0 --------------------------------------------------------------------------------------------------------------- AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $9.98 $6.44 3,632 --------------------------------------------------------------------------------------------------------------- AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.00 $9.18 18,043 --------------------------------------------------------------------------------------------------------------- Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $10.07 $6.53 0 --------------------------------------------------------------------------------------------------------------- Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $9.94 $7.82 0
* Denotes the start date of these sub-accounts. A-4 APPENDIX B - CALCULATION OF OPTIONAL DEATH BENEFITS Examples of Enhanced Beneficiary Protection Optional Death Benefit Calculation The following are examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated. Each example assumes that a $50,000 initial Purchase Payment is made. Each example assumes that there is one Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment options. The formula for determining the Enhanced Beneficiary Protection Optional Death Benefit is as follows: Growth = Account Value of variable minus purchase payments - investment options plus Interim proportional withdrawals Value of Fixed Allocations (no MVA applies)
Example with market increase Assume that the Owner has made no withdrawals and that the Account Value has been increasing due to positive market performance. On the date we receive due proof of death, the Account Value is $75,000. The basic Death Benefit is calculated as purchase payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $75,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($75,000) PLUS 40% of the "Growth" under the Annuity. Growth = $75,000 - [$50,000 - $0] = $25,000 Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth = $25,000 * 0.40 = $10,000 Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit = $85,000
Examples with market decline Assume that the Owner has made no withdrawals and that the Account Value has been decreasing due to declines in market performance. On the date we receive due proof of death, the Account Value is $45,000. The basic Death Benefit is calculated as purchase payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $50,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($50,000) PLUS the "Growth" under the Annuity. Growth = $45,000 - [$50,000 - $0] = $-5,000 Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth NO BENEFIT IS PAYABLE Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit = $50,000
In this example you would receive no additional benefit from purchasing the Enhanced Beneficiary Protection Optional Death Benefit. B-1 Example with market increase and withdrawals Assume that the Account Value has been increasing due to positive market performance and the Owner made a withdrawal of $15,000 in Annuity Year 5 when the Account Value was $75,000. On the date we receive due proof of death, the Account Value is $90,000. The basic Death Benefit is calculated as purchase payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $90,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($90,000) PLUS 40% of the "Growth" under the Annuity. Growth = $90,000 - [$50,000 - ($50,000 * $15,000/$75,000)] = $90,000 - [$50,000 - $10,000] = $90,000 - $40,000 = $50,000 Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth = $50,000 * 0.40 = $20,000 Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit = $110,000
Examples of Highest Anniversary Value Death Benefit Calculation The following are examples of how the Highest Anniversary Value Death Benefit is calculated. Each example assumes an initial Purchase Payment of $50,000. Each example assumes that there is one Owner who is age 70 on the Issue Date and that all Account Value is maintained in the variable investment options. Example with market increase and death before Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals have been made. On the date we receive due proof of death, the Account Value is $75,000; however, the Anniversary Value on the 5/th/ anniversary of the Issue Date was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Anniversary Value or the basic Death Benefit. The Death Benefit would be the Highest Anniversary Value ($90,000) because it is greater than the amount that would have been payable under the basic Death Benefit ($75,000). Example with withdrawals Assume that the Account Value has been increasing due to positive market performance and the Owner made a withdrawal of $15,000 in Annuity Year 7 when the Account Value was $75,000. On the date we receive due proof of death, the Account Value is $80,000; however, the Anniversary Value on the 5/th/ anniversary of the Issue Date was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Anniversary Value or the basic Death Benefit. = $90,000 - [$90,000 * $15,000/$75,000] = $90,000 - $18,000 = $72,000 Basic = max [$80,000, $50,000 - ($50,000 * $15,000/$75,000)] Death Benefit = max [$80,000, $40,000] = $80,000 The Death Benefit therefore is $80,000.
B-2 Example with death after Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals had been made prior to the Death Benefit Target Date. Further assume that the Owner dies after the Death Benefit Target Date, when the Account Value is $75,000. The Highest Anniversary Value on the Death Benefit Target Date was $80,000; however, following the Death Benefit Target Date, the Owner made a Purchase Payment of $15,000 and later had taken a withdrawal of $5,000 when the Account Value was $70,000. The Death Benefit is equal to the greater of the Highest Anniversary Value plus purchase payments minus proportional withdrawals after the Death Benefit Target Date or the basic Death Benefit. Highest Anniversary Value = $80,000 + $15,000 - [($ 80,000 + $15,000) * $5,000/$70,000] = $80,000 + $15,000 - $6,786 = $88,214 Basic Death Benefit = max [$75,000, ($50,000 + $15,000) - {($50,000 + $15,000) * $5,000/$70,000}] = max [$75,000, $60,357] = $75,000 The Death Benefit therefore is $88,214.
Examples of Combination 5% Roll-up and Highest Anniversary Value Death Benefit Calculation The following are examples of how the Combination 5% Roll-Up and Highest Anniversary Value Death Benefit are calculated. Each example assumes an initial Purchase Payment of $50,000. Each example assumes that there is one Owner who is age 70 on the Issue Date and that all Account Value is maintained in the variable investment options. Example with market increase and death before Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals have been made. On the 7/th/ anniversary of the Issue Date we receive due proof of death, at which time the Account Value is $75,000; however, the Anniversary Value on the 5/th/ anniversary of the Issue Date was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Roll-Up Value is equal to initial Purchase Payment accumulated at 5% for 6 years, or $67,005. The Death Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary Value or the basic Death Benefit. The Death Benefit would be the Highest Anniversary Value ($90,000) because it is greater than both the Roll-Up Value ($67,005) and the amount that would have been payable under the basic Death Benefit ($75,000). Example with withdrawals Assume that the Owner made a withdrawal of $5,000 on the 6/th/ anniversary of the Issue Date when the Account Value was $45,000. The Roll-Up Value on the 6/th/ anniversary of the Issue Date is equal to initial Purchase Payment accumulated at 5% for 6 years, or $67,005. The 5% Dollar-for-Dollar Withdrawal Limit for the 7/th/ annuity year is equal to 5% of the Roll-Up Value as of the 6/th/ anniversary of the Issue Date, or $3,350. Therefore, the remaining $1,650 of the withdrawal results in a proportional reduction to the Roll-Up Value. On the 7/th/ anniversary of the Issue Date we receive due proof of death, at which time the Account Value is $43,000; however, the Anniversary Value on the 2nd anniversary of the Issue Date was $70,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary Value or the basic Death Benefit. Roll-Up Value = {(67,005 - $3,350) - [($67,005 - $3,350) * $1,650/($45,000 - $3,350)]} * 1.05 = ($63,655 - $2,522) * 1.05 = $64,190 Highest Anniversary Value = $70,000 - [$70,000 * $5,000/$45,000] = $70,000 - $7,778 = $62,222 Basic Death Benefit = max [$43,000, $50,000 - ($50,000 * $5,000/$45,000)] = max [$43,000, $44,444] = $44,444 The Death Benefit therefore is $64,190.
B-3 Example with death after Death Benefit Target Date Assume that the Owner has not made any withdrawals prior to the Death Benefit Target Date. Further assume that the Owner dies after the Death Benefit Target Date, when the Account Value is $75,000. The Roll-Up Value on the Death Benefit Target Date (the contract anniversary on or following the Owner's 80/th/ birthday) is equal to initial Purchase Payment accumulated at 5% for 10 years, or $81,445. The Highest Anniversary Value on the Death Benefit Target Date was $85,000; however, following the Death Benefit Target Date, the Owner made a Purchase Payment of $15,000 and later had taken a withdrawal of $5,000 when the Account Value was $70,000. The Death Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary Value or the basic Death Benefit as of the Death Benefit Target Date; each increased by subsequent purchase payments and reduced proportionally for subsequent withdrawals. Roll-Up Value = $81,445 + $15,000 - [($81,445 + 15,000) * $5,000/$70,000] = $81,445 + $15,000 - $6,889 = $89,556 Highest Anniversary Value = $85,000 + $15,000 - [($85,000 + 15,000) * $5,000/$70,000] = $85,000 + $15,000 - $7,143 = $92,857 Basic Death Benefit = max [$75,000, $50,000 + $15,000 - {(50,000 + $15,000) * $5,000/$70,000}] = max [$75,000, $60,357] = $75,000 The Death Benefit therefore is $92,857.
Examples of Highest Daily Value Death Benefit Calculation The following are examples of how the HDV Death Benefit is calculated. Each example assumes an initial Purchase Payment of $50,000. Each example assumes that there is one Owner who is age 70 on the Issue Date. Example with market increase and death before Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals have been made. On the date we receive due proof of death, the Account Value is $75,000; however, the Highest Daily Value was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Daily Value or the basic Death Benefit. The Death Benefit would be the HDV ($90,000) because it is greater than the amount that would have been payable under the basic Death Benefit ($75,000). Example with withdrawals Assume that the Account Value has been increasing due to positive market performance and the Owner made a withdrawal of $15,000 in Annuity Year 7 when the Account Value was $75,000. On the date we receive due proof of death, the Account Value is $80,000; however, the Highest Daily Value ($90,000) was attained during the fifth Annuity Year. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Daily Value (proportionally reduced by the subsequent withdrawal) or the basic Death Benefit. Highest Daily Value = $90,000 - [$90,000 * $15,000/$75,000] = $90,000 - $18,000 = $72,000 Basic Death Benefit = max [$80,000, $50,000 - ($50,000 * $15,000/$75,000)] = max [$80,000, $40,000] = $80,000 The Death Benefit therefore is $80,000.
B-4 APPENDIX C - ADDITIONAL INFORMATION ON ASSET ALLOCATION PROGRAMS PROGRAM RULES . You can elect an asset allocation program provided by LPL Financial Corporation, ("LPL"), the firm selling the Annuity. Under the program, the Sub-accounts for each asset class in each model portfolio are designated based on LPL's evaluation of available Sub-accounts. If you elect the Highest Daily Lifetime Five Benefit ("HD5"), the Lifetime Five Benefit ("LT5"), Spousal Lifetime Five Benefit ("SLT5"), the Highest Daily Lifetime Seven Benefit (including the "Plus" version) ("HD7"), the Spousal Highest Daily Lifetime Seven Benefit (including the "Plus" version) ("SHD7") or the Highest Daily Value Death Benefit ("HDV"), you must enroll in one of the eligible model portfolios. Asset allocation is a sophisticated method of diversification that allocates assets among asset classes in order to manage investment risk and potentially enhance returns over the long term. However, asset allocation does not guarantee a profit or protect against a loss. . Prudential Annuities does not design the program or the models, and it is not responsible for the program or the models. Prudential Annuities does not provide investment advice and is responsible only for administering the model you select. . Please see your program materials for a detailed description of LPL's asset allocation program including the available model portfolios. You can obtain these materials from your LPL Financial Professional. HOW THE ASSET ALLOCATION PROGRAM WORKS . Amounts will automatically be allocated in accordance with the percentages and to Sub-accounts indicated for the model portfolio that you choose with your LPL Financial Professional. If you allocate your Account Value or transfer your Account Value among any Sub-accounts that are outside of your model portfolio, we will allocate these amounts according to the allocation percentages of the applicable model portfolio upon the next rebalancing. You may only choose one model portfolio at a time. When you enroll in the asset allocation program and upon each rebalance thereafter, 100% of your Account Value allocated to the variable Sub-accounts will be allocated to the asset allocation program. Any Account Value not invested in the Sub-accounts will not be part of the program. . Additional Purchase Payments: Unless otherwise requested, any additional Purchase Payments applied to the variable Sub-accounts in the Annuity will be allocated to the Sub-accounts according to the allocation percentages for the model portfolio you choose. Allocation of additional Purchase Payments outside of your model portfolio but into a Sub-account, will be reallocated according to the allocation percentages of the applicable model portfolio upon the next rebalancing. . Rebalancing Your Model Portfolio: Changes in the value of the Sub-account will cause your Account Value allocated to the Sub-accounts to vary from the percentage allocations of the model portfolio you select. By selecting the asset allocation program, you have directed us to periodically (e.g., quarterly) rebalance your Account Value allocated to the Sub-accounts in accordance with the percentage allocations assigned to each Sub-account within your model portfolio at the time you elected the program or as later modified with your consent. Some asset allocation programs will only require that a rebalancing occur when the percent of your Account Value allocated to the Sub-accounts are outside of the acceptable range permitted under such asset allocation program. Note - Any Account Value not invested in the Sub-accounts will not be affected by any rebalance. . Owner Changes in Choice of Model Portfolio: Generally, you may change from the model portfolio that you have elected to any other currently available model portfolio at any time. The change will be implemented on the date we receive all required information in the manner that is then permitted or required. Restrictions and limitations may apply, see LPL program materials for details. TERMINATION OR MODIFICATION OF THE ASSET ALLOCATION PROGRAM: . You may request to terminate your asset allocation program at any time unless you have elected an optional benefit that requires that you maintain your Account Value in the asset allocation program. Any termination will be effective on the date that Prudential Annuities receives your termination request in good order. If you move your account from LPL to another firm, and you have elected one of the optional benefits mentioned above, then termination of your asset allocation program with LPL must coincide with enrollment in a then currently available and approved asset allocation program or other approved option. LPL reserves the right to terminate or modify the asset allocation program at any time. Prudential Annuities reserves the right to change the way in which we administer the program and to terminate our administration of the program. RESTRICTIONS ON ELECTING THE ASSET ALLOCATION: . You cannot participate in auto-rebalancing or a DCA program while enrolled in an asset allocation program. Upon election of an asset allocation program, Prudential Annuities will automatically terminate your enrollment in any auto-rebalancing or DCA program. Finally, Systematic Withdrawals can only be made as flat dollar amounts. C-1 APPENDIX D - FORMULA UNDER HIGHEST DAILY LIFETIME FIVE INCOME BENEFIT We set out below the current formula under which we may transfer amounts between the variable investment options and the Benefit Fixed Rate Account. Upon your election of Highest Daily Lifetime Five, we will not alter the formula that applies to your Annuity. However, as discussed in the "Living Benefits" section, we reserve the right to modify this formula with respect to those who elect Highest Daily Lifetime Five in the future. TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULA: . C\\u\\ - the upper target is established on the effective date of the Highest Daily Lifetime Five benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently, it is 83%. . C\\t\\ - the target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 80%. . C\\l\\ - the lower target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 77%. . L - the target value as of the current Valuation Day. . r - the target ratio. . a - the factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. The factors that we use currently are derived from the a2000 Individual Annuity Mortality Table with an assumed interest rate of 3%. Each number in the table "a" factors (which appears below) represents a factor, which when multiplied by the Highest Daily Annual Income Amount, projects our total liability for the purpose of asset transfers under the guarantee. . Q - age based factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. The factor is currently set equal to 1. . V - the total value of all Permitted Sub-accounts in the Annuity. . F - the total value of all Benefit Fixed Rate Account allocations. . I - the income value prior to the first withdrawal. The income value is equal to what the Highest Daily Annual Income Amount would be if the first withdrawal were taken on the date of calculation. After the first withdrawal the income value equals the greater of the Highest Daily Annual Income Amount, the quarterly step-up amount times the annual income percentage, and the Account Value times the annual income percentage. . T - the amount of a transfer into or out of the Benefit Fixed Rate Account. . I% - annual income amount percentage. This factor is established on the Effective Date and is not changed for the life of the guarantee. Currently, this percentage is equal to 5% TARGET VALUE CALCULATION: On each Valuation Day, a target value (L) is calculated, according to the following formula. If the variable Account Value (V) is equal to zero, no calculation is necessary. L = I * Q * a Transfer Calculation: The following formula, which is set on the Effective Date and is not changed for the life of the guarantee, determines when a transfer is required: Target Ratio r = (L - F) / V.
. If r ((greater than)) C\\u\\, assets in the Permitted Sub-accounts are transferred to Benefit Fixed Rate Account. . If r ((less than)) C\\l\\, and there are currently assets in the Benefit Fixed Rate Account (F ((greater than)) 0), assets in the Benefit Fixed Rate Account are transferred to the Permitted Sub-accounts. D-1 The following formula, which is set on the Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = {Min(V, [L - F - V * C\\t\\] / (1-C\\t\\))} T(greater than)0, Money moving from the Permitted Sub-accounts to the Benefit Fixed Rate Account T = {Min(F, [L - F - V * C\\t\\] / (1-C\\t\\))} T(less than)0, Money moving from the Benefit Fixed Rate Account to the Permitted Sub-accounts]
Example: Male age 65 contributes $100,000 into the Permitted Sub accounts and the value drops to $92,300 during year one, end of day one. A table of values for "a" appears below. Target Value Calculation: L = I * Q * a = 5000.67 * 1 * 15.34 = 76,710.28
Target Ratio: r = (L - F) / V = (76,710.28 - 0) / 92,300.00 = 83.11%
Since r ((greater than)) Cu (because 83.11% (greater than) 83%) a transfer into the Benefit Fixed rate Account occurs. T = { Min ( V, [ L - F - V * Ct] / ( 1 - Ct))} = { Min ( 92,300.00, [ 76,710.28 - 0 - 92,300.00 * 0.80] / ( 1 - 0.80))} = { Min ( 92,300.00, 14,351.40 )} = 14,351.40
FORMULA FOR CONTRACTS WITH 90% CAP FEATURE TARGET VALUE CALCULATION: On each Valuation Day, a target value (L) is calculated, according to the following formula. If the variable Account Value (V) is equal to zero, no calculation is necessary. L = I * Q * a
If you elect this feature, the following replaces the "Transfer Calculation" above. Transfer Calculation: The following formula, which is set on the effective date of this feature and is not changed for the life of the guarantee, determines when a transfer is required: On the effective date of this feature (and only on the effective date of this feature), the following asset transfer calculation is performed to determine the amount of Account Value allocated to the Benefit Fixed Rate Account: If (F / (V + F) (greater than) .90) then T = F - (V + F) * .90
If T is greater than $0 as described above, then no additional transfer calculations are performed on the effective date. On each Valuation Day thereafter (including the effective date of this feature provided F / (V + F) (less than)= .90), the following asset transfer calculation is performed Target Ratio r = (L - F) / V
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to the Benefit Fixed Rate Account (subject to the 90% cap rule described above). . If r (less than) C\\l\\ and there are currently assets in the Benefit Fixed Rate Account (F (greater than) 0), assets in the Benefit Fixed Rate Account are transferred to the Permitted Sub-accounts. D-2 The following formula, which is set on the Effective Date of this feature and is not changed for the life of the guarantee, determines the transfer amount: T = Min (MAX (0, (0.90 * (V + F)) - F), Money is transferred from the elected Permitted [L - F - V * C\\t\\] / (1 - C\\t\\)) Sub-accounts to Benefit Fixed Rate Account T = Min (F, - [L - F - V * C\\t\\] / (1 - C\\t\\)), Money is transferred from the Benefit Fixed Rate Account to the Permitted Sub-accounts
Age 65 "a" Factors for Liability Calculations (in Years and Months since Benefit Effective Date)*
Months Years 1 2 3 4 5 6 7 8 9 10 11 12 ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1 15.34 15.31 15.27 15.23 15.20 15.16 15.13 15.09 15.05 15.02 14.98 14.95 2 14.91 14.87 14.84 14.80 14.76 14.73 14.69 14.66 14.62 14.58 14.55 14.51 3 14.47 14.44 14.40 14.36 14.33 14.29 14.26 14.22 14.18 14.15 14.11 14.07 4 14.04 14.00 13.96 13.93 13.89 13.85 13.82 13.78 13.74 13.71 13.67 13.63 5 13.60 13.56 13.52 13.48 13.45 13.41 13.37 13.34 13.30 13.26 13.23 13.19 6 13.15 13.12 13.08 13.04 13.00 12.97 12.93 12.89 12.86 12.82 12.78 12.75 7 12.71 12.67 12.63 12.60 12.56 12.52 12.49 12.45 12.41 12.38 12.34 12.30 8 12.26 12.23 12.19 12.15 12.12 12.08 12.04 12.01 11.97 11.93 11.90 11.86 9 11.82 11.78 11.75 11.71 11.67 11.64 11.60 11.56 11.53 11.49 11.45 11.42 10 11.38 11.34 11.31 11.27 11.23 11.20 11.16 11.12 11.09 11.05 11.01 10.98 11 10.94 10.90 10.87 10.83 10.79 10.76 10.72 10.69 10.65 10.61 10.58 10.54 12 10.50 10.47 10.43 10.40 10.36 10.32 10.29 10.25 10.21 10.18 10.14 10.11 13 10.07 10.04 10.00 9.96 9.93 9.89 9.86 9.82 9.79 9.75 9.71 9.68 14 9.64 9.61 9.57 9.54 9.50 9.47 9.43 9.40 9.36 9.33 9.26 9.29 15 9.22 9.19 9.15 9.12 9.08 9.05 9.02 8.98 8.95 8.91 8.88 8.84 16 8.81 8.77 8.74 8.71 8.67 8.64 8.60 8.57 8.54 8.50 8.47 8.44 17 8.40 8.37 8.34 8.30 8.27 8.24 8.20 8.17 8.14 8.10 8.07 8.04 18 8.00 7.97 7.94 7.91 7.88 7.84 7.81 7.78 7.75 7.71 7.68 7.65 19 7.62 7.59 7.55 7.52 7.49 7.46 7.43 7.40 7.37 7.33 7.30 7.27 20 7.24 7.21 7.18 7.15 7.12 7.09 7.06 7.03 7.00 6.97 6.94 6.91 21 6.88 6.85 6.82 6.79 6.76 6.73 6.70 6.67 6.64 6.61 6.58 6.55 22 6.52 6.50 6.47 6.44 6.41 6.38 6.36 6.33 6.30 6.27 6.24 6.22 23 6.19 6.16 6.13 6.11 6.08 6.05 6.03 6.00 5.97 5.94 5.92 5.89 24 5.86 5.84 5.81 5.79 5.76 5.74 5.71 5.69 5.66 5.63 5.61 5.58 25 5.56 5.53 5.51 5.48 5.46 5.44 5.41 5.39 5.36 5.34 5.32 5.29 26 5.27 5.24 5.22 5.20 5.18 5.15 5.13 5.11 5.08 5.06 5.04 5.01 27 4.99 4.97 4.95 4.93 4.91 4.88 4.86 4.84 4.82 4.80 4.78 4.75 28 4.73 4.71 4.69 4.67 4.65 4.63 4.61 4.59 4.57 4.55 4.53 4.51 29 4.49 4.47 4.45 4.43 4.41 4.39 4.37 4.35 4.33 4.32 4.30 4.28 30 4.26 4.24 4.22 4.20 4.18 4.17 4.15 4.13 4.11 4.09 4.07 4.06 31 4.04 4.02 4.00 3.98 3.97 3.95 3.93 3.91 3.90 3.88 3.86 3.84 32 3.83 3.81 3.79 3.78 3.76 3.74 3.72 3.71 3.69 3.67 3.66 3.64 33 3.62 3.61 3.59 3.57 3.55 3.54 3.52 3.50 3.49 3.47 3.45 3.44 34 3.42 3.40 3.39 3.37 3.35 3.34 3.32 3.30 3.29 3.27 3.25 3.24 35 3.22 3.20 3.18 3.17 3.15 3.13 3.12 3.10 3.08 3.07 3.05 3.03 36 3.02 3.00 2.98 2.96 2.95 2.93 2.91 2.90 2.88 2.86 2.85 2.83 37 2.81 2.79 2.78 2.76 2.74 2.73 2.71 2.69 2.68 2.66 2.64 2.62 38 2.61 2.59 2.57 2.56 2.54 2.52 2.51 2.49 2.47 2.45 2.44 2.42 39 2.40 2.39 2.37 2.35 2.34 2.32 2.30 2.29 2.27 2.25 2.24 2.22 40 2.20 2.19 2.17 2.15 2.14 2.12 2.11 2.09 2.07 2.06 2.04 2.02 41 2.01 1.84 1.67 1.51 1.34 1.17 1.00 0.84 0.67 0.50 0.33 0.17
* The values set forth in this table are applied to all ages, and apply whether or not the 90% cap is elected. D-3 APPENDIX E - ANNUITIES APPROVED FOR SALE BY THE NEW YORK STATE INSURANCE DEPARTMENT
Optimum XTra NY Minimum $10,000 Investment --------------------------------------- Maximum Issue Annuitant 85 Age Oldest Owner 75 --------------------------------------- Contingent 10 Years Deferred (9%, 9%, 8%, 7%, Sales Charge 6%, 5%, 4%, 3%, 2%, Schedule 1%) (Applied to Purchase Payments based on the inception date of the Annuity) --------------------------------------- Insurance 1.75% Charge --------------------------------------- Distribution N/A Charge --------------------------------------- Annual Lesser of $30 or 2% Maintenance of Account Value Fee --------------------------------------- Transfer Fee $10 after twenty in any annuity year --------------------------------------- Contract Credit Yes. The amount of the credit applied to a Purchase Payment is based on the year the Purchase Payment is received, and the amount of the Purchase Payment. For cumulative Purchase Payments $100,000 or greater, for the first 6 years of the Annuity is as follows: the credit percentages for each year, starting with the first, are 8%, 6%, 4%, 3%, 2%, and 1%. For cumulative Purchase Payments less than $100,000: 6%, 5%, 4%, 3%, 2%, and 1%. Recaptured in certain circumstances. --------------------------------------- Fixed No Allocation (If available, early withdrawals are subject to a Market Value Adjustment) ("MVA") --------------------------------------- Variable All options Investment generally available Options except where restrictions apply when certain riders are purchased. --------------------------------------- Basic Death The greater of: Benefit Purchase Payments less proportional withdrawals or Account Value (variable) (No MVA applied) --------------------------------------- N/A Medically-Related Surrender Feature --------------------------------------- Optional Death HAV Benefits (for an additional cost)/(1)/ --------------------------------------- Optional GRO Plus 2008, Living Highest Daily GRO, Benefits (for GMWB, GMIB, an additional Lifetime Five, cost)/(2)/ Spousal Lifetime Five, Highest Daily Lifetime Five Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime Seven, Highest Daily Lifetime 7 Plus and Spousal Highest Daily Lifetime 7 Plus. --------------------------------------- Annuity Available after Rewards/(3)/ initial CDSC period --------------------------------------- Annuitization Fixed option only Options Annuity date cannot exceed the first day of the calendar month following Annuitant's 90/th/ birthday The maximum Annuity Date is based on the first Owner or Annuitant to reach the maximum age, as indicated in your Annuity. ---------------------------------------
(1)For more information on these benefits, refer to the "Death Benefit" section in the Prospectus. (2)For more information on these benefits, refer to the "Living Benefit" section in the Prospectus. Highest Daily Lifetime Seven with Beneficiary Income Option (BIO), Spousal Highest Daily Lifetime Seven with Beneficiary Income Option (BIO), Highest Daily Lifetime Seven with Lifetime Income Accelerator (LIA), Highest Daily Lifetime 7 Plus with BIO, Spousal Highest Daily Lifetime 7 Plus with BIO and Highest Daily Lifetime 7 Plus with LIA are not currently available in New York. (3)The Annuity rewards benefit offers Owners an ability to increase the guaranteed death benefit so that the death benefit will at least equal the Annuity's Account Value on the effective date of the Annuity Rewards benefits, if the terms of the Annuity Rewards benefit are met. E-1 APPENDIX F - FORMULA UNDER GRO PLUS 2008 AND HIGHEST DAILY GRO The following are the Terms and Definitions referenced in the Transfer Calculation Formula: . AV is the current Account Value of the Annuity . V is the current Account Value of the elected Sub-accounts of the Annuity . B is the total current value of the AST bond portfolio Sub-account . C\\l\\ is the lower target value. Currently, it is 79%. . C\\t\\ is the middle target value. Currently, it is 82%. . C\\u\\ is the upper target value. Currently, it is 85%. For each guarantee provided under the benefit, . G\\i\\ is the guarantee amount . N\\i\\ is the number of days until the maturity date . d\\i\\ is the discount rate applicable to the number of days until the maturity date. It is determined with reference to a benchmark index, reduced by the Discount Rate Adjustment. Once selected, we will not change the applicable benchmark index. However, if the benchmark index is discontinued, we will substitute a successor benchmark index, if there is one. Otherwise we will substitute a comparable benchmark index. We will obtain any required regulatory approvals prior to substitution of the benchmark index. The formula, which is set on the Effective Date and is not changed while the Rider is in effect, determines, on each Valuation Day, when a transfer is required. The formula begins by determining the value on that Valuation Day that, if appreciated at the applicable discount rate, would equal the guarantee amount at the end of the Base Guarantee Period or Step-Up Guarantee Period. We call the greatest of these values the "current liability (L)." L = MAX (Li), where Li = Gi / (1 + di)/(Ni/365)/.
Next the formula calculates the following formula ratio: r = (L - B) / V.
If the formula ratio exceeds an upper target value, then all or a portion of the Account Value will be transferred to the bond fund Sub-account associated with the current liability. If at the time we make a transfer to the bond fund Sub-account associated with the current liability there is Account Value allocated to a bond fund Sub-account not associated with the current liability, we will transfer all assets from that bond fund Sub-account to the bond fund Sub-account associated with the current liability. The formula will transfer assets into the Transfer Account if r (greater than) C\\u\\. The transfer amount is calculated by the following formula: T = {Min(V, [L - B - V*Ct] / (1 - Ct))}
If the formula ratio is less than a lower target value and there are assets in the Transfer Account, then the formula will transfer assets out of the Transfer Account into the elected Sub-accounts. The transfer amount is calculated by the following formula: T = {Min(B, - [L - B- V*Ct] / (1 - Ct))}
If following a transfer to the elected Sub-accounts, there are assets remaining in a bond fund Sub-account not associated with the current liability, we will transfer all assets from that bond fund Sub-account to the bond fund Sub-account associated with the current liability. F-1 APPENDIX G - FORMULA UNDER HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT AND SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT (including Highest Daily Lifetime Seven with BIO, Highest Daily Lifetime Seven with LIA and Spousal Highest Daily Lifetime Seven with BIO) 1. Formula for Contracts Issued on or after July 21, 2008 (Without Election of 90% Cap Feature) TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULA: . C\\u\\ - the upper target is established on the effective date of the Highest Daily Lifetime Seven benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently, it is 83%. . C\\t\\ - the target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 80%. . C\\l\\ - the lower target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 77%. . L - the target value as of the current business day. . r - the target ratio. . a - factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. . V\\v\\ - the total value of all Permitted Sub-accounts in the Annuity. . V\\F\\ - the total value of all elected Fixed Rate Options in the Annuity. . B - the total value of the AST Investment Grade Bond Portfolio Sub-account. . P - Income Basis. Prior to the first withdrawal, the Income Basis is the Protected Withdrawal Value calculated as if the first withdrawal were taken on the date of calculation. After the first withdrawal, the Income Basis is equal to the greater of (1) the Protected Withdrawal Value at the time of the first withdrawal, adjusted for additional purchase payments including the amount of any associated Credits, and adjusted proportionally for excess withdrawals*, (2) any highest quarterly value increased for additional purchase payments including the amount of any associated Credits, and adjusted for withdrawals, and (3) the Account Value. . T - the amount of a transfer into or out of the AST Investment Grade Bond Portfolio Sub-account. * Note: withdrawals of less than the Annual Income Amount do not reduce the Income Basis. TARGET VALUE CALCULATION: On each business day, a target value (L) is calculated, according to the following formula. If the Account Value (V\\V\\ + V\\F\\) is equal to zero, no calculation is necessary. L = 0.05 * P * a
TRANSFER CALCULATION: The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines when a transfer is required: Target Ratio r = (L - B) / (V\\V\\ + V\\F\\).
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to the AST Investment Grade Bond Portfolio Sub-account. . If r (less than) C\\l\\, and there are currently assets in the AST Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets in the AST Investment Grade Bond Portfolio Sub-account are transferred to the Permitted Sub-accounts according to most recent allocation instructions. G-1 The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = {Min (V\\V\\ + V\\F\\), [L - B - (V\\V\\ + V\\F\\) * C\\t\\] / (1 - Money is transferred from the Permitted C\\t\\))} Sub-accounts and Fixed Rate Options to the AST Investment Grade Bond Sub-account T = {Min (B, - [L - B - (V\\V\\ + V\\F\\)* C\\t\\] / (1 - C\\t\\))} Money is transferred from the AST Investment Grade Bond Sub-account to the Permitted Sub- accounts
{Min (V\\V\\ + V\\F\\), [L - B - (V\\V\\ + V\\F\\) * C\\t\\] / (1 - Money is transferred from the Permitted C\\t\\))} Sub-accounts and Fixed Rate Options to the AST Investment Grade Bond Sub-account {Min (B, - [L - B - (V\\V\\ + V\\F\\)* C\\t\\] / (1 - C\\t\\))} Money is transferred from the AST Investment Grade Bond Sub-account to the Permitted Sub- accounts
2. Formula for Contracts Issued Prior to 7/21/08 (Without Election of 90% Cap Feature) TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULA: . C\\u \\- the upper target is established on the effective date of the Highest Daily Lifetime Seven benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently, it is 83%. . C\\t\\ - the target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 80%. . C\\l\\ - the lower target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 77%. . L - the target value as of the current business day. . r - the target ratio. . a - factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. . V - the total value of all Permitted Sub-accounts in the annuity. . B - the total value of the AST Investment Grade Bond Portfolio Sub-account. . P - Income Basis. Prior to the first withdrawal, the Income Basis is the Protected Withdrawal Value calculated as if the first withdrawal were taken on the date of calculation. After the first withdrawal, the Income Basis is equal to the greater of (1) the Protected Withdrawal Value at the time of the first withdrawal, adjusted for additional purchase payments including the amount of any associated Credits, and adjusted proportionally for excess withdrawals*, (2) any highest quarterly value increased for additional purchase payments including the amount of any associated Credits, and adjusted for withdrawals, and (3) the Account Value. . T - the amount of a transfer into or out of the AST Investment Grade Bond Portfolio Sub-account * Note: withdrawals of less than the Annual Income Amount do not reduce the Income Basis. TARGET VALUE CALCULATION: On each business day, a target value (L) is calculated, according to the following formula. If the variable account value (V) is equal to zero, no calculation is necessary. L = 0.05 * P * a
TRANSFER CALCULATION: The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines when a transfer is required: Target Ratio r = (L - B) / V.
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to the AST Investment Grade Bond Portfolio Sub-account. . If r (less than) C\\l\\, and there are currently assets in the AST Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets in the AST Investment Grade Bond Portfolio Sub-account are transferred to the Permitted Sub-accounts according to most recent allocation instructions. G-2 The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = {Min(V, [L - B - V * C\\t\\] / (1 - C\\t\\))}, Money is transferred from the Permitted Sub-accounts to the AST Investment Grade Bond Portfolio Sub-account T = {Min(B, - [L - B - V * C\\t\\] / (1 - C\\t\\))}, Money is transferred from the AST Investment Grade Bond Portfolio Sub-account to the Permitted Sub- accounts
"a" Factors for Liability Calculations (in Years and Months since Benefit Effective Date)*
Months Years 1 2 3 4 5 6 7 8 9 10 11 12 ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1 15.34 15.31 15.27 15.23 15.20 15.16 15.13 15.09 15.05 15.02 14.98 14.95 2 14.91 14.87 14.84 14.80 14.76 14.73 14.69 14.66 14.62 14.58 14.55 14.51 3 14.47 14.44 14.40 14.36 14.33 14.29 14.26 14.22 14.18 14.15 14.11 14.07 4 14.04 14.00 13.96 13.93 13.89 13.85 13.82 13.78 13.74 13.71 13.67 13.63 5 13.60 13.56 13.52 13.48 13.45 13.41 13.37 13.34 13.30 13.26 13.23 13.19 6 13.15 13.12 13.08 13.04 13.00 12.97 12.93 12.89 12.86 12.82 12.78 12.75 7 12.71 12.67 12.63 12.60 12.56 12.52 12.49 12.45 12.41 12.38 12.34 12.30 8 12.26 12.23 12.19 12.15 12.12 12.08 12.04 12.01 11.97 11.93 11.90 11.86 9 11.82 11.78 11.75 11.71 11.67 11.64 11.60 11.56 11.53 11.49 11.45 11.42 10 11.38 11.34 11.31 11.27 11.23 11.20 11.16 11.12 11.09 11.05 11.01 10.98 11 10.94 10.90 10.87 10.83 10.79 10.76 10.72 10.69 10.65 10.61 10.58 10.54 12 10.50 10.47 10.43 10.40 10.36 10.32 10.29 10.25 10.21 10.18 10.14 10.11 13 10.07 10.04 10.00 9.96 9.93 9.89 9.86 9.82 9.79 9.75 9.71 9.68 14 9.64 9.61 9.57 9.54 9.50 9.47 9.43 9.40 9.36 9.33 9.29 9.26 15 9.22 9.19 9.15 9.12 9.08 9.05 9.02 8.98 8.95 8.91 8.88 8.84 16 8.81 8.77 8.74 8.71 8.67 8.64 8.60 8.57 8.54 8.50 8.47 8.44 17 8.40 8.37 8.34 8.30 8.27 8.24 8.20 8.17 8.14 8.10 8.07 8.04 18 8.00 7.97 7.94 7.91 7.88 7.84 7.81 7.78 7.75 7.71 7.68 7.65 19 7.62 7.59 7.55 7.52 7.49 7.46 7.43 7.40 7.37 7.33 7.30 7.27 20 7.24 7.21 7.18 7.15 7.12 7.09 7.06 7.03 7.00 6.97 6.94 6.91 21 6.88 6.85 6.82 6.79 6.76 6.73 6.70 6.67 6.64 6.61 6.58 6.55 22 6.52 6.50 6.47 6.44 6.41 6.38 6.36 6.33 6.30 6.27 6.24 6.22 23 6.19 6.16 6.13 6.11 6.08 6.05 6.03 6.00 5.97 5.94 5.92 5.89 24 5.86 5.84 5.81 5.79 5.76 5.74 5.71 5.69 5.66 5.63 5.61 5.58 25 5.56 5.53 5.51 5.48 5.46 5.44 5.41 5.39 5.36 5.34 5.32 5.29 26 5.27 5.24 5.22 5.20 5.18 5.15 5.13 5.11 5.08 5.06 5.04 5.01 27 4.99 4.97 4.95 4.93 4.91 4.88 4.86 4.84 4.82 4.80 4.78 4.75 28 4.73 4.71 4.69 4.67 4.65 4.63 4.61 4.59 4.57 4.55 4.53 4.51 29 4.49 4.47 4.45 4.43 4.41 4.39 4.37 4.35 4.33 4.32 4.30 4.28 30 4.26 4.24 4.22 4.20 4.18 4.17 4.15 4.13 4.11 4.09 4.07 4.06 31 4.04 4.02 4.00 3.98 3.97 3.95 3.93 3.91 3.90 3.88 3.86 3.84 32 3.83 3.81 3.79 3.78 3.76 3.74 3.72 3.71 3.69 3.67 3.66 3.64 33 3.62 3.61 3.59 3.57 3.55 3.54 3.52 3.50 3.49 3.47 3.45 3.44 34 3.42 3.40 3.39 3.37 3.35 3.34 3.32 3.30 3.29 3.27 3.25 3.24 35 3.22 3.20 3.18 3.17 3.15 3.13 3.12 3.10 3.08 3.07 3.05 3.03 36 3.02 3.00 2.98 2.96 2.95 2.93 2.91 2.90 2.88 2.86 2.85 2.83 37 2.81 2.79 2.78 2.76 2.74 2.73 2.71 2.69 2.68 2.66 2.64 2.62 38 2.61 2.59 2.57 2.56 2.54 2.52 2.51 2.49 2.47 2.45 2.44 2.42 39 2.40 2.39 2.37 2.35 2.34 2.32 2.30 2.29 2.27 2.25 2.24 2.22 40 2.20 2.19 2.17 2.15 2.14 2.12 2.11 2.09 2.07 2.06 2.04 2.02 41 2.01 1.84 1.67 1.51 1.34 1.17 1.00 0.84 0.67 0.50 0.33 0.17
* The values set forth in this table are applied to all ages, and apply to each formula set out in this Appendix. G-3 3. Formula for Contracts with 90% Cap Feature on or after July 21, 2008 See above for the Terms and Definitions Referenced in the Calculation Formula. The following formula, which is set on the effective date of this feature and is not changed for the life of the guarantee, determines when a transfer is required: On the effective date of this feature (and only on the effective date of this feature), the following asset transfer calculation is performed to determine the amount of Account Value allocated to the AST Investment Grade Bond sub-account: If (B / (V\\v\\ + V\\f\\ + B) (greater than) .90) then T = B - [(V\\v\\ + V\\f\\ + B) * .90]
If T is greater than $0 as described above, then no additional transfer calculations are performed on the effective date and future transfers to the AST Investment Grade Bond Sub-account will not occur at least until there is first a transfer out of the AST Investment Grade Bond Sub-account. On each Valuation Day thereafter (including the effective date of this feature provided B / ( V\\v\\ + V\\f\\ + B) (less than) = .90), the following asset transfer calculation is performed Target Ratio r = (L - B) / (V\\V\\ + V\\F\\).
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to the AST Investment Grade Bond Portfolio Sub-account (subject to the 90% cap rule described above). . If r (less than) C\\l\\, and there are currently assets in the AST Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets in the AST Investment Grade Bond Portfolio Sub-account are transferred to the Permitted Sub-accounts according to most recent allocation instructions. The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = Min (MAX(0, (0.90 * (V\\V\\ + V\\F\\ + B)) - B), Money is transferred from the elected Sub-accounts [L - B - (V\\V\\ + V\\F\\) * C\\t\\] / (1 - C\\t\\)) to the AST Investment Grade Bond Sub-account T = Min (B, - [L - B - ( V\\v\\ + V\\f\\ ) * C\\t\\] / (1 - C\\t\\)) Money is transferred from the AST Investment Grade Sub-account to the elected Sub-accounts
Min (MAX(0, (0.90 * (V\\V\\ + V\\F\\ + B)) - B), Money is transferred from the elected Sub-accounts [L - B - (V\\V\\ + V\\F\\) * C\\t\\] / (1 - C\\t\\)) to the AST Investment Grade Bond Sub-account Min (B, - [L - B - ( V\\v\\ + V\\f\\ ) * C\\t\\] / (1 - C\\t\\)) Money is transferred from the AST Investment Grade Sub-account to the elected Sub-accounts
4. Formula for Contracts with 90% Cap Feature if Benefit was Elected Prior to July 21, 2008 See above for the Terms and Definitions Referenced in the Calculation Formula. The following formula, which is set on the effective date of this feature and is not changed for the life of the guarantee, determines when a transfer is required: On the effective date of this feature (and only on the effective date of this feature), the following asset transfer calculation is performed to determine the amount of Account Value allocated to the AST Investment Grade Bond Sub-account: If (B / (V + B) (greater than) .90) then T = B - [(V + B) * .90]
If T is greater than $0 as described above, then no additional transfer calculations are performed on the effective date. On each Valuation Day thereafter (including the effective date of this feature provided B / (V + B) (less than)= .90), the following asset transfer calculation is performed Target Ratio r = (L - B) / V.
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to AST Investment Grade Bond Sub-account. . If r (less than) C\\l\\ and there are currently assets in the AST Investment Grade Bond Sub-account (F (greater than) 0), assets in the AST Investment Grade Bond Sub-account are transferred to the Permitted Sub-accounts. G-4 The following formula, which is set on the Effective Date of this feature and is not changed for the life of the guarantee, determines the transfer amount: T = Min(MAX (0, (0.90 * (V + B)) - B), [L - B - V * Money is transferred from the elected Permitted C\\t\\] / (1 - C\\t\\)) Sub-accounts to AST Investment Grade Bond Sub-Account T = {Min(B, - [L - B - V * C\\t\\] / (1 - C\\t\\))}, Money is transferred from the AST Investment Grade Bond Sub-account to the Permitted Sub- accounts.
G-5 APPENDIX H - FORMULA FOR HIGHEST DAILY LIFETIME 7 PLUS INCOME BENEFIT AND SPOUSAL HIGHEST DAILY LIFETIME 7 PLUS INCOME BENEFIT (including Highest Daily Lifetime 7 Plus with BIO, Highest Daily Lifetime 7 Plus with LIA and Spousal Highest Daily Lifetime 7 Plus with BIO) TRANSFERS OF ACCOUNT VALUE BETWEEN YOUR PERMITTED SUB-ACCOUNTS AND THE AST INVESTMENT GRADE BOND SUB-ACCOUNT TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULAS: . C\\u\\ - the upper target is established on the effective date of the Highest Daily Lifetime 7 Plus/Spousal Highest Daily Lifetime 7 Plus benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently, it is 83%. . Cu\\s\\ - The secondary upper target is established on the effective date of the Highest Daily Lifetime 7 Plus/Spousal Highest Daily Lifetime 7 Plus benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently it is 84.5% . C\\t\\ - the target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 80%. . C\\l\\ - the lower target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 78%. . L - the target value as of the current Valuation Day. . r - the target ratio. . a - factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. (See below for the table of "a" factors) . V\\v\\ - the total value of all Permitted Sub-accounts in the Annuity. . V\\F\\ - the total value of all elected Fixed Rate Options in the Annuity . B - the total value of the AST Investment Grade Bond Portfolio Sub-account. . P - Income Basis. Prior to the first Lifetime Withdrawal, the Income Basis is equal to the Protected Withdrawal Value calculated as if the first Lifetime Withdrawal were taken on the date of calculation. After the first Lifetime Withdrawal, the Income Basis is equal to the greater of (1) the Protected Withdrawal Value on the date of the first Lifetime Withdrawal, increased for additional purchase payments, including the amount of any associated Credits, and adjusted proportionally for excess withdrawals*, and (2) any highest daily Account Value occurring on or after the date of the first Lifetime Withdrawal and prior to or including the date of this calculation increased for additional purchase payments including the amount of any associated Credits, and adjusted for Lifetime Withdrawals. . T - the amount of a transfer into or out of the AST Investment Grade Bond Portfolio Sub-account . T\\M\\ - the amount of a monthly transfer out of the AST Investment Grade Bond Portfolio * Note: Lifetime Withdrawals of less than or equal to the Annual Income Amount do not reduce the Income Basis. Daily Calculations TARGET VALUE CALCULATION: On each Valuation Day, a target value (L) is calculated, according to the following formula. If the variable Account Value (V\\V\\+ V\\F\\) is equal to zero, no calculation is necessary. L = 0.05 * P * a
TRANSFER CALCULATION: The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines when a transfer is required: Target Ratio r = (L - B) / (V\\V\\ + V\\F\\).
. If on the third consecutive Valuation Day r (greater than) Cu and r (less or =) Cu\\s\\ or if on any day r (greater than) Cu\\s\\, and subject to the 90% cap rule described above, assets in the Permitted Sub-accounts (including Book Value Fixed Allocations used with any applicable Enhanced DCA Program) are transferred to the AST Investment Grade Bond Portfolio Sub-account. H-1 . If r (less than) C\\l\\, and there are currently assets in the AST Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets in the AST Investment Grade Bond Portfolio Sub-account are transferred to the Permitted Sub-accounts according to most recent allocation instructions. The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = Min (MAX (0, (0.90 * (V\\V\\ + V\\F\\ + B)) - B), Money is transferred from the Permitted [L - B - (V\\V\\ + V\\F\\) * C\\t\\]/(1 - C\\t\\)) Sub-accounts and Fixed Rate Options to the AST Investment Grade Bond Sub-account T = {Min (B, - [L - B - (V\\V\\ + V\\F\\)* C\\t\\]/(1 - C\\t\\))} Money is transferred from the AST Investment Grade Bond Sub-account to the Permitted Sub- accounts
MONTHLY CALCULATION On each monthly anniversary of the Annuity Issue Date and following the daily Transfer Calculation above, the following formula determines if a transfer from the AST Investment Grade Bond Sub-account to the Permitted Sub-Accounts will occur: If, after the daily Transfer Calculation is performed, {Min (B, .05 * (V\\V\\ + V\\F\\ + B))} (less than) (C\\u\\ * (V\\V\\ + V\\F\\) - L + B) / (1 - C\\u\\), then T\\M\\ = {Min (B, .05 * (V\\V\\ + V\\F\\ + B))} Money is transferred from the AST Investment Grade Bond Sub-account to the Permitted Sub- accounts.
"a" Factors for Liability Calculations (in Years and Months since Benefit Effective Date)*
Months Years 1 2 3 4 5 6 7 8 9 10 11 12 ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1 15.34 15.31 15.27 15.23 15.20 15.16 15.13 15.09 15.05 15.02 14.98 14.95 2 14.91 14.87 14.84 14.80 14.76 14.73 14.69 14.66 14.62 14.58 14.55 14.51 3 14.47 14.44 14.40 14.36 14.33 14.29 14.26 14.22 14.18 14.15 14.11 14.07 4 14.04 14.00 13.96 13.93 13.89 13.85 13.82 13.78 13.74 13.71 13.67 13.63 5 13.60 13.56 13.52 13.48 13.45 13.41 13.37 13.34 13.30 13.26 13.23 13.19 6 13.15 13.12 13.08 13.04 13.00 12.97 12.93 12.89 12.86 12.82 12.78 12.75 7 12.71 12.67 12.63 12.60 12.56 12.52 12.49 12.45 12.41 12.38 12.34 12.30 8 12.26 12.23 12.19 12.15 12.12 12.08 12.04 12.01 11.97 11.93 11.90 11.86 9 11.82 11.78 11.75 11.71 11.67 11.64 11.60 11.56 11.53 11.49 11.45 11.42 10 11.38 11.34 11.31 11.27 11.23 11.20 11.16 11.12 11.09 11.05 11.01 10.98 11 10.94 10.90 10.87 10.83 10.79 10.76 10.72 10.69 10.65 10.61 10.58 10.54 12 10.50 10.47 10.43 10.40 10.36 10.32 10.29 10.25 10.21 10.18 10.14 10.11 13 10.07 10.04 10.00 9.96 9.93 9.89 9.86 9.82 9.79 9.75 9.71 9.68 14 9.64 9.61 9.57 9.54 9.50 9.47 9.43 9.40 9.36 9.33 9.29 9.26 15 9.22 9.19 9.15 9.12 9.08 9.05 9.02 8.98 8.95 8.91 8.88 8.84 16 8.81 8.77 8.74 8.71 8.67 8.64 8.60 8.57 8.54 8.50 8.47 8.44 17 8.40 8.37 8.34 8.30 8.27 8.24 8.20 8.17 8.14 8.10 8.07 8.04 18 8.00 7.97 7.94 7.91 7.88 7.84 7.81 7.78 7.75 7.71 7.68 7.65 19 7.62 7.59 7.55 7.52 7.49 7.46 7.43 7.40 7.37 7.33 7.30 7.27 20 7.24 7.21 7.18 7.15 7.12 7.09 7.06 7.03 7.00 6.97 6.94 6.91 21 6.88 6.85 6.82 6.79 6.76 6.73 6.70 6.67 6.64 6.61 6.58 6.55 22 6.52 6.50 6.47 6.44 6.41 6.38 6.36 6.33 6.30 6.27 6.24 6.22 23 6.19 6.16 6.13 6.11 6.08 6.05 6.03 6.00 5.97 5.94 5.92 5.89 24 5.86 5.84 5.81 5.79 5.76 5.74 5.71 5.69 5.66 5.63 5.61 5.58 25 5.56 5.53 5.51 5.48 5.46 5.44 5.41 5.39 5.36 5.34 5.32 5.29 26 5.27 5.24 5.22 5.20 5.18 5.15 5.13 5.11 5.08 5.06 5.04 5.01 27 4.99 4.97 4.95 4.93 4.91 4.88 4.86 4.84 4.82 4.80 4.78 4.75 28 4.73 4.71 4.69 4.67 4.65 4.63 4.61 4.59 4.57 4.55 4.53 4.51 29 4.49 4.47 4.45 4.43 4.41 4.39 4.37 4.35 4.33 4.32 4.30 4.28 30 4.26 4.24 4.22 4.20 4.18 4.17 4.15 4.13 4.11 4.09 4.07 4.06**
* The values set forth in this table are applied to all ages. ** In all subsequent years and months thereafter, the annuity factor is 4.06 H-2 APPENDIX I - SPECIAL CONTRACT PROVISIONS FOR ANNUITIES ISSUED IN CERTAIN STATES Certain features of your Annuity may be different than the features described earlier in this prospectus if your Annuity is issued in certain states described below. For Annuities issued in New York, please see Appendix E.
Jurisdiction Special Provisions -------------------------------------------------------------------------------- Maryland Fixed Allocations are not available. -------------------------------------------------------------------------------- Massachusetts If your Annuity is issued in Massachusetts after January 1, 2009, the annuity rates we use to calculate annuity payments are available only on a gender-neutral basis under any Annuity Option or any lifetime withdrawal optional benefit (except the Guaranteed Minimum Withdrawal Benefit). Medically Related Surrenders are not available. -------------------------------------------------------------------------------- Montana If your Annuity is issued in Montana, the annuity rates we use to calculate annuity payments are available only on a gender-neutral basis under any Annuity Option or any lifetime withdrawal optional benefit (except the Guaranteed Minimum Withdrawal Benefit). -------------------------------------------------------------------------------- Nevada Fixed Allocations are not available. -------------------------------------------------------------------------------- North Dakota Fixed Allocations are not available. -------------------------------------------------------------------------------- Vermont Fixed Allocations are not available. -------------------------------------------------------------------------------- Washington If you elect Highest Daily Lifetime Five, or any version of Highest Daily Lifetime Seven, the Guaranteed Minimum Account Value Credit otherwise available with these optional benefits is not available. Fixed Allocations are not available. --------------------------------------------------------------------------------
I-1 APPENDIX J - SELECTING THE VARIABLE ANNUITY THAT'S RIGHT FOR YOU Although only the Optimum XTra variable annuity is offered through this prospectus, you should know that Prudential Annuities Life Assurance Corporation ("PALAC") offers other deferred variable annuity products through separate prospectuses. Not all of those other annuities may be available to you, depending on your state of residence and/or the broker-dealer through which your annuity was sold. However, to the extent that other PALAC annuities (or those of other insurers) are available to you, you should be aware that those annuities likely come with a different array of optional features (e.g., living benefits or death benefits) and charges than Optimum XTra. For example, some annuities do not offer any credit, but typically would bear lower CDSCs and insurance charges than Optimum XTra. You can identify the PALAC annuities available to you by speaking to your Financial Professional or calling 1-888-PRU-2888. Among the factors you should consider when choosing which annuity product may be most appropriate for your individual needs are the following: . Your age; . The amount of your investment and any planned future deposits into the Annuity, . How long you intend to hold the annuity (also referred to as investment time horizon); . Your desire to make withdrawals from the annuity and the timing thereof; . Your investment return objectives; . The effect of optional benefits that may be elected; . The value of being able to "lock-in" growth in your Annuity after the initial withdrawal charge period for purposes of calculating the death benefit payable from the Annuity; and . Your desire to minimize costs and/or maximize return associated with the annuity. In general, you will pay higher ongoing fees for added liquidity and other product benefits while Annuities with longer surrender charge periods often have lower ongoing expenses. There are trade-offs associated with the costs and benefits provided by each Annuity. You should consider which benefits are most important to you, and whether the associated costs offer the greatest value to you. The following chart reflects the Account Value and Surrender Value of the Optimum XTra variable annuity over a variety of holding periods under the hypothetical assumptions noted. The chart is intended to help you compare Optimum XTra with other Annuities that may be available to you. The values shown below are based on the following assumptions: . Annuity was issued on or after June 16, 2008 and prior to February 23, 2009. . An initial investment of $100,000 is made in the Optimum Xtra Annuity earning a gross rate of return of 0%, 6%, and 10% respectively. . No subsequent deposits or withdrawals are made from the Annuity. . The hypothetical gross rates of return are reduced by the arithmetic average of the fees and expenses of the Portfolios and the charges that are deducted from the Annuity at the Separate Account level as follows: a. 1.01% for the Portfolios offered under Optimum XTra, based on the fees and expenses of the Portfolios as of December 31, 2008. The arithmetic average of all the fund expenses is computed by adding portfolios and then dividing by the number of Portfolios. For purposes of the illustration, we do not reflect any expense reimbursements or expense waivers that might apply and are described in the prospectus fee table. b. The Separate Account level charges refer to the Insurance Charge/Administration charge. . The Account Value and Surrender Value are further reduced by the annual maintenance fee. For the Optimum Xtra, the Account Value and Surrender Value reflect the addition of any applicable Purchase Credits. The Account Value assumes no surrender, while the Surrender Value assumes a 100% surrender 2 days prior to the anniversary of the Issue Date of the Annuity ("Annuity Anniversary"), therefore reflecting the withdrawal charge applicable to that Annuity Year. Note that a withdrawal on the Annuity Anniversary, or the day before the Annuity Anniversary, would be subject to the withdrawal charge applicable to the next Annuity Year, which usually is lower. The surrender charge is calculated based on the date that the Purchase Payment was made and for purposes of this illustration, we assume that a single purchase payment of $100,000 was made on the Issue Date. The values that you actually experience under an Annuity will be different from what is depicted here if any of the assumptions we make here differ from your circumstances. (We will provide you a personalized illustration upon request). J-1
------------------------------------------------------------------------ 0% Gross Rate of Return 6% Gross Rate of Return 10% Gross Rate of Return Optimum Xtra Optimum Xtra Optimum Xtra ------------------------------------------------------------------------ Net rate of return Net rate of return Net rate of return All years -2.74% All years 3.09% All years 6.98% ------------------------------------------------------------------------ Contract Surrender Contract Surrender Contract Surrender Value Value Value Value Value Value ------------------------------------------------------------------------ 105,046 96,046 111,331 102,331 115,521 106,521 ------------------------------------------------------------------------ 102,132 93,132 114,739 105,739 123,551 114,551 ------------------------------------------------------------------------ 99,297 91,297 118,252 110,252 132,141 124,141 ------------------------------------------------------------------------ 96,540 89,540 121,873 114,873 141,332 134,332 ------------------------------------------------------------------------ 93,858 87,858 125,607 119,607 151,164 145,164 ------------------------------------------------------------------------ 91,250 86,250 129,456 124,456 161,683 156,683 ------------------------------------------------------------------------ 88,714 84,714 133,424 129,424 172,937 168,937 ------------------------------------------------------------------------ 86,247 83,247 137,515 134,515 184,976 181,976 ------------------------------------------------------------------------ 83,848 81,848 141,733 139,733 197,857 195,857 ------------------------------------------------------------------------ 81,514 80,514 146,081 145,081 211,636 210,636 ------------------------------------------------------------------------ 79,245 79,245 150,563 150,563 226,379 226,379 ------------------------------------------------------------------------ 77,038 77,038 155,184 155,184 242,150 242,150 ------------------------------------------------------------------------ 74,891 74,891 159,948 159,948 259,023 259,023 ------------------------------------------------------------------------ 72,803 72,803 164,859 164,859 277,074 277,074 ------------------------------------------------------------------------ 70,773 70,773 169,923 169,923 296,386 296,386 ------------------------------------------------------------------------ 68,798 68,798 175,142 175,142 317,047 317,047 ------------------------------------------------------------------------ 66,877 66,877 180,524 180,524 339,150 339,150 ------------------------------------------------------------------------ 65,009 65,009 186,071 186,071 362,797 362,797 ------------------------------------------------------------------------ 63,192 63,192 191,791 191,791 388,095 388,095 ------------------------------------------------------------------------ 61,425 61,425 197,687 197,687 415,160 415,160 ------------------------------------------------------------------------ 59,707 59,707 203,766 203,766 444,115 444,115 ------------------------------------------------------------------------ 58,035 58,035 210,032 210,032 475,093 475,093 ------------------------------------------------------------------------ 56,410 56,410 216,493 216,493 508,233 508,233 ------------------------------------------------------------------------ 54,829 54,829 223,153 223,153 543,688 543,688 ------------------------------------------------------------------------ 53,291 53,291 230,020 230,020 581,618 581,618 ------------------------------------------------------------------------
Assumptions: a. $100,000 initial investment b. Fund Expenses = 1.01% c. No optional death benefits or living benefits elected d. Annuity was issued on or after June 16, 2008 and prior to February 23, 2009 e. Surrender value assumes surrender 2 days before policy anniversary J-2 PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER DETAILS ABOUT THE PRUDENTIAL ANNUITY DESCRIBED IN OPTIMUM XTRA PROSPECTUS (05/2009) --------------------------------------- (print your name) --------------------------------------- (address) --------------------------------------- (city/state/zip code)
Variable Annuity Issued by: Variable Annuity Distributed by: PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION PRUDENTIAL ANNUITIES A Prudential Financial Company DISTRIBUTORS One Corporate Drive A Prudential Financial Company Shelton, Connecticut 06484 One Corporate Drive Telephone: 1-888-PRU-2888 Shelton, Connecticut 06484 http://www.prudentialannuities.com Telephone: 203-926-1888 http://www.prudentialannuities.com MAILING ADDRESSES: PRUDENTIAL ANNUITIES - VARIABLE ANNUITIES P.O. Box 7960 Philadelphia, PA 19176 EXPRESS MAIL: PRUDENTIAL ANNUITIES - VARIABLE ANNUITIES 2101 Welsh Road Dresher, PA 19025 [LOGO] Prudential The Prudential Insurance Company of America 751 Broad Street Newark, NJ 07102-3777
PART B STATEMENT OF ADDITIONAL INFORMATION PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("REGISTRANT") The variable investment options under the Annuity are issued by PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION, a Prudential Financial Company. The variable investment options are registered under the Securities Act of 1933 and the Investment Company Act of 1940. The fixed investment options ("Fixed Allocations") under the Annuity are issued by PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION. The assets supporting the Fixed Allocations are maintained in PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION SEPARATE ACCOUNT D, a non-unitized separate account, and are registered solely under the Securities Act of 1933. TABLE OF CONTENTS GENERAL INFORMATION ABOUT PRUDENTIAL ANNUITIES 2 PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION 2 PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B 2 PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION SEPARATE ACCOUNT D 2 PRINCIPAL UNDERWRITER/DISTRIBUTOR - Prudential Annuities Distributors, Inc. 3 HOW THE UNIT PRICE IS DETERMINED 8 ADDITIONAL INFORMATION ON FIXED ALLOCATIONS 8 How We Calculate the Market Value Adjustment 9 GENERAL INFORMATION 10 Voting Rights 10 Modification 11 Deferral of Transactions 11 Misstatement of Age or Sex 11 Ending the Offer 11 ANNUITIZATION 12 EXPERTS 13 LEGAL EXPERTS 13 FINANCIAL STATEMENTS 13 AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION SEPARATE ACCOUNT B APPENDIX A - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. YOU SHOULD READ THIS INFORMATION ALONG WITH THE PROSPECTUS FOR THE ANNUITY FOR WHICH IT RELATES. THE PROSPECTUS CONTAINS INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS SEND A WRITTEN REQUEST TO PRUDENTIAL ANNUITIES - VARIABLE ANNUITIES, P.O. BOX 7960, PHILADELPHIA, PA OR TELEPHONE 1-888-PRU-2888. OUR ELECTRONIC MAIL ADDRESS IS CUSTOMERSERVICE@PRUDENTIALANNUITIES.COM. Date of Statement of Additional Information: May 1, 2009 Date of Prospectus: May 1, 2009 XT8 - SAI (05/2009) 1 GENERAL INFORMATION ABOUT PRUDENTIAL ANNUITIES PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION Prudential Annuities Life Assurance Corporation ("Prudential Annuities", "we", "our" or "us") is a stock life insurance company domiciled in Connecticut with licenses in all 50 states, the District of Columbia and Puerto Rico. Prudential Annuities is a wholly-owned subsidiary of Prudential Annuities, Inc., which is an insurance holding company. Prudential Annuities principal business address is One Corporate Drive, Shelton, Connecticut 06484. No company other than Prudential Annuities has any legal responsibility to pay amounts that it owes under its annuity and variable life insurance contracts. However, Prudential Financial exercises significant influence over the operations and capital structure of Prudential Annuities. PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B Prudential Annuities Life Assurance Corporation Variable Account B, also referred to as "Separate Account B", was established by us pursuant to Connecticut law. Separate Account B also holds assets of other annuities issued by us with values and benefits that vary according to the investment performance of the underlying mutual funds or portfolios of underlying mutual funds offered as Sub-accounts of Separate Account B. The underlying mutual funds or portfolios of underlying mutual funds are referred to as the Portfolios. Each Sub-account invests exclusively in a Portfolio. You will find additional information about the Portfolios in their respective prospectuses. Separate Account B is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940 (the "Investment Company Act") as a unit investment trust, which is a type of investment company. Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the Portfolios, as applicable. We do not guarantee the investment results of any Sub-account. You bear the entire investment risk. There is no assurance that the Account Value of your Annuity will equal or be greater than the total of the Purchase Payments you make to us. Prior to November 18, 2002, Separate Account B was organized as a single separate account with six different Sub-account classes, each of which was registered as a distinct unit investment trust under the Investment Company Act. Effective November 18, 2002, each Sub-account class of Separate Account B was consolidated into American Skandia Life Assurance Corporation Variable Account B Class 1 Sub-accounts, which was subsequently renamed Prudential Annuities Life Assurance Corporation Variable Account B. Each Sub-account of Separate Account B has multiple Unit Prices to reflect the daily charge deducted for each combination of the applicable Insurance Charge, Distribution Charge (when applicable) and the charge for each optional benefit offered under Annuity contracts funded through Separate Account B. The consolidation of Separate Account B had no impact on Annuity Owners. During the accumulation phase, we offer a number of Sub-accounts. Certain Sub-accounts may not be available in all jurisdictions. If and when we obtain approval of the applicable authorities to make such Sub-accounts available, we will notify Owners of the availability of such Sub-accounts. A brief summary of the investment objectives and policies of each Portfolio is found in the Prospectus. More detailed information about the investment objectives, policies, risks, costs and management of the Portfolios are found in the prospectuses and statements of additional information for the Portfolios. There can be no guarantee that any Portfolio will meet its investment objectives. Each underlying mutual fund is registered under the Investment Company Act, as amended, as an open-end management investment company. Each underlying mutual fund thereof may or may not be diversified as defined in the Investment Company Act. The trustees or directors, as applicable, of an underlying mutual fund may add, eliminate or substitute portfolios from time to time. Generally, each portfolio issues a separate class of shares. Shares of the portfolios are available to separate accounts of life insurance companies offering variable annuity and variable life insurance products. The shares may also be made available, subject to obtaining all required regulatory approvals, for direct purchase by various pension and retirement savings plans that qualify for preferential tax treatment under the Internal Revenue Code ("Code"). We may make other portfolios available by creating new Sub-accounts. Additionally, new portfolios may be made available by the creation of new Sub-accounts from time to time. Such a new portfolio may be disclosed in its prospectus. However, addition of a portfolio does not require us to create a new Sub-account to invest in that portfolio. We may take other actions in relation to the Sub-accounts and/or Separate Account B. PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION SEPARATE ACCOUNT D Prudential Annuities Life Assurance Corporation Separate Account D, also referred to as "Separate Account D", was established by us pursuant to Connecticut law. During the accumulation phase, assets supporting our obligations based on Fixed Allocations (including the DCA Fixed Rate Options) are held in Separate Account D. Such obligations are based on the fixed interest rates we credit to Fixed Allocations and the terms of the Annuities. These obligations do not depend on the investment performance of the assets in Separate Account D. 2 There are no units in Separate Account D. The Fixed Allocations are guaranteed by our general account. An Annuity Owner who allocates a portion of their Account Value to Separate Account D does not participate in the investment gain or loss on assets maintained in Separate Account D. Such gain or loss accrues solely to us. We retain the risk that the value of the assets in Separate Account D may drop below the reserves and other liabilities we must maintain. Should the value of the assets in Separate Account D drop below the reserve and other liabilities we must maintain in relation to the annuities supported by such assets, we will transfer assets from our general account to Separate Account D to make up the difference. We have the right to transfer to our general account any assets of Separate Account D in excess of such reserves and other liabilities. We maintain assets in Separate Account D supporting a number of annuities we offer. We currently employ investment managers to manage the assets maintained in Separate Account D. Each manager we employ is responsible for investment management of a different portion of Separate Account D. From time to time additional investment managers may be employed or investment managers may cease being employed. We are under no obligation to employ or continue to employ any investment manager(s) and have sole discretion over the investment managers we retain. We operate Separate Account D in a fashion designed to meet the obligations created by Fixed Allocations. Factors affecting these operations include the following: 1. The State of New York, which is one of the jurisdictions in which we are licensed to do business, requires that we meet certain "matching" requirements. These requirements address the matching of the durations of the assets owned by the insurance company with the durations of obligations supported by such assets. We believe these matching requirements are designed to control an insurer's ability to risk investing in long-term assets to support short term interest rate guarantees. We also believe this limitation controls an insurer's ability to offer unrealistic rate guarantees. 2. We employ an investment strategy designed to limit the risk of default. Some of the guidelines of our current investment strategy for Separate Account D include, but are not limited to, the following: a. Investments may include cash; debt securities issued by the United States Government or its agencies and instrumentalities; money market instruments; short, intermediate and long-term corporate obligations; private placements; asset-backed obligations; and municipal bonds. b. At the time of purchase, fixed income securities will be in one of the top four generic lettered rating classifications as established by a nationally recognized statistical rating organization ("NRSRO") such as Standard & Poor's or Moody's Investor Services, Inc. We are not obligated to invest according to the aforementioned guidelines or any other strategy except as may be required by Connecticut and other state insurance laws. 3. The assets in Separate Account D are accounted for at their market value, rather than at book value. 4. We are obligated by law to maintain our capital and surplus, as well as our reserves, at the levels required by applicable state insurance law and regulation. PRINCIPAL UNDERWRITER/DISTRIBUTOR - Prudential Annuities Distributors, Inc. Prudential Annuities Distributors, Inc. ("PAD"), a wholly-owned subsidiary of Prudential Annuities, Inc., is the distributor and principal underwriter of the Annuity described in the Prospectus and this Statement of Additional Information. Prudential Annuities Life Assurance Corporation and AST Investment Services, Inc. ("ASISI"), a co-investment manager of Advanced Series Trust are also wholly-owned subsidiaries of Prudential Annuities, Inc. Prudential Annuities Information Services and Technology Corporation, also a wholly-owned subsidiary of Prudential Annuities, Inc., is a service company that provides systems and information services to Prudential Annuities Life Assurance Corporation and its affiliated companies. PAD acts as the distributor of a number of annuity and life insurance products we offer. PAD's principal business address is One Corporate Drive, Shelton, Connecticut 06484. PAD is registered as a broker-dealer under the Securities and Exchange Act of 1934 ("Exchange Act") and is a member of the Financial Industry Regulatory Authority ("FINRA"). The offering of the annuity contracts through PAD is continuous. Please see the prospectus for a discussion of how the sales load on the annuity contracts is determined. The Annuity is offered on a continuous basis. PAD enters into distribution agreements with broker-dealers who are registered under the Exchange Act and with entities that may offer the Annuity but are exempt from registration ("firms"). Applications for the Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance agents under state insurance law. In addition, PAD may offer the Annuity directly to potential purchasers. Commissions are paid to firms on sales of the Annuity according to one or more schedules. The individual representative will receive a portion of the compensation, depending on the practice of his or her firm. Commissions are generally based on a percentage of Purchase Payments 3 made, up to a maximum of 6.0%. Alternative compensation schedules are available that provide a lower initial commission plus ongoing annual compensation based on all or a portion of Account Value. We may also provide compensation to the distributing firm for providing ongoing service to you in relation to the Annuity. Commissions and other compensation paid in relation to the Annuity do not result in any additional charge to you or to the Separate Account. In addition, in an effort to promote the sale of our products (which may include the placement of Prudential Annuities and/or the Annuity on a preferred or recommended company or product list and/or access to the firm's registered representatives), we or PAD may enter into compensation arrangements with certain broker-dealer firms with respect to certain or all registered representatives of such firms under which such firms may receive separate compensation or reimbursement for, among other things, training of sales personnel and/or marketing and/or administrative services and/or other services they provide. We or PAD also may compensate third-party vendors, for services that such vendors render to broker-dealer firms. These services may include, but are not limited to: educating customers of the firm on the Annuity's features; conducting due diligence and analysis, providing office access, operations and systems support; holding seminars intended to educate firm's registered representatives and make them more knowledgeable about the Annuity; providing a dedicated marketing coordinator; providing priority sales desk support; and providing expedited marketing compliance approval. To the extent permitted by FINRA rules and other applicable laws and regulations, PAD may pay or allow other promotional incentives or payments in the form of cash or non-cash compensation. These arrangements may not be offered to all firms and the terms of such arrangements may differ between firms. The list below identifies three general types of payments that Prudential Annuities pays which are broadly defined as follows: . Percentage Payments based upon "Asset under Management" or "AUM": This type of payment is a percentage payment that is based upon the total amount held in all Prudential Annuities annuity products that were sold through the firm (or its affiliated broker/dealers). . Percentage Payments based upon sales: This type of payment is a percentage payment that is based upon the total amount of money received as purchase payments under Prudential Annuities annuity products sold through the firm (or its affiliated broker/dealers). . Fixed payments: These types of payments are made directly to or in sponsorship of the firm (or its affiliated broker/dealers). Examples of arrangements under which such payments may be made currently include, but are not limited to, sponsorships, conferences (national, regional and top producer), speaker fees, promotional items, and reimbursements to firms for marketing activities or services paid by the firms and/or their individual representatives. The amount of these payments varies widely because some payments may encompass only a single event, such as a conference, and others have a much broader scope. In addition, we may make payments upon the initiation of a relationship for systems, operational and other support. The list below includes the names of the firms (or their affiliated broker/dealers) that we are aware (as of December 31, 2008) received payment with respect to annuity business during 2008 (or as to which a payment amount was accrued during 2008). Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Annuity. During 2008, the least amount paid, and greatest amount paid, were $3,106 and $7,256,316, respectively. Name of Firm: 1717 Capital Management Co. American Financial Associates BancorpSouth Investment Services, Inc. 1st Global Capital Corp. American General Securities BCG Securities, Inc. A. G. Edwards & Sons, Inc. American Independent Securities Group, Beneficial Investment Services Inc Advantage Capital LLC Berthel Fisher & Company Advisory Group Equity Services Agency American Portfolios Financial Services BFT Financial Group, LLC AIG Retirement Advisors Ameriprise Advisor Services, Inc. Brecek & Young Advisors, Inc. AIG Financial Advisors, Inc. Ameritas Investment Corp. Broker Dealer Financial Services Allegheny Investments Ltd. Associated Securities Corp. BrokersXpress LLC Allmax Financial Solutions, LLC AXA Advisors, LLC Brookstone Securities, Inc. Allstate Financial Services, LLC Bancnorth Investment Group, Inc. Cadaret, Grant & Co., Inc. Calton & Associates, Inc. ING Financial Partners, Inc. ProEquities, Inc. Cambridge Investment Research Institutional Securities Corp. Professional Asset Management Cambridge Legacy Securities, LLC Intercarolina Financial Services QA3 Financial Corp. Cantella & Co., Inc. InterSecurities, Inc. Questar Capital Corporation Capital Analysts Intervest International Equities Corp. R. Seelaus & Company Inc Capital Financial Services, Inc. Invest Financial Corporation Raymond James & Associates, Inc. Capital Investment Group, Inc. Investacorp Raymond James Financial Services Capital One Investments, LLC Investment Centers of America RBC Dain Rauscher, Inc. Centaurus Financial, Inc. Investment Professionals Regency Securities, Inc. CFD Investments, Inc. Investors Capital Corporation Resource Horizons Group Citigroup Global Markets, Inc. J.J.B. Hilliard Lyons, Inc. Robert W. Baird & Co., Inc. City Securities Corp. J.P. Turner & Company, LLC Royal Alliance Associates, Inc. Commonwealth Financial Network J.W. Cole Financial, Inc. Sage Rutty & Co., Inc. Community Bankers Securities Janney Montgomery Scott, LLC. Sammons Securities Co., LLC Comprehensive Asset Management KCD Financial, Inc. Scottsdale Capital Advisors Crown Capital Securities, LP Key Investment Services LLC Securian Financial Services, Inc. CUE KMS Financial Services, Inc. Securities America, Inc. CUNA Brokerage Services, Inc. LaSalle St. Securities, LLC Securities Service Network, Inc. CUSO Financial Services, LP Legend Equities Corporation Sigma Financial Corporation Dalton Strategic Inv. Svcs. Inc Legg Mason Wood Walker, Inc. Signator Investors, Inc. David A. Noyes & Company Lincoln Financial Advisors SII Investments, Inc. Eagle One Investments, LLC Lincoln Financial Securities Corporation SMH Capital, Inc. EDI Financial Lincoln Investment Planning Source Capital Group, Inc. Ensemble Financial Services Inc Lombard Securities, Inc. Southwest Securities, Inc. ePLANNING Securities, Inc. LPL Financial Corporation Stifel Nicolaus & Co., Inc. Equity Services, Inc. M Holdings Securities, Inc Summit Brokerage Services, Inc. Essex National Securities, Inc. McClurg Capital Corporation Summit Equities, Inc. Ferris Baker Watts, Inc. McGinn, Smith & Co., INC. Sunset Financial Services, Inc. FFP Securities, Inc. Medallion Investment Services Synergy Investment Group, LLC Financial Network Investment Corp. Merrill Lynch TFS Securities, Inc. Financial Planning Consultants Metropolitan Life Insurance Co. The Investment Center, Inc. Financial West Group Michigan Securities, Inc. The Leaders Group, Inc. Fintegra, LLC MML Investors Services, Inc. Tower Square Securities, Inc. First Allied Securities, Inc. Money Concepts Capital Corp. Traderight Securities First Brokerage America, LLC Moors & Cabot, Inc. Transamerica Financial Advisors First Montauk Securities Corp. Morgan Keegan & Company Triad Advisors, Inc. First Wall Street Corp. Morgan Stanley & Co Incorporated Trinity Wealth Securities, LLC First Western Advisors Multi-Financial Securities Corp. Trustmont Financial Group, Inc. Fortune Financial Services, Inc. Mutual Service Corporation UBS Financial Services, Inc. Founders Financial Securities LLC National Financial LLD United Planners Financial Services of FSC Securities Corp. National Planning Corporation America FSICGarden State Securities, Inc. National Retirement Partners USA Financial Securities Corp. Gary Goldberg & Co., Inc. National Securities Corp. UVEST Financial Services Group, Inc. Geneos Wealth Management, Inc. Next Financial Group, Inc. Vanderbilt Securities Genworth Financial Securities Corp. NFP Securities, Inc. Wachovia Securities Financial Network, Girard Securities, Inc. North Ridge Securities Corp. LLC Great American Advisors, Inc. NYLIFE Securities, Inc. Wachovia Securities, Inc. (PCG)/PSI GunnAllen Financial, Inc. OneAmerica Securities, Inc. Wachovia Securities,LLC(BA) GWN Securities, Inc. Oppenheimer & Co., Inc. (Fahnestock) Wall Street Financial Group H. Beck, Inc. Pacific West Securities, Inc. Walnut Street Securities, Inc. H.D. Vest Investment Packerland Brokerage Services, Inc. Waterford Investor Services, Inc. Hantz Financial Services, Inc. Park Avenue Securities, LLC Waterstone Financial Group, Inc. Harbour Investments, Inc. Penn Plaza Brokerage, Ltd. Wayne Hummer Investments LLC HBW Securities LLC Penrod & Company Webster Investment Services, Inc. Hornor, Townsend & Kent, Inc. PNC Investments, LLC Wells Fargo Investments, LLC Howe Barnes Hoefer & Arnett Inc Presidential Brokerage, Inc. Wescom Financial Services LLC IFMG Securities, Inc. Prime Capital Services, Inc. Woodbury Financial Services, Inc. IMS Securities PrimeVest Financial Services, Inc. World Equity Group, Inc. Independent Financial Grp, LLC Princor Financial Services Corp. World Group Securities, Inc. Infinex Investments, Inc. WRP Investments, Inc.
4 You should note that firms and individual registered representatives and branch managers within some firms participating in one of these compensation arrangements might receive greater compensation for selling the Annuity than for selling a different annuity that is not eligible for these compensation arrangements. While compensation is generally taken into account as an expense in considering the charges applicable to an annuity product, any such compensation will be paid by us or PAD and will not result in any additional charge to you. Overall compensation paid to the distributing firm does not exceed, based on actuarial assumptions, 8.5% of the total Purchase Payments made. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Annuity. Prudential Annuities pays PAD an underwriting commission for its role as principal underwriter/distributor of all variable insurance products issued by Prudential Annuities. PAD is responsible for payment of commissions to the broker-dealer firms who are the ultimate sellers of the product. PAD does not retain any underwriting commissions. For the past three years, the aggregate dollar amount of underwriting commissions paid to PAD in its role as principal underwriter/distributor has been: 2008: $465,847,053; 2007: $512,269,247; 2006: $396,341,024. HOW THE UNIT PRICE IS DETERMINED For each Sub-account the initial Unit Price was $10.00. The Unit Price for each subsequent period is the net investment factor for that period, multiplied by the Unit Price for the immediately preceding Valuation Period. The Unit Price for a Valuation Period applies to each day in the period. The net investment factor is an index that measures the investment performance of, and charges assessed against, a Sub-account from one Valuation Period to the next. The net investment factor for a Valuation Period is: (a) divided by (b), less (c) where: a. is the net result of: 1. the net asset value per share of the Portfolio shares held by that Sub-account at the end of the current Valuation Period plus the per share amount of any dividend or capital gain distribution declared by the Portfolio at the end of the current Valuation Period and paid (in the case of a Portfolio that declares dividends on an annual or quarterly basis) or accrued (in the case of a money market Portfolio that pays dividends monthly); plus or minus 2. any per share charge or credit during the Valuation Period as a provision for taxes attributable to the operation or maintenance of that Sub-account. b. is the net result of: 1. the net asset value per share of the Portfolio shares held by that Sub-account at the end of the preceding Valuation Period plus the per share amount of any dividend or capital gain distribution declared and unpaid (accrued) by the Portfolio at the end of the preceding Valuation Period; plus or minus 2. any per share charge or credit during the preceding Valuation Period as a provision for taxes attributable to the operation or maintenance of that Sub-account. c. is the Insurance Charge and the Distribution Charge (if any) deducted daily against the assets of the Separate Account. We value the assets in each Sub-account at their fair market value in accordance with accepted accounting practices and applicable laws and regulations. The net investment factor may be greater than, equal to, or less than one. ADDITIONAL INFORMATION ON FIXED ALLOCATIONS To the extent permitted by law, we reserve the right at any time to offer Guarantee Periods with durations that differ from those which were available when your Annuity was issued. We also reserve the right at any time to stop accepting new allocations, transfers or renewals for a particular Guarantee Period. Such an action may have an impact on the market value adjustment ("MVA"). We declare the rates of interest applicable during the various Guarantee Periods offered. Declared rates are effective annual rates of interest. The rate of interest applicable to a Fixed Allocation is the one in effect when its Guarantee Period begins. The rate is guaranteed throughout the Guarantee Period. We inform you of the interest rate applicable to a Fixed Allocation, as well as its Maturity Date, when we confirm the allocation. We declare interest rates applicable to new Fixed Allocations from time-to-time. Any new Fixed Allocation in an existing Annuity is credited interest at a rate not less than the rate we are then crediting to Fixed Allocations for the same Guarantee Period selected by new Annuity purchasers in the same class. 5 The interest rates we credit are subject to a minimum. We may declare a higher rate. The minimum is based on both an index and a reduction to the interest rate determined according to the index. The index is based on the published rate for certificates of indebtedness (bills, notes or bonds, depending on the term of indebtedness) of the United States Treasury at the most recent Treasury auction held at least 30 days prior to the beginning of the applicable Fixed Allocation's Guarantee Period. The term (length of time from issuance to maturity) of the certificates of indebtedness upon which the index is based is the same as the duration of the Guarantee Period. If no certificates of indebtedness are available for such term, the next shortest term is used. If the United States Treasury's auction program is discontinued, we will substitute indexes which in our opinion are comparable. If required, implementation of such substitute indexes will be subject to approval by the SEC and the Insurance Department of the jurisdiction in which your Annuity was delivered. (For Annuities issued as certificates of participation in a group contract, it is our expectation that approval of only the jurisdiction in which such group contract was delivered applies.) The reduction used in determining the minimum interest rate is two and a half percent of interest (2.50%). Where required by the laws of a particular jurisdiction, a specific minimum interest rate, compounded yearly, will apply should the index less the reduction be less than the specific minimum interest rate applicable to that jurisdiction. WE MAY CHANGE THE INTEREST RATES WE CREDIT NEW FIXED ALLOCATIONS AT ANY TIME. Any such change does not have an impact on the rates applicable to Fixed Allocations with Guarantee Periods that began prior to such change. However, such a change will affect the MVA. We have no specific formula for determining the interest rates we declare. Rates may differ between classes and between types of annuities we offer, even for guarantees of the same duration starting at the same time. We expect our interest rate declarations for Fixed Allocations to reflect the returns available on the type of investments we make to support the various classes of annuities supported by the assets in Separate Account D. However, we may also take into consideration in determining rates such factors including, but not limited to, the durations offered by the annuities supported by the assets in Separate Account D, regulatory and tax requirements, the liquidity of the secondary markets for the type of investments we make, commissions, administrative expenses, investment expenses, our insurance risks in relation to Fixed Allocations, general economic trends and competition. OUR MANAGEMENT MAKES THE FINAL DETERMINATION AS TO INTEREST RATES TO BE CREDITED. WE CANNOT PREDICT THE RATES WE WILL DECLARE IN THE FUTURE. How We Calculate the Market Value Adjustment A MVA is used to determine the Account Value of each MVA Fixed Allocation. The formula used to determine the MVA is applied separately to each MVA Fixed Allocation. Values and time durations used in the formula are as of the date the Account Value is being determined. Current Rates and available Guarantee Periods may be found in the Prospectus. For purposes of this provision: . "Strips" are a form of security where ownership of the interest portion of United States Treasury securities are separated from ownership of the underlying principal amount or corpus. . "Strip Yields" are the yields payable on coupon Strips of United States Treasury securities. . "Option-adjusted Spread" is the difference between the yields on corporate debt securities (adjusted to disregard options on such securities) and government debt securities of comparable duration. We currently use the Merrill Lynch 1 to 10 year Investment Grade Corporate Bond Index of Option-adjusted Spreads. The formula is: [(1+I) / (1+J+0.0010)]/N/365/ where: I is the Strip Yield as of the start date of the Guarantee Period for coupon Strips maturing at the end of the applicable Guarantee Period plus the Option-adjusted Spread. If there are no Strips maturing at that time, we will use the Strip Yield for the Strips maturing as soon as possible after the Guarantee Period ends. J is the Strip Yield as of the date the MVA formula is being applied for coupon Strips maturing at the end of the applicable Guarantee Period plus the Option-adjusted Spread. If there are no Strips maturing at that time, we will use the Strip Yield for the Strips maturing as soon as possible after the Guarantee Period ends. N is the number of days remaining in the original Guarantee Period. If you surrender your Annuity under the right to cancel provision, the MVA formula is [(1 + I)/(1 + J)]N/365. 6 No MVA applies in determining a MVA Fixed Allocation's Account Value on its Maturity Date. The formula may be changed for certain Special Purpose MVA Fixed Allocations, as described in the Prospectus. Irrespective of the above, we apply certain formulas to determine "I" and "J" when we do not offer Guarantee Periods with a duration equal to the Remaining Period. These formulas are as follows: 1. If we offer Guarantee Periods to your class of Annuities with durations that are both shorter and longer than the Remaining Period, we interpolate a rate for "J" between our then current interest rates for Guarantee Periods with the next shortest and next longest durations then available for new Fixed Allocations for your class of Annuities. 2. If we no longer offer Guarantee Periods to your class of Annuities with durations that are both longer and shorter than the Remaining Period, we determine rates for "J" and, for purposes of determining the MVA only, for "I" based on the Moody's Corporate Bond Yield Average--Monthly Average Corporates (the "Average"), as published by Moody's Investor Services, Inc., its successor, or an equivalent service should such Average no longer be published by Moody's. For determining I, we will use the Average published on or immediately prior to the start of the applicable Guarantee Period. For determining J, we will use the Average for the Remaining Period published on or immediately prior to the date the MVA is calculated. No MVA applies in determining a Fixed Allocation's Account Value on its Maturity Date, and, where required by law, the 30 days prior to the Maturity Date. If we are not offering a Guarantee Period with a duration equal to the number of years remaining in a Fixed Allocation's Guarantee Period, we calculate a rate for "J" above using a specific formula. Our Current Rates are expected to be sensitive to interest rate fluctuations, thereby making each MVA equally sensitive to such changes. There would be a downward adjustment when the applicable Current Rate plus 0.10 percent of interest exceeds the rate credited to the Fixed Allocation and an upward adjustment when the applicable Current Rate is more than 0.10 percent of interest lower than the rate being credited to the Fixed Allocation. We reserve the right, from time to time, to determine the MVA using an interest rate lower than the Current Rate for all transactions applicable to a class of Annuities. We may do so at our sole discretion. This would benefit all such Annuities if transactions to which the MVA applies occur while we use such lower interest rate. GENERAL INFORMATION Voting Rights You have voting rights in relation to Account Value maintained in the Sub-accounts. You do not have voting rights in relation to Account Value maintained in any Fixed Allocations or in relation to fixed or adjustable annuity payments. We will vote shares of the Portfolios in which the Sub-accounts invest in the manner directed by Owners. Owners give instructions equal to the number of shares represented by the Sub-account Units attributable to their Annuity. We will vote the shares attributable to assets held in the Sub-accounts solely for us rather than on behalf of Owners, or any share as to which we have not received instructions, in the same manner and proportion as the shares for which we have received instructions. We will do so separately for each Sub-account of the Separate Account that may invest in the same Portfolio. The number of votes for a Portfolio will be determined as of the record date for such underlying mutual fund or portfolio as chosen by its board of trustees or board of directors, as applicable. We will furnish Owners with proper forms and proxies to enable them to instruct us how to vote. You may instruct us how to vote on the following matters: (a) changes to the board of trustees or board of directors, as applicable; (b) changing the independent accountant; (c) any change in the fundamental investment policy; (d) any other matter requiring a vote of the shareholders; and (e) approval of changes to the investment advisory agreement or adoption of a new investment advisory agreement. Advanced Series Trust (the "Trust") has obtained an exemption from the Securities and Exchange Commission that permits its investment adviser, AST Investment Services, Inc. ("ASISI"), subject to approval by the Board of Trustees of the Trust, to change sub-advisors for a Portfolio and to enter into new sub-advisory agreements, without obtaining shareholder approval of the changes. This exemption (which is similar to exemptions granted to other investment companies that are organized in a similar manner as the Trust) is intended to facilitate the efficient supervision and management of the sub-advisors by ASISI and the Trustees. The Trust is required, under the terms of the exemption, to provide certain information to shareholders following these types of changes. With respect to approval of changes to the investment advisory agreement, approval of a new investment advisory agreement or any change in fundamental investment policy, only Owners maintaining Account Value as of the record date in a Sub-account investing in the applicable underlying mutual fund portfolio will instruct us how to vote on the matter, pursuant to the requirements of Rule 18f-2 under the Investment Company Act. 7 Modification We reserve the right to do any or all of the following: (a) combine a Sub-account with other Sub-accounts; (b) combine Separate Account B or a portion of it with other "unitized" separate accounts; (c) terminate offering certain Guarantee Periods for new or renewing Fixed Allocations; (d) combine Separate Account D with other "non-unitized" separate accounts; (e) deregister Separate Account B under the Investment Company Act; (f) operate Separate Account B as a management investment company under the Investment Company Act or in any other form permitted by law; (g) make changes required by any change in the Securities Act, the Exchange Act or the Investment Company Act; (h) make changes that are necessary to maintain the tax status of your Annuity under the Code; (i) make changes required by any change in other Federal or state laws relating to retirement annuities or annuity contracts; and (j) discontinue offering any Sub-account at any time. Also, from time to time, we may make additional Sub-accounts available to you. These Sub-accounts will invest in underlying mutual funds or portfolios of underlying mutual funds we believe to be suitable for the Annuity. We may or may not make a new Sub-account available to invest in any new portfolio of one of the current underlying mutual funds should such a portfolio be made available to Separate Account B. We may eliminate Sub-accounts, combine two or more Sub-accounts or substitute one or more new underlying mutual funds or portfolios for the one in which a Sub-account is invested. Substitutions may be necessary if we believe an underlying mutual fund or portfolio no longer suits the purpose of the Annuity. This may happen due to a change in laws or regulations, or a change in the investment objectives or restrictions of an underlying mutual fund or portfolio, or because the underlying mutual fund or portfolio is no longer available for investment, or for some other reason. We would obtain prior approval from the insurance department of our state of domicile, if so required by law, before making such a substitution, deletion or addition. We also would obtain prior approval from the SEC so long as required by law, and any other required approvals before making such a substitution, deletion or addition. We reserve the right to transfer assets of Separate Account B, which we determine to be associated with the class of contracts to which your Annuity belongs, to another "unitized" separate account. We also reserve the right to transfer assets of Separate Account D which we determine to be associated with the class of contracts to which your annuity belongs, to another "non-unitized" separate account. We will notify you (and/or any payee during the payout phase) of any modification to your Annuity. We may endorse your Annuity to reflect the change. Deferral of Transactions We may defer any distribution or transfer from a Fixed Allocation or an annuity payment for a period not to exceed the lesser of 6 months or the period permitted by law. If we defer a distribution or transfer from any Fixed Allocation or any annuity payment for more than thirty days, or less where required by law, we pay interest at the minimum rate required by law but not less than 3% or at least 4% if required by your contract, per year on the amount deferred. We may defer payment of proceeds of any distribution from any Sub-account or any transfer from a Sub-account for a period not to exceed 7 calendar days from the date the transaction is effected. Any deferral period begins on the date such distribution or transfer would otherwise have been transacted. There may be circumstances where the NYSE is open, however, due to inclement weather, natural disaster or other circumstances beyond our control, our offices may be closed or our business processing capabilities may be restricted. Under those circumstances, your Account Value may fluctuate based on changes in the Unit Values, but you may not be able to transfer Account Value, or make a purchase or redemption request. The NYSE is closed on the following nationally recognized holidays: New Year's Day, Martin Luther King, Jr. Day, President's Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. On those dates, we will not process any financial transactions involving purchase or redemption orders. Prudential Annuities will also not process financial transactions involving purchase or redemption orders or transfers on any day that: . trading on the NYSE is restricted; . an emergency exists making redemption or valuation of securities held in the separate account impractical; or . the SEC, by order, permits the suspension or postponement for the protection of security holders. Misstatement of Age or Sex If there has been a misstatement of the age and/or sex of any person upon whose life annuity payments or the minimum death benefit are based, we make adjustments to conform to the facts. As to annuity payments: (a) any underpayments by us will be remedied on the next payment following correction; and (b) any overpayments by us will be charged against future amounts payable by us under your Annuity. Ending the Offer We may limit or discontinue offering Annuities. Existing Annuities will not be affected by any such action. 8 ANNUITIZATION WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE? We currently make annuity options available that provide fixed annuity payments, or adjustable payments. Fixed options provide the same amount with each payment. Adjustable options provide a fixed payment that is periodically adjusted based on current interest rates. We do not guarantee to make all annuity payment options available in the future. When you purchase an Annuity, or at a later date, you may choose an Annuity Date, an annuity option and the frequency of annuity payments. You may change your choices before the Annuity Date under the terms of your contract. A maximum Annuity Date may be required by law. The Annuity Date may depend on the annuity option you choose. Certain annuity options may not be available depending on the age of the Annuitant. Certain of these annuity options may also be available to Beneficiaries who choose to receive the Annuity's Death Benefit proceeds as a series of payments instead of a lump sum payment. Option 1 Payments for Life: Under this option, income is payable periodically until the death of the "key life". The "key life" (as used in this section) is the person or persons upon whose life annuity payments are based. No additional annuity payments are made after the death of the key life. Since no minimum number of payments is guaranteed, this option offers the largest amount of periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of the key life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. This option is currently available on a fixed basis. Under this option, you cannot make a partial or full surrender of the annuity. Option 2 Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two key lives, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the key lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. This option is currently available on a fixed basis only. Under this option, you cannot make a partial or full surrender of the annuity. Option 3 Payments for Life with a Certain Period: Under this option, income is payable until the death of the key life. However, if the key life dies before the end of the period selected (5, 10 or 15 years), the remaining payments are paid to the Beneficiary until the end of such period. This option is currently available on a fixed basis. Option 4 Fixed Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary to the end of such period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting this option. Under this option, you cannot make a partial or full surrender of the annuity. We may make additional annuity payment options available in the future. WHEN ARE ANNUITY PAYMENTS MADE? Each Annuity Payment is payable monthly on the Annuity Payment Date. The initial annuity payment will be on a date of your choice of the 1st through the 28th day of the month. The Annuity Payment Date may not be changed after the Annuity Date. HOW ARE ANNUITY PAYMENTS CALCULATED? Fixed Annuity Payments If you choose to receive fixed annuity payments, you will receive equal fixed-dollar payments throughout the period you select. The amount of the fixed payment will vary depending on the annuity payment option and payment frequency you select. Generally, the first annuity payment is determined by multiplying the Account Value upon the Annuity Date, minus any state premium taxes that may apply, by the factor determined from our table of annuity rates. The table of annuity rates differs based on the type of annuity chosen and the frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are derived from the a2000 Individual Annuity Mortality Table with an assumed interest rate of 3% per annum. Where required by law or regulation, such annuity table will have rates that do not differ according to the gender of the key life. Otherwise, the rates will differ according to the gender of the key life. 9 KEY TERMS Annuity Date is the date you choose for annuity payments to commence. A maximum Annuity Date may apply. Annuity Payment Date is the date each month annuity payments are payable. This date is the same day of the month as the Annuity Date which may be any date chosen by you between the 1st and the 28th day of the month. The Annuity Payment Date may not be changed on or after the Annuity Date. Inheritance Date is the date we receive, at our office, due proof satisfactory to us of the Annuitant's death and all other requirements that enable us to make payments for the benefit of a Beneficiary. If there are joint Annuitants, the Inheritance Date refers to the death of the last surviving Annuitant. Account Value on the Annuity Date you allocate to a Sub-account, the Benchmark Rate, and Annuity Factors. Subsequently, the Schedule of Units is adjusted for transfers, Adjustments, or partial surrenders. Adjustable Annuity Payments We may make an adjustable annuity payment option available. Adjustable annuity payments are calculated similarly to fixed annuity payments except that on every fifth (5th) anniversary of receiving annuity payments, the annuity payment amount is adjusted upward or downward depending on the rate we are currently crediting to annuity payments. The adjustment in the annuity payment amount does not affect the duration of remaining annuity payments, only the amount of each payment. EXPERTS The financial statements of Prudential Annuities Life Assurance Corporation as of December 31, 2008 and 2007 and for each of the three years in the period ended December 31, 2008 and the financial statements of Prudential Annuities Life Assurance Corporation Variable Account B as of December 31, 2008 and for each of the two years in the period then ended included in this Statement of Additional Information have been so included in reliance on the reports of PricewaterhouseCoopers LLP, an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting. PricewaterhouseCoopers LLP's principal business address is 300 Madison Avenue, New York, New York 10017. LEGAL EXPERTS Counsel for Prudential Annuities Life Assurance Corporation has passed on the legal matters with respect to Federal laws and regulations applicable to the issue and sale of the Annuities and with respect to Connecticut law. FINANCIAL STATEMENTS The statements which follow in Appendix B are those of Prudential Annuities Life Assurance Corporation and Prudential Annuities Life Assurance Corporation Variable Account B Sub-accounts as of December 31, 2008 and for the years ended December 31, 2008 and 2007. There may be other Sub-accounts included in Variable Account B that are not available in the product described in the applicable prospectus. INCORPORATION BY REFERENCE To the extent and only to the extent that any statement in a document incorporated by reference into this Statement of Additional Information is modified or superseded by a statement in this Statement of Additional Information or in a later-filed document, such statement is hereby deemed so modified or superseded and not part of this Statement of Additional Information. We furnish you without charge a copy of any or all the documents incorporated by reference in this Statement of Additional Information, including any exhibits to such documents which have been specifically incorporated by reference. We do so upon receipt of your written or oral request. Please address your request to Prudential Annuities - Variable Annuities, P.O. Box 7960, Philadelphia, PA 19176. Our phone number is 1-888-PRU-2888. You may also forward such a request electronically to our Customer Service Department at customerservice@prudential.com. 10 Appendix A--DETERMINATION OF ACCUMULATION UNIT VALUES The value for each accumulation unit is computed as of the end of each business day. On any given business day the value of a Unit in each Sub-account will be determined by multiplying the value of a Unit of that Sub-account for the preceding business day by the net investment factor for that Sub-account for the current business day. The net investment factor for any business day is determined by dividing the value of the assets of the Sub-account for that day by the value of the assets of the Sub-account for the preceding business day (ignoring, for this purpose, changes resulting from new purchase payments and withdrawals), and subtracting from the result the daily equivalent of the annual charge for all insurance and administrative expenses. The value of the assets of a Sub-account is determined by multiplying the number of shares of a fund by the net asset value of each share and adding the value of dividends declared by the Series Fund or other fund but not yet paid. As we have indicated in the prospectus, Advanced Series XTra Credit Eight and Optimum XTra are contracts that allow you to select or decline any of several benefit options that carry with it a specific asset based charge. We maintain a unique unit value corresponding to each such contract feature. In each prospectus, we depict the unit values corresponding to the contract features that bore the highest and lowest combination of asset-based charges for the period ending December 31, 2008. Here we set out unit values corresponding to the remaining unit values. The portfolio names shown for the corresponding unit values are as of the period indicated above. For a complete list of current portfolio names, see "What Are the Investment Objectives and Policies of the Portfolio?" in the prospectus. ADVANCED SERIES XTRA CREDIT EIGHTSM ("XT8") Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With EBP II or HAV (2.00%)
ACCUMULATION ACCUMULATION NUMBER OF UNIT VALUE UNIT VALUE ACCUMULATION AT BEGINNING AT END UNITS OUTSTANDING SUB ACCOUNTS OF PERIOD OF PERIOD AT END OF PERIOD ------------ ------------ ------------ ----------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $13.90 $ 9.81 2,137,291 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.20 $ 8.56 829,518 AST American Century Income & Growth Portfolio 06/30/2008 to 12/31/2008 $13.79 $10.13 432,558 AST Schroders Multi-Asset World Strategies Portfolio formerly, AST American Century Strategic Allocation Portfolio 06/30/2008 to 12/31/2008 $13.61 $ 9.98 451,062 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.37 $10.37 11,771,343 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $21.40 $14.16 171,371 AST UBS Dynamic Alpha Portfolio 06/30/2008 to 12/31/2008 $14.39 $11.66 2,616,044 AST DeAm Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $15.55 $11.16 374,851 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $15.90 $10.25 51,866 AST High Yield Portfolio 06/30/2008 to 12/31/2008 $13.93 $10.45 484,068 AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $21.00 $14.00 419,386 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $16.31 $10.67 157,691 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $15.87 $11.99 987,703
AST Goldman Sachs Concentrated Growth Portfolio 06/30/2008 to 12/31/2008 $13.43 $ 8.42 212,472 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $17.20 $10.54 395,201 AST Goldman Sachs Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $16.81 $12.99 37,725 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.54 $ 8.69 546,388 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $13.58 $10.45 916,727 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $14.84 $ 9.53 2,645,237 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $14.44 $ 9.75 381,401 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $18.05 $11.47 217,294 AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $17.83 $10.94 649,182 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.33 $ 9.03 254,074 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $10.99 $10.73 3,023,480 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $11.73 $11.21 2,546,124 AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $13.44 $ 9.36 354,139 AST QMA US Equity Alpha formerly, AST AllianceBernstein Managed Index 500 Portfolio 06/30/2008 to 12/31/2008 $13.03 $ 8.87 222,347 AST T. Rowe Price Natural Resources Portfolio 06/30/2008 to 12/31/2008 $40.00 $17.33 300,040 AST T. Rowe Price Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $14.42 $11.28 1,693,347 AST International Value Portfolio 06/30/2008 to 12/31/2008 $20.93 $13.44 281,138
AST MFS Global Equity Portfolio 06/30/2008 to 12/31/2008 $17.56 $12.70 144,404 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $18.28 $11.79 450,183 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $12.90 $12.16 694,965 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $20.91 $11.70 1,091,501 AST Aggressive Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.53 $ 6.88 954,985 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.72 $ 7.64 11,747,755 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.66 $ 7.84 9,400,328 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.71 $ 8.11 5,528,245 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.74 $ 8.92 5,838,176 AST First Trust Balanced Target Portfolio 06/30/2008 to 12/31/2008 $ 9.80 $ 7.21 3,325,516 AST First Trust Capital Appreciation Target Portfolio 06/30/2008 to 12/31/2008 $10.29 $ 6.63 3,618,245 AST Advanced Strategies Portfolio 06/30/2008 to 12/31/2008 $10.66 $ 7.85 3,903,066 AST CLS Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.32 $ 7.30 301,763 AST CLS Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.32 $ 7.12 703,326 AST Horizon Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.15 $ 6.92 304,793 AST Horizon Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.45 $ 7.55 790,873 AST Niemann Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.05 $ 7.13 414,672
AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.92 1,344,244 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.04 $ 9.27 788,143 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.69 $11.28 12,905,774 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $ 9.66 $12.01 7,376,393 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $ 9.68 $12.08 5,692,971 AST Global Real Estate Portfolio 07/21/2008* to 12/31/2008 $10.18 $ 6.10 13,392 AST Parametric Emerging Markets Equity Portfolio 07/21/2008* to 12/31/2008 $10.10 $ 5.56 164,951 AST Focus Four Plus Portfolio 07/21/2008* to 12/31/2008 $10.00 $ 7.46 143,659 Evergreen VA Growth Fund 06/30/2008 to 12/31/2008 $11.55 $ 7.79 35,683 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $16.60 $10.82 146,290 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $14.51 $11.47 26,469 Franklin Templeton VIP Founding Funds Allocation Fund 06/30/2008 to 12/31/2008 $ 9.27 $ 6.63 933,984 Prudential SP International Growth Portfolio 06/30/2008 to 12/31/2008 $14.56 $ 8.13 25,080 Gartmore NVIT Developing Markets 06/30/2008 to 12/31/2008 $38.19 $18.01 186,988 The DOW DART 10 Portfolio formerly, First Trust Dow Target 10 06/30/2008 to 12/31/2008 $10.23 $ 8.43 151,198 First Trust Target Focus Four Portfolio 06/30/2008 to 12/31/2008 $ 9.15 $ 6.10 92,210 Global Dividend Target 15 formerly, First Trust Global Dividend Target 15 06/30/2008 to 12/31/2008 $15.75 $10.78 201,811
NASDAQ Target 15 Portfolio formerly, First Trust NASDAQ Target 15 06/30/2008 to 12/31/2008 $ 9.89 $ 5.96 0 S&P Target 24 Portfolio formerly, First Trust S&P Target 24 06/30/2008 to 12/31/2008 $ 9.72 $ 7.96 177,004 Target Managed VIP Portfolio formerly, First Trust Managed VIP 06/30/2008 to 12/31/2008 $11.78 $ 7.53 576,002 Value Line Target 25 Portfolio formerly, First Trust Value Line Target 25 06/30/2008 to 12/31/2008 $ 9.90 $ 4.54 0 The DOW Target Dividend Portfolio formerly, First Trust Dow Target Dividend 06/30/2008 to 12/31/2008 $ 8.09 $ 6.51 179,985 AIM V.I. Dynamics Fund 06/30/2008 to 12/31/2008 $17.24 $10.05 37,387 AIM V.I. Financial Services Fund 06/30/2008 to 12/31/2008 $ 8.20 $ 4.81 50,279 AIM V.I. Global Health Care 06/30/2008 to 12/31/2008 $13.50 $10.52 187,213 AIM V.I. Technology Fund 06/30/2008 to 12/31/2008 $ 9.92 $ 6.21 0 Wells Fargo Advantage VT Equity Income 06/30/2008 to 12/31/2008 $13.68 $10.03 40,019
*Denotes the start date of these sub-accounts ADVANCED SERIES XTRA CREDIT EIGHTSM ("XT8") Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With HD GRO or GRO Plus 2008 or GMWB (2.10%)
ACCUMULATION ACCUMULATION NUMBER OF UNIT VALUE UNIT VALUE ACCUMULATION AT BEGINNING AT END UNITS OUTSTANDING SUB ACCOUNTS OF PERIOD OF PERIOD AT END OF PERIOD ------------ ------------ ------------ ----------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $11.53 $ 8.13 303,603 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.91 $ 7.72 150,031 AST American Century Income & Growth Portfolio 06/30/2008 to 12/31/2008 $11.75 $ 8.62 30,696 AST Schroders Multi-Asset World Strategies Portfolio formerly, AST American Century Strategic Allocation Portfolio 06/30/2008 to 12/31/2008 $12.06 $ 8.84 103,613 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.44 $10.44 1,342,066 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $16.04 $10.61 22,662 AST UBS Dynamic Alpha Portfolio 06/30/2008 to 12/31/2008 $12.77 $10.35 527,353 AST DeAm Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $13.32 $ 9.55 30,596 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.66 $ 7.51 15,762 AST High Yield Portfolio 06/30/2008 to 12/31/2008 $11.78 $ 8.84 17,661 AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $13.45 $ 8.96 68,386 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $13.09 $ 8.56 28,505 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.57 $ 9.49 101,244
AST Goldman Sachs Concentrated Growth Portfolio 06/30/2008 to 12/31/2008 $12.02 $ 7.53 4,045 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $14.13 $ 8.65 47,484 AST Goldman Sachs Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.99 $10.03 11,845 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $11.20 $ 7.76 107,697 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $11.81 $ 9.08 59,432 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $12.39 $ 7.95 366,476 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $12.87 $ 8.68 27,492 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $15.29 $ 9.71 31,135 AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $14.44 $ 8.86 62,723 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $10.12 $ 6.85 28,498 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $10.73 $10.48 236,700 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $11.23 $10.72 338,941 AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $11.28 $ 7.86 69,054 AST QMA US Equity Alpha formerly, AST AllianceBernstein Managed Index 500 Portfolio 06/30/2008 to 12/31/2008 $11.19 $ 7.62 9,827 AST T. Rowe Price Natural Resources Portfolio 06/30/2008 to 12/31/2008 $32.75 $14.18 25,971 AST T. Rowe Price Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $12.42 $ 9.71 307,338 AST International Value Portfolio 06/30/2008 to 12/31/2008 $17.47 $11.21 42,818
AST MFS Global Equity Portfolio 06/30/2008 to 12/31/2008 $15.29 $11.05 14,614 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $15.43 $ 9.95 31,277 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $11.64 $10.97 62,683 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $16.46 $ 9.21 149,395 AST Aggressive Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.50 $ 6.85 218,797 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.69 $ 7.62 3,719,626 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.64 $ 7.82 2,026,858 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.69 $ 8.09 1,399,307 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.71 $ 8.90 1,387,683 AST First Trust Balanced Target Portfolio 06/30/2008 to 12/31/2008 $ 9.78 $ 7.19 728,816 AST First Trust Capital Appreciation Target Portfolio 06/30/2008 to 12/31/2008 $10.27 $ 6.61 1,048,296 AST Advanced Strategies Portfolio 06/30/2008 to 12/31/2008 $10.63 $ 7.82 779,417 AST CLS Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.31 $ 7.29 186,697 AST CLS Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.32 $ 7.12 258,911 AST Horizon Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.15 $ 6.91 219,741 AST Horizon Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.44 $ 7.54 155,398 AST Niemann Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.05 $ 7.12 136,618
AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.91 0 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.04 $ 9.26 164,058 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.68 $11.27 826,382 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $ 9.65 $12.00 506,041 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $ 9.67 $12.07 160,720 AST Global Real Estate Portfolio 07/21/2008* to 12/31/2008 $10.17 $ 6.10 17,040 AST Parametric Emerging Markets Equity Portfolio 07/21/2008* to 12/31/2008 $10.10 $ 5.56 2,886 AST Focus Four Plus Portfolio 07/21/2008* to 12/31/2008 $10.00 $ 7.46 53,571 Evergreen VA Growth Fund 06/30/2008 to 12/31/2008 $11.52 $ 7.76 0 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $16.52 $10.77 14,859 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $11.45 $ 9.04 182 Franklin Templeton VIP Founding Funds Allocation Fund 06/30/2008 to 12/31/2008 $ 9.27 $ 6.62 292,389 Prudential SP International Growth Portfolio 06/30/2008 to 12/31/2008 $14.51 $ 8.09 1,858 Gartmore NVIT Developing Markets 06/30/2008 to 12/31/2008 $26.62 $12.55 11,820 The DOW DART 10 Portfolio formerly, First Trust Dow Target 10 06/30/2008 to 12/31/2008 $10.18 $ 8.39 0 First Trust Target Focus Four Portfolio 06/30/2008 to 12/31/2008 $ 9.15 $ 6.09 25,039 Global Dividend Target 15 formerly, First Trust Global Dividend Target 15 06/30/2008 to 12/31/2008 $15.68 $10.73 19,411
NASDAQ Target 15 Portfolio formerly, First Trust NASDAQ Target 15 06/30/2008 to 12/31/2008 $ 9.89 $ 5.95 0 S&P Target 24 Portfolio formerly, First Trust S&P Target 24 06/30/2008 to 12/31/2008 $ 9.68 $ 7.92 330 Target Managed VIP Portfolio formerly, First Trust Managed VIP 06/30/2008 to 12/31/2008 $11.73 $ 7.49 3,288 Value Line Target 25 Portfolio formerly, First Trust Value Line Target 25 06/30/2008 to 12/31/2008 $ 9.90 $ 4.54 0 The DOW Target Dividend Portfolio formerly, First Trust Dow Target Dividend 06/30/2008 to 12/31/2008 $ 8.07 $ 6.48 841 AIM V.I. Dynamics Fund 06/30/2008 to 12/31/2008 $13.80 $ 8.04 385 AIM V.I. Financial Services Fund 06/30/2008 to 12/31/2008 $ 6.78 $ 3.98 31,591 AIM V.I. Global Health Care 06/30/2008 to 12/31/2008 $12.24 $ 9.54 19,062 AIM V.I. Technology Fund 06/30/2008 to 12/31/2008 $ 9.92 $ 6.20 0 Wells Fargo Advantage VT Equity Income 06/30/2008 to 12/31/2008 $11.93 $ 8.74 0
*Denotes the start date of these sub-accounts ADVANCED SERIES XTRA CREDIT EIGHTSM ("XT8") Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With HDV or Combo 5% Roll-UP/HAV or EBP II and HAV (2.25%)
ACCUMULATION ACCUMULATION NUMBER OF UNIT VALUE UNIT VALUE ACCUMULATION AT BEGINNING AT END UNITS OUTSTANDING SUB ACCOUNTS OF PERIOD OF PERIOD AT END OF PERIOD ------------ ------------ ------------ ----------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $10.64 $ 7.50 14,888,690 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 6.59 $ 4.27 9,138,560 AST American Century Income & Growth Portfolio 06/30/2008 to 12/31/2008 $ 8.97 $ 6.58 771,578 AST Schroders Multi-Asset World Strategies Portfolio formerly, AST American Century Strategic Allocation Portfolio 06/30/2008 to 12/31/2008 $10.96 $ 8.02 2,188,363 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.54 $10.53 2,377,836 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $15.92 $10.52 126,275 AST UBS Dynamic Alpha Portfolio 06/30/2008 to 12/31/2008 $10.26 $ 8.31 17,909,520 AST DeAm Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $11.53 $ 8.26 357,327 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 7.40 $ 4.76 121,677 AST High Yield Portfolio 06/30/2008 to 12/31/2008 $11.93 $ 8.94 319,199 AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $10.22 $ 6.80 4,202,964 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $11.92 $ 7.79 332,297 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $16.31 $12.31 3,408,854
AST Goldman Sachs Concentrated Growth Portfolio 06/30/2008 to 12/31/2008 $ 5.04 $ 3.15 517,467 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 4.98 $ 3.05 4,668,204 AST Goldman Sachs Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $19.84 $15.31 108,308 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $ 9.23 $ 6.39 6,057,693 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $13.08 $10.05 3,023,716 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $ 9.74 $ 6.25 21,934,912 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $ 7.77 $ 5.24 2,384,441 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 8.81 $ 5.59 501,805 AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $17.61 $10.79 2,188,696 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $16.43 $11.12 634,820 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $12.39 $12.09 6,660,709 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $14.10 $13.45 6,994,579 AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $11.13 $ 7.75 4,124,590 AST QMA US Equity Alpha formerly, AST AllianceBernstein Managed Index 500 Portfolio 06/30/2008 to 12/31/2008 $ 8.40 $ 5.71 424,286 AST T. Rowe Price Natural Resources Portfolio 06/30/2008 to 12/31/2008 $32.51 $14.07 82,096 AST T. Rowe Price Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $12.33 $ 9.64 9,944,782 AST International Value Portfolio 06/30/2008 to 12/31/2008 $ 9.10 $ 5.84 2,755,958
AST MFS Global Equity Portfolio 06/30/2008 to 12/31/2008 $12.79 $ 9.24 207,928 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $ 9.75 $ 6.28 975,043 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $14.80 $13.93 1,722,092 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $21.47 $12.00 5,724,854 AST Aggressive Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.46 $ 6.82 112,381 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.65 $ 7.58 101,095,109 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.59 $ 7.78 75,453,329 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.64 $ 8.05 25,276,368 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.67 $ 8.85 31,839,577 AST First Trust Balanced Target Portfolio 06/30/2008 to 12/31/2008 $ 9.75 $ 7.15 23,823,391 AST First Trust Capital Appreciation Target Portfolio 06/30/2008 to 12/31/2008 $10.23 $ 6.58 31,425,844 AST Advanced Strategies Portfolio 06/30/2008 to 12/31/2008 $10.59 $ 7.79 28,466,422 AST CLS Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.30 $ 7.28 1,661,195 AST CLS Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.31 $ 7.10 2,073,853 AST Horizon Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.14 $ 6.90 1,187,111 AST Horizon Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.43 $ 7.53 1,501,593 AST Niemann Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.04 $ 7.11 1,382,568
AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.91 1,214,623 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.03 $ 9.24 3,325,125 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.68 $11.25 1,472,001 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $ 9.65 $11.98 794,529 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $ 9.67 $12.05 945,503 AST Global Real Estate Portfolio 07/21/2008* to 12/31/2008 $10.17 $ 6.10 8,921 AST Parametric Emerging Markets Equity Portfolio 07/21/2008* to 12/31/2008 $10.10 $ 5.56 14,499 AST Focus Four Plus Portfolio 07/21/2008* to 12/31/2008 $10.00 $ 7.45 439,198 Evergreen VA Diversified Capital Builder Fund formerly, Evergreen VA Balanced Fund 06/30/2008 to 12/31/2008 $12.42 $ 6.63 0 Evergreen VA Growth Fund 06/30/2008 to 12/31/2008 $11.46 $ 7.72 19,329 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $16.71 $10.88 68,654 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $ 9.75 $ 7.70 24,749 Evergreen VA Special Values Fund 06/30/2008 to 12/31/2008 $13.55 $ 9.88 0 Evergreen VA Diversified Income Builder Fund 06/30/2008 to 12/31/2008 $10.70 $ 7.70 0 Franklin Templeton VIP Founding Funds Allocation Fund 06/30/2008 to 12/31/2008 $ 9.27 $ 6.62 1,777,633 Prudential SP International Growth Portfolio 06/30/2008 to 12/31/2008 $14.43 $ 8.04 14,320 Gartmore NVIT Developing Markets 06/30/2008 to 12/31/2008 $26.43 $12.45 49,725
The DOW DART 10 Portfolio formerly, First Trust Dow Target 10 06/30/2008 to 12/31/2008 $10.12 $ 8.33 7,072 First Trust Target Focus Four Portfolio 06/30/2008 to 12/31/2008 $ 9.14 $ 6.08 10,685 Global Dividend Target 15 formerly, First Trust Global Dividend Target 15 06/30/2008 to 12/31/2008 $15.58 $10.66 37,037 NASDAQ Target 15 Portfolio formerly, First Trust NASDAQ Target 15 06/30/2008 to 12/31/2008 $ 9.89 $ 5.95 0 S&P Target 24 Portfolio formerly, First Trust S&P Target 24 06/30/2008 to 12/31/2008 $ 9.62 $ 7.86 10,121 Target Managed VIP Portfolio formerly, First Trust Managed VIP 06/30/2008 to 12/31/2008 $11.66 $ 7.44 24,434 Value Line Target 25 Portfolio formerly, First Trust Value Line Target 25 06/30/2008 to 12/31/2008 $ 9.90 $ 4.53 0 The DOW Target Dividend Portfolio formerly, First Trust Dow Target Dividend 06/30/2008 to 12/31/2008 $ 8.03 $ 6.45 17,555 AIM V.I. Dynamics Fund 06/30/2008 to 12/31/2008 $13.70 $ 7.98 18,138 AIM V.I. Financial Services Fund 06/30/2008 to 12/31/2008 $ 6.73 $ 3.95 33,237 AIM V.I. Global Health Care 06/30/2008 to 12/31/2008 $12.15 $ 9.47 10,538 AIM V.I. Technology Fund 06/30/2008 to 12/31/2008 $ 9.92 $ 6.20 0 Wells Fargo Advantage VT Equity Income 06/30/2008 to 12/31/2008 $16.88 $12.36 14,524
*Denotes the start date of these sub-accounts ADVANCED SERIES XTRA CREDIT EIGHTSM ("XT8") Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With Lifetime Five or Highest Daily Lifetime Five or HD GRO, GRO Plus 2008 and EBP II or GMWB and EBP II or GMWB and HAV or HD GRO, GRO Plus 2008 and HAV (2.35%)
ACCUMULATION ACCUMULATION NUMBER OF UNIT VALUE UNIT VALUE ACCUMULATION AT BEGINNING AT END UNITS OUTSTANDING SUB ACCOUNTS OF PERIOD OF PERIOD AT END OF PERIOD ------------ ------------ ------------ ----------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $ 9.86 $ 6.95 503,014 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.78 $ 7.62 291,048 AST American Century Income & Growth Portfolio 06/30/2008 to 12/31/2008 $ 9.94 $ 7.29 47,683 AST Schroders Multi-Asset World Strategies Portfolio formerly, AST American Century Strategic Allocation Portfolio 06/30/2008 to 12/31/2008 $10.88 $ 7.96 115,822 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.53 $10.52 143,022 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $11.97 $ 7.91 4,834 AST UBS Dynamic Alpha Portfolio 06/30/2008 to 12/31/2008 $11.34 $ 9.18 674,284 AST DeAm Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.69 $ 7.66 24,873 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $10.90 $ 7.02 3,031 AST High Yield Portfolio 06/30/2008 to 12/31/2008 $10.25 $ 7.68 1,250 AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $10.70 $ 7.12 154,292 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.65 $ 6.96 30,027 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.41 $ 7.85 198,079
AST Goldman Sachs Concentrated Growth Portfolio 06/30/2008 to 12/31/2008 $11.92 $ 7.46 712 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $12.03 $ 7.35 85,001 AST Goldman Sachs Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.34 $ 7.97 647 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $ 9.49 $ 6.57 282,100 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $10.72 $ 8.23 100,064 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $10.94 $ 7.01 731,541 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $11.88 $ 8.01 80,355 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.10 $ 8.31 6,554 AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.85 $ 6.65 99,662 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.19 $ 7.57 46,585 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $10.71 $10.44 243,437
AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $10.82 $10.32 363,898 AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $ 9.33 $ 6.49 263,166 AST QMA US Equity Alpha formerly, AST AllianceBernstein Managed Index 500 Portfolio 06/30/2008 to 12/31/2008 $ 9.97 $ 6.78 1,891 AST T. Rowe Price Natural Resources Portfolio 06/30/2008 to 12/31/2008 $20.45 $ 8.85 13,531 AST T. Rowe Price Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.87 $ 8.49 583,600 AST International Value Portfolio 06/30/2008 to 12/31/2008 $13.00 $ 8.33 113,927
AST MFS Global Equity Portfolio 06/30/2008 to 12/31/2008 $12.05 $ 8.71 2,321 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $12.06 $ 7.77 25,699 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $10.57 $ 9.94 88,108 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $13.40 $ 7.49 339,291 AST Aggressive Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.44 $ 6.80 11,309 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.62 $ 7.56 3,585,836 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.57 $ 7.76 1,833,767 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.62 $ 8.02 1,031,078 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.64 $ 8.83 1,873,756 AST First Trust Balanced Target Portfolio 06/30/2008 to 12/31/2008 $ 9.72 $ 7.13 890,164 AST First Trust Capital Appreciation Target Portfolio 06/30/2008 to 12/31/2008 $10.21 $ 6.56 1,096,570 AST Advanced Strategies Portfolio 06/30/2008 to 12/31/2008 $10.57 $ 7.77 880,210 AST CLS Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.30 $ 7.27 160,095 AST CLS Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.30 $ 7.10 292,038 AST Horizon Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.13 $ 6.89 201,458 AST Horizon Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.43 $ 7.52 201,633 AST Niemann Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.03 $ 7.10 89,811
AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.90 0 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.02 $ 9.23 100,964 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.67 $11.24 73,879 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $10.06 $12.49 103,181 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $10.08 $12.56 11,666 AST Global Real Estate Portfolio 07/21/2008* to 12/31/2008 $10.17 $ 6.09 2,366 AST Parametric Emerging Markets Equity Portfolio 07/21/2008* to 12/31/2008 $10.10 $ 5.56 671 AST Focus Four Plus Portfolio 07/21/2008* to 12/31/2008 $10.00 $ 7.45 51,945 Evergreen VA Growth Fund 06/30/2008 to 12/31/2008 $11.42 $ 7.69 0 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $12.97 $ 8.44 38 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $10.76 $ 8.49 1,419 Franklin Templeton VIP Founding Funds Allocation Fund 06/30/2008 to 12/31/2008 $ 9.27 $ 6.61 327,307
Prudential SP International Growth Portfolio 06/30/2008 to 12/31/2008 $13.51 $ 7.52 0 Gartmore NVIT Developing Markets 06/30/2008 to 12/31/2008 $19.29 $ 9.09 6,286 The DOW DART 10 Portfolio formerly, First Trust Dow Target 10 06/30/2008 to 12/31/2008 $ 9.79 $ 8.06 0 First Trust Target Focus Four Portfolio 06/30/2008 to 12/31/2008 $ 8.47 $ 5.63 0 Global Dividend Target 15 formerly, First Trust Global Dividend Target 15 06/30/2008 to 12/31/2008 $13.32 $ 9.10 2,636 NASDAQ Target 15 Portfolio formerly, First Trust NASDAQ Target 15 06/30/2008 to 12/31/2008 $10.89 $ 6.55 0 S&P Target 24 Portfolio formerly, First Trust S&P Target 24 06/30/2008 to 12/31/2008 $ 9.28 $ 7.58 1,916 Target Managed VIP Portfolio formerly, First Trust Managed VIP 06/30/2008 to 12/31/2008 $10.32 $ 6.58 1,798 Value Line Target 25 Portfolio formerly, First Trust Value Line Target 25 06/30/2008 to 12/31/2008 $12.47 $ 5.71 0 The DOW Target Dividend Portfolio formerly, First Trust Dow Target Dividend 06/30/2008 to 12/31/2008 $ 8.00 $ 6.42 5,504 AIM V.I. Dynamics Fund 06/30/2008 to 12/31/2008 $11.74 $ 6.83 179 AIM V.I. Financial Services Fund 06/30/2008 to 12/31/2008 $ 6.23 $ 3.65 3,556 AIM V.I. Global Health Care 06/30/2008 to 12/31/2008 $11.16 $ 8.69 1,791 AIM V.I. Technology Fund 06/30/2008 to 12/31/2008 $10.49 $ 6.55 0 Wells Fargo Advantage VT Equity Income 06/30/2008 to 12/31/2008 $ 9.99 $ 7.31 0
*Denotes the start date of these sub-accounts ADVANCED SERIES XTRA CREDIT EIGHTSM ("XT8") Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With Spousal Lifetime Five (2.50%)
ACCUMULATION ACCUMULATION NUMBER OF UNIT VALUE UNIT VALUE ACCUMULATION AT BEGINNING AT END UNITS OUTSTANDING SUB ACCOUNTS OF PERIOD OF PERIOD AT END OF PERIOD ------------ ------------ ------------ ----------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $11.31 $ 7.96 1,454,713 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.68 $ 7.56 518,624 AST American Century Income & Growth Portfolio 06/30/2008 to 12/31/2008 $11.53 $ 8.44 13,191 AST Schroders Multi-Asset World Strategies Portfolio formerly, AST American Century Strategic Allocation Portfolio 06/30/2008 to 12/31/2008 $11.83 $ 8.65 322,701 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.24 $10.22 1,415,779 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $15.73 $10.38 35,655 AST UBS Dynamic Alpha Portfolio 06/30/2008 to 12/31/2008 $12.52 $10.13 2,523,092 AST DeAm Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $13.06 $ 9.35 36,417 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.44 $ 7.35 9,096 AST High Yield Portfolio 06/30/2008 to 12/31/2008 $11.56 $ 8.65 93,825 AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $13.20 $ 8.77 349,875 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.84 $ 8.38 34,218 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.33 $ 9.29 476,508
AST Goldman Sachs Concentrated Growth Portfolio 06/30/2008 to 12/31/2008 $11.79 $ 7.37 29,418 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.86 $ 8.47 183,064 AST Goldman Sachs Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.74 $ 9.82 4,474 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.99 $ 7.60 548,258 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $11.59 $ 8.89 353,757 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $12.15 $ 7.78 1,923,113 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $12.62 $ 8.50 146,312 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $14.99 $ 9.50 40,390 AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $14.16 $ 8.67 309,446 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 9.92 $ 6.71 110,050 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $10.53 $10.25 925,839 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $11.01 $10.49 1,079,087 AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $11.07 $ 7.69 498,738 AST QMA US Equity Alpha formerly, AST AllianceBernstein Managed Index 500 Portfolio 06/30/2008 to 12/31/2008 $10.98 $ 7.46 35,676 AST T. Rowe Price Natural Resources Portfolio 06/30/2008 to 12/31/2008 $32.13 $13.88 53,372 AST T. Rowe Price Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $12.18 $ 9.51 1,922,262 AST International Value Portfolio 06/30/2008 to 12/31/2008 $17.14 $10.98 182,276
AST MFS Global Equity Portfolio 06/30/2008 to 12/31/2008 $14.99 $10.82 30,846 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $15.14 $ 9.74 79,562 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $11.42 $10.74 267,335 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $16.14 $ 9.01 833,518 AST Aggressive Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.39 $ 6.77 55,549 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.58 $ 7.52 16,392,108 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.52 $ 7.72 9,794,274 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.57 $ 7.98 4,321,571 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.60 $ 8.79 4,342,819 AST First Trust Balanced Target Portfolio 06/30/2008 to 12/31/2008 $ 9.69 $ 7.10 3,578,870 AST First Trust Capital Appreciation Target Portfolio 06/30/2008 to 12/31/2008 $10.17 $ 6.54 5,699,090 AST Advanced Strategies Portfolio 06/30/2008 to 12/31/2008 $10.53 $ 7.74 4,878,104 AST CLS Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.29 $ 7.26 227,281 AST CLS Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.29 $ 7.08 393,045 AST Horizon Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.12 $ 6.88 169,345 AST Horizon Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.42 $ 7.51 248,327 AST Niemann Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.02 $ 7.09 274,748
AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.89 0 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $ 9.21 293,361 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.66 $11.22 656,950 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $ 9.63 $11.96 616,319 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $ 9.65 $12.02 407,383 AST Global Real Estate Portfolio 07/21/2008* to 12/31/2008 $10.17 $ 6.09 2,067 AST Parametric Emerging Markets Equity Portfolio 07/21/2008* to 12/31/2008 $10.10 $ 5.55 1,056 AST Focus Four Plus Portfolio 07/21/2008* to 12/31/2008 $10.00 $ 7.44 29,504 Evergreen VA Diversified Capital Builder Fund formerly, Evergreen VA Balanced Fund 06/30/2008 to 12/31/2008 $12.28 $ 6.54 0 Evergreen VA Growth Fund 06/30/2008 to 12/31/2008 $11.36 $ 7.65 4,007 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $16.51 $10.74 4,960 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $11.23 $ 8.85 1,407 Evergreen VA Special Values Fund 06/30/2008 to 12/31/2008 $13.38 $ 9.75 0 Evergreen VA Diversified Income Builder Fund 06/30/2008 to 12/31/2008 $10.57 $ 7.60 0 Franklin Templeton VIP Founding Funds Allocation Fund 06/30/2008 to 12/31/2008 $ 9.26 $ 6.60 622,574 Prudential SP International Growth Portfolio 06/30/2008 to 12/31/2008 $14.30 $ 7.96 7,302 Gartmore NVIT Developing Markets 06/30/2008 to 12/31/2008 $26.11 $12.29 18,792
The DOW DART 10 Portfolio formerly, First Trust Dow Target 10 06/30/2008 to 12/31/2008 $10.01 $ 8.24 955 First Trust Target Focus Four Portfolio 06/30/2008 to 12/31/2008 $ 9.13 $ 6.07 0 Global Dividend Target 15 formerly, First Trust Global Dividend Target 15 06/30/2008 to 12/31/2008 $15.42 $10.53 23,454 NASDAQ Target 15 Portfolio formerly, First Trust NASDAQ Target 15 06/30/2008 to 12/31/2008 $ 9.89 $ 5.94 0 S&P Target 24 Portfolio formerly, First Trust S&P Target 24 06/30/2008 to 12/31/2008 $ 9.52 $ 7.77 5,216 Target Managed VIP Portfolio formerly, First Trust Managed VIP 06/30/2008 to 12/31/2008 $11.53 $ 7.35 43,206 Value Line Target 25 Portfolio formerly, First Trust Value Line Target 25 06/30/2008 to 12/31/2008 $ 9.89 $ 4.53 0 The DOW Target Dividend Portfolio formerly, First Trust Dow Target Dividend 06/30/2008 to 12/31/2008 $ 7.96 $ 6.39 38,235 AIM V.I. Dynamics Fund 06/30/2008 to 12/31/2008 $13.54 $ 7.87 2,141 AIM V.I. Financial Services Fund 06/30/2008 to 12/31/2008 $ 6.65 $ 3.89 8,271 AIM V.I. Global Health Care 06/30/2008 to 12/31/2008 $12.01 $ 9.34 4,255 AIM V.I. Technology Fund 06/30/2008 to 12/31/2008 $ 9.92 $ 6.19 0 Wells Fargo Advantage VT Equity Income 06/30/2008 to 12/31/2008 $11.70 $ 8.56 4,102
*Denotes the start date of these sub-accounts ADVANCED SERIES XTRA CREDIT EIGHTSM ("XT8") Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With GMWB and HDV or HD GRO, GRO Plus 2008 and Combo 5% Roll-UP/HAV or Lifetime Five and EBP II or Lifetime Five and HAV or Highest Daily LT5 and EBP II or Highest Daily LT5 and HAV or HD GRO, GRO Plus 2008, EBPII and HAV (2.60%)
ACCUMULATION ACCUMULATION NUMBER OF UNIT VALUE UNIT VALUE ACCUMULATION AT BEGINNING AT END UNITS OUTSTANDING SUB ACCOUNTS OF PERIOD OF PERIOD AT END OF PERIOD ------------ ------------ ------------ ----------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $ 9.78 $ 6.88 2,685 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.68 $ 7.55 1,837 AST American Century Income & Growth Portfolio 06/30/2008 to 12/31/2008 $ 9.86 $ 7.21 0 AST Schroders Multi-Asset World Strategies Portfolio formerly, AST American Century Strategic Allocation Portfolio 06/30/2008 to 12/31/2008 $10.79 $ 7.88 8,027 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.44 $10.41 195,019 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $11.87 $ 7.83 14,578 AST UBS Dynamic Alpha Portfolio 06/30/2008 to 12/31/2008 $11.25 $ 9.09 81,669 AST DeAm Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.60 $ 7.58 644 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $10.81 $ 6.95 0 AST High Yield Portfolio 06/30/2008 to 12/31/2008 $10.17 $ 7.61 427 AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $10.61 $ 7.05 926 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.56 $ 6.89 17,449 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.32 $ 7.77 1,446
AST Goldman Sachs Concentrated Growth Portfolio 06/30/2008 to 12/31/2008 $11.82 $ 7.39 3,903 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.92 $ 7.28 838 AST Goldman Sachs Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.25 $ 7.90 13,509 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $ 9.41 $ 6.51 2,177 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $10.63 $ 8.15 128 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $10.84 $ 6.94 2,548 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $11.78 $ 7.93 0 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $12.99 $ 8.23 2,895 AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.76 $ 6.58 171 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.10 $ 7.50 729 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $10.62 $10.34 49,868 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $10.73 $10.22 46,623 AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $ 9.25 $ 6.43 168 AST QMA US Equity Alpha formerly, AST AllianceBernstein Managed Index 500 Portfolio 06/30/2008 to 12/31/2008 $ 9.89 $ 6.72 0 AST T. Rowe Price Natural Resources Portfolio 06/30/2008 to 12/31/2008 $20.28 $ 8.76 14,678 AST T. Rowe Price Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.78 $ 8.41 55,303 AST International Value Portfolio 06/30/2008 to 12/31/2008 $12.89 $ 8.25 676
AST MFS Global Equity Portfolio 06/30/2008 to 12/31/2008 $11.95 $ 8.62 186 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $11.96 $ 7.69 142 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $10.48 $ 9.85 8,317 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $13.29 $ 7.41 1,600 AST Aggressive Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.37 $ 6.75 12,663 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.55 $ 7.50 258,438 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.50 $ 7.70 65,805 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.55 $ 7.96 157,625 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.57 $ 8.76 212,163 AST First Trust Balanced Target Portfolio 06/30/2008 to 12/31/2008 $ 9.67 $ 7.08 52,619 AST First Trust Capital Appreciation Target Portfolio 06/30/2008 to 12/31/2008 $10.15 $ 6.52 78,978 AST Advanced Strategies Portfolio 06/30/2008 to 12/31/2008 $10.51 $ 7.71 46,482 AST CLS Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.28 $ 7.25 16,806 AST CLS Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.29 $ 7.08 61,969 AST Horizon Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.12 $ 6.87 32,247 AST Horizon Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.41 $ 7.50 18,380 AST Niemann Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.02 $ 7.08 3,294
AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.89 0 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $ 9.20 10,755 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $10.04 $11.65 206,480 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $10.06 $12.48 39,538 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $10.08 $12.55 5,428 AST Global Real Estate Portfolio 07/21/2008* to 12/31/2008 $10.17 $ 6.09 1,891 AST Parametric Emerging Markets Equity Portfolio 07/21/2008* to 12/31/2008 $10.10 $ 5.55 0 AST Focus Four Plus Portfolio 07/21/2008* to 12/31/2008 $10.00 $ 7.44 7,405 Evergreen VA Growth Fund 06/30/2008 to 12/31/2008 $11.33 $ 7.62 0 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $12.86 $ 8.36 0 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $10.67 $ 8.41 103 Franklin Templeton VIP Founding Funds Allocation Fund 06/30/2008 to 12/31/2008 $ 9.26 $ 6.60 131,309
Prudential SP International Growth Portfolio 06/30/2008 to 12/31/2008 $13.40 $ 7.45 0 Gartmore NVIT Developing Markets 06/30/2008 to 12/31/2008 $19.13 $ 9.00 1,371 The DOW DART 10 Portfolio formerly, First Trust Dow Target 10 06/30/2008 to 12/31/2008 $ 9.71 $ 7.98 0 First Trust Target Focus Four Portfolio 06/30/2008 to 12/31/2008 $ 8.40 $ 5.58 0 Global Dividend Target 15 formerly, First Trust Global Dividend Target 15 06/30/2008 to 12/31/2008 $13.20 $ 9.01 1,196 NASDAQ Target 15 Portfolio formerly, First Trust NASDAQ Target 15 06/30/2008 to 12/31/2008 $10.80 $ 6.48 0 S&P Target 24 Portfolio formerly, First Trust S&P Target 24 06/30/2008 to 12/31/2008 $ 9.20 $ 7.51 0 Target Managed VIP Portfolio formerly, First Trust Managed VIP 06/30/2008 to 12/31/2008 $10.23 $ 6.51 0 Value Line Target 25 Portfolio formerly, First Trust Value Line Target 25 06/30/2008 to 12/31/2008 $12.36 $ 5.66 0 The DOW Target Dividend Portfolio formerly, First Trust Dow Target Dividend 06/30/2008 to 12/31/2008 $ 7.94 $ 6.36 222 AIM V.I. Dynamics Fund 06/30/2008 to 12/31/2008 $11.64 $ 6.77 221 AIM V.I. Financial Services Fund 06/30/2008 to 12/31/2008 $ 6.18 $ 3.62 3,450 AIM V.I. Global Health Care 06/30/2008 to 12/31/2008 $11.06 $ 8.60 1,326 AIM V.I. Technology Fund 06/30/2008 to 12/31/2008 $10.41 $ 6.49 0 Wells Fargo Advantage VT Equity Income 06/30/2008 to 12/31/2008 $ 9.90 $ 7.24 0
*Denotes the start date of these sub-accounts ADVANCED SERIES XTRA CREDIT EIGHTSM ("XT8") Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: Beneficiary Continuation Option - 1.00% Settlement Service Charge
ACCUMULATION ACCUMULATION NUMBER OF UNIT VALUE UNIT VALUE ACCUMULATION AT BEGINNING AT END UNITS OUTSTANDING SUB ACCOUNTS OF PERIOD OF PERIOD AT END OF PERIOD ------------ ------------ ------------ ----------------- AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $24.76 $17.56 379,447 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $15.27 $ 9.96 118,069 AST American Century Income & Growth Portfolio 06/30/2008 to 12/31/2008 $15.35 $11.33 154,997 AST Schroders Multi-Asset World Strategies Portfolio formerly, AST American Century Strategic Allocation Portfolio 06/30/2008 to 12/31/2008 $17.76 $13.09 38,831 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $14.28 $14.35 2,934,205 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $23.85 $15.86 111,995 AST UBS Dynamic Alpha Portfolio 06/30/2008 to 12/31/2008 $20.93 $17.06 109,736 AST DeAm Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.71 $ 9.17 175,827 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $10.79 $ 6.99 185,040 AST High Yield Portfolio 06/30/2008 to 12/31/2008 $17.87 $13.48 191,706 AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $11.27 $ 7.55 125,578 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $13.15 $ 8.65 81,270 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $21.46 $16.30 265,536
AST Goldman Sachs Concentrated Growth Portfolio 06/30/2008 to 12/31/2008 $25.03 $15.77 306,283 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 5.17 $ 3.18 295,139 AST Goldman Sachs Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $24.65 $19.15 100,029 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $21.12 $14.72 267,385 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $14.42 $11.16 140,679 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $19.26 $12.43 710,826 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $ 9.28 $ 6.30 283,991 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $26.13 $16.69 258,551 AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $33.25 $20.51 269,632 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $17.11 $11.66 196,511 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $16.94 $16.63 417,181 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $20.64 $19.82 673,230 AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $12.20 $ 8.54 201,923 AST QMA US Equity Alpha formerly, AST AllianceBernstein Managed Index 500 Portfolio 06/30/2008 to 12/31/2008 $13.49 $ 9.23 222,439 AST T. Rowe Price Natural Resources Portfolio 06/30/2008 to 12/31/2008 $76.74 $33.42 67,882 AST T. Rowe Price Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $23.92 $18.81 170,365 AST International Value Portfolio 06/30/2008 to 12/31/2008 $20.55 $13.26 126,470
AST MFS Global Equity Portfolio 06/30/2008 to 12/31/2008 $14.75 $10.73 185,745 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $23.35 $15.14 128,075 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $16.62 $15.75 157,502 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $23.13 $13.01 552,699 AST Aggressive Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.81 $ 7.09 126,503 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $11.00 $ 7.88 495,503 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.95 $ 8.09 371,911 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $11.00 $ 8.37 237,851 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $11.02 $ 9.21 152,701 AST First Trust Balanced Target Portfolio 06/30/2008 to 12/31/2008 $10.03 $ 7.41 176,530 AST First Trust Capital Appreciation Target Portfolio 06/30/2008 to 12/31/2008 $10.53 $ 6.82 145,715 AST Advanced Strategies Portfolio 06/30/2008 to 12/31/2008 $10.91 $ 8.07 252,802 AST CLS Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.38 $ 7.39 7,390 AST CLS Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.38 $ 7.21 13,812 AST Horizon Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.21 $ 7.00 10,506 AST Horizon Moderate Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.51 $ 7.64 29,480 AST Niemann Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $ 9.11 $ 7.21 70
AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.11 $ 9.37 57,790 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.73 $11.38 161,639 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $ 9.70 $12.13 11,683 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $ 9.72 $12.20 9,569 AST Global Real Estate Portfolio 07/21/2008* to 12/31/2008 $10.18 $ 6.13 192 AST Parametric Emerging Markets Equity Portfolio 07/21/2008* to 12/31/2008 $10.10 $ 5.59 354 AST Focus Four Plus Portfolio 07/21/2008* to 12/31/2008 $10.00 $ 7.50 0 Evergreen VA Growth Fund 06/30/2008 to 12/31/2008 $11.94 $ 8.09 20,816 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $17.39 $11.40 35,866 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $10.68 $ 8.49 6,360 Franklin Templeton VIP Founding Funds Allocation Fund 06/30/2008 to 12/31/2008 $ 9.29 $ 6.67 4,104 Prudential SP International Growth Portfolio 06/30/2008 to 12/31/2008 $15.10 $ 8.47 16,132
Gartmore NVIT Developing Markets 06/30/2008 to 12/31/2008 $24.18 $11.46 146,892 The DOW DART 10 Portfolio formerly, First Trust Dow Target 10 06/30/2008 to 12/31/2008 $ 8.35 $ 6.92 166,189 First Trust Target Focus Four Portfolio 06/30/2008 to 12/31/2008 $ 4.40 $ 2.94 172,446 Global Dividend Target 15 formerly, First Trust Global Dividend Target 15 06/30/2008 to 12/31/2008 $18.15 $12.49 179,528 NASDAQ Target 15 Portfolio formerly, First Trust NASDAQ Target 15 06/30/2008 to 12/31/2008 $ 9.15 $ 5.54 191,981 S&P Target 24 Portfolio formerly, First Trust S&P Target 24 06/30/2008 to 12/31/2008 $ 7.72 $ 6.35 187,951 Target Managed VIP Portfolio formerly, First Trust Managed VIP 06/30/2008 to 12/31/2008 $10.05 $ 6.45 466,784 Value Line Target 25 Portfolio formerly, First Trust Value Line Target 25 06/30/2008 to 12/31/2008 $ 5.27 $ 2.43 763,974 The DOW Target Dividend Portfolio formerly, First Trust Dow Target Dividend 06/30/2008 to 12/31/2008 $ 8.36 $ 6.76 102,732 AIM V.I. Dynamics Fund 06/30/2008 to 12/31/2008 $11.48 $ 6.73 49,434 AIM V.I. Financial Services Fund 06/30/2008 to 12/31/2008 $ 9.26 $ 5.47 25,681 AIM V.I. Global Health Care 06/30/2008 to 12/31/2008 $14.24 $11.16 60,121 AIM V.I. Technology Fund 06/30/2008 to 12/31/2008 $ 5.43 $ 3.42 103,841 Wells Fargo Advantage VT Equity Income 06/30/2008 to 12/31/2008 $18.62 $13.72 5,737
*Denotes the start date of these sub-accounts Optimum XTRA Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With EBP II or HAV (2.00%)
NUMBER OF ACCUMULATION ACCUMULATION ACCUMULATION UNIT VALUE UNIT VALUE UNITS AT BEGINNING AT END OUTSTANDING AT SUB ACCOUNTS OF PERIOD OF PERIOD END OF PERIOD ------------ ------------ ------------ -------------- AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $13.44 $ 9.36 354,139 AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $13.90 $ 9.81 2,137,291 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.66 $ 7.84 9,400,328 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.69 $11.28 12,905,774 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $ 9.66 $12.01 7,376,393 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $ 9.68 $12.08 5,692,971 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.72 $ 7.64 11,747,755 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $21.40 $14.16 171,371 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.71 $ 8.11 5,528,245
AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $21.00 $14.00 419,386 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $17.20 $10.54 395,201 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $20.91 $11.70 1,091,501 AST International Value Portfolio 06/30/2008 to 12/31/2008 $20.93 $13.44 281,138 AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.92 1,344,244 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $18.28 $11.79 450,183 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.54 $ 8.69 546,388 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $13.58 $10.45 916,727 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $14.84 $ 9.53 2,645,237 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $16.31 $10.67 157,691 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $14.44 $ 9.75 381,401 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.37 $10.37 11,771,343 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $18.05 $11.47 217,294
AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $17.83 $10.94 649,182 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $15.90 $10.25 51,866 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $10.99 $10.73 3,023,480 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $11.73 $11.21 2,546,124 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.74 $ 8.92 5,838,176 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.33 $ 9.03 254,074 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $15.87 $11.99 987,703 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $12.90 $12.16 694,965 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.20 $ 8.56 829,518 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.04 $ 9.27 788,143 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $16.60 $10.82 146,290 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $14.51 $11.47 26,469
* Denotes the start date of these sub-accounts Optimum XTRA Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With HD GRO or GRO Plus 2008 or GMWB (2.10%)
NUMBER OF ACCUMULATION ACCUMULATION ACCUMULATION UNIT VALUE UNIT VALUE UNITS AT BEGINNING AT END OUTSTANDING AT SUB ACCOUNTS OF PERIOD OF PERIOD END OF PERIOD ------------ ------------ ------------ -------------- AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $11.28 $ 7.86 69,054 AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $11.53 $ 8.13 303,603 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.64 $ 7.82 2,026,858 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.68 $11.27 826,382 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $ 9.65 $12.00 506,041 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $ 9.67 $12.07 160,720 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.69 $ 7.62 3,719,626 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $16.04 $10.61 22,662
AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.69 $ 8.09 1,399,307 AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $13.45 $ 8.96 68,386 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $14.13 $ 8.65 47,484 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $16.46 $ 9.21 149,395 AST International Value Portfolio 06/30/2008 to 12/31/2008 $17.47 $11.21 42,818 AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.91 0 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $15.43 $ 9.95 31,277 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $11.20 $ 7.76 107,697 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $11.81 $ 9.08 59,432 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $12.39 $ 7.95 366,476 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $13.09 $ 8.56 28,505 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $12.87 $ 8.68 27,492 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.44 $10.44 1,342,066 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $15.29 $ 9.71 31,135
AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $14.44 $ 8.86 62,723 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.66 $ 7.51 15,762 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $10.73 $10.48 236,700 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $11.23 $10.72 338,941 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.71 $ 8.90 1,387,683 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $10.12 $ 6.85 28,498 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.57 $ 9.49 101,244 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $11.64 $10.97 62,683 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.91 $ 7.72 150,031 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.04 $ 9.26 164,058 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $16.52 $10.77 14,859 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $11.45 $ 9.04 182
* Denotes the start date of these sub-accounts Optimum XTRA Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With HDV or Combo 5% Roll-UP/HAV or EBP II and HAV (2.25%)
NUMBER OF ACCUMULATION ACCUMULATION ACCUMULATION UNIT VALUE UNIT VALUE UNITS AT BEGINNING AT END OUTSTANDING AT SUB ACCOUNTS OF PERIOD OF PERIOD END OF PERIOD ------------ ------------ ------------ -------------- AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $11.13 $ 7.75 4,124,590 AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $10.64 $ 7.50 14,888,690 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.59 $ 7.78 75,453,329 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.68 $11.25 1,472,001 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $ 9.65 $11.98 794,529 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $ 9.67 $12.05 945,503 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.65 $ 7.58 101,095,109 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $15.92 $10.52 126,275 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.64 $ 8.05 25,276,368
AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $10.22 $ 6.80 4,202,964 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 4.98 $ 3.05 4,668,204 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $21.47 $12.00 5,724,854 AST International Value Portfolio 06/30/2008 to 12/31/2008 $ 9.10 $ 5.84 2,755,958 AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.91 1,214,623 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $ 9.75 $ 6.28 975,043 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $ 9.23 $ 6.39 6,057,693 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $13.08 $10.05 3,023,716 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $ 9.74 $ 6.25 21,934,912 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $11.92 $ 7.79 332,297 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $ 7.77 $ 5.24 2,384,441 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.54 $10.53 2,377,836 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 8.81 $ 5.59 501,805 AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $17.61 $10.79 2,188,696 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 7.40 $ 4.76 121,677
AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $12.39 $12.09 6,660,709 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $14.10 $13.45 6,994,579 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.67 $ 8.85 31,839,577 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $16.43 $11.12 634,820 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $16.31 $12.31 3,408,854 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $14.80 $13.93 1,722,092 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 6.59 $ 4.27 9,138,560 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.03 $ 9.24 3,325,125 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $16.71 $10.88 68,654 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $ 9.75 $ 7.70 24,749
* Denotes the start date of these sub-accounts Optimum XTRA Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With Lifetime Five or Highest Daily Lifetime Five or HD GRO, GRO Plus 2008 and EBP II or GMWB and EBP II or GMWB and HAV or HD GRO , GRO Plus 2008 and HAV (2.35%)
NUMBER OF ACCUMULATION ACCUMULATION ACCUMULATION UNIT VALUE UNIT VALUE UNITS AT BEGINNING AT END OUTSTANDING AT SUB ACCOUNTS OF PERIOD OF PERIOD END OF PERIOD ------------ ------------ ------------ -------------- AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $ 9.33 $ 6.49 263,166 AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $ 9.86 $ 6.95 503,014 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.57 $ 7.76 1,833,767 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.67 $11.24 73,879 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $10.06 $12.49 103,181 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $10.08 $12.56 11,666 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.62 $ 7.56 3,585,836 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $11.97 $ 7.91 4,834 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.62 $ 8.02 1,031,078
AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $10.70 $ 7.12 154,292 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $12.03 $ 7.35 85,001 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $13.40 $ 7.49 339,291 AST International Value Portfolio 06/30/2008 to 12/31/2008 $13.00 $ 8.33 113,927 AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.90 0 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $12.06 $ 7.77 25,699 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $ 9.49 $ 6.57 282,100 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $10.72 $ 8.23 100,064 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $10.94 $ 7.01 731,541 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.65 $ 6.96 30,027 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $11.88 $ 8.01 80,355 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.53 $10.52 143,022 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.10 $ 8.31 6,554
AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.85 $ 6.65 99,662 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $10.90 $ 7.02 3,031 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $10.71 $10.44 243,437 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $10.82 $10.32 363,898 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.64 $ 8.83 1,873,756 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.19 $ 7.57 46,585 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.41 $ 7.85 198,079 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $10.57 $ 9.94 88,108 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.78 $ 7.62 291,048 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.02 $ 9.23 100,964 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $12.97 $ 8.44 38 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $10.76 $ 8.49 1,419
* Denotes the start date of these sub-accounts Optimum XTRA Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With Spousal Lifetime Five (2.50%)
NUMBER OF ACCUMULATION ACCUMULATION ACCUMULATION UNIT VALUE UNIT VALUE UNITS AT BEGINNING AT END OUTSTANDING AT SUB ACCOUNTS OF PERIOD OF PERIOD END OF PERIOD ------------ ------------ ------------ -------------- AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $11.07 $ 7.69 498,738 AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $11.31 $ 7.96 1,454,713 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.52 $ 7.72 9,794,274 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.66 $11.22 656,950 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $ 9.63 $11.96 616,319 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $ 9.65 $12.02 407,383 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.58 $ 7.52 16,392,108 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $15.73 $10.38 35,655
AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.57 $ 7.98 4,321,571 AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $13.20 $ 8.77 349,875 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $13.86 $ 8.47 183,064 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $16.14 $ 9.01 833,518 AST International Value Portfolio 06/30/2008 to 12/31/2008 $17.14 $10.98 182,276 AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.89 0 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $15.14 $ 9.74 79,562 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.99 $ 7.60 548,258 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $11.59 $ 8.89 353,757 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $12.15 $ 7.78 1,923,113 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.84 $ 8.38 34,218 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $12.62 $ 8.50 146,312 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.24 $10.22 1,415,779
AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $14.99 $ 9.50 40,390 AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $14.16 $ 8.67 309,446 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.44 $ 7.35 9,096 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $10.53 $10.25 925,839 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $11.01 $10.49 1,079,087 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.60 $ 8.79 4,342,819 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 9.92 $ 6.71 110,050 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $12.33 $ 9.29 476,508 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $11.42 $10.74 267,335 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.68 $ 7.56 518,624 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $ 9.21 293,361 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $16.51 $10.74 4,960 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $11.23 $ 8.85 1,407
* Denotes the start date of these sub-accounts Optimum XTRA Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: With GMWB and HDV or HD GRO, GRO Plus 2008 and Combo 5% Roll-UP/HAV or Lifetime Five and EBP II or Lifetime Five and HAV or Highest Daily LT5 and EBP II or Highest Daily LT5 and HAV or HD GRO, GRO Plus 2008, EBPII and HAV (2.60%)
NUMBER OF ACCUMULATION ACCUMULATION ACCUMULATION UNIT VALUE UNIT VALUE UNITS AT BEGINNING AT END OUTSTANDING AT SUB ACCOUNTS OF PERIOD OF PERIOD END OF PERIOD ------------ ------------ ------------ -------------- AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $ 9.25 $ 6.43 168 AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $ 9.78 $ 6.88 2,685 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.50 $ 7.70 65,805 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $10.04 $11.65 206,480 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $10.06 $12.48 39,538 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $10.08 $12.55 5,428 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.55 $ 7.50 258,438 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $11.87 $ 7.83 14,578 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.55 $ 7.96 157,625
AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $10.61 $ 7.05 926 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.92 $ 7.28 838 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $13.29 $ 7.41 1,600 AST International Value Portfolio 06/30/2008 to 12/31/2008 $12.89 $ 8.25 676 AST Investment Grade Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $10.89 0 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $11.96 $ 7.69 142 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $ 9.41 $ 6.51 2,177 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $10.63 $ 8.15 128 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $10.84 $ 6.94 2,548 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.56 $ 6.89 17,449 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $11.78 $ 7.93 0 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $10.44 $10.41 195,019 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $12.99 $ 8.23 2,895 AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.76 $ 6.58 171
AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $10.81 $ 6.95 0 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $10.62 $10.34 49,868 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $10.73 $10.22 46,623 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.57 $ 8.76 212,163 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.10 $ 7.50 729 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $10.32 $ 7.77 1,446 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $10.48 $ 9.85 8,317 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $11.68 $ 7.55 1,837 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.01 $ 9.20 10,755 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $12.86 $ 8.36 0 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $10.67 $ 8.41 103
* Denotes the start date of these sub-accounts Optimum XTRA Prudential Annuities Life Assurance Corporation Statement of Additional Information ACCUMULATION UNIT VALUES: Beneficiary Continuation Option - 1.00% Settlement Service Charge AST AllianceBernstein Core Value Portfolio 06/30/2008 to 12/31/2008 $12.20 $ 8.54 201,923 AST AllianceBernstein Growth & Income Portfolio 06/30/2008 to 12/31/2008 $24.76 $17.56 379,447 AST Academic Strategies Asset Allocation Portfolio formerly, AST Balanced Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $10.95 $ 8.09 371,911 AST Bond Portfolio 2015 06/30/2008 to 12/31/2008 $ 9.73 $11.38 161,639 AST Bond Portfolio 2018 06/30/2008 to 12/31/2008 $ 9.70 $12.13 11,683 AST Bond Portfolio 2019 06/30/2008 to 12/31/2008 $ 9.72 $12.20 9,569 AST Capital Growth Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $11.00 $ 7.88 495,503 AST Cohen & Steers Realty Portfolio 06/30/2008 to 12/31/2008 $23.85 $15.86 111,995 AST Balanced Asset Allocation Portfolio formerly, AST Conservative Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $11.00 $ 8.37 237,851
AST Federated Aggressive Growth Portfolio 06/30/2008 to 12/31/2008 $11.27 $ 7.55 125,578 AST Goldman Sachs Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $ 5.17 $ 3.18 295,139 AST International Growth Portfolio 06/30/2008 to 12/31/2008 $23.13 $13.01 552,699 AST International Value Portfolio 06/30/2008 to 12/31/2008 $20.55 $13.26 126,470 AST JPMorgan International Equity Portfolio 06/30/2008 to 12/31/2008 $23.35 $15.14 128,075 AST Large-Cap Value Portfolio 06/30/2008 to 12/31/2008 $21.12 $14.72 267,385 AST Lord Abbett Bond-Debenture Portfolio 06/30/2008 to 12/31/2008 $14.42 $11.16 140,679 AST Marsico Capital Growth Portfolio 06/30/2008 to 12/31/2008 $19.26 $12.43 710,826 AST Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $13.15 $ 8.65 81,270 AST MFS Growth Portfolio 06/30/2008 to 12/31/2008 $ 9.28 $ 6.30 283,991 AST Money Market Portfolio 06/30/2008 to 12/31/2008 $14.28 $14.35 2,934,205 AST Neuberger Berman Mid-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $26.13 $16.69 258,551
AST Neuberger Berman / LSV Mid-Cap Value Portfolio formerly, AST Neuberger Berman Mid-Cap Value Portfolio 06/30/2008 to 12/31/2008 $33.25 $20.51 269,632 AST Neuberger Berman Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $10.79 $ 6.99 185,040 AST PIMCO Limited Maturity Bond Portfolio 06/30/2008 to 12/31/2008 $16.94 $16.63 417,181 AST PIMCO Total Return Bond Portfolio 06/30/2008 to 12/31/2008 $20.64 $19.82 673,230 AST Preservation Asset Allocation Portfolio 06/30/2008 to 12/31/2008 $11.02 $ 9.21 152,701 AST Small-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $17.11 $11.66 196,511 AST Small-Cap Value Portfolio 06/30/2008 to 12/31/2008 $21.46 $16.30 265,536 AST T. Rowe Price Global Bond Portfolio 06/30/2008 to 12/31/2008 $16.62 $15.75 157,502 AST T. Rowe Price Large-Cap Growth Portfolio 06/30/2008 to 12/31/2008 $15.27 $ 9.96 118,069 AST Western Asset Core Plus Bond Portfolio 06/30/2008 to 12/31/2008 $10.11 $ 9.37 57,790 Evergreen VA International Equity Fund 06/30/2008 to 12/31/2008 $17.39 $11.40 35,866 Evergreen VA Omega Fund 06/30/2008 to 12/31/2008 $10.68 $ 8.49 6,360
* Denotes the start date of these sub-accounts UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION Financial Statements and Report of Independent Registered Public Accounting Firm Years Ended December 31, 2008 and 2007 PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION INDEX TO FINANCIAL STATEMENTS
Financial Statements Page No. -------------------- -------- PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION Management's Annual Report on Internal Control Over Financial Reporting F-2 Report of Independent Registered Public Accounting Firm F-3 Financial Statements: Statements of Financial Position December 31, 2008 and 2007 F-4 Statements of Operations and Comprehensive Income Year ended December 31, 2008, Year ended December 31, 2007, and Year ended December 31, 2006 F-5 Statements of Stockholder's Equity Year ended December 31, 2008, Year ended December 31, 2007, and Year ended December 31, 2006 F-6 Statements of Cash Flows Year ended December 31, 2008, Year ended December 31, 2007, and Year ended December 31, 2006 F-7 Notes to Financial Statements F-8
F-1 Management's Annual Report on Internal Control Over Financial Reporting Management of Prudential Annuities Life Assurance Corporation (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting. Management conducted an assessment of the effectiveness, as of December 31, 2008, of the Company's internal control over financial reporting, based on the framework established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment under that framework, management concluded that the Company's internal control over financial reporting was effective as of December 31, 2008. Our internal control over financial reporting is a process designed by or under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. This Annual Report does not include an attestation report of the Company's registered public accounting firm, PricewaterhouseCoopers LLP, regarding the internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management's report in this Annual Report. March 16, 2009 F-2 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholder of Prudential Annuities Life Assurance Corporation: In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Prudential Annuities Life Assurance Corporation (an indirect, wholly owned subsidiary of Prudential Financial, Inc.) at December 31, 2008 and December 31, 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 2 of the financial statements, the Company adopted a framework for measuring fair value on January 1, 2008. Also, the Company changed its method of accounting for uncertainty in income taxes and for deferred acquisition costs in connection with modifications or exchanges of insurance contracts on January 1, 2007. /s/ PRICEWATERHOUSECOOPERS LLP New York, New York March 16, 2009 F-3 Prudential Annuities Life Assurance Corporation Statements of Financial Position December 31, 2008 and 2007 (in thousands, except share amounts) --------------------------------------------------------------------------------
2008 2007 ----------- ----------- ASSETS Fixed maturities available for sale, at fair value (amortized cost, 2008: $9,893,430 2007: $1,329,042)..................................................................................... $ 9,869,342 $ 1,335,678 Trading account assets, at fair value............................................................. 51,422 16,314 Equity securities available for sale, at fair value (cost, 2008: $12,024 2007: $12,476)........... 10,119 11,599 Commercial loans.................................................................................. 371,744 38,503 Policy loans...................................................................................... 13,419 12,965 Short-term investments............................................................................ 254,046 143,966 Other long-term investments....................................................................... 37,529 (130) ----------- ----------- Total investments.............................................................................. 10,607,621 1,558,895 ----------- ----------- Cash and cash equivalents......................................................................... 26,549 697 Deferred policy acquisition costs................................................................. 1,247,131 1,042,823 Accrued investment income......................................................................... 91,301 13,258 Reinsurance recoverable from affiliates........................................................... 2,110,264 104,083 Income taxes receivable........................................................................... 259,541 215,689 Valuation of business acquired.................................................................... 78,382 118,566 Deferred sales inducements........................................................................ 726,314 558,821 Receivables from parent and affiliates............................................................ 65,151 77,693 Investment receivable on open trades.............................................................. 26,541 36,542 Other assets...................................................................................... 52,461 34,311 Separate account assets........................................................................... 24,259,992 41,538,366 ----------- ----------- TOTAL ASSETS...................................................................................... $39,551,248 $45,299,743 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities Policyholders' account balances................................................................... $10,261,698 $ 1,135,095 Future policy benefits and other policyholder liabilities......................................... 2,486,584 228,190 Payables to parent and affiliates................................................................. 54,107 53,735 Cash collateral for loaned securities............................................................. 269,461 54,077 Short-term borrowing.............................................................................. 186,268 195,280 Long-term borrowing............................................................................... 179,547 680,000 Future fees payable to Prudential Annuities, Inc. ("PAI")......................................... 749 12,171 Investment payable on open trades................................................................. 5 40,533 Other liabilities................................................................................. 152,262 214,020 Separate account liabilities...................................................................... 24,259,992 41,538,366 ----------- ----------- Total liabilities................................................................................. $37,850,673 $44,151,468 ----------- ----------- Commitments and Contingent Liabilities (See Note 12) Stockholder's Equity Common stock, $100 par value; 25,000 shares, authorized, issued and outstanding................... $ 2,500 $ 2,500 Additional paid-in capital........................................................................ 974,921 434,096 Retained earnings................................................................................. 729,100 709,142 Accumulated other comprehensive income (loss)..................................................... (5,946) 2,537 ----------- ----------- Total stockholder's equity........................................................................ $ 1,700,575 $ 1,148,275 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY........................................................ $39,551,248 $45,299,743 =========== ===========
See Notes to Financial Statements F-4 Prudential Annuities Life Assurance Corporation Statements of Operations and Comprehensive Income Years ended December 31, 2008, December 31, 2007, and December 31, 2006 (in thousands) --------------------------------------------------------------------------------
2008 2007 2006 ---------- -------- -------- REVENUES Premiums.............................................................. $ 20,391 $ 28,201 $ 40,511 Policy charges and fee income......................................... 632,440 707,366 561,295 Net investment income................................................. 320,088 74,625 88,291 Realized investment gains (losses), net............................... 46,053 (40,972) (48,035) Asset administration fees............................................. 197,024 223,864 167,964 Other income.......................................................... 90 524 654 ---------- -------- -------- Total revenues........................................................ 1,216,086 993,608 810,680 ---------- -------- -------- BENEFITS AND EXPENSES Policyholders' benefits............................................... 329,295 67,350 101,367 Interest credited to policyholders' account balances.................. 279,744 92,088 77,137 General, administrative and other expenses............................ 626,313 529,216 430,244 ---------- -------- -------- Total benefits and expenses........................................... 1,235,352 688,654 608,748 ---------- -------- -------- Income from operations before income taxes............................ (19,266) 304,954 201,932 ---------- -------- -------- Income taxes: Current............................................................ -- -- 67 Deferred........................................................... (39,224) 10,359 6,148 ---------- -------- -------- Income tax expense.................................................... (39,224) 10,359 6,215 ---------- -------- -------- NET INCOME............................................................ 19,958 294,595 195,717 ---------- -------- -------- Change in net unrealized investment gains (losses), net of taxes...... (8,483) (2,840) 8,249 ---------- -------- -------- COMPREHENSIVE INCOME.................................................. $ 11,475 $291,755 $203,966 ========== ======== ========
See Notes to Financial Statements F-5 Prudential Annuities Life Assurance Corporation Statements of Stockholder's Equity Years ended December 31, 2008, December 31, 2007, and December 31, 2006 (in thousands) --------------------------------------------------------------------------------
Accumulated Additional Other Total Common Paid-in Retained Comprehensive Stockholder's Stock Capital Earnings Income (Loss) Equity ------ ---------- --------- ------------- ------------- Balance, December 31, 2005....................................... $2,500 $ 484,096 $ 339,182 $(2,872) $ 822,906 Net income....................................................... -- -- 195,717 -- 195,717 Distribution to parent........................................... -- (150,000) -- -- (150,000) Change in net unrealized investment gains........................ (losses), net of taxes........................................... -- -- -- 8,249 8,249 ------ --------- --------- ------- ---------- Balance, December 31, 2006....................................... $2,500 $ 334,096 $ 534,899 $ 5,377 $ 876,872 ------ --------- --------- ------- ---------- Net income....................................................... -- -- 294,595 -- 294,595 Cumulative effect of change in accounting principles, net of taxes.......................................................... -- -- (8,153) -- (8,153) Distribution from (to) parent.................................... -- 100,000 (112,199) -- (12,199) Change in net unrealized investment gains........................ (losses), net of taxes........................................... (2,840) (2,840) ------ --------- --------- ------- ---------- Balance, December 31, 2007....................................... $2,500 $ 434,096 $ 709,142 $ 2,537 $1,148,275 ====== ========= ========= ======= ========== Net income....................................................... -- -- 19,958 -- 19,958 Distribution from parent......................................... -- 540,825 -- -- 540,825 Change in net unrealized investment gains........................ (losses), net of taxes........................................... -- -- -- (8,483) (8,483) ------ --------- --------- ------- ---------- Balance, December 31, 2008....................................... $2,500 $ 974,921 $ 729,100 $(5,946) $1,700,575 ====== ========= ========= ======= ==========
See Notes to Financial Statements F-6 Prudential Annuities Life Assurance Corporation Statements of Cash Flows Years ended December 31, 2008, Year ended December 31, 2007, and Year ended December 31, 2006 (in thousands) --------------------------------------------------------------------------------
2008 2007 2006 ------------ ----------- ----------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net income................................................................. $ 19,958 $ 294,595 $ 195,717 Adjustments to reconcile net income to net cash from operating activities: Realized investment (gains) losses, net................................. (46,053) 40,972 48,035 Amortization and depreciation........................................... 36,463 33,191 40,209 Interest credited to policyholders' account balances.................... 226,909 67,650 60,215 Change in:.............................................................. Policy reserves..................................................... 2,257,299 143,716 12,244 Accrued investment income........................................... (78,671) (1,081) 4,392 Trading account assets.............................................. (35,108) 1,830 12,633 Net receivable (payable) to affiliates.............................. 12,914 24,596 (42,150) Deferred sales inducements.......................................... (167,493) (202,582) (132,400) Deferred policy acquisition costs................................... (188,629) (285,758) (239,470) Income taxes payable (receivable)................................... (39,202) 10,251 7,513 Reinsurance recoverable............................................. (2,006,181) (104,083) 37,116 Other, net.......................................................... 23,663 (94,948) (95,337) ------------ ----------- ----------- Cash Flows From (Used In) Operating Activities............................. 15,869 (71,651) (91,283) ------------ ----------- ----------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Proceeds from the sale/maturity of: Fixed maturities, available for sale.................................... 9,744,227 2,163,531 3,594,021 Shares in equities, available for sale.................................. 35 5,000 -- Commercial loans........................................................ 7,249 2,866 -- Policy loans............................................................ 3,723 2,426 1,548 Other long-term investments............................................. -- 3,922 5,358 Short-term investments.................................................. 15,500,254 4,090,907 4,030,344 Payments for the purchase/origination of: Fixed maturities, available for sale.................................... (18,330,076) (2,313,080) (3,226,546) Commercial loans........................................................ (340,523) (675) (34,846) Policy loans............................................................ (4,177) (2,753) (2,407) Other long-term investments............................................. -- (4,401) (6,104) Short-term investments.................................................. (15,608,847) (4,174,001) (3,881,525) ------------ ----------- ----------- Cash Flows From (Used in) Investing Activities............................. (9,028,135) (226,258) 479,843 ------------ ----------- ----------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Capital contribution from (to) Parent................................... 540,825 100,000 (150,000) Dividend to parent...................................................... -- (112,199) -- Decrease in future fees payable to PAI, net............................. (11,422) (36,360) (64,619) Cash collateral for loaned securities................................... 215,384 14,115 (134,025) Securities sold under agreement to repurchase........................... -- -- (7,147) Proceeds from the issuance of debt (maturities longer than 90 days)..... -- 350,000 300,000 Repayments of debt (maturities longer than 90 days)..................... (500,453) (75,000) (30,000) Net increase (decrease) in short-term borrowing......................... (9,012) 35,734 (49,038) Drafts outstanding...................................................... (24,834) (27,853) 38,736 Policyholders' account balances Deposits............................................................ 12,971,413 1,801,795 1,211,772 Withdrawals......................................................... (4,143,783) (1,752,290) (1,507,082) ------------ ----------- ----------- Cash Flows From (Used in) Financing Activities............................. 9,038,118 297,942 (391,403) ------------ ----------- ----------- Net increase (decrease) in cash and cash equivalents.................... 25,852 33 (2,843) Cash and cash equivalents, beginning of period.......................... 697 664 3,507 ------------ ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD................................... $ 26,549 $ 697 $ 664 ============ =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid (received)............................................ $ (42) $ 106 $ (1,297) ------------ ----------- ----------- Interest paid........................................................... $ 56,916 $ 83,717 $ 98,676 ------------ ----------- -----------
See Notes to Financial Statements F-7 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 1. BUSINESS Prudential Annuities Life Assurance Corporation (the "Company", "we", or "our"), formerly known as American Skandia Life Assurance Corporation, with its principal offices in Shelton, Connecticut, is an indirect wholly-owned subsidiary of Prudential Financial, Inc. ("Prudential Financial"), a New Jersey corporation. The Company is a wholly-owned subsidiary of Prudential Annuities, Inc., ("PAI"), formerly known as American Skandia, Inc., which in turn is an indirect wholly-owned subsidiary of Prudential Financial. On December 19, 2002, Skandia Insurance Company Ltd. (publ) ("Skandia"), an insurance company organized under the laws of the Kingdom of Sweden, and the ultimate parent company of the Company prior to May 1, 2003, entered into a definitive purchase agreement (the "Acquisition Agreement") with Prudential Financial whereby Prudential Financial would acquire the Company and certain of its affiliates (the "Acquisition") and would be authorized to use the American Skandia name through April, 2008. On May 1, 2003, the Acquisition was consummated. Thus, the Company is now an indirect wholly owned subsidiary of Prudential Financial. During 2007, we began the process of changing the Company's name and names of various legal entities that include the "American Skandia" name, as required by the terms of the Acquisition. The Company's name was changed effective January 1, 2008. The Company develops long-term savings and retirement products, which are distributed through its affiliated broker/dealer company, Prudential Annuities Distributors, Incorporated. ("PAD"), formerly known as American Skandia Marketing, Incorporated. The Company currently issues variable deferred and immediate annuities for individuals and groups in the United States of America and its territories. The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities engaged in marketing insurance products, and individual and group annuities. PAI intends to make additional capital contributions to the Company, as needed, to enable it to comply with its reserve requirements and fund expenses in connection with its business. The Company has complied with the National Association of Insurance Commissioner's ("NAIC") Risk-Based Capital ("RBC") reporting requirements and has total adjusted capital well above required capital. Generally, PAI is under no obligation to make such contributions and its assets do not back the benefits payable under the Company's policyholder contracts. During 2008 and 2007, PAI made capital contributions of $540.8 million and $100 million, respectively to the Company. The Company received no capital contributions during 2006. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP"). The Company has extensive transactions and relationships with Prudential Financial affiliates, as more fully described in Note 13. Due to these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties. Use of estimates The preparation of financial statements in conformity with 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 ("DAC") and related amortization; valuation of business acquired ("VOBA") and its amortization; valuation of investments including derivatives (in the absence of quoted market values) and the recognition of other-than-temporary impairments; future policy benefits including guarantees; provision for income taxes and valuation of deferred tax assets; and reserves for contingent liabilities including reserves for losses in connection with unresolved legal matters. Investments and Investment-Related Liabilities The Company's principal investments are fixed maturities; trading account assets; equity securities; commercial mortgage and other loans; policy loans; other long-term investments, including joint ventures (other than operating joint ventures), limited partnerships; and short-term investments. Investments and investment-related liabilities also include securities repurchase and resale agreements and securities lending transactions. The accounting policies related to each are as follows: Fixed maturities are comprised of bonds, notes and redeemable preferred stock. Fixed maturities classified as "available for sale" are carried at fair value. The associated unrealized gains and losses, net of tax, and the effect on deferred policy acquisition costs, valuation of business acquired, and future policy benefits that would result from the realization of unrealized gains and losses, are included in "Accumulated other comprehensive income (loss)". The amortized cost of fixed maturities is written down to estimated fair value if a decline in value is considered to be other than temporary. See the discussion below on realized investment gains and losses for a description of the accounting for impairment adjustments. F-8 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Trading account assets, at fair value, represents the equity securities held in support of a deferred compensation plan. Such investments are carried at fair value with changes in unrealized gains and losses reported in the Statements of Operations and Comprehensive Income, as a component of "Other income". Equity securities, available for sale are comprised of common stock, and non-redeemable preferred stock, and are carried at fair value. The associated unrealized gains and losses, net of tax, and the effect on deferred policy acquisition costs, valuation of business acquired, and future policy benefits that would result from the realization of unrealized gains and losses, are included in "Accumulated other comprehensive income (loss)". The cost of equity securities is written down to estimated fair value when a decline in value is considered to be other than temporary. See the discussion below on realized investment gains and losses for a description of the accounting for impairments. Dividends from these investments are recognized in "Net investment income" when declared. Commercial mortgage and other loans, originated and held for investment, are generally carried at unpaid principal balances, net of unamortized premiums or discounts and an allowance for losses. Interest income, as well as prepayment fees and the amortization of related premiums or discounts, is included in "Net investment income." The allowance for losses provides for the risk of credit losses inherent in the lending process and includes a loan specific reserve for each non-performing loan that has a specifically identified loss and a portfolio reserve for probable incurred but not specifically identified losses. Non-performing loans that have a specifically identified loss include those loans for which it is probable that amounts due according to the contractual terms of the loan agreement will not all be collected. These loans are measured at the present value of expected future cash flows discounted at the loan's effective interest rate, or at the fair value of the collateral if the loan is collateral dependent. Interest received on non-performing loans, including loans that were previously modified in a troubled debt restructuring, is either applied against the principal or reported as net investment income based on the Company's assessment as to the collectability of the principal. The Company discontinues accruing interest on non-performing loans after the loans are 90 days delinquent as to principal or interest, or earlier when the Company has doubts about collectability. When a loan is deemed as non-performing, any accrued but uncollectible interest is charged to interest income in the period the loan is deemed non-performing. Generally, a loan is restored to accrual status only after all delinquent interest and principal are brought current and, in the case of loans where the payment of interest has been interrupted for a substantial period, a regular payment performance has been established. The portfolio reserve for incurred but not specifically identified losses considers the Company's past loan loss experience, the current credit composition of the portfolio, historical credit migration, property type diversification, default and loss severity statistics and other relevant factors. The gains and losses from the sale of loans, which are recognized when the Company relinquishes control over the loans, as well as, the changes in the allowance for loan losses, are reported in "Realized investment gains (losses), net." Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned. Short-term investments primarily consist of investments in certain money market funds as well as highly liquid debt instruments with a maturity of greater than three months and less than twelve months when purchased. These investments are generally carried at fair value. Securities loaned transactions are treated as financing arrangements and are recorded at the amount of cash received. The Company obtains collateral in an amount equal to 102% and 105% of the fair value of the domestic and foreign securities, respectively. The Company monitors the market value of the securities loaned on a daily basis with additional collateral obtained as necessary. Substantially all of the Company's securities loaned transactions are with large brokerage firms. Income and expenses associated with securities loaned transactions used to earn spread income are generally reported as "Net investment income;" however, for securities loaned transactions used for funding purposes the associated rebate is reported as interest expense (included in "General and administrative expenses"). Other long-term investments consist of the Company's investments in joint ventures and limited partnerships other than operating joint ventures, as well as wholly-owned investment real estate and other investments. Joint venture and partnership interests are generally accounted for using the equity method of accounting. In certain instances in which the Company's partnership interest is so minor (generally less than 3%) that it exercises virtually no influence over operating and financial policies, the Company applies the cost method of accounting. The Company's income from investments in joint ventures and F-9 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) partnerships accounted for using the equity method or cost method, other than the Company's investment in operating joint ventures, is included in "Net investment income." The carrying value of these investments is written down, or impaired, to fair value when a decline in value is considered to be other-than-temporary. In applying the equity method or the cost method (including assessment for other-than-temporary impairment), the Company uses financial information provided by the investee, which is generally received on a one quarter lag. Derivatives are financial instruments whose values are derived from interest rates, financial indices, or the value of securities or commodities. Derivative financial instruments generally used by the Company include swaps and futures, and may be exchange-traded or contracted in the over-the-counter market. Derivative positions are carried at fair value, generally by obtaining quoted market prices or through the use of valuation models. Values can be affected by changes in interest rates, foreign exchange rates, credit spreads, market volatility and liquidity. Values can also be affected by changes in estimates and assumptions including those related to counterparty behavior used in valuation models. Derivatives are recorded as assets, within "Other long-term investments," in the Statement of Financial Position, except for embedded derivatives, which are recorded in the Statement of Financial Position with the associated host contract. The Company nets the fair value of all derivative financial instruments with counterparties for which a master netting arrangement has been executed pursuant to Financial Accounting Standards Board ("FASB") Interpretation ("FIN") No. 39 and FASB Staff Position ("FSP") No. 39-1. As discussed in detail below and in Note 11, all realized and unrealized changes in fair value of derivatives, with the exception of the effective portion of cash flow hedges, are recorded in current earnings. Cash flows from these derivatives are reported in the operating activities section in the Statements of Cash Flows. The Company designates derivatives as either (1) a hedge of the fair value of a recognized asset or liability or unrecognized firm commitment ("fair value" hedge), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability ("cash flow" hedge), (3) a foreign currency fair value or cash flow hedge ("foreign currency" hedge), (4) a hedge of a net investment in a foreign operation, or (5) a derivative entered into as an economic hedge that does not qualify for hedge accounting. During the years ended December 31, 2008, 2007 and 2006 none of the Company's derivatives qualified for hedge accounting treatment. If a derivative does not qualify for hedge accounting, all changes in its fair value, including net receipts and payments, are included in "Realized investment (losses), net" without considering changes in the fair value of the economically associated assets or liabilities. The Company is a party to financial instruments that contain derivative instruments that are "embedded" in the financial instruments. At inception, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and changes in its fair value are included in "Realized investment gains (losses), net." For certain financial instruments that contain an embedded derivative that otherwise would need to be bifurcated and reported at fair value, the Company may elect to classify the entire instrument as a trading account asset and report it within "Other trading account assets," at fair value. The Company has entered into reinsurance agreements to transfer the risk related to the embedded derivatives to affiliates. These reinsurance agreements are derivatives and have been accounted in the same manner as the embedded derivative. Realized investment gains (losses) are computed using the specific identification method. Realized investment gains and losses are generated from numerous sources, including the sale of fixed maturity securities, equity securities, investments in joint ventures and limited partnerships and other types of investments, as well as adjustments to the cost basis of investments for other than temporary impairments. The Company's available-for-sale and held-to-maturity securities with unrealized losses are reviewed quarterly to identify other-than-temporary impairments in value. In evaluating whether a decline in value is other than temporary, the Company considers several factors including, but not limited to the following: (1) the extent and the duration of the decline; (2) the reasons for the decline in value (credit event, interest related, including general credit spread widening); (3) the Company's ability and intent to hold the investment for a period of time to allow for a recovery of value; and (4) the financial condition of and near-term prospects of the issuer. In addition, for its impairment review of asset-backed fixed maturity securities with a credit rating below AA, the Company forecasts its best estimate of the prospective future cash flows of F-10 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) the security to determine if the present value of those cash flows, discounted using the effective yield of the most recent interest accrual rate, has decreased from the previous reporting period. When a decrease from the prior reporting period has occurred and the security's market value is less than its carrying value, the carrying value of the security is reduced to its fair value, with a corresponding charge to earnings. The new cost basis of an impaired security not adjusted for subsequent increases in estimated fair value. In periods subsequent to the recognition of an other-than-temporary impairment, the impaired security is accounted for as if it had been purchased on the measurement date of the impairment. Accordingly, the discount (or reduced premium) based on the new cost basis is accreted into net investment income in future periods based upon the amount and timing of expected future cash flows of the security, if the recoverable value of the investment based upon reasonably estimable cash flow is greater than the carrying value of the investment after the impairment. Cash and cash equivalents Cash and cash equivalents include cash on hand, money market instruments, and other debt instruments with maturities of three months or less when purchased, other than cash equivalents that are included in "Trading account assets, at fair value." Valuation of business acquired As a result of purchase accounting, the Company reports a financial asset representing the VOBA. VOBA is determined by estimating the net present value of future cash flows from contracts in force in the acquired business at the date of acquisition. VOBA balances are subject to recoverability testing, in the manner in which it was acquired, at the end of each reporting period to ensure that the capitalized amounts do not exceed the present value of anticipated gross profits. Future positive cash flows generally include fees and other charges assessed to the contracts as long as they remain in force as well as fees collected upon surrender, if applicable, while future negative cash flows include costs to administer contracts and benefit payments. The Company amortizes VOBA over the effective life of the acquired contracts. VOBA is amortized in proportion to estimated gross profits arising from the contracts and anticipated future experience, which is evaluated regularly. The effect of changes in estimated gross profits on unamortized VOBA is reflected in "General and administrative expenses" in the period such estimates of expected future profits are revised. Deferred policy acquisition costs Costs that vary with and that are related primarily to the production of new insurance and annuity business are deferred to the extent such costs are deemed recoverable from future profits. Such DAC costs include commissions, costs of policy issuance and underwriting, and variable field office expenses. In each reporting period, capitalized DAC is amortized to "General and administrative expense," net of the accrual of imputed interest on DAC balances. DAC is subject to recoverability testing at the end of each reporting period to ensure that the capitalized amounts do not exceed the present value of anticipated gross profits. DAC, for applicable products, is adjusted for the impact of unrealized gains or losses on investments as if these gains or losses had been realized, with corresponding credits or charges included in "Accumulated other comprehensive income (loss)." Deferred acquisition costs are amortized over the expected life of the contracts (approximately 25 years) in proportion to estimated gross profits arising principally from investment results, mortality and expense margins, surrender charges and the performance of hedging programs based on historical and anticipated future experience, which is updated periodically. The Company uses a reversion to the mean approach to derive the future rate of return assumptions. However, if the projected future rate of return calculated using this approach is greater than the maximum future rate of return assumption, the maximum future rate of return is utilized. The effect of changes to estimated gross profits on unamortized deferred acquisition costs is reflected in "General and administrative expenses" in the period such estimated gross profits are revised. For some products, policyholders can elect to modify product benefits, features, rights or coverages by exchanging a contract for a new contract or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. These transactions are known as internal replacements. For internal replacement transactions, except those that involve the addition of a nonintegrated contract feature that does not change the existing base contract, the unamortized DAC is immediately charged to expense if the terms of the new policies are not substantially similar to those of the former policies. If the new terms are substantially similar to those of the earlier policies, the DAC is retained with respect to the new policies and amortized over the expected life of the new policies. Reinsurance recoverables Reinsurance recoverables include corresponding payables and receivables associated with reinsurance arrangements with affiliates. For additional information about these arrangements see Note 13 to the Financial Statements. F-11 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Separate account assets and liabilities Separate account assets are reported at fair value and represent segregated funds that are invested for certain policyholders. "Separate account assets" are predominantly shares in Advanced Series Trust formerly known as American Skandia Trust co-managed by AST Investment Services, Incorporated ("ASISI") formerly known as American Skandia Investment Services, Incorporated and Prudential Investments LLC, which utilizes various fund managers as sub-advisors. The remaining assets are shares in other mutual funds, which are managed by independent investment firms. The contract holder has the option of directing funds to a wide variety of investment options, most of which invest in mutual funds. The investment risk on the variable portion of a contract is borne by the contract holder, except to the extent of minimum guarantees by the Company, which are not separate account liabilities. The assets of each account are legally segregated and are generally not subject to claims that arise out of any other business of the Company. The investment income and gains or losses for separate accounts accrue to the policyholders and are not included in the Company's results of operations and Comprehensive Income. Mortality, policy administration and surrender charges on the accounts are included in "Policy charges and fee income". Asset administration fees calculated on account assets are included in "Asset administration fees." Separate account liabilities primarily represent the contractholder's account balance in separate account assets. Deferred sales inducements The Company provides sales inducements to contract holders, which primarily reflect an up-front bonus added to the contract holder's initial deposit for certain annuity contracts. These costs are deferred and recognized in "Deferred sales inducements". They are amortized using the same methodology and assumptions used to amortize DAC. Sales inducements balances are subject to recoverability testing at the end of each reporting period to ensure that the capitalized amounts do not exceed the present value of anticipated gross profits. The Company records amortization of deferred sales inducements in "Interest credited to policyholders' account balances." Other assets and other liabilities "Other assets" consists primarily of accruals of fund manager income. "Other liabilities" consists primarily of accrued expenses, technical overdrafts and a liability to the participants of a deferred compensation plan. "Other assets" also consists of state insurance licenses. Licenses to do business in all states have been capitalized and reflected at the purchase price of $4.0 million. Due to the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets", the cost of the licenses is no longer being amortized but is subjected to an annual impairment test. As of December 31, 2008, the Company estimated the fair value of the state insurance licenses to be in excess of book value and, therefore, no impairment charge was required. Future policy benefits The Company's liability for future policy benefits is primarily comprised of the present value of estimated future payments to or on behalf of policyholders, where the timing and amount of payment depends on policyholder mortality, less the present value of future net premiums. Expected mortality is generally based on the Company's historical experience or standard industry tables. Interest rate assumptions are based on factors such as market conditions and expected investment returns. Although mortality and interest rate assumptions are "locked-in" upon the issuance of new insurance or annuity business with fixed and guaranteed terms, significant changes in experience or assumptions may require the Company to provide for expected future losses on a product by establishing premium deficiency reserves. The Company's liability for future policy benefits is also inclusive of liabilities for guarantee benefits related to certain nontraditional long-duration life and annuity contracts, which are discussed more fully in Note 6. Policyholders' account balances The Company's liability for policyholders' account balances represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. This liability is generally equal to the accumulated account deposits, plus interest credited, less policyholder withdrawals and other charges assessed against the account balance. These policyholders' account balances also include provision for benefits under non-life contingent payout annuities and certain unearned revenues. Contingent liabilities Amounts related to contingent liabilities are accrued if it is probable that a liability has been incurred and an amount is reasonably estimable. Management evaluates whether there are incremental legal or other costs directly associated with the ultimate resolution of the matter that are reasonably estimable and, if so, they are included in the accrual. F-12 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Insurance revenue and expense recognition Revenues for variable deferred annuity contracts consist of charges against contract holder account values or separate accounts for mortality and expense risks, administration fees, surrender charges and an annual maintenance fee per contract. Revenues for mortality and expense risk charges and administration fees are recognized as assessed against the contract holder. Surrender charge revenue is recognized when the surrender charge is assessed against the contract holder at the time of surrender. Benefit reserves for the variable investment options on annuity contracts represent the account value of the contracts and are included in "Separate account liabilities." Revenues for variable immediate annuity and supplementary contracts with life contingencies consist of certain charges against contract holder account values including mortality and expense risks and administration fees. These charges and fees are recognized as revenue when assessed against the contract holder. Benefit reserves for variable immediate annuity contracts represent the account value of the contracts and are included in "Separate account liabilities." Revenues for fixed immediate annuity and fixed supplementary contracts with and without life contingencies consist of net investment income. In addition, revenues for fixed immediate annuity contracts with life contingencies also consist of single premium payments recognized as annuity considerations when received. Benefit reserves for these contracts are based on applicable actuarial standards with assumed interest rates that vary by contract year. Reserves for contracts without life contingencies are included in "Policyholders' account balances" while reserves for contracts with life contingencies are included in "future policy benefits and other policyholder liabilities." Assumed interest rates ranged from 1.22% to 8.25% at December 31, 2008 and 2007. Revenues for variable life insurance contracts consist of charges against contract holder account values or separate accounts for mortality and expense risk fees, administration fees, cost of insurance fees, taxes and surrender charges. Certain contracts also include charges against premium to pay state premium taxes. All of these charges are recognized as revenue when assessed against the contract holder. Benefit reserves for variable life insurance contracts represent the account value of the contracts and are included in "Separate account liabilities." Certain individual annuity contracts provide the holder a guarantee that the benefit received upon death or annuitization will be no less than a minimum prescribed amount. These benefits are accounted for as insurance contracts and are discussed in further detail in Note 6. The Company also provides contracts with certain living benefits that are considered embedded derivatives. These contracts are discussed in further detail in Note 6. Premiums, benefits and expenses are stated net of reinsurance ceded to other companies. Estimated reinsurance recoverables and the cost of reinsurance are recognized over the life of the reinsured policies using assumptions consistent with those used to account for the underlying policies. Asset administration fees In accordance with an agreement with ASISI, the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series Trust. In addition, the Company receives fees calculated on contractholder separate account balances invested in funds managed by companies other than ASISI. Asset administration fees are recognized as income when earned. These revenues are recorded as "Asset administration fees" in the Statements of Operations and Comprehensive Income. Income taxes Deferred income taxes are recognized, based on enacted rates, when assets and liabilities have different values for financial statement and tax reporting purposes. A valuation allowance is recorded to reduce a deferred tax asset to the amount expected to be realized. Due to provisions in the Internal Revenue Code, the Company will not be eligible to join the filing of the Prudential Financial, Inc. consolidated federal income tax return until 2009. As a result, the Company will file a separate federal income tax return through 2008. In addition, the Company will continue to file separate state income tax returns. Future fees payable to PAI In a series of transactions with PAI, the Company sold certain rights to receive a portion of future fees and contract charges expected to be realized on designated blocks of deferred annuity contracts. The proceeds from the sales have been recorded as a liability and are being amortized over the remaining surrender charge period of the designated contracts using the interest method. F-13 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Share-based Payments The Company recognizes the cost resulting from all share-based payments in accordance with Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-Based Payment," and applies the fair value based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee share ownership plans. New accounting pronouncements In January 2009, the FASB issued FSP EITF 99-20-1, "Amendments to the Impairment Guidance of EITF Issue No. 99-20." This FSP revises other-than-temporary-impairment guidance for beneficial interests in securitized financial assets that are within the scope of Issue 99-20. This FSP is effective for interim and annual reporting periods ending after December 15, 2008. Accordingly, the Company adopted this guidance effective December 31, 2008. The Company's adoption of this guidance did not have a material effect on the Company's financial position or results of operations. In December 2008, the FASB issued FSP FAS 140-4 and FIN 46(R)-8, "Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities." This FSP requires enhanced disclosures about transfers of financial assets and interests in variable interest entities. This FSP is effective for interim and annual reporting periods ending after December 15, 2008. Accordingly, the Company adopted this guidance effective December 31, 2008. Since this FSP requires only additional disclosures concerning transfers of financial assets and interests in variable interest entities, adoption of the FSP did not affect the Company's financial position or results of operations. In October 2008, the FASB issued FSP FAS 157-3, "Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active." This FSP clarifies the application of SFAS No. 157 in a market that is not active and applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements in accordance with SFAS No. 157. The FSP is effective upon issuance, including prior periods for which financial statements have not been issued. Accordingly, the Company adopted this guidance effective September 30, 2008. The Company's adoption of this guidance did not have a material effect on the Company's financial position or results of operations. In September 2008, the FASB issued FSP FAS 133-1 and FIN 45-4, "Disclosures about Credit Derivatives and Certain Guarantees" an amendment of FASB Statement No. 133 and FASB Interpretation No. 45. This FSP requires sellers of credit derivatives and certain guarantees to disclose (a) the nature of the credit derivative, the reason(s) for entering into the credit derivative, approximate term, performance triggers, and the current status of the performance risk; (b) the undiscounted maximum potential amount of future payments the seller could be required to make before considering any recoveries from recourse provisions or collateral; (c) the credit derivative's fair value; (d) the nature of any recourse provisions and any collateral assets held to ensure performance. This FSP also requires the above disclosures for hybrid instruments that contain embedded derivatives and amends paragraph 13 of FIN 45 to require disclosure of the current status of the guarantee's performance risk. This FSP is effective for interim and annual reporting periods ending after December 15, 2008. Accordingly, the Company adopted this guidance effective December 31, 2008. The Company's adoption of this guidance did not have a material effect on the Company's financial position or results of operations. In April 2008, the FASB issued FSP FAS 142-3, "Determination of the Useful Life of Intangible Assets." This FSP amends the list of factors an entity should consider in developing renewal or extension assumptions used to determine the useful life of recognized intangible assets under SFAS No. 142. The new guidance applies to (1) intangible assets that are acquired individually or with a group of other assets and (2) intangible assets acquired in both business combinations and asset acquisitions. This FSP is effective for fiscal years and interim periods beginning after December 15, 2008, with the guidance for determining the useful life of a recognized intangible asset being applied prospectively to intangible assets acquired after the effective date and the disclosure requirements being applied prospectively to all intangible assets recognized as of, and after, the effective date. The Company's adoption of this guidance is not expected to have a material effect on the Company's financial position or results of operations. In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities" an amendment of SFAS 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 FASB Statement No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity's financial position, financial performance, and cash flows. The Company will adopt this guidance effective January 1, 2009. The Company's adoption of this guidance is not expected to have a material effect on the Company's financial position or results of operations. 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 F-14 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 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. The Company will adopt this guidance effective January 1, 2009. The Company's adoption of this guidance is not expected to have a material effect on the Company's financial position or results of operations. In April 2007, the FASB issued 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 financial position or results of operations. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." This statement provides companies with an option to report selected financial assets and liabilities at fair value, with the associated changes in fair value reflected in the Statements of Operations. The Company adopted this guidance effective January 1, 2008. The Company's adoption of this guidance did not have a material effect on the Company's financial position or results of operations. 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 10 for more information on SFAS No. 157. In June 2006, the FASB issued FIN No. 48, "Accounting for Uncertainty in Income Taxes," an Interpretation of FASB Statement No. 109. See Note 8 for details regarding the adoption of this pronouncement on January 1, 2007. In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets." This statement requires that servicing assets or liabilities be initially measured at fair value, with subsequent changes in value reported based on either a fair value or amortized cost approach for each class of servicing assets or liabilities. Under previous guidance, such servicing assets or liabilities were initially measured at historical cost and the amortized cost method was required for subsequent reporting. The Company adopted this guidance effective January 1, 2007, and elected to continue reporting subsequent changes in value using the amortized cost approach. Adoption of this guidance had no material effect on the Company's financial position or results of operations. In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Instruments." This statement eliminates an exception from the requirement to bifurcate an embedded derivative feature from beneficial interests in securitized financial assets. The Company has used this exception for investments the Company has made in securitized financial assets in the normal course of operations, and thus previous to the adoption of this standard has not had to consider whether such investments contain an embedded derivative. The new requirement to identify embedded derivatives in beneficial interests will be applied on a prospective basis only to beneficial interests acquired, issued, or subject to certain remeasurement conditions after the adoption of the guidance. This statement also provides an election, on an instrument by instrument basis, to measure at fair value an entire hybrid financial instrument that contains an embedded derivative requiring bifurcation, rather than measuring only the embedded derivative on a fair value basis. If the fair value election is chosen, changes in unrealized gains and losses are reflected in the Statements of Operations. The Company adopted this guidance effective January 1, 2007. In September 2005, the Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants issued Statement of Position ("SOP") 05-1, "Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts." SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs, including deferred policy acquisition costs, valuation of business acquired F-15 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) and deferred sales inducements, on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97. SOP 05-1 defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract, and was effective for internal replacements occurring in fiscal years beginning after December 15, 2006. The Company adopted SOP 05-1 effective January 1, 2007. The effect of initially adopting SOP 05-1 was a charge to the opening balance of retained earnings of $14.7 million before tax, $9.5 million net of taxes, which was reported as a "Cumulative effect of a change in accounting principle, net of taxes" in the Statement of Stockholder's Equity for the year ended December 31, 2007. Reclassifications Certain amounts in the prior years have been reclassified to conform to the current year presentation. 3. INVESTMENTS Fixed Maturities and Equity Securities The following tables provide additional information relating to fixed maturities and equity securities (excluding investments classified as trading) as of December 31:
2008 ------------------------------------------- Gross Gross Amortized unrealized unrealized cost gains losses Fair value ---------- ---------- ---------- ---------- (in thousands) Fixed maturities, available for sale U.S. Treasury securities and obligations of U.S. government authorities and agencies...................... $ 931,416 $ 29,907 $ 28,130 $ 933,193 Obligations of U.S. states and their political subdivisions... 33,389 3,407 34 36,762 Foreign government bonds...................................... 36,730 357 1,797 35,290 Asset-backed securities (1)................................... 229,212 318 22,212 207,318 Commercial mortgage-backed securities......................... 937,129 482 167,173 770,438 Residential mortgage-backed securities (2).................... 3,321,899 102,503 309 3,424,093 All other corporate securities................................ 4,403,655 155,085 96,492 4,462,248 ---------- -------- -------- ---------- Total fixed maturities, available for sale....................... $9,893,430 $292,059 $316,147 $9,869,342 ========== ======== ======== ========== Equity securities, available for sale............................ $ 12,024 $ 111 $ 2,016 $ 10,119 ========== ======== ======== ==========
(1)Includes credit tranched securities collateralized by sub-prime mortgages, auto loans, credit cards, education loans, and other asset types. (2)Includes publicly traded agency pass-through securities and collateralized mortgage obligations
2007 ------------------------------------------- Gross Gross Amortized unrealized unrealized cost gains losses Fair value ---------- ---------- ---------- ---------- (in thousands) Fixed maturities, available for sale U.S. Treasury securities and obligations of U.S. government authorities and agencies...................... $ 242,269 $ 2,900 $ 752 $ 244,417 Obligations of U.S. states and their political subdivisions... 1,910 399 1 2,308 Foreign government bonds...................................... 6,043 603 96 6,550 Asset-backed securities....................................... 131,315 305 7,984 123,636 Commercial mortgage-backed securities......................... 242,925 4,852 50 247,727 Residential mortgage-backed securities........................ 192,304 3,144 1 195,447 All other corporate securities................................ 512,276 6,923 3,606 515,593 ---------- ------- ------- ---------- Total fixed maturities, available for sale....................... $1,329,042 $19,126 $12,490 $1,335,678 ========== ======= ======= ========== Equity securities, available for sale............................ $ 12,476 $ -- $ 877 $ 11,599 ========== ======= ======= ==========
F-16 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 3. INVESTMENTS (continued) The amortized cost and fair value of fixed maturities by contractual maturities at December 31, 2008 is shown below:
Available for sale --------------------- Amortized Cost Fair value ---------- ---------- (in thousands) Due in one year or less...................... $ 68,506 $ 67,460 Due after one year through five years........ 3,182,803 3,201,693 Due after five years through ten years....... 1,755,689 1,810,652 Due after ten years.......................... 398,192 387,688 Commercial mortgage backed securities........ 937,129 770,438 Residential mortgage-backed securities....... 3,321,899 3,424,093 Assets backed securities..................... 229,212 207,318 ---------- ---------- Total........................................ $9,893,430 $9,869,342 ========== ==========
Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations. Asset-backed, commercial mortgage-backed, and residential mortgage-backed securities are shown separately in the table above, as they are not due at a single maturity date. The following table depicts the sources of fixed maturity proceeds and related gross investment gains (losses), as well as losses on impairments of both fixed maturities and equity securities:
2008 2007 2006 ---------- ---------- ---------- (in thousands) Fixed maturities, available for sale: Proceeds from sales.................................... $9,664,156 $2,131,667 $3,573,598 Proceeds from maturities/repayments.................... 68,993 63,627 20,350 Gross investment gains from sales, prepayments and maturities........................................... 69,587 13,325 5,965 Gross investment losses from sales and maturities...... (38,664) (4,248) (32,082)
Commercial mortgage and other loans The following table provides the breakdown of the gross carrying values of commercial mortgage loans by property type as of December 31:
2008 2007 -------------------- -------------------- Amount % of Amount % of (in thousands) Total (in thousands) Total -------------- ----- -------------- ----- Commercial loans by property type Office buildings................... $ 73,310 19.7% $ 5,971 15.4% Retail stores...................... 84,574 22.7% 3,934 10.2% Apartment complexes................ 102,206 27.5% 10,912 28.2% Industrial Buildings............... 74,657 20.1% 0 0.0% Agricultural properties............ 26,077 7.0% 7,930 20.5% Hospitality........................ 11,138 3.0% 0 0.0% Other.............................. 0 0.0% 9,924 25.7% -------- ----- ------- ----- Subtotal Commercial Loans....... $371,962 100.0% $38,671 100.0% -------- ===== ------- ===== Valuation allowance................ $ (218) $ (168) -------- ------- Total Commercial Loans.......... $371,744 $38,503 ======== =======
F-17 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 3. INVESTMENTS (continued) The commercial mortgage and other loans are geographically dispersed throughout the United States, Canada and Asia with the largest concentrations in New York (21%), New Hampshire (16%), California (13%) and Ohio (13%) at December 31, 2008. Activity in the allowance for losses for all commercial loans, for the years ended December 31, is as follows:
2008 2007 ---- ---- (in thousands) Allowance for losses, beginning of year...... $168 $ -- Addition of allowance for losses.......... 50 168 ---- ---- Allowance for losses, end of year............ $218 $168 ==== ====
Other Long-Term Investments The following table provides information relating to other long-term investments as of December 31:
2008 -------------- (in thousands) Joint ventures and limited partnerships...... $ 2,173 Derivatives.................................. 35,356 ------- Total other long- term investments........... $37,529 =======
2007 -------------- (in thousands) Joint ventures and limited partnerships...... $ 2,514 Derivatives.................................. (2,644) ------- Total other long- term investments........... $ (130) =======
Investment Income and Investment Gains and Losses Net investment income arose from the following sources for 2008, 2007, and 2006:
2008 2007 2006 -------- ------- ------- (in thousands) Fixed maturities, available for sale............ $298,506 $67,273 $82,976 Equity securities, available for sale........... 867 1,226 1,254 Policy loans.................................... 809 742 702 Short-term investments and cash equivalents..... 23,145 6,345 9,937 Other........................................... 4,751 4,124 2,504 -------- ------- ------- Gross investment income......................... 328,078 79,710 97,373 -------- ------- ------- Less investment expenses..................... (7,990) (5,085) (9,082) -------- ------- ------- Net investment income........................... $320,088 $74,625 $88,291 ======== ======= =======
F-18 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 3. INVESTMENTS (continued) Realized investment gains (losses), net including charges for other than temporary impairments in value, for year ended December 31, 2008, year ended December 31, 2007, and year ended December 31, 2006 were from the following sources:
2008 2007 2006 ------- -------- -------- (in thousands) Fixed maturities............................. $ 5,151 $ 9,078 $(26,155) Equity securities............................ (452) (1,010) (858) Derivatives.................................. 38,061 (48,872) (21,022) Commercial mortgage and other loans.......... (50) (168) -- Other........................................ 3,343 -- -- ------- -------- -------- Realized investment gains (losses), net...... $46,053 $(40,972) $(48,035) ======= ======== ========
Writedowns for impairments, which were deemed to be other than temporary, were $26.2 million and $980 thousand as December 31, 2008 and December 31, 2007 respectively. Net Unrealized Investment Gains (Losses) Net unrealized investment gains (losses) on securities classified as "available for sale" are included in the Statements of Financial Position as a component of "Accumulated other comprehensive (loss) income." Changes in these amounts include reclassification adjustments to exclude from "Other comprehensive (loss) income," those items that are included as part of "Net income" for a period that also had been part of "Other comprehensive (loss) income" in earlier periods. The amounts for the years ended December 31, net of tax, are as follows (in thousands):
Deferred Accumulated Other Policy Comprehensive Acquisition Income (Loss) Costs and Deferred Related To Net Net Unrealized Valuation of Income Tax Unrealized Gains (Losses) on Business (Liability) Investment Gains Investments Acquired Benefit (Losses) ----------------- ------------ ----------- ----------------- Balance, December 31, 2005 (5,348) 902 1,574 (2,872) Net investment gains (losses) on investments arising during the period.................................... (8,789) -- -- (8,789) Reclassification adjustment for losses (gains) included in net income............................... 27,013 -- -- 27,013 Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and valuation of business acquired.................................... -- (5,453) (4,522) (9,975) -------- ------- ------- -------- Balance, December 31, 2006 12,876 (4,551) (2,948) 5,377 Net investment gains (losses) on investments arising during the period.................................... (15,184) (15,184) Reclassification adjustment for losses (gains) included in net income............................... 8,068 -- -- 8,068 Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and valuation of business acquired.................................... 2,720 1,556 4,276 -------- ------- ------- -------- Balance, December 31, 2007 $ 5,760 $(1,831) $(1,392) $ 2,537 Net investment gains (losses) on investments arising during the period.................................... (36,452) (36,452) Reclassification adjustment for losses (gains) included in net income............................... 4,699 4,699 Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and valuation of business acquired.................................... 18,620 4,650 23,270 -------- ------- ------- -------- Balance, December 31, 2008 $(25,993) $16,789 $ 3,258 $ (5,946)
F-19 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 3. INVESTMENTS (continued) The table below presents net unrealized gains (losses) on investments by asset class at December 31:
2008 2007 2006 -------- ------ ------- (in thousands) Fixed maturities, available for sale.............. $(24,088) $6,637 $13,018 Equity securities, available for sale............. (1,905) (877) (142) -------- ------ ------- Unrealized gains (losses) on investments.......... $(25,993) $5,760 $12,876 ======== ====== =======
Duration of Gross Unrealized Loss Positions for Fixed Maturities and Equity Securities The following table shows the fair value and gross unrealized losses aggregated by investment category and length of time that individual fixed maturities and equity securities have been in a continuous unrealized loss position, as of December 31, 2008 and 2007:
Twelve months Less than twelve months or more Total ----------------------- --------------------- --------------------- Unrealized Unrealized Unrealized Fair Value Losses Fair Value Losses Fair Value Losses ---------- ---------- ---------- ---------- ---------- ---------- (in thousands) 2008 U.S. Treasury securities and obligations of U.S. government authorities and agencies............ $ 18,957 $ 13 $ -- $ -- $ 18,957 $ 13 Obligations of U.S. states and their political subdivisions................................... 1,573 34 -- -- 1,573 34 Foreign government bonds......................... 22,200 1,797 -- -- 22,200 1,797 Corporate securities............................. 1,835,329 108,373 71,771 16,238 1,907,100 124,611 Commercial mortgage-backed securities............ 646,878 139,941 116,685 27,232 763,563 167,173 Asset-backed securities.......................... 178,309 17,908 17,646 4,304 195,955 22,212 Residential mortgage-backed securities........... 616 308 -- -- 616 308 ---------- -------- -------- ------- ---------- -------- Total fixed maturities, available for sale....... $2,703,862 $268,374 $206,102 $47,774 $2,909,964 $316,148 ========== ======== ======== ======= ========== ======== Total equity securities, available for sale...... $ 4,393 $ 1,277 $ 3,495 $ 740 $ 7,888 $ 2,016 ========== ======== ======== ======= ========== ========
F-20 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 3. INVESTMENTS (continued)
Twelve months or Less than twelve months more Total ----------------------- ------------------ --------------------- Unrealized Fair Unrealized Unrealized Fair Value Losses Value Losses Fair Value Losses ---------- ---------- ------- ---------- ---------- ---------- (in thousands) 2007 U.S. Treasury securities and obligations of U.S. government authorities and agencies............. $ 105,498 $ -- $ -- $ -- $ 105,498 $ -- Obligations of U.S. states and their political subdivisions.................................... 1,858 -- 51 1 1,909 1 Foreign government bonds.......................... 5,947 96 -- -- 5,947 96 Corporate securities.............................. 589,861 1,706 54,827 2,653 644,688 4,359 Commercial mortgage-backed securities............. 241,309 49 1,565 1 242,874 50 Asset-backed securities........................... 123,144 7,971 189 12 123,333 7,983 Residential mortgage-backed securities............ 191,269 -- 1,034 1 192,303 1 ---------- ------ ------- ------ ---------- ------- Total fixed maturities, available for sale........ $1,258,886 $9,822 $57,666 $2,668 $1,316,552 $12,490 ========== ====== ======= ====== ========== ======= Total equity securities, available for sale....... $ 11,599 $ 877 $ -- $ -- $ 11,599 $ 877 ========== ====== ======= ====== ========== =======
Securities with fair value of $3.5 million and gross unrealized losses of $0.7 million that have been in a continuous unrealized loss position for twelve months or more as of December 31, 2008 represent perpetual preferred securities, which have characteristics of both debt and equity securities. In accordance with its policy described in Note 2, the Company concluded that an adjustment for other-than-temporary impairments for these securities was not warranted at December 31, 2008 or 2007. As of December 31, 2008, unrealized gains (losses) on fixed maturities and equity securities was comprised of $318.2 million of gross unrealized losses and $292.2 million of gross unrealized gains. Gross unrealized losses includes $48.5 million of gross losses that have been in such a position for twelve months or greater. Based on a review of the above information in conjunction with other factors as outlined in our policy surrounding other than temporary impairments (see Note 2 to the Financial Statements), we have concluded that an adjustment for other than temporary impairments for these securities was not warranted at December 31, 2008. Each security is current on its contractual payments, and a detailed analysis of the underlying credit resulted in the determination that there is no evidence of probable credit deterioration that would indicate they would be unable to meet their contractual obligations. The declines in fair value were primarily due to credit spread widening and increased liquidity discounts. In each case, the Company has the ability and intent to hold the security for a period of time to allow for a recovery of value. As of December 31, 2007, unrealized gains (losses) on fixed maturities and equity securities was comprised of $13.3 million of gross unrealized losses and $19.1 million of gross unrealized gains. Gross unrealized losses includes $2.7 million of gross losses that have been in such a position for twelve months or greater. Based on a review of the above information in conjunction with other factors as outlined in our policy surrounding other than temporary impairments (see Note 2 to the Financial Statements), we have concluded that an adjustment for other than temporary impairments for these securities was not warranted at December 31, 2007. Securities Pledged and Special Deposits The Company pledges investment securities it owns to unaffiliated parties through securities sold under agreements to repurchase transactions. At December 31, 2008 and 2007, there were no fixed maturities available for sale pledge to third parties. Fixed maturities of $5.1 million and $4.8 million at December 31, 2008 and 2007, respectively, were on deposit with governmental authorities or trustees as required by certain insurance laws. F-21 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 4. DEFERRED POLICY ACQUISITION COSTS The balances of and changes in DAC as of and for the year ended December 31, 2008, year ended December 31, 2007, and year ended December 31, 2006, are as follows (in thousands):
2008 2007 2006 ---------- ---------- --------- Balance, beginning of year................................ $1,042,823 $ 766,277 $ 528,899 Capitalization of commissions, sales and issue expenses... 417,465 442,265 343,907 Amortization.............................................. (228,836) (156,507) (104,438) Changes in unrealized investment gains and losses......... 15,679 323 (2,091) Impact of adoption of SOP 05-1............................ -- (9,535) -- ---------- ---------- --------- Balance, end of year...................................... $1,247,131 $1,042,823 $ 766,277 ========== ========== =========
5. VALUATION OF BUSINESS ACQUIRED Details of VOBA and related interest and gross amortization for the year ended December 31, 2008, year ended December 31, 2007, and year ended December 31, 2006 is as follows (in thousands):
2008 2007 2006 -------- -------- -------- Balance, beginning of period............ $118,566 $152,650 $196,023 Amortization(1)......................... (48,955) (41,260) (50,154) Interest(2)............................. 5,830 7,743 10,143 Change in unrealized gains/losses....... 2,941 2,397 (3,362) Impact of adoption of SOP 05-1.......... -- (2,964) -- -------- -------- -------- Balance, end of period.................. $ 78,382 $118,566 $152,650 -------- -------- --------
(1)The average expected life of VOBA was approximately 6.6 years from the date of acquisition. (2)The interest accrual rate was 5.72% for the VOBA related to the businesses acquired. Estimated future net amortization of VOBA as of December 31, 2008 is as follows (in thousands): 2009..................... 15,078 2010..................... 11,576 2011..................... 9,224 2012..................... 7,114 2013..................... 4,954 2014 and thereafter...... 30,436 ------ Total.................... 78,382 ======
6. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS The Company issues traditional variable annuity contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholder. The Company also issues variable annuity contracts with general and separate account options where the Company contractually guarantees to the contractholder a return of no less than (1) total deposits made to the contract less any partial withdrawals ("return of net deposits"), (2) total deposits made to the contract less any partial withdrawals plus a minimum return ("minimum return"), or (3) the highest contract value on a specified date minus any withdrawals ("contract value"). These guarantees include benefits that are payable in the event of death, annuitization or at specified dates during the accumulation period and withdrawal and income benefits payable during specified periods. The Company also issues annuity contracts with market value adjusted investment options ("MVAs"), which provide for a return of principal plus a fixed rate of return if held to maturity, or, alternatively, a "market adjusted value" if surrendered prior to maturity or if funds are allocated to other investment options. The market value adjustment may result in a gain or loss to the Company, depending on crediting rates or an indexed rate at surrender, as applicable. F-22 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 6. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued) The assets supporting the variable portion of both traditional variable annuities and certain variable contracts with guarantees are carried at fair value and reported as "Separate account assets" with an equivalent amount reported as "Separate account liabilities." Amounts assessed against the contractholders for mortality, administration, and other services are included within revenue in "Policy charges and fee income" and changes in liabilities for minimum guarantees are generally included in "Policyholders' benefits". In 2008 and 2007, there were no gains or losses on transfers of assets from the general account to a separate account. For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. The Company's primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, contract lapses and contractholder mortality. For guarantees of benefits that are payable at annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. The Company's primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, timing of annuitization, contract lapses and contractholder mortality. For guarantees of benefits that are payable at withdrawal, the net amount at risk is generally defined as the present value of the minimum guaranteed withdrawal payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance minus the current account balance. The Company's primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, interest rates, market volatility or contractholder behavior. The Company's contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed may not be mutually exclusive. As of December 31, 2008 and 2007, the Company had the following guarantees associated with its contracts, by product and guarantee type:
December 31, 2008 December 31, 2007 ------------------------------ ------------------------------ In the Event At Annuitization/ In the Event At Annuitization/ of Death Accumulation (1) of Death Accumulation (1) ------------ ----------------- ------------ ----------------- (in thousands) Variable Annuity Contracts Return of Net Deposits Account value..................................... $27,827,823 N/A $34,423,177 N/A Net amount at risk................................ $ 5,148,579 N/A $ 1,196,837 N/A Average attained age of contractholders........... 60.6 years N/A 60.7 years N/A Minimum return or contract value Account value..................................... $ 6,257,485 $22,880,901 $ 7,726,079 $23,836,127 Net amount at risk................................ $ 2,465,883 $ 3,172,674 $ 486,519 $ 177,330 Average attained age of contractholders........... 62.7 years 61 years 62.3 years 59.4 years Average period remaining until expected annuitization................................... N/A 3.9 years N/A 4.8 years
(1)Includes income and withdrawal benefits described herein
December 31, 2008 December 31, 2007 --------------------- ------------------- Unadjusted Adjusted Unadjusted Adjusted Value Value Value Value ---------- ---------- ---------- -------- Market value adjusted annuities Account value................... $7,776,593 $7,264,251 $950,514 $948,983
F-23 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 6. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued) Account balances of variable annuity contracts with guarantees were invested in separate account investment options as follows:
December 31, December 31, 2008 2007 -------------- -------------- (in thousands) (in thousands) Equity funds............. $ 6,628,564 $16,584,770 Bond funds............... 5,151,177 4,149,175 Balanced funds........... 8,592,304 16,108,177 Money market funds....... 2,702,098 1,943,205 Specialty funds.......... 949,003 2,384,341 ----------- ----------- Total................. $24,023,146 $41,169,668 =========== ===========
In addition to the above mentioned amounts invested in separate account investment options, $10.1 billion and $979.6 million of account balances of variable annuity contracts with guarantees, inclusive of contracts with MVA features, were invested in general account investment options as of December 31, 2008 and 2007, respectively. Liabilities for Guarantee Benefits The table below summarizes the changes in general account liabilities for guarantees on variable contracts. The liabilities for guaranteed minimum death benefits ("GMDB") and guaranteed minimum income benefits ("GMIB") are included in "Future policy benefits" and the related changes in the liabilities are included in "Policyholders' benefits." Guaranteed minimum accumulation benefits ("GMAB"), guaranteed minimum withdrawal benefits ("GMWB"), and guaranteed minimum income and withdrawal benefits ("GMIWB") features are considered to be bifurcated embedded derivatives under SFAS No. 133 and are recorded at fair value. Changes in the fair value of these derivatives, along with any fees attributed or payments made relating to the derivative, are recorded in "Realized investment gains (losses), net." The liabilities for GMAB, GMWB, and GMIWB are included in "Future policy benefits." As discussed above, the Company maintains a portfolio of derivative investments that serve as a partial economic hedge of the risks associated with these products, for which the changes in fair value are also recorded in "Realized investment gains (losses), net." This portfolio of derivatives investments does not qualify for hedge accounting treatment under U.S. GAAP.
GMAB/ GMWB/ GMDB GMIWB GMIB Totals ------- --------- ------ --------- Variable Annuity (in thousands) ------------------------------------- Balance as of January 1, 2006........... 26,000 (500) 2,400 27,900 ------- --------- ------ --------- Incurred guarantee benefits (1)...... 49,510 (32,602) 1,948 18,857 Paid guarantee benefits.............. (31,088) -- -- (31,088) ------- --------- ------ --------- Balance as of December 31, 2006......... 44,422 (33,102) 4,348 15,669 ======= ========= ====== ========= Incurred guarantee benefits (1)...... 28,837 137,011 (2,025) 163,823 Paid guarantee benefits.............. (30,411) -- -- (30,411) ------- --------- ------ --------- Balance as of December 31, 2007......... 42,848 103,909 2,323 149,080 ======= ========= ====== ========= Incurred guarantee benefits (1)...... 292,412 2,007,332 9,303 2,309,047 Paid guarantee benefits.............. (55,310) -- -- (55,310) ------- --------- ------ --------- Balance as of December 31, 2008......... 279,950 2,111,241 11,626 2,402,817 ======= ========= ====== =========
(1)Incurred guarantee benefits include the portion of assessments established as additions to reserve as well as changes in estimates affecting the reserves. Also includes changes in the fair value of features considered to be derivatives. The GMDB liability is determined each period end by estimating the accumulated value of a portion of the total assessments to date less the accumulated value of the death benefits in excess of the account balance. The GMIB liability is determined each period by estimating the accumulated value of a portion of the total assessments to date less the accumulated value of the projected income benefits in excess of the account balance. The portion of assessments used is chosen such that, at issue (or, in the case of acquired contracts, at the acquisition date,) the present value of expected death benefits or expected income benefits in excess of the projected account balance and the portion of the present value of total expected assessments over the lifetime of the contracts are equal. The Company regularly evaluates the estimates used and adjusts the GMDB and GMIB liability balances with an associated charge or credit to earnings, if actual experience or other evidence suggests that earlier assumptions should be revised. F-24 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 6. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued) The GMAB features provide the contractholder with a guaranteed return of initial account value or an enhanced value if applicable. The most significant of the Company's GMAB features are the guaranteed return option ("GRO") features, which includes an automatic investment rebalancing element that reduces the Company's exposure to these guarantees. The GMAB liability is calculated as the present value of future expected payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature. The GMWB features provide the contractholder with a guaranteed remaining balance if the account value is reduced to zero through a combination of market declines and withdrawals. The guaranteed remaining balance is generally equal to the protected value under the contract, which is initially established as the greater of the account value or cumulative deposits when withdrawals commence, less cumulative withdrawals. The contractholder also has the option, after a specified time period, to reset the guaranteed remaining balance to the then-current account value, if greater. The GMWB liability is calculated as the present value of future expected payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature. The GMIWB features predominantly present a benefit that provides a contractholder two optional methods to receive guaranteed minimum payments over time, a "withdrawal" option or an "income" option. The withdrawal option guarantees that, upon the election of such benefit, a contract holder can withdraw an amount each year until the cumulative withdrawals reach a total guaranteed balance. The guaranteed remaining balance is generally equal to the protected value under the contract, which is initially established as the greater of: (1) the account value on the date of first withdrawal; (2) cumulative deposits when withdrawals commence, less cumulative withdrawals plus a minimum return; or (3) the highest contract value on a specified date minus any withdrawals. The income option guarantees that a contract holder can, upon the election of this benefit, withdraw a lesser amount each year for the annuitant's life based on the total guaranteed balance. The withdrawal or income benefit can be elected by the contract holder upon issuance of an appropriate deferred variable annuity contract or at any time following contract issue prior to annuitization. Certain GMIWB features include an automatic rebalancing element that reduces the Company's exposure to these guarantees. The GMIWB liability is calculated as the present value of future expected payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature. As part of risk management strategy, the Company limits exposure to these risks through a combination of product design elements, such as an automatic rebalancing element, and affiliated reinsurance agreements. The automatic rebalancing element included in the design of certain variable annuity products transfers assets between contractholder sub-accounts depending on a number of factors, including the investment performance of the sub-accounts. Negative investment performance may result in transfers to either a fixed-rate general account option or a separate account bond portfolio. In certain situations, assets may transfer back when investment performance improves. Other product design elements utilized for certain products to manage these risks include asset allocation and minimum purchase age requirements. For risk management purposes the Company segregates the variable annuity living benefit features into four broad categories, (1) those that utilize both an automatic rebalancing element and capital markets hedging in the affiliates, such as for certain GMIWB riders; (2) those that utilize only an automatic rebalancing element, such as for certain GMAB riders that feature the GRO policyholder benefits; (3) those that utilize only capital markets hedging in the affiliated reinsurer, such as for certain legacy GMIWB, GMWB and GMAB riders; and (4) those with risks we have deemed suitable to retain, such as for GMDB and GMIB riders. Riders in categories 1 and 2 from above also include GMDB riders, and as such the GMDB risk in these riders benefits from the automatic investment rebalancing element. F-25 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 6. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued) Sales Inducements The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize deferred policy acquisition costs. These deferred sales inducements are included in "Other Assets" in the Company's Statements of Financial Position. The Company offers various types of sales inducements. These inducements include: (1) a bonus whereby the policyholder's initial account balance is increased by an amount equal to a specified percentage of the customer's initial deposit and (2) additional credits after a certain number of years a contract is held. Changes in deferred sales inducements, reported as "Interest credited to policyholders' account balances", are as follows:
Sales Inducements -------------- (in thousands) Balance as of January 1, 2006...... 227,400 Capitalization.................. 167,013 Amortization.................... (34,598) -------- Balance as of December 31, 2006.... $359,815 ======== Capitalization.................. 263,992 Amortization.................... (64,986) -------- Balance as of December 31, 2007.... $558,821 ======== Capitalization.................. 260,268 Amortization.................... (92,775) -------- Balance as of December 31, 2008.... $726,314 ========
7. REINSURANCE The Company cedes insurance to other insurers in order to fund the cash strain generated from commission costs on current sales and to limit its risk exposure. The Company utilizes both affiliated and unaffiliated reinsurance arrangements. On its unaffiliated arrangements, the Company uses primarily modified coinsurance reinsurance arrangements whereby the reinsurer shares in the experience of a specified book of business. These reinsurance transactions result in the Company receiving from the reinsurer an upfront ceding commission on the book of business ceded in exchange for the reinsurer receiving in the future, a percentage of the future fees generated from that book of business. Such transfer does not relieve the Company of its primary liability and, as such, failure of reinsurers to honor their obligation could result in losses to the Company. The Company reduces this risk by evaluating the financial condition and credit worthiness of reinsurers. On its affiliated arrangements, the Company uses automatic coinsurance reinsurance arrangements. These agreements cover all significant risks under features of the policies reinsured. The Company is not relieved of its primary obligation to the policyholder as a result of these reinsurance transactions. These affiliated agreements include the reinsurance of the Company's GMWB, GMIWB, and GMAB features. These features are considered to be derivatives under SFAS No. 133, and changes in the fair value of the derivative are recognized through "Realized investment gains (losses), net." Please see Note 13 for further details around the affiliated reinsurance agreements. F-26 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 7. REINSURANCE (continued) The effect of reinsurance for the year ended December 31, 2008, year ended December 31, 2007, and year ended December 31, 2006, was as follows (in thousands):
Unaffiliated Affiliated Gross Ceded Ceded Net ----------- ------------ ---------- -------- 2008 Policy charges and fee income................ $ 660,517 $(28,077) $ -- $632,440 Realized investment (losses) gains, net...... $(1,861,957) $ -- $1,908,010 $ 46,053 Policyholders' benefits...................... $ 329,724 $ (429) $ -- $329,295 General, administrative and other expenses... $ 632,361 $ (4,231) $ (1,817) $626,313 2007 Policy charges and fee income................ $ 736,064 $(28,698) $ -- $707,366 Realized investment (losses) gains, net...... $ (94,469) $ -- $ 53,497 $(40,972) Policyholders' benefits...................... $ 68,212 $ (862) $ -- $ 67,350 General, administrative and other expenses... $ 535,947 $ (5,560) $ (1,171) $529,216 2006 Policy charges and fee income................ $ 586,985 $(25,690) $ -- $561,295 Realized investment (losses) gains, net...... $ 31,053 $ -- $ (79,088) $(48,035) Policyholders' benefits...................... $ 101,748 $ (381) $ -- $101,367 General, administrative and other expenses... $ 435,721 $ (5,450) $ (27) $430,244
The Company's Statements of Financial Position also included reinsurance recoverables from Pruco Re of $2.1 billion at December 31, 2008 and $104.1 million at December 31, 2007. 8. INCOME TAXES The components of income tax expense (benefit) for the years ended December 31, were as follows:
2008 2007 2006 -------- ------- ------- (in thousands) Current tax expense: U.S. and foreign............................................. $ -- $ -- $ 67 State and local.............................................. $ -- $ -- $ -- -------- ------- ------- Total........................................................ $ -- $ -- $ 67 ======== ======= ======= Deferred tax expense: U.S. and foreign............................................. $(38,770) $10,056 $ 5,759 State and local.............................................. (454) 303 $ 389 -------- ------- ------- Total........................................................ $(39,224) $10,359 $ 6,148 ======== ======= ======= Total income tax expense (benefit) on income from operations.... $(39,224) $10,359 $ 6,215 Income Tax reported in stockholders' equity related to: Other comprehensive income (loss)............................ (4,649) (1,556) 4,521 Cumulative effect of changes in accounting policy............ -- (6,617) -- Stock based compensation programs............................ (21) -- -- -------- ------- ------- Total income tax expense (benefit).............................. $(43,894) $ 2,186 $10,736 ======== ======= =======
The Company's income (loss) from operations before income taxes includes income (loss) from domestic operations of $(19,266) thousand, $304,954 thousand and $201,932 thousand, and no income from foreign operations for years ended December 31, 2008, 2007 and 2006, respectively. F-27 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 8. INCOME TAXES (continued) The Company's actual income tax expense (benefit) on operations for the years ended December 31, differs from the expected amount computed by applying the statutory federal income tax rate of 35% to income from operations before income taxes for the following reasons:
2008 2007 2006 -------- -------- -------- (in thousands) Expected federal income tax expense (benefit)..... $ (6,743) $106,734 $ 70,676 Non taxable investment income.................. (24,418) (95,053) (55,568) Tax credits.................................... (8,407) (7,367) (9,463) Prior year adjustments......................... -- 5,518 -- State income taxes, net of federal benefit..... (294) 197 253 Other.......................................... 638 330 317 -------- -------- -------- Total income tax expense (benefit)................ $(39,224) $ 10,359 $ 6,215 ======== ======== ========
Deferred tax assets and liabilities at December 31, resulted from the items listed in the following table:
2008 2007 -------- -------- (in thousands) Deferred tax assets Insurance reserves................... $256,815 $318,649 Net operating loss carryforwards..... 339,621 188,038 Tax credit carryforwards............. 40,935 27,823 Compensation reserves................ 5,958 6,428 Net unrealized losses................ 9,202 -- Income taxed in advance.............. 1,684 4,777 Other................................ 1,788 10,424 -------- -------- Deferred tax assets..................... $656,003 $556,139 Deferred tax liabilities VOBA and deferred acquisition cost... $398,610 $340,577 Net unrealized gains................. -- 2,039 Other................................ 167 191 -------- -------- Deferred tax liabilities................ $398,777 $342,807 -------- -------- Net deferred tax asset.................. $257,226 $213,332 ======== ========
The application of U.S. GAAP requires the Company to evaluate the recoverability of deferred tax assets and establish a valuation allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance the Company considers many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) in which tax jurisdictions they were generated and the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards; (5) the length of time that carryovers can be utilized in the various taxing jurisdictions; (6) any unique tax rules that would impact the utilization of the deferred tax assets; and (7) any tax planning strategies that the Company would employ to avoid a tax benefit from expiring unused. Although realization is not assured, management believes it is more likely than not that the deferred tax assets, net of valuation allowances, will be realized. The Company had no valuation allowance as of December 31, 2008 and 2007. At December 31, 2008 and 2007, respectively, the Company had federal net operating and capital loss carryforwards of $959 million and $531 million, which expire between 2019 and 2023. At December 31, 2008 and 2007, respectively, the Company had tax credit carryforwards, of $41 million and $28 million, which expire between 2014 and 2018. F-28 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 8. INCOME TAXES (continued) On January 1, 2007, the Company adopted FIN No. 48, "Accounting for Uncertainty in Income Taxes," an Interpretation of FASB Statement No. 109. This interpretation prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on a tax return. Adoption of FIN No. 48 resulted in a decrease to the Company's income tax liability and an increase to retained earnings of $1.4 million as of January 1, 2007. The Company had no unrecognized tax benefits as of the date of adoption of FIN No. 48 and as of December 31, 2008 and 2007. The Company classifies all interest and penalties related to tax uncertainties as income tax expense. In 2008 and 2007, the Company recognized nothing in the statement of operations and recognized no liabilities in the statement of financial position for tax-related interest and penalties. The Company is not currently under audit by the IRS or any state or local jurisdiction. In August 2007, the IRS issued Revenue Ruling 2007-54, which included, among other items, guidance on the methodology to be followed in calculating the dividend received deduction, or DRD, related to variable life insurance and annuity contracts. In September 2007, the IRS released Revenue Ruling 2007-61. Revenue Ruling 2007-61 suspends Revenue Ruling 2007-54 and informs taxpayers that the U.S. Treasury Department and the IRS intend to address through new regulations the issues considered in Revenue Ruling 2007-54, including the methodology to be followed in determining the DRD related to variable life insurance and annuity contracts. A change in the DRD, including the possible retroactive or prospective elimination of this deduction through regulations or legislation, could increase actual tax expense and reduce the Company's net income. These activities had no impact on the Company's 2007 or 2008 results. 9. STATUTORY NET INCOME AND SURPLUS AND DIVIDEND RESTRICTIONS The Company is required to prepare statutory financial statements in accordance with accounting practices prescribed or permitted by the State of Connecticut Insurance Department. Prescribed statutory accounting practices include publications of the NAIC, as well as state laws, regulations and general administrative rules. Statutory accounting practices primarily differ from U.S. GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions and valuing investments, deferred taxes, and certain assets on a different basis. Statutory net income (loss) of the Company amounted to $(322.6) million, $106.0 million, and $110.2million, for the years ended December 31, 2008, 2007, and 2006, respectively. Statutory surplus of the Company amounted to $633.3 million and $438.3 million at December 31, 2008 and 2007, respectively. Without prior approval of its domiciliary commissioner, dividends to shareholders are limited by the laws of the Company's state of incorporation, Connecticut. The State of Connecticut restricts dividend payments to the greater of 10% of the prior year's surplus or net gain from operations from the prior year. Net gain from operations is defined as income after taxes but prior to realized capital gains, as reported on the Summary of Operations. Based on 2008 results, there is capacity to pay a dividend of $63.3 million. 10. FAIR VALUE OF ASSETS AND LIABILITIES 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 us for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following for the measured asset/liability: i) many transactions, ii) current prices, iii) price quotes not varying substantially among market makers, iv) narrow bid/ask spreads and v) most information publicly available. Our Level 1 assets and liabilities primarily include certain cash equivalents and short term investments, equity securities and derivative contracts that are traded in an active exchange market. Prices are obtained from readily available sources for market transactions involving identical assets or liabilities. F-29 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 10. FAIR VALUE OF ASSETS AND LIABILITIES (continued) 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 market observable inputs. Our Level 2 assets and liabilities include: fixed maturities (corporate public and private bonds, most government securities, certain asset- and mortgage-backed securities, etc.), certain equity securities and commercial mortgage loans, short-term investments and certain cash equivalents (primarily commercial paper) and certain over-the-counter derivatives. Valuations are generally obtained from third party pricing services for identical or comparable assets or liabilities, or through the use of valuation methodologies using observable market inputs. Prices from pricing services are sourced from multiple vendors, and a vendor hierarchy is maintained by asset type based on historical pricing experience and vendor expertise. The Company generally receives prices from multiple pricing services for each security, but ultimately use the price from the pricing service highest in the vendor hierarchy based on the respective asset type. In order to validate reasonability, prices are reviewed by internal asset managers through comparison with directly observed recent market trades and internal estimates of current fair value, developed using market observable inputs and economic indicators. The use of valuation methodologies using observable inputs for private fixed maturities are primarily determined using a discounted cash flow model, which utilizes a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, and takes into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Private fixed maturities also include debt investments in funds that, in addition to a stated coupon, pay a return based upon the results of the underlying portfolios. The fair values of these securities are determined by reference to the funds' net asset value (NAV). Any restrictions on the ability to redeem interests in these funds at NAV are considered to have a de minimis effect on the fair value. The majority of the Company's derivative positions is traded in the over-the-counter (OTC) derivative market and is classified within Level 2 in the fair value hierarchy. OTC derivatives classified within Level 2 are valued using models generally accepted in the financial services industry that use actively quoted or observable market input values from external market data providers, non-binding broker-dealer quotations, third-party pricing vendors and/or recent trading activity. The fair values of most OTC derivatives, including interest rate swaps, cross currency swaps and single name credit default swaps are determined using discounted cash flow models. These models' key assumptions include the contractual terms of the respective contract, along with significant observable inputs, including interest rates, currency rates, credit spreads, yield curves, index dividend yields and nonperformance risk. OTC derivative contracts are executed under master netting agreements with counterparties with a Credit Support Annex, or CSA, which is a bilateral ratings-sensitive agreement that requires collateral postings at established credit threshold levels. These agreements protect the interests of the Company and its counterparties, should either party suffer a credit rating deterioration. Substantially all of the Company's OTC derivative contracts are transacted with an affiliate. In instances where the Company transacts with unaffiliated counterparties derivative agreements are with highly rated major international financial institutions. Consistent with the practice of major international financial institutions, the Company uses the credit spread embedded in the LIBOR interest rate curve to reflect nonperformance risk when determining the fair value of derivative assets and liabilities. The Company believes this credit spread is an appropriate estimate of the nonperformance risk for derivative related assets and liabilities between highly rated institutions. Most OTC derivative contracts have bid and ask prices that can be readily observed in the market place. The Company's policy is to use mid-market pricing in determining its best estimate of fair value. Level 3 - Fair value is based on at least one or more significant unobservable inputs for the asset or liability. These inputs reflect our assumptions about the assumptions market participants would use in pricing the asset or liability. Our Level 3 assets and liabilities primarily include: certain private fixed maturities and equity securities, certain manually priced public equity securities and fixed maturities, certain highly structured over-the-counter derivative contracts and embedded derivatives resulting from certain products with guaranteed benefits. In circumstances where vendor pricing is not available, internally developed valuations or non-binding broker quotes are used to determine fair value. Non-binding broker quotes are reviewed for reasonableness based on our understanding of the market. These estimates may use significant unobservable inputs, which reflect the Company's own assumptions about the inputs market participants would use in pricing the asset. Circumstances where observable market data is not available may include events such as market illiquidity and credit events related to the security. Under certain conditions, we may conclude the prices received from independent third party pricing services or brokers are not reasonable or reflective of market activity. In those instances, we may choose to over-ride the third-party pricing information or quotes received and apply internally developed values to the related assets or liabilities. In such cases, the valuations are generally classified as Level 3. As of December 31, 2008 such over-rides on a net basis were not material. F-30 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 10. FAIR VALUE OF ASSETS AND LIABILITIES (continued) For certain private fixed maturities, including those that are distressed, the discounted cash flow model may also incorporate significant unobservable inputs, which reflect the Company's own assumptions about the inputs market participants would use in pricing the asset. Certain public fixed maturities and private fixed maturities priced internally are based on observable and unobservable inputs. Significant unobservable inputs used include: issue specific credit adjustments, material non-public financial information, management judgment, estimation of future earnings and cashflows, default rate assumptions, liquidity assumptions and non-binding quotes from market makers. These inputs are usually considered unobservable, as not all market participants will have access to this data. The fair values of the GMAB, GMWB and GMIWB liabilities are calculated as the present value of future expected benefit payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature. The expected cash flows are discounted using LIBOR interest rates, which are commonly viewed as being consistent with the Company's claims-paying ratings of AA quality. Since there is no observable active market for the transfer of these obligations, the valuations are calculated using internally developed models with option pricing techniques. The models calculate a risk neutral valuation, generally using the same interest rate assumptions to both project and discount future rider fees and benefit payments, and incorporate premiums for risks inherent in valuation techniques, inputs, and the general uncertainty around the timing and amount of future cash flows. Significant inputs to these models include capital market assumptions, such as interest rate and implied volatility assumptions, as well as various policyholder behavior assumptions that are actuarially determined, including lapse rates, benefit utilization rates, mortality rates and withdrawal rates. These assumptions are reviewed at least annually, and updated based upon historical experience and give consideration to any observable market data, including market transactions such as acquisitions and reinsurance transactions. Level 3 includes OTC derivatives where the bid-ask spreads are generally wider than derivatives classified within Level 2 thus requiring more judgment in estimating the mid-market price of such derivatives. Derivatives that are valued based upon models with unobservable market input values or input values from less actively traded or less-developed markets are classified within Level 3 in the fair value hierarchy. Derivatives classified as Level 3 include first-to-default credit basket swaps. The fair values of first-to-default credit basket swaps are derived from relevant observable inputs such as: individual credit default spreads, interest rates, recovery rates and unobservable model-specific input values such as correlation between different credits within the same basket. Level 3 methodologies are validated through periodic comparison of the Company's fair values to broker-dealer's values. The table below presents the balances of assets and liabilities measured at fair value on a recurring basis, as of December 31, 2008.
Level 1 Level 2 Level 3 Total ----------- ----------- ---------- ----------- (in thousands) Fixed maturities, available for sale................... $ -- $ 9,778,618 $ 90,724 $ 9,869,342 Trading account assets................................. 10,223 41,199 -- 51,422 Equity securities, available for sale.................. 9,219 900 -- 10,119 Other long-term investments............................ -- 36,852 (1,496) 35,356 Short term investments................................. 254,046 -- -- 254,046 Cash and cash equivalents.............................. -- -- -- -- Reinsurance recoverable................................ -- -- 2,110,146 2,110,146 ----------- ----------- ---------- ----------- Sub-total excluding separate account assets..... $ 273,488 $ 9,857,569 $2,199,374 $12,330,431 Separate account assets (1)............................ 13,884,682 10,375,310 -- 24,259,992 ----------- ----------- ---------- ----------- Total assets........................................ $14,158,170 $20,232,879 $2,199,374 $36,590,423 ----------- ----------- ---------- ----------- Future policy benefits................................. -- -- 2,111,242 2,111,242 ----------- ----------- ---------- ----------- Total liabilities...................................... $ -- $ -- $2,111,242 $ 2,111,242 ----------- ----------- ---------- -----------
(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 Statement of Financial Position. F-31 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 10. FAIR VALUE OF ASSETS AND LIABILITIES (continued) The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the year ending December 31, 2008, as well as the portion of gains or losses included in income for twelve months ended December 31, 2008 attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2008.
Twelve Months Ended December 31, 2008 -------------------------------------------------- Fixed Maturities, Other Long- Available For term Reinsurance Future Policy Sale Investments Recoverable Benefits ------------- ----------- ----------- ------------- (in thousands) Fair value, beginning of period............................. $ 9,502 $ (56) $ 103,909 $ (103,909) Total gains or (losses) (realized/unrealized):........... Included in earnings:................................ Realized investment gains (losses), net........... 414 (1,440) 1,949,030 (1,950,126) Asset administration fees and other income........ -- -- -- -- Included in other comprehensive income (loss)........ 243 -- -- -- Net investment income.................................... 250 -- -- -- Purchases, sales, issuances, and settlements............. 96,995 -- 57,207 (57,207) Foreign currency translation............................. -- -- -- -- Transfers into (out of) level 3 (1)...................... (16,680) -- -- -- -------- ------- ---------- ----------- Fair value, end of period................................... $ 90,724 $(1,496) $2,110,146 $(2,111,242) ======== ======= ========== =========== Unrealized gains (losses) 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........... $ -- $(1,439) $1,956,405 $(1,957,501) Asset administration fees and other income........ $ -- $ -- $ -- $ -- Interest credited to policyholder account......... $ -- $ -- $ -- $ -- Included in other comprehensive income (loss)........ $ 240 $ -- $ -- $ --
(1)Transfers into or out of level 3 are generally reported as the value as of the beginning of the quarter in which the transfer occurs. (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. Transfers - Net transfers out of Level 3 for Fixed Maturities Available for Sale totaled $16.7 million during the year ended December 31, 2008. Transfers out of Level 3 for these investments was primarily the result of the use of observable inputs in valuation methodologies as well as the utilization of pricing service information for certain assets that the Company was able to validate. Fair Value of Financial Instruments - Under SFAS No. 107, "Disclosures about Fair Value of Financial Instruments," the Company is required to disclose the fair value of certain financial instruments. For the following financial instruments the carrying amount equals or approximates fair value: fixed maturities classified as available for sale, trading account assets supporting insurance liabilities, other trading account assets, equity securities, short-term investments, cash and cash equivalents separate account assets and long-term and short-term borrowing. The fair values presented below for those financial instruments where the carrying amounts and fair values may differ have been determined by using available market information and by applying market valuation methodologies. The fair values presented below at December 31, 2008 are in compliance with the framework for measuring fair value established by SFAS No. 157, and therefore may differ from the fair values methodologies applied at December 31, 2007. F-32 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 10. FAIR VALUE OF ASSETS AND LIABILITIES (continued) Commercial mortgage and other loans The fair value of commercial mortgage and other loans is primarily based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate, and adjusted for the current market spread for similar quality loans. The fair value of commercial mortgage and other loans held by the Company is based upon various factors, including the terms of the loans, the principal exit market, prevailing interest rates, and credit risk. Policy Loans The fair value of U.S. insurance policy loans is calculated using a discounted cash flow model based upon current U.S. Treasury rates and historical loan repayment patterns. Investment Contracts - Policyholders' Account Balances & Separate Account Liabilities Only the portion of policyholders' account balances and separate account liabilities related to products that are investment contracts (those without significant mortality or morbidity risk) are reflected in the table below. For payout annuities and other similar contracts without life contingencies, fair values are derived using discounted projected cash flows based on LIBOR interest rates, which are commonly viewed as being consistent with the Company's claims paying ratings. The following table discloses the Company's financial instruments where the carrying amounts and fair values may differ:
2008 2007 ------------------------- ------------------------- Estimated Estimated Carrying value fair value Carrying value fair value -------------- ---------- -------------- ---------- (in thousands) Commercial Loans......... $371,744 $335,150 $38,503 $39,514 Policy loans............. $ 13,419 $ 26,478 $12,965 $12,965 Investment Contracts..... $ 59,284 $ 60,179 $60,140 $60,140
11. DERIVATIVE INSTRUMENTS Types of Derivative Instruments and Derivative Strategies Interest rate swaps are used by the Company to manage interest rate exposures arising from mismatches between assets and liabilities (including duration mismatches) and to hedge against changes in the value of assets it anticipates acquiring and other anticipated transactions and commitments. Swaps may be attributed to specific assets or liabilities or may be used on a portfolio basis. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed upon notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty at each due date. Exchange-traded futures are used by the Company to reduce risks from changes in interest rates, to alter mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, and to hedge against changes in the value of securities it owns or anticipates acquiring or selling. In exchange-traded futures transactions, the Company agrees to purchase or sell a specified number of contracts, the values of which are determined by the values of underlying referenced investments, and to post variation margin on a daily basis in an amount equal to the difference in the daily market values of those contracts. The Company enters into exchange-traded futures and options with regulated futures commission's merchants who are members of a trading exchange. Currency swaps are used by the Company to reduce risks from changes in currency exchange rates with respect to investments denominated in foreign currencies that the Company either holds or intends to acquire or sell. Under currency swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between one currency and another at an exchange rate and calculated by reference to an agreed principal amount. Generally, the principal amount of each currency is exchanged at the beginning and termination of the currency swap by each party. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty for payments made in the same currency at each due date. F-33 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 11. DERIVATIVE INSTRUMENTS (continued) Credit derivatives are used by the Company to enhance the return on the Company's investment portfolio by creating credit exposure similar to an investment in public fixed maturity cash instruments. With credit derivatives the Company sells credit protection on an identified name, or a basket of names in a first to default structure, and in return receives a quarterly premium. With single name credit default derivatives, this premium or credit spread generally corresponds to the difference between the yield on the referenced name's public fixed maturity cash instruments and swap rates, at the time the agreement is executed. With first to default baskets, the premium generally corresponds to a high proportion of the sum of the credit spreads of the names in the basket. If there is an event of default by the referenced name or one of the referenced names in a basket, as defined by the agreement, then the Company is obligated to pay the counterparty the referenced amount of the contract and receive in return the referenced defaulted security or similar security. As further described in Note 6, the Company sells variable annuity products, which contain embedded derivatives. The Company has entered into reinsurance agreements to transfer the risk related to the embedded derivatives to affiliates. These embedded derivatives are marked to market through "Realized investment gains (losses), net" based on the change in value of the underlying contractual guarantees, which are determined using valuation models. In the affiliates, the Company maintains a portfolio of derivative instruments that is intended to economically hedge the risks related to the above products' features. The derivatives may include, but are not limited to equity options, total return swaps, interest rate swap options, caps, floors, and other instruments. In addition, some variable annuity products feature an automatic rebalancing element to minimize risks inherent in the Company's guarantees which reduces the need for hedges. The Company invests in fixed maturities that, in addition to a stated coupon, provide a return based upon the results of an underlying portfolio of fixed income investments and related investment activity. The Company accounts for these investments as available for sale fixed maturities containing embedded derivatives. Such embedded derivatives are marked to market through "Realized investment gains (losses), net," based upon the change in value of the underlying portfolio. Credit Derivatives Written The following tables set forth our exposure from credit derivatives where we have written credit protection excluding credit protection written on our own credit and embedded derivatives contained in European managed investments, by NAIC rating of the underlying credits as of the dates indicated.
December 31, 2008 ----------------------------------------------------- First To Default Single Name Basket Total ---------------- ---------------- ----------------- NAIC Designation Rating Agency Fair Fair Fair (1) Equivalent Notional Value Notional Value Notional Value ----------- ------------- -------- ------- -------- ------- -------- -------- (in thousands) 1....... Aaa, Aa, A $320,000 $(9,155) $ 1,000 $ (133) $321,000 $ (9,288) 2....... Baa -- -- 9,500 (1,363) 9,500 (1,363) -------- ------- ------- ------- -------- -------- Total..... $320,000 $(9,155) $10,500 $(1,496) $330,500 $(10,651) ======== ======= ======= ======= ======== ======== December 31, 2007 ----------------------------------------------------- First To Default Single Name Basket Total ---------------- ---------------- ----------------- NAIC Designation Rating Agency Fair Fair Fair (1) Equivalent Notional Value Notional Value Notional Value ----------- ------------- -------- ------- -------- ------- -------- -------- (in thousands) 1....... Aaa, Aa, A $ -- -- $10,500 $ (57) $ 10,500 $ (57) 2....... Baa -- -- -- -- -- -- -------- ------- ------- ------- -------- -------- Total..... $ -- -- $10,500 $ (57) $ 10,500 $ (57) ======== ======= ======= ======= ======== ========
(1)First-to-default credit swap baskets, which may include credits of varying qualities, are grouped above based on the lowest credit in the basket. However, such basket swaps may entail greater credit risk than the rating level of the lowest credit. F-34 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 11. DERIVATIVE INSTRUMENTS (continued) The following table sets forth the composition of our credit derivatives where we have written credit protection excluding credit protection written on our own credit and embedded derivatives contained in European managed investments, by industry category as of the dates indicated.
December 31, 2008 December 31, 2007 ------------------ ------------------ Notional Fair Value Notional Fair Value Industry -------- ---------- -------- ---------- (in thousands) Corporate Securities:................... $ 40,000 $ (1,179) -- -- Manufacturing........................ -- -- -- -- Utilities............................ -- -- -- -- Finance.............................. -- -- -- -- Services............................. 20,000 (10) -- -- Energy............................... 20,000 (754) -- -- Transportation....................... 30,000 (944) -- -- Retail and Wholesale................. 20,000 (351) -- -- Other................................ 190,000 (5,917) -- -- First to Default Baskets(1).......... 10,500 (1,496) 10,500 (57) -------- -------- ------ --- Total Credit Derivatives................ $330,500 (10,651) 10,500 (57) ======== ======== ====== ===
(1)Credit default baskets may include various industry categories. The Company writes credit derivatives under which the Company is obligated to pay the counterparty the referenced amount of the contract and receive in return the defaulted security or similar security. The Company's maximum amount at risk under these credit derivatives, assuming the value of the underlying referenced securities become worthless, is $330.5 million notional of CDS selling protection at December 31, 2008. These credit derivatives generally have maturities of five years or less. The Company holds certain externally managed investments in the European market which contain embedded derivatives whose fair value are primarily driven by changes in credit spreads. 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." The Company's maximum exposure to loss from these interests was $5.2 million and $9.1 million at December 31, 2008 and 2007, respectively. Credit Risk The Company is exposed to credit-related losses in the event of nonperformance by counterparties to financial derivative transactions. Substantially all of the Company's over-the-counter derivative contracts are transacted with an affiliate. In instances where the Company transacts with unaffiliated counterparties, the Company manages credit risk by entering into derivative transactions with major international financial institutions and other creditworthy counterparties, and by obtaining collateral where appropriate. Additionally, limits are set on single party credit exposures which are subject to periodic management review. The credit exposure of the Company's over-the-counter (OTC) derivative transactions is represented by the contracts with a positive fair value (market value) at the reporting date. The Company effects exchange-traded futures transactions through regulated exchanges and these transactions are settled on a daily basis, thereby reducing credit risk exposure in the event of nonperformance by counterparties to such financial instruments. F-35 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 12. CONTINGENT LIABILITIES AND LITIGATION Contingent Liabilities On an ongoing basis, our internal supervisory and control functions review the quality of our sales, marketing, administration and servicing, and other customer interface procedures and practices and may recommend modifications or enhancements. From time to time, this review process results in the discovery of administration, servicing or other errors, including errors relating to the timing or amount of payments or contract values due to customers. In certain cases, if appropriate, we may offer customers appropriate remediation and may incur charges, including the costs 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 our businesses, including class action lawsuits. Our pending legal and regulatory actions include proceedings specific to the Company and proceedings generally applicable to business practices in the industry in which we operate. We are subject to class action lawsuits and other litigation alleging, among other things, that we made improper or inadequate disclosures in connection with the sale of annuity products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. We are also subject to litigation arising out of our general business activities, such as our investments and contracts, and could be exposed to claims or litigation concerning certain business or process patents. Regulatory authorities from time to time make inquiries and conduct investigations and examinations relating particularly to us and our products. In addition, we, along with other participants in the business in which we engage, may be subject from time to time to investigations, examinations and inquiries, in some cases industry-wide, concerning issues or matters upon which such regulators have determined to focus. In some of our pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of a litigation or regulatory matter, and the amount or range of potential loss at any particular time, is inherently uncertain. The following is a summary of certain pending proceedings: The Company has substantially completed a remediation program to correct errors in the administration of approximately 11,000 annuity contracts issued by the 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 the data integrity errors, as reflected on the annuities administrative system, all occurred before the Acquisition. The remediation and administrative costs of the remediation program are subject to the indemnification provisions of the Acquisition Agreement. Commencing in 2003, the Company received formal requests for information from the SEC and the New York Attorney General ("NYAG") relating to market timing in variable annuities by the Company and certain affiliated companies. In connection with these investigations, with the approval of Skandia an offer was made by the Company 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 by it or its affiliates. Any regulatory settlement involving the Company and certain affiliates would be subject to the indemnification provisions of the Acquisition Agreement pursuant to which Prudential Financial purchased the Company and certain affiliates in May 2003 from Skandia. If achieved, settlement of the matters relating to the Company and certain affiliates 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. During the third quarter of 2004, the Company identified a system-generated calculation error in its annuity contract administration system that existed prior to the Acquisition. This error related to the calculation of amounts due to customers for certain transactions subject to a market value adjustment upon the surrender or transfer of monies out of their annuity contract's fixed allocation options. The error resulted in an underpayment to policyholders, as well as additional anticipated costs to the Company associated with remediation, breakage and other costs. The Company's consultants have developed the systems functionality to compute remediation amounts and are in the process of running the computations on affected contracts. The Company contacted state insurance regulators and commenced Phase I of its outreach to customers on November 12, 2007. Phase II commenced on June 6, 2008. Phase III commenced December 5, 2008. A final Phase is expected to rollout in April of 2009. The Company has advised Skandia that a portion of the remediation and related administrative costs are subject to the indemnification provisions of the Acquisition Agreement. From January 2006 to February 2008, thirty-one complaints were filed in 17th Judicial Circuit Court, Broward County, Florida alleging misrepresentations in the sale of annuities against the Company and in certain of the cases the two brokers who sold the F-36 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 12. CONTINGENT LIABILITIES AND LITIGATION (continued) annuities. The complaints allege that the brokers represented that any losses in the annuities would be insured or paid by a state guaranty fund and purport to state claims of breach of fiduciary duty, negligence, fraud, fraudulent inducement, negligent misrepresentation and seek damages in unspecified amounts but in excess of $15,000 per case. Thirty of the thirty-one lawsuits settled in December 2008. The matter is subject to the indemnification provisions of the Acquisition Agreement. Skandia has indemnified the Company for the thirty settled matters, but has reserved the right to seek reimbursement of a portion of the total indemnified settlement amount pursuant to the provisions of the Acquisition Agreement. The Company's litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, the outcomes cannot be predicted. It is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the results of operations or cash flow for such period. In light of the unpredictability of the Company's litigation and regulatory matters, it is also possible that in certain cases an ultimate unfavorable resolution of one or more pending litigation or regulatory matters could have a material adverse effect on our financial position. Management believes, however, that, based on information currently known to it, the ultimate outcome of all pending litigation and regulatory matters, after consideration of applicable reserves and rights to indemnification, is not likely to have a material adverse effect on our financial position. It should be noted that the judgments, settlements and expenses associated with many of these lawsuits, administrative and regulatory matters, and contingencies, including certain claims described above, may, in whole or in part, after satisfaction of certain retention requirements, fall within Skandia's indemnification obligations to Prudential Financial and its subsidiaries under the terms of the Acquisition Agreement. Those obligations of Skandia provide for indemnification of certain judgments, settlements, and costs and expenses associated with lawsuits and other claims against the Company ("matters"), and apply only to matters, or groups of related matters, for which the costs and expenses exceed $25,000 individually. Additionally, those obligations only apply to such otherwise indemnifiable losses that exceed $10 million in the aggregate, subject to reduction for insurance proceeds, certain accruals and any realized tax benefit applicable to such amounts, and those obligations do not apply to the extent that such aggregate exceeds $1 billion. We are in discussions with Skandia regarding the satisfaction of the $10 million deductible. 13. RELATED PARTY TRANSACTIONS In addition to the following related party transactions, the Company has extensive transactions and relationships with PAI and other affiliates. It is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties. Affiliated Asset Administration Income In accordance with an agreement with ASISI, the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series Trust. Income received from ASISI related to this agreement was $159.6 million, $178.5 million, and $121.9 million, for the year ended December 31 2008, year ended December 31, 2007, and year ended December 31, 2006, respectively. These revenues are recorded as "Asset administration fees" in the Statements of Operations and Comprehensive Income. Cost Allocation Agreements with Affiliates Certain operating costs (including rental of office space, furniture, and equipment) have been charged to the Company at cost by Prudential Annuities Information Services and Technology Corporation ("PAIST"), formerly known as American Skandia Information Services and Technology Corporation, an affiliated company. PALAC signed a written service agreement with PAIST for these services executed and approved by the Connecticut Insurance Department in 1995. This agreement automatically continues in effect from year to year and may be terminated by either party upon 30 days written notice. F-37 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 13. RELATED PARTY TRANSACTIONS (continued) Allocated lease expense was $5.2 million, $5.3 million, and $6.5 million, for the year ended December 31, 2008, year ended December 31, 2007, and year ended December 31, 2006, respectively. Allocated sub-lease rental income, recorded as a reduction to lease expense was $4.5 million, $3.9 million, and $3.1 million, for the year ended December 31, 2008, year ended December 31, 2007, and year ended December 31, 2006, respectively. Assuming that the written service agreement between PALAC and PAIST continues indefinitely, PALAC's allocated future minimum lease payments and sub-lease receipts per year and in aggregate as of December 31, 2008 are as follows (in thousands):
Lease Sub-Lease ------- --------- 2009..................... 8,316 3,266 2010..................... 8,133 3,572 2011..................... 8,133 3,556 2012..................... 7,392 2,561 2013..................... 7,021 2,184 2014 and thereafter...... 4,777 1,086 ------- ------- Total.................... $43,772 $16,225 ======= =======
The Company pays commissions and certain other fees to PAD in consideration for PAD's marketing and underwriting of the Company's products, which commissions and fees are paid by PAD to unaffiliated broker-dealers who sell the Company's products. Commissions and fees paid by the Company to PAD during the year ended December 31, 2008, year ended December 31, 2007, and year ended December 31, 2006 were $464.1 million, $498.1 million, and $384.4 million, respectively. Reinsurance Agreements During 2008, the Company entered into three new reinsurance agreements with an affiliate as part of its risk management and capital management strategies. Effective January 28, 2008, the Company entered into a coinsurance agreement with Pruco Reinsurance, Ltd. ("Pruco Re") providing for the 100% reinsurance of its Highest Daily Lifetime Seven ("HD7") and Spousal Highest Daily Lifetime Seven ("SHD7") benefit features sold on certain of its annuities. Fees ceded on this agreement, included in "Realized investments (losses) gains, net" on the financial statements as of December 31, 2008, was $12.7 million Effective January 28, 2008, the Company entered into a coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Guaranteed Return Option Plus ("GRO Plus") benefit feature sold on certain of its annuities. Fees ceded on this agreement, included in "Realized investments (losses) gains, net" on the financial statements, was $590 thousand as of December 31, 2008. Effective January 28, 2008 the Company entered into a coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Highest Daily Guaranteed Return Option ("HD GRO") benefit feature sold on certain of its annuities. Fees ceded on this agreement, included in "Realized investments (losses) gains, net" on the financial statements, was $702 thousand as of December 31, 2008. During 2007, the Company amended the reinsurance agreements it entered into in 2005 covering its Lifetime Five benefit ("LT5"). The coinsurance agreement entered into with The Prudential Insurance Company of America ("Prudential Insurance") in 2005 provided for the 100% reinsurance of its LT5 feature sold on new business prior to May 6, 2005. This agreement was recaptured effective August 1, 2007. Effective July 1, 2005, the Company entered into a coinsurance agreement with Pruco Reinsurance, Ltd. ("Pruco Re") providing for the 100% reinsurance of its LT5 feature sold on new business after May 5, 2005 as well as for riders issued on or after March 15, 2005 forward on business in-force before March 15, 2005. This agreement was amended effective August 1, 2007 to include the reinsurance of business sold prior to May 6, 2005 that was previously reinsured to Prudential Insurance. Fees ceded under these agreements, included in "Realized investments (losses) gains, net" on the financial statements, were $40.2 million, $38.3 million, and $20.8 million for 2008, 2007 and 2006, respectively. Effective November 20, 2006, the Company entered into a new coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Highest Daily Lifetime Five benefit ("HDLT5") feature. Fees ceded on this agreement, included in "Realized investments (losses) gains, net" on the financial statements, were $16.6 million as of December 31, 2008, $7.9 million as of December 2007 and $42 thousand as of December 2006. Effective March 20, 2006, the Company entered into a new coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Spousal Lifetime Five benefit ("SLT5") feature. Fees ceded on this agreement, included in "Realized investments (losses) gains, net" on the financial statements, were $11.9 million as of December 31, 2008, $9.5 million as of December 2007 and $2.0 million as of December 2006. During 2004, the Company entered into two reinsurance agreements with affiliates as part of our risk management and capital management strategies. We entered into a 100% coinsurance agreement with Prudential Insurance providing for the reinsurance of its guaranteed minimum withdrawal benefit feature ("GMWB"). Fees ceded on this agreement, included in "Realized investments (losses) gains, net" on the financial statements, were $3.0 million, $3.5 million, and $3.1 million for 2008, 2007 and 2006, respectively. The Company also entered into a 100% coinsurance agreement with Pruco Re providing for the reinsurance of its guaranteed return option ("GRO"). In prior years, the Company entered into reinsurance agreements to F-38 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 13. RELATED PARTY TRANSACTIONS (continued) provide additional capacity for growth in supporting the cash flow strain from the Company's variable annuity and variable life insurance business. Fees ceded on this agreement, included in "Realized investments (losses) gains, net" on the financial statements, were $12.6 million, $23.5 million, and $19.1 million for 2008, 2007, and 2006, respectively. Debt Agreements Short-term and Long-term borrowings On January 11, 2008, the Company entered into a $350 million long-term loan with Prudential Financial. The original lender under this loan was Prudential Funding, LLC ("Pru Funding"), with an original issue date of 12/31/07 and was transferred to Prudential Financial on January 11, 2008. This loan had an interest rate of 5.26% and a maturity date of January 15, 2013. This loan was subsequently paid off on December 29, 2008 with the proceeds received from a capital contribution from PAI. The total related interest expense to the Company as of December 31, 2008 was $18.3 million. Accrued interest payable was $53 thousand as of December 31, 2007. On December 14, 2006, the Company entered into a $300 million loan with Prudential Financial. This loan has an interest rate of 5.18% and matures on December 14, 2011. A partial payment was made to reduce this loan to $179.5 million on December 29, 2008 with the proceeds received from a capital contribution from PAI. The total related interest expense to the Company was $15.5 million as of December 31, 2008 and $15.6 million as of December 31, 2007. The accrued interest payable was $699 thousand as of December 31, 2008, $777 thousand as of December 31, 2007, and $734 thousand as of December 31, 2006. On March 10, 2005, the Company entered into a $30 million loan with Prudential Funding, LLC. This loan has an interest rate of 5.52% and matured on March 11, 2008. The total related interest expense to the Company was $322 thousand for the year ended December 31, 2008 and $1.8 million for the year ended December 31, 2007. Accrued interest payable was $101 thousand as of December 31, 2007 and $96 thousand as of December 31, 2006. On May 1, 2004, the Company entered into a $500 million credit facility agreement with Prudential Funding LLC. Effective July 3, 2007, the credit facility agreement was increased to $800 million. As of December 31, 2008 and 2007, $186.3 million and $195.3 million, respectively, was outstanding under this credit facility. Interest paid related to these borrowings was $0.0 million, $2.8 million and $8.7 million for the year ended December 31, 2008, December 31, 2007, and December 31, 2006, respectively. Accrued interest payable was $873 thousand and $824 thousand as of December 31, 2008 and 2007, respectively. Future fees payable to PAI In a series of transactions with PAI, the Company sold certain rights to receive a portion of future fees and contract charges expected to be realized on designated blocks of deferred annuity contracts. The proceeds from the sales have been recorded as a liability and are being amortized over the remaining surrender charge period of the designated contracts using the interest method. The Company did not sell the right to receive future fees and charges after the expiration of the surrender charge period. In connection with these sales, PAI through special purpose trusts, issued collateralized notes in private placements, which were secured by the rights to receive future fees and charges purchased from the Company. As part of the Acquisition, the notes issued by PAI were repaid. Under the terms of the securitization purchase agreements, the rights sold provide for PAI to receive a percentage (60%, 80% or 100% depending on the underlying commission option) of future mortality and expense charges and contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender charge period of the designated contracts (generally 6 to 8 years). As a result of purchase accounting, the liability was reduced to reflect the discounted estimated future payments to be made and has been subsequently reduced by amortization according to a revised schedule. If actual mortality and expense charges and contingent deferred sales charges are less than those projected in the original amortization schedules, calculated on a transaction by transaction basis, PAI has no recourse against the Company. The Company has determined, using assumptions for lapses, mortality, free withdrawals and a long-term fund growth rate of 8% on the Company's assets under management, that the discounted estimated future payments to PAI would be $0.75 million and $14.2 million as of December 31, 2008 and 2007, respectively. F-39 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 13. RELATED PARTY TRANSACTIONS (continued) Payments, representing fees and charges in the aggregate amount, respectively of $13.6 million, $46.7 million, $74.8 million, were made by the Company to PAI during the year ended December 31 2008, year ended December 31, 2007 and year ended December 31, 2006. Related expense of $2.2 million, $10.4 million and $10.1 million, respectively has been included in the Statements of Operations and Comprehensive Income for the year ended December 31, 2008, year ended December 31, 2007, and year ended December 31, 2006. The Commissioner of the State of Connecticut has approved the transfer of future fees and charges; however, in the event that the Company becomes subject to an order of liquidation or rehabilitation, the Commissioner has the ability to restrict the payments due to PAI, into a restricted account, under the Purchase Agreement subject to certain terms and conditions. The present values of the transactions that are still active as of 12/31/2008 as of the respective effective date were as follows (dollars in thousands):
Closing Effective Contract Issue Discount Present Transaction Date Date Period Rate Value ----------- ------- --------- ------------------ -------- ------- 2002-1.... 4/12/02 3/1/02 11/1/00 - 12/31/01 6.0% 101,713
Future amortization of future fees payable to PAI as of December 31, 2008, according to a revised amortization schedule, is as follows (in thousands):
Year Amount ---- ------ 2009...... 750 ---- Total..... $750 ====
Purchase of fixed maturities from an affiliate During 2008, the Company purchased fixed maturities securities from an affiliated company, Prudential Insurance. These securities were recorded at an amortized cost of $1,190 million and a fair value of $1,124 million. The net difference between historic amortized cost and the fair value was $66 million and was recorded as a capital contribution on the Company's financial statements and cashflows. 14. LEASES The Company entered into an eleven-year lease agreement for office space in Westminster, Colorado, effective January 1, 2001. Lease expense for the year ended December 31, 2008, year ended December 31, 2007, and year ended December 31 2006, was $3.5 million, $4.0 million, and $3.3 million, respectively. Sub-lease rental income was $1.2 million, $1.0 million, and $635 thousand for the year ended December 31, 2008, year ended December 31, 2007, and year ended December 31 2006. Future minimum lease payments and sub-lease receipts per year and in aggregate as of December 31, 2008 are as follows (in thousands):
Lease Sub-Lease ------- --------- 2009..................... 3,481 1,437 2010..................... 3,481 1,475 2011..................... 3,192 1,507 2012..................... 0 0 2013..................... 0 0 2014 and thereafter...... 0 0 ------- ------ Total.................... $10,154 $4,419 ======= ======
F-40 Prudential Annuities Life Assurance Corporation Notes to Financial Statements -------------------------------------------------------------------------------- 15. EMPLOYEE BENEFITS The Company's employees are covered by funded non-contributory defined benefit pension plans of Prudential Insurance. Prudential Insurance also has several non-funded non-contributory defined benefit plans covering certain executives. Benefits for transitioned former employees of the Company are based on a notional account balance that takes into consideration age, service and salary during their careers. Prudential Insurance's funding policy is to contribute annually an amount necessary to satisfy the Internal Revenue Code contribution guidelines, but no contributions have been required in recent years. The Company has no legal obligation for benefits under these plans. Substantially all of the Company's employees may become eligible to receive postretirement benefits under Prudential Insurance plans if they retire after age 55 with at least 10 years of service. These benefits are funded as considered necessary. Postretirement benefits are accounted for in accordance with SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. The Company's share of net expense for the pension plans was $6.0 million, $3.9 million and $4.3 million for the twelve months ended December 31, 2008, twelve months ended December 31, 2007, and twelve months ended December 31, 2006, respectively. Prudential Insurance sponsors voluntary savings plan for the Company's employees (401(k) plans). The plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The expense charged the Company for the matching contribution to the plans was $2.8 million, $1.9 million, and $1.5 million in 2008, 2007, and 2006, respectively. 16. CONTRACT WITHDRAWAL PROVISIONS Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by contract holders at market value or with market value adjustment. Separate account assets, which are carried at fair value, are adequate to pay such withdrawals, which are generally subject to surrender charges ranging from 9% to 1% for contracts held less than 10 years. 17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The unaudited quarterly results of operations for the years ended December 31, 2008 and 2007 are summarized in the table below:
Three months ended ------------------------------------------ March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- (in thousands) 2008 Total revenues............................................................. $277,365 $241,607 $ 271,450 $425,664 Total benefits and expenses................................................ 192,813 206,432 414,635 421,472 Income (loss) from operations before income taxes and cumulative effect of accounting change........................................................ 84,552 35,175 (143,185) 4,192 Net income (loss).......................................................... $ 76,058 $ 35,216 $(103,700) $ 12,384 Three months ended ------------------------------------------ March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- (in thousands) 2007 Total revenues............................................................. $229,508 $246,402 $ 247,236 $270,462 Total benefits and expenses................................................ 168,875 181,004 148,166 190,609 Income (loss) from operations before income taxes and cumulative effect of accounting change........................................................ 60,633 65,398 99,070 79,853 Net income (loss).......................................................... $ 52,033 $ 66,211 $ 89,735 $ 86,616
F-41 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS --------------------------------------------------------------------------- AST AST American Schroders AST AST T. Rowe Century Multi Asset AllianceBernstein Price Large- Income & World AST Money Growth & Income Cap Growth Growth Strategies Market Portfolio Portfolio Portfolio Portfolio Portfolio ----------------- ------------- ------------ ------------ -------------- ASSETS Investment in the portfolios, at value... $ 677,520,202 $ 181,314,998 $134,021,754 $130,494,005 $2,693,670,120 -------------- ------------- ------------ ------------ -------------- Net Assets............................... $ 677,520,202 $ 181,314,998 $134,021,754 $130,494,005 $2,693,670,120 ============== ============= ============ ============ ============== NET ASSETS, representing: Accumulation units....................... $ 677,520,202 $ 181,314,998 $134,021,754 $130,494,005 $2,693,670,120 -------------- ------------- ------------ ------------ -------------- $ 677,520,202 $ 181,314,998 $134,021,754 $130,494,005 $2,693,670,120 ============== ============= ============ ============ ============== Units outstanding........................ 61,430,622 26,781,014 13,554,017 13,107,057 230,705,015 ============== ============= ============ ============ ============== Portfolio shares held.................... 54,463,038 26,013,630 13,606,269 13,466,874 2,693,670,120 Portfolio net asset value per share...... $ 12.44 $ 6.97 $ 9.85 $ 9.69 $ 1.00 Investment in portfolio shares, at cost.. $1,072,895,041 $ 273,465,619 $176,707,760 $173,734,152 $2,693,670,120 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS --------------------------------------------------------------------------- AST AST American Schroders AST AST T. Rowe Century Multi Asset AllianceBernstein Price Large- Income & World AST Money Growth & Income Cap Growth Growth Strategies Market Portfolio Portfolio Portfolio Portfolio Portfolio ----------------- ------------- ------------ ------------ -------------- INVESTMENT INCOME Dividend income.......................... $ 21,257,535 $ 382,798 $ 4,447,728 $ 2,996,842 $ 58,833,402 -------------- ------------- ------------ ------------ -------------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 21,648,709 5,388,496 3,093,768 2,972,803 38,019,070 -------------- ------------- ------------ ------------ -------------- NET INVESTMENT INCOME (LOSS)............... (391,174) (5,005,698) 1,353,960 24,039 20,814,332 -------------- ------------- ------------ ------------ -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 140,605,215 0 0 15,276,754 0 Realized gain (loss) on shares redeemed................................ (28,683,216) 12,664,628 6,290,247 (14,919,286) 0 Net change in unrealized gain (loss) on investments............................. (759,981,419) (155,016,834) (92,309,833) (63,340,895) 0 -------------- ------------- ------------ ------------ -------------- NET GAIN (LOSS) ON INVESTMENTS............. (648,059,420) (142,352,206) (86,019,586) (62,983,427) 0 -------------- ------------- ------------ ------------ -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ (648,450,594) $(147,357,904) $(84,665,626) $(62,959,388) $ 20,814,332 ============== ============= ============ ============ ==============
The accompanying notes are an integral part of these financial statements. A1
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------------------- AST AST AST UBS AST DeAM Neuberger AST DeAM Federated AST Cohen & Dynamic Large-Cap Berman Small- Small-Cap Aggressive Steers Realty Alpha Value Cap Growth Value AST High Growth AST Mid-Cap Portfolio Portfolio Portfolio Portfolio Portfolio Yield Portfolio Portfolio Value Portfolio ------------- ------------- ------------ ------------- ------------ --------------- ------------- --------------- $ 94,540,744 $ 681,463,451 $ 94,921,038 $ 76,943,550 $ 0 $208,083,534 $ 142,111,353 $ 48,330,896 ------------- ------------- ------------ ------------ ------------ ------------ ------------- ------------ $ 94,540,744 $ 681,463,451 $ 94,921,038 $ 76,943,550 $ 0 $208,083,534 $ 142,111,353 $ 48,330,896 ============= ============= ============ ============ ============ ============ ============= ============ $ 94,540,744 $ 681,463,451 $ 94,921,038 $ 76,943,550 $ 0 $208,083,534 $ 142,111,353 $ 48,330,896 ------------- ------------- ------------ ------------ ------------ ------------ ------------- ------------ $ 94,540,744 $ 681,463,451 $ 94,921,038 $ 76,943,550 $ 0 $208,083,534 $ 142,111,353 $ 48,330,896 ============= ============= ============ ============ ============ ============ ============= ============ 6,440,566 64,615,023 10,045,320 11,216,199 0 17,904,517 16,316,413 5,546,406 ============= ============= ============ ============ ============ ============ ============= ============ 25,077,119 62,749,857 14,295,337 12,490,835 0 39,261,044 26,915,029 6,788,047 $ 3.77 $ 10.86 $ 6.64 $ 6.16 $ 0.00 $ 5.30 $ 5.28 $ 7.12 $ 164,257,843 $ 795,713,245 $162,298,700 $104,315,157 $ 0 $256,306,374 $ 260,107,398 $ 76,370,192 SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------------------- AST AST AST UBS AST DeAM Neuberger AST DeAM Federated AST Cohen & Dynamic Large-Cap Berman Small- Small-Cap Aggressive Steers Realty Alpha Value Cap Growth Value AST High Growth AST Mid-Cap Portfolio Portfolio Portfolio Portfolio Portfolio Yield Portfolio Portfolio Value Portfolio ------------- ------------- ------------ ------------- ------------ --------------- ------------- --------------- $ 9,980,684 $ 2,105,896 $ 4,410,905 $ 0 $ 1,237,841 $ 29,724,582 $ 0 $ 864,779 ------------- ------------- ------------ ------------ ------------ ------------ ------------- ------------ 2,892,994 12,780,935 2,762,297 1,946,039 522,266 4,415,257 5,084,368 1,271,821 ------------- ------------- ------------ ------------ ------------ ------------ ------------- ------------ 7,087,690 (10,675,039) 1,648,608 (1,946,039) 715,575 25,309,325 (5,084,368) (407,042) ------------- ------------- ------------ ------------ ------------ ------------ ------------- ------------ 114,059,797 28,959,748 27,876,190 0 0 0 61,223,400 3,530,508 (203,084,563) (61,350,760) (49,926,627) 12,847,670 (27,840,431) (68,221,210) (48,217,079) (6,476,178) 16,524,335 (134,930,702) (57,631,588) (82,471,506) 21,346,513 (25,975,687) (164,766,511) (31,548,642) ------------- ------------- ------------ ------------ ------------ ------------ ------------- ------------ (72,500,431) (167,321,714) (79,682,025) (69,623,836) (6,493,918) (94,196,897) (151,760,190) (34,494,312) ------------- ------------- ------------ ------------ ------------ ------------ ------------- ------------ $ (65,412,741) $(177,996,753) $(78,033,417) $(71,569,875) $ (5,778,343) $(68,887,572) $(156,844,558) $(34,901,354) ============= ============= ============ ============ ============ ============ ============= ============
The accompanying notes are an integral part of these financial statements. A2 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS ------------------------------------------------------------------------ AST Goldman Sachs AST Goldman AST Goldman AST Small- Concentrated Sachs Mid-Cap Sachs Small- AST Large- Cap Value Growth Growth Cap Value Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio ------------- ------------- ------------- ------------ ------------- ASSETS Investment in the portfolios, at value... $ 318,508,074 $ 242,317,361 $ 98,369,340 $ 82,391,043 $ 248,148,262 ------------- ------------- ------------- ------------ ------------- Net Assets............................... $ 318,508,074 $ 242,317,361 $ 98,369,340 $ 82,391,043 $ 248,148,262 ============= ============= ============= ============ ============= NET ASSETS, representing: Accumulation units....................... $ 318,508,074 $ 242,317,361 $ 98,369,340 $ 82,391,043 $ 248,148,262 ------------- ------------- ------------- ------------ ------------- $ 318,508,074 $ 242,317,361 $ 98,369,340 $ 82,391,043 $ 248,148,262 ============= ============= ============= ============ ============= Units outstanding........................ 25,033,658 16,298,767 21,632,189 4,794,352 25,394,338 ============= ============= ============= ============ ============= Portfolio shares held.................... 36,736,802 14,579,865 34,037,833 12,445,776 24,185,990 Portfolio net asset value per share...... $ 8.67 $ 16.62 $ 2.89 $ 6.62 $ 10.26 Investment in portfolio shares, at cost.. $ 502,168,524 $ 289,315,780 $ 169,840,384 $147,183,198 $ 395,156,139 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS ------------------------------------------------------------------------ AST Goldman Sachs AST Goldman AST Goldman AST Small- Concentrated Sachs Mid-Cap Sachs Small- AST Large- Cap Value Growth Growth Cap Value Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio ------------- ------------- ------------- ------------ ------------- INVESTMENT INCOME Dividend income.......................... $ 7,329,972 $ 629,562 $ 0 $ 1,670,854 $ 6,424,059 ------------- ------------- ------------- ------------ ------------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 9,390,332 5,909,144 3,539,673 1,600,609 6,863,152 ------------- ------------- ------------- ------------ ------------- NET INVESTMENT INCOME (LOSS)............... (2,060,360) (5,279,582) (3,539,673) 70,245 (439,093) ------------- ------------- ------------- ------------ ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 70,469,569 0 44,213,414 26,824,948 23,873,091 Realized gain (loss) on shares redeemed................................ (115,915,677) 38,367,932 7,801,629 (36,397,975) 18,573,975 Net change in unrealized gain (loss) on investments............................. (131,939,506) (227,705,483) (138,617,568) (24,974,518) (254,794,147) ------------- ------------- ------------- ------------ ------------- NET GAIN (LOSS) ON INVESTMENTS............. (177,385,614) (189,337,551) (86,602,525) (34,547,545) (212,347,081) ------------- ------------- ------------- ------------ ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $(179,445,974) $(194,617,133) $ (90,142,198) $(34,477,300) $(212,786,174) ============= ============= ============= ============ =============
The accompanying notes are an integral part of these financial statements. A3
SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------------------------- AST AST AST Lord AST Marsico Neuberger Neuberger AST AST PIMCO Abbett Bond- Capital AST MFS Berman Mid- Berman/LSV Small-Cap Limited AST PIMCO Debenture Growth Growth Cap Growth Mid-Cap Value Growth Maturity Bond Total Return Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Bond Portfolio ------------- --------------- ------------- ------------- ------------- ------------ ------------- -------------- $ 265,996,137 $ 792,226,729 $ 186,478,826 $ 219,679,701 $ 316,843,299 $ 76,252,527 $703,454,862 $1,089,746,020 ------------- --------------- ------------- ------------- ------------- ------------ ------------ -------------- $ 265,996,137 $ 792,226,729 $ 186,478,826 $ 219,679,701 $ 316,843,299 $ 76,252,527 $703,454,862 $1,089,746,020 ============= =============== ============= ============= ============= ============ ============ ============== $ 265,996,137 $ 792,226,729 $ 186,478,826 $ 219,679,701 $ 316,843,299 $ 76,252,527 $703,454,862 $1,089,746,020 ------------- --------------- ------------- ------------- ------------- ------------ ------------ -------------- $ 265,996,137 $ 792,226,729 $ 186,478,826 $ 219,679,701 $ 316,843,299 $ 76,252,527 $703,454,862 $1,089,746,020 ============= =============== ============= ============= ============= ============ ============ ============== 25,649,102 89,245,600 28,732,936 16,039,303 21,731,437 7,246,001 55,648,645 74,756,634 ============= =============== ============= ============= ============= ============ ============ ============== 33,585,371 62,626,618 27,104,481 17,175,895 35,165,738 6,808,261 64,834,549 96,352,433 $ 7.92 $ 12.65 $ 6.88 $ 12.79 $ 9.01 $ 11.20 $ 10.85 $ 11.31 $ 341,416,541 $ 1,163,134,284 $ 211,152,462 $ 325,081,239 $ 605,654,974 $105,478,468 $719,845,201 $1,115,769,575 SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------------------------- AST AST AST Lord AST Marsico Neuberger Neuberger AST AST PIMCO Abbett Bond- Capital AST MFS Berman Mid- Berman/LSV Small-Cap Limited AST PIMCO Debenture Growth Growth Cap Growth Mid-Cap Value Growth Maturity Bond Total Return Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Bond Portfolio ------------- --------------- ------------- ------------- ------------- ------------ ------------- -------------- $ 31,451,822 $ 6,737,626 $ 751,471 $ 0 $ 11,124,436 $ 0 $ 56,445,227 $ 56,535,625 ------------- --------------- ------------- ------------- ------------- ------------ ------------ -------------- 6,248,155 26,638,967 4,615,903 6,378,307 10,122,100 2,004,463 17,795,345 23,544,887 ------------- --------------- ------------- ------------- ------------- ------------ ------------ -------------- 25,203,667 (19,901,341) (3,864,432) (6,378,307) 1,002,336 (2,004,463) 38,649,882 32,990,738 ------------- --------------- ------------- ------------- ------------- ------------ ------------ -------------- 13,375,767 71,262,098 0 0 46,797,553 0 0 8,215,760 (39,012,868) 139,848,300 42,841,627 36,444,921 (145,361,485) (2,507,806) 8,728,920 (6,119,825) (77,965,421) (1,011,826,096) (160,685,670) (256,556,838) (207,346,270) (49,708,805) (45,485,860) (83,970,319) ------------- --------------- ------------- ------------- ------------- ------------ ------------ -------------- (103,602,522) (800,715,698) (117,844,043) (220,111,917) (305,910,202) (52,216,611) (36,756,940) (81,874,384) ------------- --------------- ------------- ------------- ------------- ------------ ------------ -------------- $ (78,398,855) $ (820,617,039) $(121,708,475) $(226,490,224) $(304,907,866) $(54,221,074) $ 1,892,942 $ (48,883,646) ============= =============== ============= ============= ============= ============ ============ ==============
The accompanying notes are an integral part of these financial statements. A4 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS ---------------------------------------------------------------------------- AST AST AST T. Rowe Price T. Rowe Price AST AllianceBernstein AST Natural Asset International Core Value QMA US Resources Allocation Value Portfolio Equity Alpha Portfolio Portfolio Portfolio ----------------- ------------- ------------- ------------- ------------- ASSETS Investment in the portfolios, at value... $ 133,646,309 $ 112,798,181 $ 134,397,034 $ 538,359,822 $ 132,503,717 ------------- ------------- ------------- ------------- ------------- Net Assets............................... $ 133,646,309 $ 112,798,181 $ 134,397,034 $ 538,359,822 $ 132,503,717 ============= ============= ============= ============= ============= NET ASSETS, representing: Accumulation units....................... $ 133,646,309 $ 112,798,181 $ 134,397,034 $ 538,359,822 $ 132,503,717 ------------- ------------- ------------- ------------- ------------- $ 133,646,309 $ 112,798,181 $ 134,397,034 $ 538,359,822 $ 132,503,717 ============= ============= ============= ============= ============= Units outstanding........................ 16,282,667 13,410,474 5,934,995 46,873,256 12,594,888 ============= ============= ============= ============= ============= Portfolio shares held.................... 21,213,700 13,705,733 7,483,131 42,224,299 11,841,261 Portfolio net asset value per share...... $ 6.30 $ 8.23 $ 17.96 $ 12.75 $ 11.19 Investment in portfolio shares, at cost.. $ 248,721,333 $ 174,512,985 $ 277,928,464 $ 684,067,327 $ 224,028,952 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS ---------------------------------------------------------------------------- AST AST AST T. Rowe Price T. Rowe Price AST AllianceBernstein AST Natural Asset International Core Value QMA US Resources Allocation Value Portfolio Equity Alpha Portfolio Portfolio Portfolio ----------------- ------------- ------------- ------------- ------------- INVESTMENT INCOME Dividend income.......................... $ 8,159,448 $ 5,300,294 $ 2,574,139 $ 13,083,449 $ 6,795,897 ------------- ------------- ------------- ------------- ------------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 4,378,713 3,389,749 6,201,366 14,033,692 4,348,219 ------------- ------------- ------------- ------------- ------------- NET INVESTMENT INCOME (LOSS)............... 3,780,735 1,910,545 (3,627,227) (950,243) 2,447,678 ------------- ------------- ------------- ------------- ------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 29,249,476 0 39,776,358 27,105,911 20,672,916 Realized gain (loss) on shares redeemed................................ (46,723,136) (1,925,949) 36,250,567 (53,758,638) 18,698,392 Net change in unrealized gain (loss) on investments............................. (114,810,365) (103,425,132) (263,589,659) (206,877,614) (185,832,066) ------------- ------------- ------------- ------------- ------------- NET GAIN (LOSS) ON INVESTMENTS............. (132,284,025) (105,351,081) (187,562,734) (233,530,341) (146,460,758) ------------- ------------- ------------- ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $(128,503,290) $(103,440,536) $(191,189,961) $(234,480,584) $(144,013,080) ============= ============= ============= ============= =============
The accompanying notes are an integral part of these financial statements. A5
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------------------------- AST AST Academic AST JPMorgan AST AST AST Capital Strategies AST Balanced MFS Global International T. Rowe Price International AST Aggressive Growth Asset Asset Asset Equity Equity Global Bond Growth Asset Allocation Allocation Allocation Allocation Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------- ------------- ------------- ---------------- --------------- --------------- -------------- $ 66,707,446 $ 149,579,820 $221,914,309 $ 455,778,303 $ 93,860,824 $ 2,131,830,610 $ 1,769,602,833 $ 857,570,674 ------------ ------------- ------------ ------------- ------------- --------------- --------------- -------------- $ 66,707,446 $ 149,579,820 $221,914,309 $ 455,778,303 $ 93,860,824 $ 2,131,830,610 $ 1,769,602,833 $ 857,570,674 ============ ============= ============ ============= ============= =============== =============== ============== $ 66,707,446 $ 149,579,820 $221,914,309 $ 455,778,303 $ 93,860,824 $ 2,131,830,610 $ 1,769,602,833 $ 857,570,674 ------------ ------------- ------------ ------------- ------------- --------------- --------------- -------------- $ 66,707,446 $ 149,579,820 $221,914,309 $ 455,778,303 $ 93,860,824 $ 2,131,830,610 $ 1,769,602,833 $ 857,570,674 ============ ============= ============ ============= ============= =============== =============== ============== 6,100,763 9,827,453 16,217,747 38,891,734 13,507,930 280,192,184 226,152,301 105,695,729 ============ ============= ============ ============= ============= =============== =============== ============== 9,448,646 9,925,668 19,796,102 59,892,024 14,507,083 280,873,598 224,284,263 104,200,568 $ 7.06 $ 15.07 $ 11.21 $ 7.61 $ 6.47 $ 7.59 $ 7.89 $ 8.23 $110,977,864 $ 230,893,238 $240,153,036 $ 836,777,868 $ 150,222,274 $ 3,136,029,417 $ 2,464,349,419 $1,078,189,364 SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------------------------- AST AST Academic AST JPMorgan AST AST AST Capital Strategies AST Balanced MFS Global International T. Rowe Price International AST Aggressive Growth Asset Asset Asset Equity Equity Global Bond Growth Asset Allocation Allocation Allocation Allocation Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------ ------------- ------------- ------------- ---------------- --------------- --------------- -------------- $ 1,504,326 $ 7,137,895 $ 17,644,812 $ 13,300,736 $ 1,984,817 $ 37,150,395 $ 33,903,595 $ 12,186,677 ------------ ------------- ------------ ------------- ------------- --------------- --------------- -------------- 1,830,594 4,372,521 6,593,350 15,800,431 4,558,151 80,083,517 61,445,234 22,960,927 ------------ ------------- ------------ ------------- ------------- --------------- --------------- -------------- (326,268) 2,765,374 11,051,462 (2,499,695) (2,573,334) (42,933,122) (27,541,639) (10,774,250) ------------ ------------- ------------ ------------- ------------- --------------- --------------- -------------- 29,163,782 0 10,877,207 169,349,841 32,481,508 244,343,054 139,855,994 43,152,414 (34,322,752) 39,501,756 11,571,947 71,170,367 (59,187,895) (236,932,957) (144,730,975) (107,371,531) (41,396,086) (184,599,401) (47,705,276) (833,902,954) (101,437,993) (1,557,881,754) (1,090,596,229) (318,759,610) ------------ ------------- ------------ ------------- ------------- --------------- --------------- -------------- (46,555,056) (145,097,645) (25,256,122) (593,382,746) (128,144,380) (1,550,471,657) (1,095,471,210) (382,978,727) ------------ ------------- ------------ ------------- ------------- --------------- --------------- -------------- $(46,881,324) $(142,332,271) $(14,204,660) $(595,882,441) $(130,717,714) $(1,593,404,779) $(1,123,012,849) $ (393,752,977) ============ ============= ============ ============= ============= =============== =============== ==============
The accompanying notes are an integral part of these financial statements. A6 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS --------------------------------------------------------------------- AST Evergreen VA Preservation Diversified Evergreen VA Asset Allocation Davis Value Capital Evergreen VA International Portfolio Portfolio Builder Fund Growth Fund Equity Fund ---------------- ----------- ------------ ------------ ------------- ASSETS Investment in the portfolios, at value... $1,047,167,966 $ 2,458,703 $ 1,633,672 $ 12,814,387 $ 36,054,054 -------------- ----------- ----------- ------------ ------------ Net Assets............................... $1,047,167,966 $ 2,458,703 $ 1,633,672 $ 12,814,387 $ 36,054,054 ============== =========== =========== ============ ============ NET ASSETS, representing: Accumulation units....................... $1,047,167,966 $ 2,458,703 $ 1,633,672 $ 12,814,387 $ 36,054,054 -------------- ----------- ----------- ------------ ------------ $1,047,167,966 $ 2,458,703 $ 1,633,672 $ 12,814,387 $ 36,054,054 ============== =========== =========== ============ ============ Units outstanding........................ 117,434,796 322,963 277,212 1,612,558 3,072,596 ============== =========== =========== ============ ============ Portfolio shares held.................... 115,073,403 297,663 193,563 1,553,259 3,751,723 Portfolio net asset value per share...... $ 9.10 $ 8.26 $ 8.44 $ 8.25 $ 9.61 Investment in portfolio shares, at cost.. $1,217,345,806 $ 4,192,017 $ 2,585,395 $ 21,046,213 $ 61,476,532 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS --------------------------------------------------------------------- AST Evergreen VA Preservation Diversified Evergreen VA Asset Allocation Davis Value Capital Evergreen VA International Portfolio Portfolio Builder Fund Growth Fund Equity Fund ---------------- ----------- ------------ ------------ ------------- INVESTMENT INCOME Dividend income.......................... $ 7,993,800 $ 36,331 $ 0 $ 5,604 $ 0 -------------- ----------- ----------- ------------ ------------ EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 19,129,500 100,743 54,284 399,557 1,123,522 -------------- ----------- ----------- ------------ ------------ NET INVESTMENT INCOME (LOSS)............... (11,135,700) (64,412) (54,284) (393,953) (1,123,522) -------------- ----------- ----------- ------------ ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 31,620,808 65,862 0 0 2,145,587 Realized gain (loss) on shares redeemed................................ (40,236,623) 588,702 35,176 (6,882,813) (10,732,803) Net change in unrealized gain (loss) on investments............................. (199,858,526) (3,376,137) (1,705,903) (5,953,519) (26,936,772) -------------- ----------- ----------- ------------ ------------ NET GAIN (LOSS) ON INVESTMENTS............. (208,474,341) (2,721,573) (1,670,727) (12,836,332) (35,523,988) -------------- ----------- ----------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ (219,610,041) $(2,785,985) $(1,725,011) $(13,230,285) $(36,647,510) ============== =========== =========== ============ ============
The accompanying notes are an integral part of these financial statements. A7
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------- Columbia Evergreen VA Evergreen VA Small Columbia Prudential SP Fundamental Evergreen VA Diversified Columbia Company Large Cap International Large Cap Evergreen VA Special Values Income Money Market Growth Growth Growth Fund Omega Fund Fund Builder Fund Fund, VS Fund, VS Fund, VS Portfolio ------------ ------------ -------------- ------------ ------------ --------- ----------- ------------- $ 4,381,401 $11,496,245 $ 2,186,454 $ 2,761,874 $1,770,755 $ 461,934 $ 4,575,269 $ 10,961,469 ----------- ----------- ----------- ----------- ---------- --------- ----------- ------------ $ 4,381,401 $11,496,245 $ 2,186,454 $ 2,761,874 $1,770,755 $ 461,934 $ 4,575,269 $ 10,961,469 =========== =========== =========== =========== ========== ========= =========== ============ $ 4,381,401 $11,496,245 $ 2,186,454 $ 2,761,874 $1,770,755 $ 461,934 $ 4,575,269 $ 10,961,469 ----------- ----------- ----------- ----------- ---------- --------- ----------- ------------ $ 4,381,401 $11,496,245 $ 2,186,454 $ 2,761,874 $1,770,755 $ 461,934 $ 4,575,269 $ 10,961,469 =========== =========== =========== =========== ========== ========= =========== ============ 459,782 1,626,100 145,642 264,031 159,146 37,407 592,241 1,323,350 =========== =========== =========== =========== ========== ========= =========== ============ 344,450 796,690 238,176 428,198 1,770,756 60,781 245,586 3,177,237 $ 12.72 $ 14.43 $ 9.18 $ 6.45 $ 1.00 $ 7.60 $ 18.63 $ 3.45 $ 6,009,082 $15,130,682 $ 3,610,714 $ 4,199,476 $1,770,755 $ 576,648 $ 5,847,973 $ 23,212,335 SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------- Columbia Evergreen VA Evergreen VA Small Columbia Prudential SP Fundamental Evergreen VA Diversified Columbia Company Large Cap International Large Cap Evergreen VA Special Values Income Money Market Growth Growth Growth Fund Omega Fund Fund Builder Fund Fund, VS Fund, VS Fund, VS Portfolio ------------ ------------ -------------- ------------ ------------ --------- ----------- ------------- $ 85,819 $ 0 $ 36,275 $ 285,098 $ 55,245 $ 0 $ 19,018 $ 417,635 ----------- ----------- ----------- ----------- ---------- --------- ----------- ------------ 92,731 232,554 62,126 62,143 21,449 7,674 76,408 415,473 ----------- ----------- ----------- ----------- ---------- --------- ----------- ------------ (6,912) (232,554) (25,851) 222,955 33,796 (7,674) (57,390) 2,162 ----------- ----------- ----------- ----------- ---------- --------- ----------- ------------ 0 0 0 0 0 89,784 0 5,080,602 126,434 301,066 (1,175,110) (481,553) 0 95,998 247,817 (11,883,799) (2,648,725) (5,523,238) (159,118) (1,168,076) 0 (561,548) (3,803,094) (10,097,586) ----------- ----------- ----------- ----------- ---------- --------- ----------- ------------ (2,522,291) (5,222,172) (1,334,228) (1,649,629) 0 (375,766) (3,555,277) (16,900,783) ----------- ----------- ----------- ----------- ---------- --------- ----------- ------------ $(2,529,203) $(5,454,726) $(1,360,079) $(1,426,674) $ 33,796 $(383,440) $(3,612,667) $(16,898,621) =========== =========== =========== =========== ========== ========= =========== ============
The accompanying notes are an integral part of these financial statements. A8 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS ------------------------------------------------------------------ Gartmore First Trust Global NVIT The DOW Target Focus Dividend NASDAQ Developing DART 10 Four Target 15 Target 15 Markets Fund Portfolio Portfolio Portfolio Portfolio ------------- ----------- ------------ ------------ ----------- ASSETS Investment in the portfolios, at value... $ 86,009,628 $ 7,084,006 $ 4,701,604 $ 36,070,306 $ 3,178,748 ------------- ----------- ----------- ------------ ----------- Net Assets............................... $ 86,009,628 $ 7,084,006 $ 4,701,604 $ 36,070,306 $ 3,178,748 ============= =========== =========== ============ =========== NET ASSETS, representing: Accumulation units....................... $ 86,009,628 $ 7,084,006 $ 4,701,604 $ 36,070,306 $ 3,178,748 ------------- ----------- ----------- ------------ ----------- $ 86,009,628 $ 7,084,006 $ 4,701,604 $ 36,070,306 $ 3,178,748 ============= =========== =========== ============ =========== Units outstanding........................ 6,641,617 857,106 1,207,575 3,199,461 500,515 ============= =========== =========== ============ =========== Portfolio shares held.................... 22,935,901 932,106 1,455,604 2,630,949 522,820 Portfolio net asset value per share...... $ 3.75 $ 7.60 $ 3.23 $ 13.71 $ 6.08 Investment in portfolio shares, at cost.. $ 204,899,830 $ 9,299,711 $ 6,641,209 $ 63,007,399 $ 3,667,528 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS ------------------------------------------------------------------ Gartmore First Trust Global NVIT The DOW Target Focus Dividend NASDAQ Developing DART 10 Four Target 15 Target 15 Markets Fund Portfolio Portfolio Portfolio Portfolio ------------- ----------- ------------ ------------ ----------- INVESTMENT INCOME Dividend income.......................... $ 1,586,580 $ 0 $ 0 $ 0 $ 0 ------------- ----------- ----------- ------------ ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 3,997,253 164,358 144,785 1,535,338 84,337 ------------- ----------- ----------- ------------ ----------- NET INVESTMENT INCOME (LOSS)............... (2,410,673) (164,358) (144,785) (1,535,338) (84,337) ------------- ----------- ----------- ------------ ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 84,858,152 0 0 0 0 Realized gain (loss) on shares redeemed................................ (71,831,967) (1,040,468) (2,931,822) (3,821,114) (3,497,912) Net change in unrealized gain (loss) on investments............................. (193,436,082) (2,152,120) (2,331,362) (40,779,761) (1,234,742) ------------- ----------- ----------- ------------ ----------- NET GAIN (LOSS) ON INVESTMENTS............. (180,409,897) (3,192,588) (5,263,184) (44,600,875) (4,732,654) ------------- ----------- ----------- ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $(182,820,570) $(3,356,946) $(5,407,969) $(46,136,213) $(4,816,991) ============= =========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements. A9
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------- The DOW Target Value Line Target S&P Target 24 Managed VIP Target 25 Dividend ProFund VP ProFund VP ProFund VP ProFund VP Portfolio Portfolio Portfolio Portfolio Asia 30 Banks Bear Biotechnology ------------- ------------ ------------ ------------ ------------ ------------ ----------- ------------- $ 7,753,089 $ 32,277,847 $ 15,209,720 $ 20,380,466 $ 42,945,449 $ 17,950,445 $48,698,929 $22,228,651 ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- $ 7,753,089 $ 32,277,847 $ 15,209,720 $ 20,380,466 $ 42,945,449 $ 17,950,445 $48,698,929 $22,228,651 =========== ============ ============ ============ ============ ============ =========== =========== $ 7,753,089 $ 32,277,847 $ 15,209,720 $ 20,380,466 $ 42,945,449 $ 17,950,445 $48,698,929 $22,228,651 ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- $ 7,753,089 $ 32,277,847 $ 15,209,720 $ 20,380,466 $ 42,945,449 $ 17,950,445 $48,698,929 $22,228,651 =========== ============ ============ ============ ============ ============ =========== =========== 992,189 4,208,850 2,422,810 3,086,956 2,981,981 3,538,248 5,261,457 2,204,693 =========== ============ ============ ============ ============ ============ =========== =========== 1,112,351 4,559,018 5,696,525 2,907,342 1,091,371 1,406,775 1,414,844 1,059,516 $ 6.97 $ 7.08 $ 2.67 $ 7.01 $ 39.35 $ 12.76 $ 34.42 $ 20.98 $ 8,782,375 $ 54,380,074 $ 29,082,726 $ 32,214,722 $ 55,326,278 $ 19,179,299 $51,675,732 $22,231,376 SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------- The DOW Target Value Line Target S&P Target 24 Managed VIP Target 25 Dividend ProFund VP ProFund VP ProFund VP ProFund VP Portfolio Portfolio Portfolio Portfolio Asia 30 Banks Bear Biotechnology ------------- ------------ ------------ ------------ ------------ ------------ ----------- ------------- $ 0 $ 0 $ 0 $ 0 $ 601,392 $ 218,172 $ 1,349,933 $ 0 ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- 168,951 1,424,734 453,594 756,487 1,555,344 222,219 1,080,545 261,526 ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- (168,951) (1,424,734) (453,594) (756,487) (953,952) (4,047) 269,388 (261,526) ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- 0 0 0 0 7,442,206 0 0 0 (1,778,345) 1,549,266 (2,217,568) (7,614,457) (63,995,253) (10,890,814) 28,090,225 (4,625,844) (1,748,561) (48,545,342) (19,280,454) (14,108,911) (10,824,163) (978,037) (2,416,610) 1,491,544 ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- (3,526,906) (46,996,076) (21,498,022) (21,723,368) (67,377,210) (11,868,851) 25,673,615 (3,134,300) ----------- ------------ ------------ ------------ ------------ ------------ ----------- ----------- $(3,695,857) $(48,420,810) $(21,951,616) $(22,479,855) $(68,331,162) $(11,872,898) $25,943,003 $(3,395,826) =========== ============ ============ ============ ============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements. A10 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS ------------------------------------------------------------------ ProFund VP ProFund VP ProFund VP Basic ProFund VP ProFund VP Consumer Consumer Materials UltraBull Bull Services Goods ------------ ------------ ------------ ----------- ----------- ASSETS Investment in the portfolios, at value... $ 20,621,166 $ 48,791,390 $ 52,899,582 $ 5,052,072 $ 8,803,876 ------------ ------------ ------------ ----------- ----------- Net Assets............................... $ 20,621,166 $ 48,791,390 $ 52,899,582 $ 5,052,072 $ 8,803,876 ============ ============ ============ =========== =========== NET ASSETS, representing: Accumulation units....................... $ 20,621,166 $ 48,791,390 $ 52,899,582 $ 5,052,072 $ 8,803,876 ------------ ------------ ------------ ----------- ----------- $ 20,621,166 $ 48,791,390 $ 52,899,582 $ 5,052,072 $ 8,803,876 ============ ============ ============ =========== =========== Units outstanding........................ 2,384,472 11,725,871 6,812,003 816,860 999,767 ============ ============ ============ =========== =========== Portfolio shares held.................... 824,187 7,260,624 2,794,484 250,599 357,736 Portfolio net asset value per share...... $ 25.02 $ 6.72 $ 18.93 $ 20.16 $ 24.61 Investment in portfolio shares, at cost.. $ 33,375,128 $ 48,406,541 $ 51,270,887 $ 4,914,889 $ 9,214,202 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS ------------------------------------------------------------------ ProFund VP ProFund VP ProFund VP Basic ProFund VP ProFund VP Consumer Consumer Materials UltraBull Bull Services Goods ------------ ------------ ------------ ----------- ----------- INVESTMENT INCOME Dividend income.......................... $ 214,343 $ 392,892 $ 0 $ 0 $ 111,876 ------------ ------------ ------------ ----------- ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 1,409,309 385,176 1,332,602 42,997 161,090 ------------ ------------ ------------ ----------- ----------- NET INVESTMENT INCOME (LOSS)............... (1,194,966) 7,716 (1,332,602) (42,997) (49,214) ------------ ------------ ------------ ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 0 0 1,132,567 0 377,964 Realized gain (loss) on shares redeemed................................ (20,146,961) (23,575,521) (37,161,445) (1,269,224) (4,700,887) Net change in unrealized gain (loss) on investments............................. (14,995,436) 1,784,878 1,545,975 161,956 (111,971) ------------ ------------ ------------ ----------- ----------- NET GAIN (LOSS) ON INVESTMENTS............. (35,142,397) (21,790,643) (34,482,903) (1,107,268) (4,434,894) ------------ ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $(36,337,363) $(21,782,927) $(35,815,505) $(1,150,265) $(4,484,108) ============ ============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements. A11
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- ProFund VP U.S. ACCESS VP ProFund VP ProFund VP ProFund VP Government ProFund VP High Yield ProFund VP ProFund VP Oil & Gas Europe 30 Financials Plus Health Care Fund Industrials Internet ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- $ 55,621,526 $ 18,076,230 $ 16,868,725 $102,443,082 $21,151,783 $21,798,315 $ 8,678,453 $ 2,322,282 ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- $ 55,621,526 $ 18,076,230 $ 16,868,725 $102,443,082 $21,151,783 $21,798,315 $ 8,678,453 $ 2,322,282 ============ ============ ============ ============ =========== =========== =========== =========== $ 55,621,526 $ 18,076,230 $ 16,868,725 $102,443,082 $21,151,783 $21,798,315 $ 8,678,453 $ 2,322,282 ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- $ 55,621,526 $ 18,076,230 $ 16,868,725 $102,443,082 $21,151,783 $21,798,315 $ 8,678,453 $ 2,322,282 ============ ============ ============ ============ =========== =========== =========== =========== 3,491,555 2,290,225 3,060,711 5,490,948 2,729,903 1,961,020 1,044,731 207,736 ============ ============ ============ ============ =========== =========== =========== =========== 1,432,068 1,107,612 1,066,291 2,167,649 891,728 877,902 358,762 88,535 $ 38.84 $ 16.32 $ 15.82 $ 47.26 $ 23.72 $ 24.83 $ 24.19 $ 26.23 $ 78,453,255 $ 25,570,067 $ 17,889,507 $ 77,270,009 $21,114,293 $20,983,381 $ 9,754,269 $ 3,122,766 SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- ProFund VP U.S. ACCESS VP ProFund VP ProFund VP ProFund VP Government ProFund VP High Yield ProFund VP ProFund VP Oil & Gas Europe 30 Financials Plus Health Care Fund Industrials Internet ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- $ 0 $ 812,113 $ 259,549 $ 1,375,562 $ 116,598 $ 1,356,051 $ 8,363 $ 0 ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- 2,146,300 702,173 323,851 1,277,219 433,440 308,702 255,052 103,848 ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- (2,146,300) 109,940 (64,302) 98,343 (316,842) 1,047,349 (246,689) (103,848) ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- 8,010,542 5,687,632 0 0 0 0 472,306 668,253 (24,089,803) (23,170,283) (14,692,005) 8,327,542 (9,564,909) (3,130,092) (8,024,093) (3,864,514) (33,580,439) (5,948,370) 362,168 24,252,590 408,200 666,569 (590,021) (224,844) ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- (49,659,700) (23,431,021) (14,329,837) 32,580,132 (9,156,709) (2,463,523) (8,141,808) (3,421,105) ------------ ------------ ------------ ------------ ----------- ----------- ----------- ----------- $(51,806,000) $(23,321,081) $(14,394,139) $ 32,678,475 $(9,473,551) $(1,416,174) $(8,388,497) $(3,524,953) ============ ============ ============ ============ =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. A12 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS ---------------------------------------------------------------------- ProFund VP ProFund VP ProFund VP Precious Mid-Cap ProFund VP ProFund VP Japan Metals Growth Mid-Cap Value Pharmaceuticals ------------ ------------ ------------ ------------- --------------- ASSETS Investment in the portfolios, at value... $ 10,845,215 $ 81,176,554 $ 19,188,552 $ 18,308,025 $ 8,813,287 ------------ ------------ ------------ ------------ ----------- Net Assets............................... $ 10,845,215 $ 81,176,554 $ 19,188,552 $ 18,308,025 $ 8,813,287 ============ ============ ============ ============ =========== NET ASSETS, representing: Accumulation units....................... $ 10,845,215 $ 81,176,554 $ 19,188,552 $ 18,308,025 $ 8,813,287 ------------ ------------ ------------ ------------ ----------- $ 10,845,215 $ 81,176,554 $ 19,188,552 $ 18,308,025 $ 8,813,287 ============ ============ ============ ============ =========== Units outstanding........................ 1,373,642 6,241,359 2,369,496 2,052,460 1,291,826 ============ ============ ============ ============ =========== Portfolio shares held.................... 873,910 2,595,988 996,291 1,094,978 436,950 Portfolio net asset value per share...... $ 12.41 $ 31.27 $ 19.26 $ 16.72 $ 20.17 Investment in portfolio shares, at cost.. $ 10,908,867 $ 96,724,767 $ 22,803,256 $ 19,635,430 $ 8,361,441 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS ---------------------------------------------------------------------- ProFund VP ProFund VP ProFund VP Precious Mid-Cap ProFund VP ProFund VP Japan Metals Growth Mid-Cap Value Pharmaceuticals ------------ ------------ ------------ ------------- --------------- INVESTMENT INCOME Dividend income.......................... $ 1,701,885 $ 3,729,637 $ 0 $ 0 $ 182,219 ------------ ------------ ------------ ------------ ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 220,918 2,148,642 708,236 645,655 162,520 ------------ ------------ ------------ ------------ ----------- NET INVESTMENT INCOME (LOSS)............... 1,480,967 1,580,995 (708,236) (645,655) 19,699 ------------ ------------ ------------ ------------ ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 0 8,251,593 7,081,159 7,713,524 0 Realized gain (loss) on shares redeemed................................ (10,682,844) (44,946,113) (23,766,187) (29,926,524) (3,629,209) Net change in unrealized gain (loss) on investments............................. 1,936,228 (19,503,001) (4,098,775) 4,236,882 714,070 ------------ ------------ ------------ ------------ ----------- NET GAIN (LOSS) ON INVESTMENTS............. (8,746,616) (56,197,521) (20,783,803) (17,976,118) (2,915,139) ------------ ------------ ------------ ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ (7,265,649) $(54,616,526) $(21,492,039) $(18,621,773) $(2,895,440) ============ ============ ============ ============ ===========
The accompanying notes are an integral part of these financial statements. A13
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- ProFund VP ProFund VP ProFund ProFund VP ProFund ProFund VP Rising Rates ProFund VP ProFund VP Small-Cap VP Short Short VP Short Real Estate Opportunity NASDAQ-100 Semiconductor Growth Mid-Cap NASDAQ-100 Small-Cap ------------ ------------ ------------ ------------- ------------ ---------- ----------- ---------- $ 12,619,648 $ 18,309,552 $ 19,349,896 $ 1,209,494 $ 23,412,957 $3,403,195 $11,639,209 $4,952,632 ------------ ------------ ------------ ----------- ------------ ---------- ----------- ---------- $ 12,619,648 $ 18,309,552 $ 19,349,896 $ 1,209,494 $ 23,412,957 $3,403,195 $11,639,209 $4,952,632 ============ ============ ============ =========== ============ ========== =========== ========== $ 12,619,648 $ 18,309,552 $ 19,349,896 $ 1,209,494 $ 23,412,957 $3,403,195 $11,639,209 $4,952,632 ------------ ------------ ------------ ----------- ------------ ---------- ----------- ---------- $ 12,619,648 $ 18,309,552 $ 19,349,896 $ 1,209,494 $ 23,412,957 $3,403,195 $11,639,209 $4,952,632 ============ ============ ============ =========== ============ ========== =========== ========== 1,212,307 4,729,537 3,873,997 329,925 2,498,234 332,251 1,617,215 494,573 ============ ============ ============ =========== ============ ========== =========== ========== 439,556 1,684,411 1,806,713 110,557 1,263,516 108,624 573,926 279,494 $ 28.71 $ 10.87 $ 10.71 $ 10.94 $ 18.53 $ 31.33 $ 20.28 $ 17.72 $ 12,441,905 $ 21,945,361 $ 18,798,340 $ 1,728,639 $ 23,127,975 $3,625,452 $12,774,970 $5,898,710 SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- ProFund VP ProFund VP ProFund ProFund VP ProFund ProFund VP Rising Rates ProFund VP ProFund VP Small-Cap VP Short Short VP Short Real Estate Opportunity NASDAQ-100 Semiconductor Growth Mid-Cap NASDAQ-100 Small-Cap ------------ ------------ ------------ ------------- ------------ ---------- ----------- ---------- $ 0 $ 2,031,326 $ 0 $ 0 $ 0 $ 178,345 $ 974,381 $ 949,361 ------------ ------------ ------------ ----------- ------------ ---------- ----------- ---------- 388,974 552,072 718,556 48,659 548,775 122,243 402,672 270,234 ------------ ------------ ------------ ----------- ------------ ---------- ----------- ---------- (388,974) 1,479,254 (718,556) (48,659) (548,775) 56,102 571,709 679,127 ------------ ------------ ------------ ----------- ------------ ---------- ----------- ---------- 271,021 0 0 0 600,722 0 0 0 (15,676,529) (10,984,877) (23,127,285) (1,723,023) (15,954,512) 2,925,437 7,746,333 6,095,409 4,040,802 (3,036,562) 1,616,093 (334,400) 1,058,974 (237,901) (1,238,649) (985,936) ------------ ------------ ------------ ----------- ------------ ---------- ----------- ---------- (11,364,706) (14,021,439) (21,511,192) (2,057,423) (14,294,816) 2,687,536 6,507,684 5,109,473 ------------ ------------ ------------ ----------- ------------ ---------- ----------- ---------- $(11,753,680) $(12,542,185) $(22,229,748) $(2,106,082) $(14,843,591) $2,743,638 $ 7,079,393 $5,788,600 ============ ============ ============ =========== ============ ========== =========== ==========
The accompanying notes are an integral part of these financial statements. A14 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS -------------------------------------------------------------------------- ProFund VP Small-Cap ProFund VP ProFund VP ProFund VP ProFund VP Value Technology Telecommunications UltraMid-Cap UltraNASDAQ-100 ------------ ----------- ------------------ ------------ --------------- ASSETS Investment in the portfolios, at value... $ 16,517,178 $ 3,965,619 $ 13,153,086 $ 22,755,074 $ 18,669,758 ------------ ----------- ------------ ------------ ------------ Net Assets............................... $ 16,517,178 $ 3,965,619 $ 13,153,086 $ 22,755,074 $ 18,669,758 ============ =========== ============ ============ ============ NET ASSETS, representing: Accumulation units....................... $ 16,517,178 $ 3,965,619 $ 13,153,086 $ 22,755,074 $ 18,669,758 ------------ ----------- ------------ ------------ ------------ $ 16,517,178 $ 3,965,619 $ 13,153,086 $ 22,755,074 $ 18,669,758 ============ =========== ============ ============ ============ Units outstanding........................ 1,882,602 993,733 2,329,312 4,156,358 26,435,416 ============ =========== ============ ============ ============ Portfolio shares held.................... 886,591 421,426 1,945,723 2,053,707 2,543,563 Portfolio net asset value per share...... $ 18.63 $ 9.41 $ 6.76 $ 11.08 $ 7.34 Investment in portfolio shares, at cost.. $ 15,661,478 $ 4,651,625 $ 12,657,266 $ 21,836,676 $ 20,890,527 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS -------------------------------------------------------------------------- ProFund VP Small-Cap ProFund VP ProFund VP ProFund VP ProFund VP Value Technology Telecommunications UltraMid-Cap UltraNASDAQ-100 ------------ ----------- ------------------ ------------ --------------- INVESTMENT INCOME Dividend income.......................... $ 0 $ 0 $ 853,364 $ 353,697 $ 0 ------------ ----------- ------------ ------------ ------------ EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 451,595 137,122 250,271 539,428 612,938 ------------ ----------- ------------ ------------ ------------ NET INVESTMENT INCOME (LOSS)............... (451,595) (137,122) 603,093 (185,731) (612,938) ------------ ----------- ------------ ------------ ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 2,987,019 0 4,714,561 0 0 Realized gain (loss) on shares redeemed................................ (24,533,315) (5,105,932) (14,737,912) (28,303,496) (48,651,573) Net change in unrealized gain (loss) on investments............................. 5,294,165 (345,562) 1,530,851 2,766,367 2,194,234 ------------ ----------- ------------ ------------ ------------ NET GAIN (LOSS) ON INVESTMENTS............. (16,252,131) (5,451,494) (8,492,500) (25,537,129) (46,457,339) ------------ ----------- ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $(16,703,726) $(5,588,616) $ (7,889,407) $(25,722,860) $(47,070,277) ============ =========== ============ ============ ============
The accompanying notes are an integral part of these financial statements. A15
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------ ProFund VP ProFund VP Rydex VT AIM V.I. ProFund VP ProFund VP Large-Cap Large-Cap Rydex VT Rydex VT Inverse S&P Dynamics UltraSmall-Cap Utilities Growth Value Nova NASDAQ-100 500 Strategy Fund -------------- ------------ ------------ ------------ ----------- ----------- ------------ ------------ $ 19,691,523 $ 32,250,787 $ 22,796,219 $ 31,631,317 $ 1,790,911 $ 8,917,617 $413,935 $ 17,328,232 ------------ ------------ ------------ ------------ ----------- ----------- -------- ------------ $ 19,691,523 $ 32,250,787 $ 22,796,219 $ 31,631,317 $ 1,790,911 $ 8,917,617 $413,935 $ 17,328,232 ============ ============ ============ ============ =========== =========== ======== ============ $ 19,691,523 $ 32,250,787 $ 22,796,219 $ 31,631,317 $ 1,790,911 $ 8,917,617 $413,935 $ 17,328,232 ------------ ------------ ------------ ------------ ----------- ----------- -------- ------------ $ 19,691,523 $ 32,250,787 $ 22,796,219 $ 31,631,317 $ 1,790,911 $ 8,917,617 $413,935 $ 17,328,232 ============ ============ ============ ============ =========== =========== ======== ============ 3,979,669 3,026,548 3,080,422 4,441,694 525,445 2,077,835 35,424 2,560,300 ============ ============ ============ ============ =========== =========== ======== ============ 2,534,302 1,251,000 996,774 1,707,954 393,607 849,297 7,083 1,734,558 $ 7.77 $ 25.78 $ 22.87 $ 18.52 $ 4.55 $ 10.50 $ 58.44 $ 9.99 $ 18,878,490 $ 36,469,622 $ 21,667,386 $ 33,019,497 $ 2,587,709 $18,675,484 $391,562 $ 31,598,345 SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------ ProFund VP ProFund VP Rydex VT AIM V.I. ProFund VP ProFund VP Large-Cap Large-Cap Rydex VT Rydex VT Inverse S&P Dynamics UltraSmall-Cap Utilities Growth Value Nova NASDAQ-100 500 Strategy Fund -------------- ------------ ------------ ------------ ----------- ----------- ------------ ------------ $ 217,864 $ 1,422,438 $ 0 $ 874,158 $ 11,167 $ 21,609 $ 2,891 $ 0 ------------ ------------ ------------ ------------ ----------- ----------- -------- ------------ 232,915 1,259,334 888,174 649,491 46,456 202,336 6,847 567,765 ------------ ------------ ------------ ------------ ----------- ----------- -------- ------------ (15,051) 163,104 (888,174) 224,667 (35,289) (180,727) (3,956) (567,765) ------------ ------------ ------------ ------------ ----------- ----------- -------- ------------ 0 1,416,378 1,005,470 6,545,241 0 0 0 0 (15,030,787) (24,270,299) (23,027,881) (31,035,851) 46,377 (2,071,954) (87,428) (2,230,983) 1,067,110 (6,060,031) 1,182,705 2,526,668 (2,404,541) (5,191,457) 241,012 (19,960,954) ------------ ------------ ------------ ------------ ----------- ----------- -------- ------------ (13,963,677) (28,913,952) (20,839,706) (21,963,942) (2,358,164) (7,263,411) 153,584 (22,191,937) ------------ ------------ ------------ ------------ ----------- ----------- -------- ------------ $(13,978,728) $(28,750,848) $(21,727,880) $(21,739,275) $(2,393,453) $(7,444,138) $149,628 $(22,759,702) ============ ============ ============ ============ =========== =========== ======== ============
The accompanying notes are an integral part of these financial statements. A16 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS -------------------------------------------------------------------- Wells Fargo Advantage VT Wells Fargo AIM V.I. AIM V.I. AIM V.I. Asset Advantage VT Financial Global Health Technology Allocation Equity Income Services Fund Care Fund Fund Fund Fund ------------- ------------- ------------ ------------ ------------- ASSETS Investment in the portfolios, at value... $ 11,755,589 $ 41,085,381 $ 21,442,763 $ 36,414,864 $10,690,876 ------------ ------------ ------------ ------------ ----------- Net Assets............................... $ 11,755,589 $ 41,085,381 $ 21,442,763 $ 36,414,864 $10,690,876 ============ ============ ============ ============ =========== NET ASSETS, representing: Accumulation units....................... $ 11,755,589 $ 41,085,381 $ 21,442,763 $ 36,414,864 $10,690,876 ------------ ------------ ------------ ------------ ----------- $ 11,755,589 $ 41,085,381 $ 21,442,763 $ 36,414,864 $10,690,876 ============ ============ ============ ============ =========== Units outstanding........................ 2,369,535 3,967,183 6,277,758 1,905,300 1,217,913 ============ ============ ============ ============ =========== Portfolio shares held.................... 2,853,298 3,294,738 2,558,802 3,911,371 1,082,072 Portfolio net asset value per share...... $ 4.12 $ 12.47 $ 8.38 $ 9.31 $ 9.88 Investment in portfolio shares, at cost.. $ 28,882,537 $ 63,954,346 $ 32,433,475 $ 47,814,759 $17,146,016 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS -------------------------------------------------------------------- Wells Fargo Advantage VT Wells Fargo AIM V.I. AIM V.I. AIM V.I. Asset Advantage VT Financial Global Health Technology Allocation Equity Income Services Fund Care Fund Fund Fund Fund ------------- ------------- ------------ ------------ ------------- INVESTMENT INCOME Dividend income.......................... $ 560,112 $ 0 $ 0 $ 1,281,529 $ 340,911 ------------ ------------ ------------ ------------ ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 377,990 1,014,624 510,150 764,542 302,872 ------------ ------------ ------------ ------------ ----------- NET INVESTMENT INCOME (LOSS)............... 182,122 (1,014,624) (510,150) 516,987 38,039 ------------ ------------ ------------ ------------ ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 1,613,843 10,887,267 0 4,299,202 2,901,833 Realized gain (loss) on shares redeemed................................ (16,342,249) 4,373,349 1,475,952 (2,611,345) (4,265,804) Net change in unrealized gain (loss) on investments............................. (6,450,388) (38,381,275) (21,342,898) (21,105,690) (7,067,869) ------------ ------------ ------------ ------------ ----------- NET GAIN (LOSS) ON INVESTMENTS............. (21,178,794) (23,120,659) (19,866,946) (19,417,833) (8,431,840) ------------ ------------ ------------ ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $(20,996,672) $(24,135,283) $(20,377,096) $(18,900,846) $(8,393,801) ============ ============ ============ ============ ===========
The accompanying notes are an integral part of these financial statements. A17
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- Wells Fargo Wells Fargo Wells Fargo AST First Advantage VT Advantage VT Wells Fargo Advantage VT Wells Fargo Wells Fargo Wells Fargo Trust C&B Large Large Advantage VT Large Advantage VT Advantage VT Advantage VT Balanced Cap Value Company International Company Money Market Small Cap Total Return Target Fund Core Fund Core Fund Growth Fund Fund Growth Fund Bond Fund Portfolio ------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------- $ 5,921,247 $ 7,884,707 $ 970,779 $ 3,063,430 $21,704,377 $ 1,700,180 $8,185,118 $ 546,915,524 ----------- ----------- ----------- ----------- ----------- ----------- ---------- ------------- $ 5,921,247 $ 7,884,707 $ 970,779 $ 3,063,430 $21,704,377 $ 1,700,180 $8,185,118 $ 546,915,524 =========== =========== =========== =========== =========== =========== ========== ============= $ 5,921,247 $ 7,884,707 $ 970,779 $ 3,063,430 $21,704,377 $ 1,700,180 $8,185,118 $ 546,915,524 ----------- ----------- ----------- ----------- ----------- ----------- ---------- ------------- $ 5,921,247 $ 7,884,707 $ 970,779 $ 3,063,430 $21,704,377 $ 1,700,180 $8,185,118 $ 546,915,524 =========== =========== =========== =========== =========== =========== ========== ============= 855,432 665,129 153,529 542,212 1,600,695 227,815 565,187 76,074,921 =========== =========== =========== =========== =========== =========== ========== ============= 842,283 825,623 210,581 487,807 21,704,377 408,697 843,826 74,613,305 $ 7.03 $ 9.55 $ 4.61 $ 6.28 $ 1.00 $ 4.16 $ 9.70 $ 7.33 $ 7,896,373 $11,789,963 $ 1,874,627 $ 4,184,219 $21,704,377 $ 3,028,607 $8,550,362 $ 753,163,060 SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- Wells Fargo Wells Fargo Wells Fargo AST First Advantage VT Advantage VT Wells Fargo Advantage VT Wells Fargo Wells Fargo Wells Fargo Trust C&B Large Large Advantage VT Large Advantage VT Advantage VT Advantage VT Balanced Cap Value Company International Company Money Market Small Cap Total Return Target Fund Core Fund Core Fund Growth Fund Fund Growth Fund Bond Fund Portfolio ------------ ------------ ------------- ------------ ------------ ------------ ------------ ------------- $ 136,302 $ 145,897 $ 35,901 $ 14,335 $ 517,954 $ 0 $ 439,697 $ 21,187,653 ----------- ----------- ----------- ----------- ----------- ----------- ---------- ------------- 129,117 176,981 26,427 80,579 319,635 42,406 130,479 19,629,821 ----------- ----------- ----------- ----------- ----------- ----------- ---------- ------------- 7,185 (31,084) 9,474 (66,244) 198,319 (42,406) 309,218 1,557,832 ----------- ----------- ----------- ----------- ----------- ----------- ---------- ------------- 0 0 374,639 0 0 784,343 0 17,837,287 571,788 (1,393,867) (164,034) 364,464 0 173,443 (138,830) (132,701,215) (4,451,221) (4,404,905) (1,243,212) (2,987,364) 0 (2,451,220) (101,108) (279,892,444) ----------- ----------- ----------- ----------- ----------- ----------- ---------- ------------- (3,879,433) (5,798,772) (1,032,607) (2,622,900) 0 (1,493,434) (239,938) (394,756,372) ----------- ----------- ----------- ----------- ----------- ----------- ---------- ------------- $(3,872,248) $(5,829,856) $(1,023,133) $(2,689,144) $ 198,319 $(1,535,840) $ 69,280 $(393,198,540) =========== =========== =========== =========== =========== =========== ========== =============
The accompanying notes are an integral part of these financial statements. A18 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS ------------------------------------------------------------------ AST First AST CLS AST CLS Trust Capital AST Growth Moderate Appreciation Advanced Columbia Asset Asset Target Strategies High Yield Allocation Allocation Portfolio Portfolio Fund, VS Portfolio Portfolio ------------- ------------- ---------- ----------- ------------ ASSETS Investment in the portfolios, at value... $ 618,387,239 $ 717,305,864 $ 248,530 59,995,304 $116,814,386 ------------- ------------- --------- ----------- ------------ Net Assets............................... $ 618,387,239 $ 717,305,864 $ 248,530 59,995,304 $116,814,386 ============= ============= ========= =========== ============ NET ASSETS, representing: Accumulation units....................... $ 618,387,239 $ 717,305,864 $ 248,530 59,995,304 $116,814,386 ------------- ------------- --------- ----------- ------------ $ 618,387,239 $ 717,305,864 $ 248,530 59,995,304 $116,814,386 ============= ============= ========= =========== ============ Units outstanding........................ 93,602,638 91,624,521 30,879 8,209,731 16,369,072 ============= ============= ========= =========== ============ Portfolio shares held.................... 90,143,912 90,113,802 33,005 8,063,885 16,045,932 Portfolio net asset value per share...... $ 6.86 $ 7.96 $ 7.53 7.44 $ 7.28 Investment in portfolio shares, at cost.. $ 908,601,959 $ 942,356,992 $ 359,681 67,132,607 $124,816,208 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS ------------------------------------------------------------------ AST First AST CLS AST CLS Trust Capital AST Growth Moderate Appreciation Advanced Columbia Asset Asset Target Strategies High Yield Allocation Allocation Portfolio Portfolio Fund, VS Portfolio Portfolio ------------- ------------- ---------- ----------- ------------ INVESTMENT INCOME Dividend income.......................... $ 14,462,803 $ 21,582,958 $ 37,204 54,851 $ 43,158 ------------- ------------- --------- ----------- ------------ EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 24,756,391 23,499,941 3,575 1,170,998 1,351,881 ------------- ------------- --------- ----------- ------------ NET INVESTMENT INCOME (LOSS)............... (10,293,588) (1,916,983) 33,629 (1,116,147) (1,308,723) ------------- ------------- --------- ----------- ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 15,114,536 27,850,964 0 193,787 51,033 Realized gain (loss) on shares redeemed................................ (203,503,694) (101,693,430) (15,357) (23,348,195) (21,468,476) Net change in unrealized gain (loss) on investments............................. (384,386,787) (321,227,132) (113,895) (7,220,866) (8,017,315) ------------- ------------- --------- ----------- ------------ NET GAIN (LOSS) ON INVESTMENTS............. (572,775,945) (395,069,598) (129,252) (30,375,274) (29,434,758) ------------- ------------- --------- ----------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $(583,069,533) $(396,986,581) $ (95,623) (31,491,421) $(30,743,481) ============= ============= ========= =========== ============
The accompanying notes are an integral part of these financial statements. A19
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------- AST Horizon AST Niemann AST Horizon Moderate Capital AST Western AST Growth Asset Asset Growth Asset Asset Core Investment Allocation Allocation Allocation Plus Bond Grade Bond AST Bond AST Bond AST Bond Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio 2015 Portfolio 2018 Portfolio 2019 ------------ ------------ ------------ ------------ -------------- -------------- -------------- -------------- $ 45,696,413 $ 81,547,136 $ 51,718,118 $135,345,394 $2,067,379,062 $216,007,370 $134,557,660 $98,716,693 ------------ ------------ ------------ ------------ -------------- ------------ ------------ ----------- $ 45,696,413 $ 81,547,136 $ 51,718,118 $135,345,394 $2,067,379,062 $216,007,370 $134,557,660 $98,716,693 ============ ============ ============ ============ ============== ============ ============ =========== $ 45,696,413 $ 81,547,136 $ 51,718,118 $135,345,394 $2,067,379,062 $216,007,370 $134,557,660 $98,716,693 ------------ ------------ ------------ ------------ -------------- ------------ ------------ ----------- $ 45,696,413 $ 81,547,136 $ 51,718,118 $135,345,394 $2,067,379,062 $216,007,370 $134,557,660 $98,716,693 ============ ============ ============ ============ ============== ============ ============ =========== 6,597,625 10,783,359 7,243,770 14,600,331 192,624,844 19,145,198 11,195,049 8,171,533 ============ ============ ============ ============ ============== ============ ============ =========== 6,463,425 10,563,101 7,094,392 14,322,264 189,667,804 18,799,597 11,002,262 8,019,228 $ 7.07 $ 7.72 $ 7.29 $ 9.45 $ 10.90 $ 11.49 $ 12.23 $ 12.31 $ 48,399,969 $ 85,225,337 $ 55,204,256 $140,516,232 $1,885,090,414 $192,054,809 $113,078,246 $83,017,760 SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------- AST Horizon AST Niemann AST Horizon Moderate Capital AST Western AST Growth Asset Asset Growth Asset Asset Core Investment Allocation Allocation Allocation Plus Bond Grade Bond AST Bond AST Bond AST Bond Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio 2015 Portfolio 2018 Portfolio 2019 ------------ ------------ ------------ ------------ -------------- -------------- -------------- -------------- $ 22,529 $ 17,928 $ 20,980 $ 230,514 $ 0 $ 0 $ 0 $ 0 ------------ ------------ ------------ ------------ -------------- ------------ ------------ ----------- 624,114 824,698 772,741 2,319,492 11,504,094 1,406,518 774,550 560,636 ------------ ------------ ------------ ------------ -------------- ------------ ------------ ----------- (601,585) (806,770) (751,761) (2,088,978) (11,504,094) (1,406,518) (774,550) (560,636) ------------ ------------ ------------ ------------ -------------- ------------ ------------ ----------- 16,116 8,002 22,421 20,728 0 0 0 0 (11,821,375) (10,435,429) (12,183,942) (3,167,597) 23,296,852 6,437,948 6,553,200 2,858,592 (2,734,288) (3,693,834) (3,452,573) (5,265,748) 182,288,648 23,952,561 21,479,414 15,698,933 ------------ ------------ ------------ ------------ -------------- ------------ ------------ ----------- (14,539,547) (14,121,261) (15,614,094) (8,412,617) 205,585,500 30,390,509 28,032,614 18,557,525 ------------ ------------ ------------ ------------ -------------- ------------ ------------ ----------- $(15,141,132) $(14,928,031) $(16,365,855) $(10,501,595) $ 194,081,406 $ 28,983,991 $ 27,258,064 $17,996,889 ============ ============ ============ ============ ============== ============ ============ ===========
The accompanying notes are an integral part of these financial statements. A20 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS ------------------------------------------------- AST Franklin Parametric Templeton VIP Emerging Founding AST Global Markets AST Focus Funds Real Estate Equity Four Plus Allocation Portfolio Portfolio Portfolio Fund ----------- ---------- ----------- ------------- ASSETS Investment in the portfolios, at value... $1,450,799 $2,424,251 $28,295,371 $112,594,760 ---------- ---------- ----------- ------------ Net Assets............................... $1,450,799 $2,424,251 $28,295,371 $112,594,760 ========== ========== =========== ============ NET ASSETS, representing: Accumulation units....................... $1,450,799 $2,424,251 $28,295,371 $112,594,760 ---------- ---------- ----------- ------------ $1,450,799 $2,424,251 $28,295,371 $112,594,760 ========== ========== =========== ============ Units outstanding........................ 237,426 435,245 3,789,299 16,969,563 ========== ========== =========== ============ Portfolio shares held.................... 277,399 492,734 3,757,685 20,070,367 Portfolio net asset value per share...... $ 5.23 $ 4.92 $ 7.53 $ 5.61 Investment in portfolio shares, at cost.. $1,464,757 $2,637,354 $29,208,988 $121,858,373 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS ------------------------------------------------- AST Franklin Parametric Templeton VIP Emerging Founding AST Global Markets AST Focus Funds Real Estate Equity Four Plus Allocation Portfolio Portfolio Portfolio Fund ----------- ---------- ----------- ------------- INVESTMENT INCOME Dividend income.......................... $ 0 $ 0 $ 0 $ 2,570,638 ---------- ---------- ----------- ------------ EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............. 7,385 9,409 123,579 770,717 ---------- ---------- ----------- ------------ NET INVESTMENT INCOME (LOSS)............... (7,385) (9,409) (123,579) 1,799,921 ---------- ---------- ----------- ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received..... 0 0 0 2,484,853 Realized gain (loss) on shares redeemed................................ (477,937) (324,603) (3,552,381) (25,408,030) Net change in unrealized gain (loss) on investments............................. (13,958) (213,103) (913,617) (9,263,613) ---------- ---------- ----------- ------------ NET GAIN (LOSS) ON INVESTMENTS............. (491,895) (537,706) (4,465,998) (32,186,790) ---------- ---------- ----------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS.............................. $ (499,280) $ (547,115) $(4,589,577) $(30,386,869) ========== ========== =========== ============
The accompanying notes are an integral part of these financial statements. A21 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2008
SUBACCOUNTS --------------------------- Columbia Columbia Asset Federal Allocation VS Securities VS -------------- ------------- ASSETS Investment in the portfolios, at value............................................... $ 6,456,934 $1,721,515 Receivable from Prudential Annuities Life Assurance Corporation...................... 597,259 442,182 ----------- ---------- Total Assets......................................................................... 7,054,193 2,163,697 LIABILITIES Payable to former unitholders........................................................ 448,750 357,311 ----------- ---------- NET ASSETS Attributable to accumulation units................................................... $ 6,605,443 $1,806,386 =========== ========== Units outstanding.................................................................... 563,779 147,868 =========== ========== Portfolio shares held................................................................ 692,804 162,254 Portfolio net asset value per share.................................................. $ 9.32 $ 10.61 Investment in portfolio shares, at cost.............................................. $ 8,769,005 $1,724,418 STATEMENT OF OPERATIONS For the period ended December 31, 2008 SUBACCOUNTS --------------------------- Columbia Columbia Asset Federal Allocation VS Securities VS -------------- ------------- INVESTMENT INCOME Dividend income...................................................................... $ 325,347 $ 135,175 EXPENSES Charges to the Contract owners for assuming mortality risk and expense risk and for administration...................................................................... 92,808 18,136 ----------- ---------- NET INVESTMENT INCOME (LOSS)........................................................... 232,539 117,039 ----------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received................................................. 1,173,642 0 Realized gain (loss) on shares redeemed.............................................. 147,914 (25,147) Net change in unrealized gain (loss) on investments.................................. (4,447,220) 53,271 ----------- ---------- NET GAIN (LOSS) ON INVESTMENTS......................................................... (3,125,664) 28,124 ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS........................ $(2,893,125) $ 145,163 =========== ==========
The accompanying notes are an integral part of these financial statements. A22 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS ----------------------------------------------------------------------------------------- AST AllianceBernstein Growth & AST T. Rowe Price Large-Cap AST American Century Income & Income Portfolio Growth Portfolio Growth Portfolio ------------------------------- --------------------------- --------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 --------------- -------------- ------------- ------------ ------------- ------------ OPERATIONS Net investment income (loss)...................... $ (391,174) $ (17,704,582) $ (5,005,698) $ (6,200,858) $ 1,353,960 $ 279,308 Capital gains distributions received.................... 140,605,215 61,979,608 0 0 0 0 Realized gain (loss) on shares redeemed............. (28,683,216) 205,486,914 12,664,628 15,546,208 6,290,247 33,228,197 Net change in unrealized gain (loss) on investments................. (759,981,419) (179,786,786) (155,016,834) 8,833,754 (92,309,833) (38,308,671) --------------- -------------- ------------- ------------ ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (648,450,594) 69,975,154 (147,357,904) 18,179,104 (84,665,626) (4,801,166) --------------- -------------- ------------- ------------ ------------- ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 55,627,999 50,187,874 52,893,957 100,676,819 8,548,021 16,831,924 Surrenders, withdrawals and death benefits.............. (159,566,011) (262,444,505) (27,137,434) (39,696,476) (34,874,491) (60,253,133) Net transfers between other subaccounts or fixed rate option...................... (472,058,683) (211,396,986) (109,513,341) 21,852,543 (46,925,579) (31,808,647) Withdrawal and other charges..................... (1,041,263) (1,304,181) (201,281) (190,930) (214,658) (278,495) --------------- -------------- ------------- ------------ ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (577,037,958) (424,957,798) (83,958,099) 82,641,956 (73,466,707) (75,508,351) --------------- -------------- ------------- ------------ ------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (1,225,488,552) (354,982,644) (231,316,003) 100,821,060 (158,132,333) (80,309,517) NET ASSETS Beginning of period.......... 1,903,008,754 2,257,991,398 412,631,001 311,809,941 292,154,087 372,463,604 --------------- -------------- ------------- ------------ ------------- ------------ End of period................ $ 677,520,202 $1,903,008,754 $ 181,314,998 $412,631,001 $ 134,021,754 $292,154,087 =============== ============== ============= ============ ============= ============ Beginning units.............. 100,698,285 119,941,388 33,935,991 25,617,789 18,554,889 23,133,067 --------------- -------------- ------------- ------------ ------------- ------------ Units issued................. 31,071,196 35,945,663 17,179,196 26,618,403 5,933,394 7,123,140 Units redeemed............... (70,338,859) (55,188,766) (24,334,173) (18,300,201) (10,934,266) (11,701,318) --------------- -------------- ------------- ------------ ------------- ------------ Ending units................. 61,430,622 100,698,285 26,781,014 33,935,991 13,554,017 18,554,889 =============== ============== ============= ============ ============= ============
The accompanying notes are an integral part of these financial statements. A23
SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------------------------- AST Schroders Multi Asset AST Cohen & Steers Realty AST UBS Dynamic Alpha World Strategies Portfolio AST Money Market Portfolio Portfolio Portfolio -------------------------- -------------------------------- ---------------------------- --------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ --------------- --------------- ------------- ------------- ------------- ------------ $ 24,039 $ 332,772 $ 20,814,332 $ 62,241,599 $ 7,087,690 $ 5,212,080 $ (10,675,039) $ (1,594,123) 15,276,754 8,573,630 0 0 114,059,797 57,495,321 28,959,748 0 (14,919,286) 10,418,660 0 0 (203,084,563) 70,759,071 (61,350,760) 10,478,546 (63,340,895) (7,383,339) 0 0 16,524,335 (217,246,755) (134,930,702) (15,562,553) ------------ ------------ --------------- --------------- ------------- ------------- ------------- ------------ (62,959,388) 11,941,723 20,814,332 62,241,599 (65,412,741) (83,780,283) (177,996,753) (6,678,130) ------------ ------------ --------------- --------------- ------------- ------------- ------------- ------------ 80,176,323 43,202,064 560,371,129 560,828,375 8,977,057 28,670,821 493,608,291 150,471,579 (20,962,300) (30,072,931) (1,139,581,777) (1,049,233,555) (28,628,133) (60,730,635) (49,253,252) (34,426,441) (56,621,583) (2,730,522) 1,333,403,430 744,842,473 (69,775,920) (168,212,687) 24,672,856 101,765,537 (157,115) (115,664) (1,582,366) (1,148,688) (157,486) (234,724) (691,595) (131,948) ------------ ------------ --------------- --------------- ------------- ------------- ------------- ------------ 2,435,325 10,282,947 752,610,416 255,288,605 (89,584,482) (200,507,225) 468,336,300 217,678,727 ------------ ------------ --------------- --------------- ------------- ------------- ------------- ------------ (60,524,063) 22,224,670 773,424,748 317,530,204 (154,997,223) (284,287,508) 290,339,547 211,000,597 191,018,068 168,793,398 1,920,245,372 1,602,715,168 249,537,967 533,825,475 391,123,904 180,123,307 ------------ ------------ --------------- --------------- ------------- ------------- ------------- ------------ $130,494,005 $191,018,068 $ 2,693,670,120 $ 1,920,245,372 $ 94,540,744 $ 249,537,967 $ 681,463,451 $391,123,904 ============ ============ =============== =============== ============= ============= ============= ============ 12,598,695 11,073,684 161,788,166 137,602,272 10,854,854 18,291,923 28,098,154 9,286,978 ------------ ------------ --------------- --------------- ------------- ------------- ------------- ------------ 17,591,796 9,118,217 789,490,546 1,020,147,680 5,890,709 8,544,554 126,747,543 39,681,870 (17,083,434) (7,593,206) (720,573,697) (995,961,786) (10,304,997) (15,981,623) (90,230,674) (20,870,694) ------------ ------------ --------------- --------------- ------------- ------------- ------------- ------------ 13,107,057 12,598,695 230,705,015 161,788,166 6,440,566 10,854,854 64,615,023 28,098,154 ============ ============ =============== =============== ============= ============= ============= ============
The accompanying notes are an integral part of these financial statements. A24 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS ------------------------------------------------------------------------------------ AST DeAM Large-Cap Value AST Neuberger Berman Small- AST DeAM Small-Cap Value Portfolio Cap Growth Portfolio Portfolio --------------------------- --------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 7/18/2008** 12/31/2007 ------------- ------------ ------------- ------------ ------------ ------------ OPERATIONS Net investment income (loss)...................... $ 1,648,608 $ (2,361,955) $ (1,946,039) $ (2,894,604) $ 715,575 $ (914,049) Capital gains distributions received.................... 27,876,190 20,764,434 0 0 0 11,775,750 Realized gain (loss) on shares redeemed............. (49,926,627) 31,996,682 12,847,670 18,259,056 (27,840,431) 565,112 Net change in unrealized gain (loss) on investments................. (57,631,588) (52,808,883) (82,471,506) 14,724,170 21,346,513 (31,427,929) ------------- ------------ ------------- ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (78,033,417) (2,409,722) (71,569,875) 30,088,622 (5,778,343) (20,001,116) ------------- ------------ ------------- ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 10,334,034 28,144,451 4,759,547 5,112,819 1,027,605 8,759,293 Surrenders, withdrawals and death benefits.............. (28,574,606) (46,888,977) (21,928,400) (34,261,383) (4,472,677) (12,586,673) Net transfers between other subaccounts or fixed rate option...................... (92,941,122) (20,732,931) (31,472,619) (8,671,977) (62,128,521) (20,253,303) Withdrawal and other charges..................... (133,840) (177,259) (122,067) (144,560) (28,008) (65,134) ------------- ------------ ------------- ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (111,315,534) (39,654,716) (48,763,539) (37,965,101) (65,601,601) (24,145,817) ------------- ------------ ------------- ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (189,348,951) (42,064,438) (120,333,414) (7,876,479) (71,379,944) (44,146,933) NET ASSETS Beginning of period.......... 284,269,989 326,334,427 197,276,964 205,153,443 71,379,944 115,526,877 ------------- ------------ ------------- ------------ ------------ ------------ End of period................ $ 94,921,038 $284,269,989 $ 76,943,550 $197,276,964 $ 0 $ 71,379,944 ============= ============ ============= ============ ============ ============ Beginning units.............. 17,719,513 20,638,243 15,777,446 19,450,742 5,256,032 6,905,652 ------------- ------------ ------------- ------------ ------------ ------------ Units issued................. 8,472,460 18,032,697 3,393,724 3,440,685 1,435,008 4,128,389 Units redeemed............... (16,146,653) (20,951,427) (7,954,971) (7,113,981) (6,691,040) (5,778,009) ------------- ------------ ------------- ------------ ------------ ------------ Ending units................. 10,045,320 17,719,513 11,216,199 15,777,446 0 5,256,032 ============= ============ ============= ============ ============ ============
** Date subaccount was no longer available for investment The accompanying notes are an integral part of these financial statements. A25
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------- AST Federated Aggressive AST High Yield Portfolio Growth Portfolio AST Mid-Cap Value Portfolio AST Small-Cap Value Portfolio ---------------------------- --------------------------- -------------------------- ---------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------- ------------- ------------- ------------ ------------ ------------ ------------- ------------- $ 25,309,325 $ 32,264,970 $ (5,084,368) $ (8,876,442) $ (407,042) $ (1,710,176) $ (2,060,360) $ (7,514,894) 0 0 61,223,400 43,708,510 3,530,508 2,960,211 70,469,569 87,320,424 (68,221,210) 15,388,911 (48,217,079) 31,725,418 (6,476,178) 10,234,600 (115,915,677) 30,944,371 (25,975,687) (42,645,431) (164,766,511) (25,417,898) (31,548,642) (8,757,874) (131,939,506) (170,942,010) ------------- ------------- ------------- ------------ ------------ ------------ ------------- ------------- (68,887,572) 5,008,450 (156,844,558) 41,139,588 (34,901,354) 2,726,761 (179,445,974) (60,192,109) ------------- ------------- ------------- ------------ ------------ ------------ ------------- ------------- 10,182,577 25,952,781 16,279,941 35,912,222 10,623,408 9,937,247 23,623,755 55,049,120 (51,466,020) (73,622,532) (29,212,248) (45,758,984) (13,269,210) (20,756,194) (69,925,226) (110,291,107) (62,013,052) (109,144,924) (150,518,941) (53,975,949) (25,987,909) (23,777,232) (230,604,227) (65,267,402) (198,934) (243,685) (220,199) (272,688) (84,399) (102,252) (461,098) (531,434) ------------- ------------- ------------- ------------ ------------ ------------ ------------- ------------- (103,495,429) (157,058,360) (163,671,447) (64,095,399) (28,718,110) (34,698,431) (277,366,796) (121,040,823) ------------- ------------- ------------- ------------ ------------ ------------ ------------- ------------- (172,383,001) (152,049,910) (320,516,005) (22,955,811) (63,619,464) (31,971,670) (456,812,770) (181,232,932) 380,466,535 532,516,445 462,627,358 485,583,169 111,950,360 143,922,030 775,320,844 956,553,776 ------------- ------------- ------------- ------------ ------------ ------------ ------------- ------------- $ 208,083,534 $ 380,466,535 $ 142,111,353 $462,627,358 $ 48,330,896 $111,950,360 $ 318,508,074 $ 775,320,844 ============= ============= ============= ============ ============ ============ ============= ============= 24,063,690 33,761,176 25,503,060 29,587,042 7,636,631 10,059,684 42,346,830 47,594,398 ------------- ------------- ------------- ------------ ------------ ------------ ------------- ------------- 25,236,337 25,796,047 8,669,605 14,133,809 3,806,028 4,106,563 14,584,584 20,335,375 (31,395,510) (35,493,533) (17,856,252) (18,217,791) (5,896,253) (6,529,616) (31,897,756) (25,582,943) ------------- ------------- ------------- ------------ ------------ ------------ ------------- ------------- 17,904,517 24,063,690 16,316,413 25,503,060 5,546,406 7,636,631 25,033,658 42,346,830 ============= ============= ============= ============ ============ ============ ============= =============
The accompanying notes are an integral part of these financial statements. A26 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS ------------------------------------------------------------------------------------- AST Goldman Sachs AST Goldman Sachs Mid-Cap AST Goldman Sachs Small-Cap Concentrated Growth Portfolio Growth Portfolio Value Portfolio ---------------------------- --------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------- ------------- ------------- ------------ ------------ ------------ OPERATIONS Net investment income (loss)...................... $ (5,279,582) $ (8,679,853) $ (3,539,673) $ (5,668,398) $ 70,245 $ (1,612,663) Capital gains distributions received.................... 0 0 44,213,414 0 26,824,948 45,242,043 Realized gain (loss) on shares redeemed............. 38,367,932 53,368,886 7,801,629 30,817,137 (36,397,975) 15,544,218 Net change in unrealized gain (loss) on investments................. (227,705,483) 25,650,999 (138,617,568) 23,794,436 (24,974,518) (68,565,413) ------------- ------------- ------------- ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (194,617,133) 70,340,032 (90,142,198) 48,943,175 (34,477,300) (9,391,815) ------------- ------------- ------------- ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 6,951,311 10,457,253 8,726,857 14,548,383 3,326,398 622,700 Surrenders, withdrawals and death benefits.............. (68,316,119) (119,941,238) (23,447,902) (30,717,825) (20,470,727) (36,229,906) Net transfers between other subaccounts or fixed rate option...................... (60,158,992) (19,752,402) (104,270,254) (32,146,850) (10,814,881) (26,331,852) Withdrawal and other charges..................... (441,640) (530,745) (174,121) (203,279) (101,355) (132,794) ------------- ------------- ------------- ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (121,965,440) (129,767,132) (119,165,420) (48,519,571) (28,060,565) (62,071,852) ------------- ------------- ------------- ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (316,582,573) (59,427,100) (209,307,618) 423,604 (62,537,865) (71,463,667) NET ASSETS Beginning of period.......... 558,899,934 618,327,034 307,676,958 307,253,354 144,928,908 216,392,575 ------------- ------------- ------------- ------------ ------------ ------------ End of period................ $ 242,317,361 $ 558,899,934 $ 98,369,340 $307,676,958 $ 82,391,043 $144,928,908 ============= ============= ============= ============ ============ ============ Beginning units.............. 23,248,044 27,074,050 31,877,979 38,464,330 6,019,044 8,373,435 ------------- ------------- ------------- ------------ ------------ ------------ Units issued................. 7,416,612 8,681,149 14,049,360 15,233,252 2,251,547 593,577 Units redeemed............... (14,365,889) (12,507,155) (24,295,150) (21,819,603) (3,476,239) (2,947,968) ------------- ------------- ------------- ------------ ------------ ------------ Ending units................. 16,298,767 23,248,044 21,632,189 31,877,979 4,794,352 6,019,044 ============= ============= ============= ============ ============ ============
The accompanying notes are an integral part of these financial statements. A27
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------------ AST Lord Abbett Bond- AST Marsico Capital Growth AST Large-Cap Value Portfolio Debenture Portfolio Portfolio AST MFS Growth Portfolio ---------------------------- ---------------------------- ------------------------------- --------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------- ------------- ------------- ------------- --------------- -------------- ------------- ------------ $ (439,093) $ (3,664,362) $ 25,203,667 $ 21,698,057 $ (19,901,341) $ (38,736,170) $ (3,864,432) $ (6,440,776) 23,873,091 16,352,550 13,375,767 2,142,252 71,262,098 0 0 0 18,573,975 47,974,576 (39,012,868) 22,641,911 139,848,300 241,187,163 42,841,627 43,643,008 (254,794,147) (88,823,133) (77,965,421) (21,939,467) (1,011,826,096) 86,368,081 (160,685,670) 14,311,645 ------------- ------------- ------------- ------------- --------------- -------------- ------------- ------------ (212,786,174) (28,160,369) (78,398,855) 24,542,753 (820,617,039) 288,819,074 (121,708,475) 51,513,877 ------------- ------------- ------------- ------------- --------------- -------------- ------------- ------------ 44,891,280 92,196,623 9,406,419 18,796,090 75,198,061 142,564,142 9,000,344 8,688,601 (55,246,054) (101,000,333) (48,917,580) (62,181,441) (187,299,359) (288,425,950) (47,237,535) (70,130,084) (109,896,916) (76,307,728) (110,440,600) (68,898,804) (662,375,690) (239,445,933) (47,752,564) (36,152,671) (292,582) (354,779) (270,715) (317,324) (1,226,584) (1,442,850) (268,123) (295,892) ------------- ------------- ------------- ------------- --------------- -------------- ------------- ------------ (120,544,272) (85,466,217) (150,222,476) (112,601,479) (775,703,572) (386,750,591) (86,257,878) (97,890,046) ------------- ------------- ------------- ------------- --------------- -------------- ------------- ------------ (333,330,446) (113,626,586) (228,621,331) (88,058,726) (1,596,320,611) (97,931,517) (207,966,353) (46,376,169) 581,478,708 695,105,294 494,617,468 582,676,194 2,388,547,340 2,486,478,857 394,445,179 440,821,348 ------------- ------------- ------------- ------------- --------------- -------------- ------------- ------------ $ 248,148,262 $ 581,478,708 $ 265,996,137 $ 494,617,468 $ 792,226,729 $2,388,547,340 $ 186,478,826 $394,445,179 ============= ============= ============= ============= =============== ============== ============= ============ 33,133,629 34,653,644 35,946,281 44,058,082 143,872,257 166,628,186 36,835,941 47,011,478 ------------- ------------- ------------- ------------- --------------- -------------- ------------- ------------ 13,417,653 17,180,239 20,732,688 27,826,878 42,336,971 64,349,256 10,487,736 6,828,200 (21,156,944) (18,700,254) (31,029,867) (35,938,679) (96,963,628) (87,105,185) (18,590,741) (17,003,737) ------------- ------------- ------------- ------------- --------------- -------------- ------------- ------------ 25,394,338 33,133,629 25,649,102 35,946,281 89,245,600 143,872,257 28,732,936 36,835,941 ============= ============= ============= ============= =============== ============== ============= ============
The accompanying notes are an integral part of these financial statements. A28 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS --------------------------------------------------------------------------------------- AST Neuberger Berman Mid- AST Neuberger Berman/LSV AST Small-Cap Growth Cap Growth Portfolio Mid-Cap Value Portfolio Portfolio ---------------------------- ----------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------- ------------- ------------- -------------- ------------ ------------ OPERATIONS Net investment income (loss)...................... $ (6,378,307) $ (10,330,391) $ 1,002,336 $ (10,599,355) $ (2,004,463) $ (2,743,442) Capital gains distributions received.................... 0 0 46,797,553 141,415,432 0 0 Realized gain (loss) on shares redeemed............. 36,444,921 80,859,795 (145,361,485) 94,644,150 (2,507,806) 6,839,331 Net change in unrealized gain (loss) on investments................. (256,556,838) 47,230,162 (207,346,270) (206,006,188) (49,708,805) 4,887,742 ------------- ------------- ------------- -------------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (226,490,224) 117,759,566 (304,907,866) 19,454,039 (54,221,074) 8,983,631 ------------- ------------- ------------- -------------- ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 18,987,008 30,895,857 12,206,764 35,613,369 10,392,015 18,572,251 Surrenders, withdrawals and death benefits.............. (71,092,568) (112,087,611) (95,641,470) (163,613,869) (15,631,729) (26,918,971) Net transfers between other subaccounts or fixed rate option...................... (197,420,831) 27,635,577 (261,454,509) (117,927,751) (22,117,363) (12,452,912) Withdrawal and other charges..................... (392,049) (476,991) (535,292) (698,095) (106,896) (117,467) ------------- ------------- ------------- -------------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (249,918,440) (54,033,168) (345,424,507) (246,626,346) (27,463,973) (20,917,099) ------------- ------------- ------------- -------------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (476,408,664) 63,726,398 (650,332,373) (227,172,307) (81,685,047) (11,933,468) NET ASSETS Beginning of period.......... 696,088,365 632,361,967 967,175,672 1,194,347,979 157,937,574 169,871,042 ------------- ------------- ------------- -------------- ------------ ------------ End of period................ $ 219,679,701 $ 696,088,365 $ 316,843,299 $ 967,175,672 $ 76,252,527 $157,937,574 ============= ============= ============= ============== ============ ============ Beginning units.............. 29,930,663 31,115,955 39,786,261 48,463,355 9,715,533 10,694,531 ------------- ------------- ------------- -------------- ------------ ------------ Units issued................. 9,001,045 20,316,289 10,311,099 18,993,941 6,261,684 4,854,414 Units redeemed............... (22,892,405) (21,501,581) (28,365,923) (27,671,035) (8,731,216) (5,833,412) ------------- ------------- ------------- -------------- ------------ ------------ Ending units................. 16,039,303 29,930,663 21,731,437 39,786,261 7,246,001 9,715,533 ============= ============= ============= ============== ============ ============
The accompanying notes are an integral part of these financial statements. A29
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------------ AST PIMCO Limited Maturity AST PIMCO Total Return Bond AST AllianceBernstein Core Bond Portfolio Portfolio Value Portfolio AST QMA US Equity Alpha ------------------------------ ------------------------------ --------------------------- --------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 -------------- -------------- -------------- -------------- ------------- ------------ ------------- ------------ $ 38,649,882 $ 36,465,255 $ 32,990,738 $ 9,324,429 $ 3,780,735 $ (1,794,597) $ 1,910,545 $ (868,576) 0 0 8,215,760 0 29,249,476 18,651,905 0 0 8,728,920 9,874,467 (6,119,825) 3,156,267 (46,723,136) 28,573,468 (1,925,949) 28,940,111 (45,485,860) 14,669,964 (83,970,319) 84,839,281 (114,810,365) (69,144,018) (103,425,132) (24,304,585) -------------- -------------- -------------- -------------- ------------- ------------ ------------- ------------ 1,892,942 61,009,686 (48,883,646) 97,319,977 (128,503,290) (23,713,242) (103,440,536) 3,766,950 -------------- -------------- -------------- -------------- ------------- ------------ ------------- ------------ 47,001,233 69,976,415 114,422,938 170,448,859 8,757,692 88,397,350 5,375,517 23,560,907 (144,701,339) (167,657,146) (215,663,478) (216,068,642) (22,303,574) (43,698,000) (44,706,717) (68,919,610) (409,343,496) (106,302,648) (321,453,263) (21,252,881) (97,067,621) (98,314,508) (90,047,125) (50,689,738) (711,608) (682,342) (956,608) (821,939) (147,242) (190,557) (206,553) (274,303) -------------- -------------- -------------- -------------- ------------- ------------ ------------- ------------ (507,755,210) (204,665,721) (423,650,411) (67,694,603) (110,760,745) (53,805,715) (129,584,878) (96,322,744) -------------- -------------- -------------- -------------- ------------- ------------ ------------- ------------ (505,862,268) (143,656,035) (472,534,057) 29,625,374 (239,264,035) (77,518,957) (233,025,414) (92,555,794) 1,209,317,130 1,352,973,165 1,562,280,077 1,532,654,703 372,910,344 450,429,301 345,823,595 438,379,389 -------------- -------------- -------------- -------------- ------------- ------------ ------------- ------------ $ 703,454,862 $1,209,317,130 $1,089,746,020 $1,562,280,077 $ 133,646,309 $372,910,344 $ 112,798,181 $345,823,595 ============== ============== ============== ============== ============= ============ ============= ============ 98,431,059 113,952,602 105,807,761 106,510,754 25,318,749 28,555,762 24,739,776 31,311,242 -------------- -------------- -------------- -------------- ------------- ------------ ------------- ------------ 46,498,363 44,868,895 65,696,229 55,432,228 7,955,429 17,732,612 4,872,583 9,295,399 (89,280,777) (60,390,438) (96,747,356) (56,135,221) (16,991,511) (20,969,625) (16,201,885) (15,866,865) -------------- -------------- -------------- -------------- ------------- ------------ ------------- ------------ 55,648,645 98,431,059 74,756,634 105,807,761 16,282,667 25,318,749 13,410,474 24,739,776 ============== ============== ============== ============== ============= ============ ============= ============
The accompanying notes are an integral part of these financial statements. A30 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS ------------------------------------------------------------------------------------- AST T. Rowe Price Natural AST T. Rowe Price Asset AST International Value Resources Portfolio Allocation Portfolio Portfolio --------------------------- --------------------------- --------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------- ------------ ------------- ------------ ------------- ------------ OPERATIONS Net investment income (loss)...................... $ (3,627,227) $ (4,770,526) $ (950,243) $ (3,585,315) $ 2,447,678 $ (2,688,268) Capital gains distributions received.................... 39,776,358 29,576,761 27,105,911 22,512,899 20,672,916 0 Realized gain (loss) on shares redeemed............. 36,250,567 46,252,591 (53,758,638) 5,702,790 18,698,392 37,297,323 Net change in unrealized gain (loss) on investments................. (263,589,659) 75,090,181 (206,877,614) (3,062,461) (185,832,066) 17,561,850 ------------- ------------ ------------- ------------ ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (191,189,961) 146,149,007 (234,480,584) 21,567,913 (144,013,080) 52,170,905 ------------- ------------ ------------- ------------ ------------- ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 31,247,414 41,759,160 344,473,637 397,277,733 27,079,452 67,785,127 Surrenders, withdrawals and death benefits.............. (51,509,584) (64,542,343) (68,313,162) (80,196,062) (33,179,355) (45,095,626) Net transfers between other subaccounts or fixed rate option...................... (221,797,200) 66,979,192 (340,952,502) 45,955,253 (135,696,783) 36,849,512 Withdrawal and other charges..................... (280,788) (271,020) (597,783) (292,447) (197,759) (207,502) ------------- ------------ ------------- ------------ ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (242,340,158) 43,924,989 (65,389,810) 362,744,477 (141,994,445) 59,331,511 ------------- ------------ ------------- ------------ ------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (433,530,119) 190,073,996 (299,870,394) 384,312,390 (286,007,525) 111,502,416 NET ASSETS Beginning of period.......... 567,927,153 377,853,157 838,230,216 453,917,826 418,511,242 307,008,826 ------------- ------------ ------------- ------------ ------------- ------------ End of period................ $ 134,397,034 $567,927,153 $ 538,359,822 $838,230,216 $ 132,503,717 $418,511,242 ============= ============ ============= ============ ============= ============ Beginning units.............. 13,323,238 11,346,551 52,178,275 23,736,273 20,459,495 16,917,509 ------------- ------------ ------------- ------------ ------------- ------------ Units issued................. 8,915,621 13,857,446 59,995,438 60,077,602 7,999,296 18,665,459 Units redeemed............... (16,303,864) (11,880,759) (65,300,457) (31,635,600) (15,863,903) (15,123,473) ------------- ------------ ------------- ------------ ------------- ------------ Ending units................. 5,934,995 13,323,238 46,873,256 52,178,275 12,594,888 20,459,495 ============= ============ ============= ============ ============= ============
The accompanying notes are an integral part of these financial statements. A31
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------------------- AST MFS Global Equity AST JPMorgan International AST T. Rowe Price Global Bond AST International Growth Portfolio Equity Portfolio Portfolio Portfolio --------------------------- --------------------------- --------------------------- ------------------------------ 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------- ------------ ------------- ------------ ------------- ------------ -------------- -------------- $ (326,268) $ 693,550 $ 2,765,374 $ (881,490) $ 11,051,462 $ 4,032,941 $ (2,499,695) $ (19,436,713) 29,163,782 19,847,135 0 0 10,877,207 0 169,349,841 99,688,621 (34,322,752) 30,285,396 39,501,756 72,727,635 11,571,947 2,381,362 71,170,367 176,261,626 (41,396,086) (37,131,974) (184,599,401) (36,759,487) (47,705,276) 27,365,025 (833,902,954) (28,175,778) ------------- ------------ ------------- ------------ ------------- ------------ -------------- -------------- (46,881,324) 13,694,107 (142,332,271) 35,086,658 (14,204,660) 33,779,328 (595,882,441) 228,337,756 ------------- ------------ ------------- ------------ ------------- ------------ -------------- -------------- 6,609,224 11,988,874 9,144,196 22,214,985 20,411,965 24,792,881 36,446,448 70,445,262 (18,888,748) (29,167,500) (42,494,785) (70,775,688) (49,861,052) (48,156,070) (117,930,626) (192,902,729) (49,170,561) (62,056,371) (141,323,670) (21,644,143) (195,811,429) (874,891) (316,403,348) (190,908,879) (104,694) (127,010) (226,025) (297,762) (258,851) (232,816) (732,511) (871,834) ------------- ------------ ------------- ------------ ------------- ------------ -------------- -------------- (61,554,779) (79,362,007) (174,900,284) (70,502,608) (225,519,367) (24,470,896) (398,620,037) (314,238,180) ------------- ------------ ------------- ------------ ------------- ------------ -------------- -------------- (108,436,103) (65,667,900) (317,232,555) (35,415,950) (239,724,027) 9,308,432 (994,502,478) (85,900,424) 175,143,549 240,811,449 466,812,375 502,228,325 461,638,336 452,329,904 1,450,280,781 1,536,181,205 ------------- ------------ ------------- ------------ ------------- ------------ -------------- -------------- $ 66,707,446 $175,143,549 $ 149,579,820 $466,812,375 $ 221,914,309 $461,638,336 $ 455,778,303 $1,450,280,781 ============= ============ ============= ============ ============= ============ ============== ============== 10,147,170 14,954,097 18,705,177 20,776,118 33,380,778 35,160,659 59,910,708 74,075,677 ------------- ------------ ------------- ------------ ------------- ------------ -------------- -------------- 5,288,432 7,822,766 6,262,080 14,061,306 20,304,715 23,378,020 21,142,283 25,167,864 (9,334,839) (12,629,693) (15,139,804) (16,132,247) (37,467,746) (25,157,901) (42,161,257) (39,332,833) ------------- ------------ ------------- ------------ ------------- ------------ -------------- -------------- 6,100,763 10,147,170 9,827,453 18,705,177 16,217,747 33,380,778 38,891,734 59,910,708 ============= ============ ============= ============ ============= ============ ============== ==============
The accompanying notes are an integral part of these financial statements. A32 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS --------------------------------------------------------------------------------------------- AST Aggressive Asset AST Capital Growth Asset AST Academic Strategies Asset Allocation Portfolio Allocation Portfolio Allocation Portfolio --------------------------- ------------------------------- ------------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------- ------------ --------------- -------------- --------------- -------------- OPERATIONS Net investment income (loss)...................... $ (2,573,334) $ (7,305,946) $ (42,933,122) $ (80,991,641) $ (27,541,639) $ (53,408,651) Capital gains distributions received.................... 32,481,508 2,728,801 244,343,054 14,583,579 139,855,994 10,877,421 Realized gain (loss) on shares redeemed............. (59,187,895) 14,556,485 (236,932,957) 25,705,846 (144,730,975) 10,954,491 Net change in unrealized gain (loss) on investments................. (101,437,993) 15,542,202 (1,557,881,754) 309,219,189 (1,090,596,229) 225,680,868 ------------- ------------ --------------- -------------- --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (130,717,714) 25,521,542 (1,593,404,779) 268,516,973 (1,123,012,849) 194,104,129 ------------- ------------ --------------- -------------- --------------- -------------- CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 63,361,120 160,413,749 1,073,948,392 2,015,830,885 843,023,706 1,390,847,386 Surrenders, withdrawals and death benefits.............. (17,929,965) (23,729,491) (165,390,217) (175,825,481) (176,964,659) (175,301,959) Net transfers between other subaccounts or fixed rate option...................... (326,650,915) 6,043,249 (2,415,853,142) 70,573,422 (1,580,838,899) 97,813,870 Withdrawal and other charges..................... (246,153) (219,795) (2,170,250) (1,124,258) (1,680,950) (833,013) ------------- ------------ --------------- -------------- --------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (281,465,913) 142,507,712 (1,509,465,217) 1,909,454,568 (916,460,802) 1,312,526,284 ------------- ------------ --------------- -------------- --------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (412,183,627) 168,029,254 (3,102,869,996) 2,177,971,541 (2,039,473,651) 1,506,630,413 NET ASSETS Beginning of period.......... 506,044,451 338,015,197 5,234,700,606 3,056,729,065 3,809,076,484 2,302,446,071 ------------- ------------ --------------- -------------- --------------- -------------- End of period................ $ 93,860,824 $506,044,451 $ 2,131,830,610 $5,234,700,606 $ 1,769,602,833 $3,809,076,484 ============= ============ =============== ============== =============== ============== Beginning units.............. 41,419,918 29,758,635 437,914,459 274,471,163 324,958,850 209,952,238 ------------- ------------ --------------- -------------- --------------- -------------- Units issued................. 20,441,280 47,683,825 258,249,959 416,597,034 196,817,100 278,937,880 Units redeemed............... (48,353,268) (36,022,542) (415,972,234) (253,153,738) (295,623,649) (163,931,268) ------------- ------------ --------------- -------------- --------------- -------------- Ending units................. 13,507,930 41,419,918 280,192,184 437,914,459 226,152,301 324,958,850 ============= ============ =============== ============== =============== ==============
The accompanying notes are an integral part of these financial statements. A33
SUBACCOUNTS (Continued) ---------------------------------------------------------------------------------------------------------------- AST Balanced Asset Allocation AST Preservation Asset Evergreen VA Diversified Portfolio Allocation Portfolio Davis Value Portfolio Capital Builder Fund ------------------------------ ---------------------------- ------------------------- ----------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 -------------- -------------- -------------- ------------ ------------ ----------- ----------- ---------- $ (10,774,250) $ (14,769,914) $ (11,135,700) $ (7,156,000) $ (64,412) $ (50,298) $ (54,284) $ 158,182 43,152,414 2,456,706 31,620,808 0 65,862 508,895 0 0 (107,371,531) 5,866,997 (40,236,623) 18,894,570 588,702 1,474,486 35,176 123,941 (318,759,610) 62,009,167 (199,858,526) 16,874,669 (3,376,137) (1,476,311) (1,705,903) 26,398 -------------- -------------- -------------- ------------ ------------ ----------- ----------- ---------- (393,752,977) 55,562,956 (219,610,041) 28,613,239 (2,785,985) 456,772 (1,725,011) 308,521 -------------- -------------- -------------- ------------ ------------ ----------- ----------- ---------- 580,853,517 453,400,089 576,169,356 228,973,369 0 3,114 0 3,896 (93,433,782) (56,825,592) (86,630,666) (32,421,611) (1,469,543) (2,113,963) (932,155) (936,068) (378,539,679) 129,479,706 209,177,299 93,752,664 (5,935,398) 633,349 (1,246,180) 14,398 (744,348) (233,183) (733,584) (129,253) (14,590) (20,617) (12,516) (15,449) -------------- -------------- -------------- ------------ ------------ ----------- ----------- ---------- 108,135,708 525,821,020 697,982,405 290,175,169 (7,419,531) (1,498,117) (2,190,851) (933,223) -------------- -------------- -------------- ------------ ------------ ----------- ----------- ---------- (285,617,269) 581,383,976 478,372,364 318,788,408 (10,205,516) (1,041,345) (3,915,862) (624,702) 1,143,187,943 561,803,967 568,795,602 250,007,194 12,664,219 13,705,564 5,549,534 6,174,236 -------------- -------------- -------------- ------------ ------------ ----------- ----------- ---------- $ 857,570,674 $1,143,187,943 $1,047,167,966 $568,795,602 $ 2,458,703 $12,664,219 $ 1,633,672 $5,549,534 ============== ============== ============== ============ ============ =========== =========== ========== 98,553,829 51,724,638 50,337,854 23,553,542 967,569 1,082,056 504,798 590,857 -------------- -------------- -------------- ------------ ------------ ----------- ----------- ---------- 151,769,097 103,329,126 199,802,668 83,601,551 71,166 259,921 30,702 40,492 (144,627,197) (56,499,935) (132,705,726) (56,817,239) (715,772) (374,408) (258,288) (126,551) -------------- -------------- -------------- ------------ ------------ ----------- ----------- ---------- 105,695,729 98,553,829 117,434,796 50,337,854 322,963 967,569 277,212 504,798 ============== ============== ============== ============ ============ =========== =========== ==========
The accompanying notes are an integral part of these financial statements. A34 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS ------------------------------------------------------------------------------- Evergreen VA International Evergreen VA Fundamental Evergreen VA Growth Fund Equity Fund Large Cap Fund ------------------------- -------------------------- ------------------------ 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ----------- ------------ ------------ ----------- ----------- OPERATIONS Net investment income (loss)...................... $ (393,953) $ (711,470) $ (1,123,522) $ 991,138 $ (6,912) $ (36,522) Capital gains distributions received.................... 0 8,359,322 2,145,587 8,182,510 0 674,528 Realized gain (loss) on shares redeemed............. (6,882,813) 3,010,088 (10,732,803) 9,494,317 126,434 695,681 Net change in unrealized gain (loss) on investments................. (5,953,519) (6,960,318) (26,936,772) (6,309,111) (2,648,725) (695,066) ------------ ----------- ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (13,230,285) 3,697,622 (36,647,510) 12,358,854 (2,529,203) 638,621 ------------ ----------- ------------ ------------ ----------- ----------- CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 975,177 3,746,033 4,935,155 11,207,927 1,070 8,216 Surrenders, withdrawals and death benefits.............. (3,783,520) (5,451,331) (9,565,246) (12,987,070) (1,035,018) (1,210,200) Net transfers between other subaccounts or fixed rate option...................... (12,814,816) (4,084,260) (35,055,503) 10,908,784 (548,384) (382,058) Withdrawal and other charges..................... (29,623) (37,019) (73,933) (79,138) (20,709) (23,170) ------------ ----------- ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (15,652,782) (5,826,577) (39,759,527) 9,050,503 (1,603,041) (1,607,212) ------------ ----------- ------------ ------------ ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (28,883,067) (2,128,955) (76,407,037) 21,409,357 (4,132,244) (968,591) NET ASSETS Beginning of period.......... 41,697,454 43,826,409 112,461,091 91,051,734 8,513,645 9,482,236 ------------ ----------- ------------ ------------ ----------- ----------- End of period................ $ 12,814,387 $41,697,454 $ 36,054,054 $112,461,091 $ 4,381,401 $ 8,513,645 ============ =========== ============ ============ =========== =========== Beginning units.............. 3,052,468 3,503,745 5,408,779 5,001,170 591,659 703,512 ------------ ----------- ------------ ------------ ----------- ----------- Units issued................. 1,102,636 1,749,567 2,230,936 5,621,093 104,248 65,084 Units redeemed............... (2,542,546) (2,200,844) (4,567,119) (5,213,484) (236,125) (176,937) ------------ ----------- ------------ ------------ ----------- ----------- Ending units................. 1,612,558 3,052,468 3,072,596 5,408,779 459,782 591,659 ============ =========== ============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements. A35
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- Evergreen VA Special Values Evergreen VA Diversified Columbia Money Market Evergreen VA Omega Fund Fund Income Builder Fund Fund, VS ------------------------- -------------------------- ------------------------ ------------------------ 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ (232,554) $ (234,092) $ (25,851) $ (9,803) $ 222,955 $ 224,546 $ 33,796 $ 102,340 0 0 0 1,034,019 0 60,729 0 0 301,066 3,313,947 (1,175,110) 591,009 (481,553) 89,376 0 0 (5,523,238) (975,111) (159,118) (2,305,094) (1,168,076) (220,473) 0 0 ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- (5,454,726) 2,104,744 (1,360,079) (689,869) (1,426,674) 154,178 33,796 102,340 ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- 808,988 1,390,887 6,323 8,598 487 1,155 18,181 (7,819) (1,897,926) (3,198,089) (644,837) (918,077) (920,615) (670,281) (3,197,414) (2,860,059) (3,863,847) (608,072) (2,703,283) (329,513) (867,806) (349,384) 2,351,429 2,740,338 (31,502) (35,365) (14,981) (19,921) (12,704) (15,202) (3,678) (3,631) ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- (4,984,287) (2,450,639) (3,356,778) (1,258,913) (1,800,638) (1,033,712) (831,482) (131,171) ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- (10,439,013) (345,895) (4,716,857) (1,948,782) (3,227,312) (879,534) (797,686) (28,831) 21,935,258 22,281,153 6,903,311 8,852,093 5,989,186 6,868,720 2,568,441 2,597,272 ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- $ 11,496,245 $21,935,258 $ 2,186,454 $ 6,903,311 $ 2,761,874 $ 5,989,186 $ 1,770,755 $ 2,568,441 ============ =========== =========== =========== =========== =========== =========== =========== 2,125,961 2,450,162 315,639 368,393 401,513 468,336 234,422 246,470 ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- 850,872 1,462,945 44,399 49,710 53,061 88,691 299,662 270,236 (1,350,733) (1,787,146) (214,396) (102,464) (190,543) (155,514) (374,938) (282,284) ------------ ----------- ----------- ----------- ----------- ----------- ----------- ----------- 1,626,100 2,125,961 145,642 315,639 264,031 401,513 159,146 234,422 ============ =========== =========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. A36 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS --------------------------------------------------------------------------- Columbia Small Company Columbia Large Cap Growth Prudential SP International Growth Fund, VS Fund, VS Growth Portfolio ---------------------- ------------------------ ------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ---------- ---------- ----------- ----------- ------------ ----------- OPERATIONS Net investment income (loss)...................... $ (7,674) $ (11,179) $ (57,390) $ (70,068) $ 2,162 $ (397,635) Capital gains distributions received.................... 89,784 0 0 0 5,080,602 6,884,448 Realized gain (loss) on shares redeemed............. 95,998 128,089 247,817 531,919 (11,883,799) 6,012,268 Net change in unrealized gain (loss) on investments................. (561,548) 13,100 (3,803,094) 1,040,669 (10,097,586) (5,465,838) ---------- ---------- ----------- ----------- ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (383,440) 130,010 (3,612,667) 1,502,520 (16,898,621) 7,033,243 ---------- ---------- ----------- ----------- ------------ ----------- CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 0 (207) 1,247 3,406 404,939 451,787 Surrenders, withdrawals and death benefits.............. (140,315) (131,215) (1,724,072) (1,491,334) (4,059,299) (6,862,153) Net transfers between other subaccounts or fixed rate option...................... (82,276) (82,318) (555,630) (1,278,161) (19,881,232) 7,655,455 Withdrawal and other charges..................... (1,335) (1,617) (11,601) (13,489) (19,433) (29,112) ---------- ---------- ----------- ----------- ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (223,926) (215,357) (2,290,056) (2,779,578) (23,555,025) 1,215,977 ---------- ---------- ----------- ----------- ------------ ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (607,366) (85,347) (5,902,723) (1,277,058) (40,453,646) 8,249,220 NET ASSETS Beginning of period.......... 1,069,300 1,154,647 10,477,992 11,755,050 51,415,115 43,165,895 ---------- ---------- ----------- ----------- ------------ ----------- End of period................ $ 461,934 $1,069,300 $ 4,575,269 $10,477,992 $ 10,961,469 $51,415,115 ========== ========== =========== =========== ============ =========== Beginning units.............. 50,726 61,522 799,831 1,028,389 3,043,271 3,003,554 ---------- ---------- ----------- ----------- ------------ ----------- Units issued................. 60 1,017 8,340 5,880 1,411,916 3,781,478 Units redeemed............... (13,379) (11,813) (215,930) (234,438) (3,131,837) (3,741,761) ---------- ---------- ----------- ----------- ------------ ----------- Ending units................. 37,407 50,726 592,241 799,831 1,323,350 3,043,271 ========== ========== =========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements. A37
SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------------------- Gartmore NVIT Developing First Trust Target Focus Four Global Dividend Target 15 Markets Fund The DOW DART 10 Portfolio Portfolio Portfolio --------------------------- ------------------------- ---------------------------- --------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------- ------------ ----------- ------------ ----------- ----------- ------------- ------------ $ (2,410,673) $ (4,406,002) $ (164,358) $ (359,001) $ (144,785) $ (80,220) $ (1,535,338) $ (2,761,248) 84,858,152 51,064,989 0 0 0 0 0 0 (71,831,967) 44,763,374 (1,040,468) 2,229,490 (2,931,822) 447,884 (3,821,114) 25,019,980 (193,436,082) 27,984,471 (2,152,120) (2,151,440) (2,331,362) (212,530) (40,779,761) (9,583,405) ------------- ------------ ----------- ------------ ----------- ----------- ------------- ------------ (182,820,570) 119,406,832 (3,356,946) (280,951) (5,407,969) 155,134 (46,136,213) 12,675,327 ------------- ------------ ----------- ------------ ----------- ----------- ------------- ------------ 19,875,891 39,356,712 549,073 1,849,118 6,226,958 248,350 10,622,095 35,807,455 (33,887,733) (53,564,679) (1,649,763) (2,437,444) (1,359,748) (1,070,540) (12,283,700) (20,460,276) (195,725,471) 50,203,241 (4,623,594) (10,887,401) (7,446,956) 7,638,026 (89,773,692) 16,954,640 (190,035) (215,114) (11,921) (16,136) (8,382) (5,192) (75,274) (85,597) ------------- ------------ ----------- ------------ ----------- ----------- ------------- ------------ (209,927,348) 35,780,160 (5,736,205) (11,491,863) (2,588,128) 6,810,644 (91,510,571) 32,216,222 ------------- ------------ ----------- ------------ ----------- ----------- ------------- ------------ (392,747,918) 155,186,992 (9,093,151) (11,772,814) (7,996,097) 6,965,778 (137,646,784) 44,891,549 478,757,546 323,570,554 16,177,157 27,949,971 12,697,701 5,731,923 173,717,090 128,825,541 ------------- ------------ ----------- ------------ ----------- ----------- ------------- ------------ $ 86,009,628 $478,757,546 $ 7,084,006 $ 16,177,157 $ 4,701,604 $12,697,701 $ 36,070,306 $173,717,090 ============= ============ =========== ============ =========== =========== ============= ============ 14,104,129 14,181,235 1,360,710 2,310,852 1,491,846 1,128,706 8,705,117 7,224,534 ------------- ------------ ----------- ------------ ----------- ----------- ------------- ------------ 8,344,908 17,637,155 686,443 1,612,884 2,332,740 946,307 3,889,163 12,861,370 (15,807,420) (17,714,261) (1,190,047) (2,563,026) (2,617,011) (583,167) (9,394,819) (11,380,787) ------------- ------------ ----------- ------------ ----------- ----------- ------------- ------------ 6,641,617 14,104,129 857,106 1,360,710 1,207,575 1,491,846 3,199,461 8,705,117 ============= ============ =========== ============ =========== =========== ============= ============
The accompanying notes are an integral part of these financial statements. A38 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS ------------------------------------------------------------------------------- NASDAQ Target 15 Portfolio S&P Target 24 Portfolio Target Managed VIP Portfolio ------------------------ ------------------------ --------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ----------- ----------- ----------- ----------- ------------- ------------ OPERATIONS Net investment income (loss)...................... $ (84,337) $ (126,996) $ (168,951) $ (261,488) $ (1,424,734) $ (3,285,388) Capital gains distributions received.................... 0 0 0 0 0 0 Realized gain (loss) on shares redeemed............. (3,497,912) 1,471,731 (1,778,345) 741,588 1,549,266 17,576,113 Net change in unrealized gain (loss) on investments................. (1,234,742) 83,416 (1,748,561) (151,056) (48,545,342) (1,161,311) ----------- ----------- ----------- ----------- ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (4,816,991) 1,428,151 (3,695,857) 329,044 (48,420,810) 13,129,414 ----------- ----------- ----------- ----------- ------------- ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 693,042 903,050 1,088,019 2,994,280 4,117,189 20,126,283 Surrenders, withdrawals and death benefits.............. (907,475) (1,235,474) (4,109,795) (1,315,152) (10,194,046) (16,252,184) Net transfers between other subaccounts or fixed rate option...................... (3,101,913) 2,910,865 (1,309,886) (2,250,495) (87,309,390) (46,553,690) Withdrawal and other charges..................... (4,871) (6,094) (17,227) (16,208) (107,615) (155,112) ----------- ----------- ----------- ----------- ------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (3,321,217) 2,572,347 (4,348,889) (587,575) (93,493,862) (42,834,703) ----------- ----------- ----------- ----------- ------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (8,138,208) 4,000,498 (8,044,746) (258,531) (141,914,672) (29,705,289) NET ASSETS Beginning of period.......... 11,316,956 7,316,458 15,797,835 16,056,366 174,192,519 203,897,808 ----------- ----------- ----------- ----------- ------------- ------------ End of period................ $ 3,178,748 $11,316,956 $ 7,753,089 $15,797,835 $ 32,277,847 $174,192,519 =========== =========== =========== =========== ============= ============ Beginning units.............. 856,515 686,462 1,424,893 1,496,950 12,029,440 15,281,221 ----------- ----------- ----------- ----------- ------------- ------------ Units issued................. 715,125 1,236,164 1,344,344 990,858 3,401,514 8,620,725 Units redeemed............... (1,071,125) (1,066,111) (1,777,048) (1,062,915) (11,222,104) (11,872,506) ----------- ----------- ----------- ----------- ------------- ------------ Ending units................. 500,515 856,515 992,189 1,424,893 4,208,850 12,029,440 =========== =========== =========== =========== ============= ============
The accompanying notes are an integral part of these financial statements. A39
SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------------------- The DOW Target Dividend Value Line Target 25 Portfolio Portfolio ProFund VP Asia 30 ProFund VP Banks ----------------------------- -------------------------- --------------------------- ------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ----------- ------------ ------------ ------------- ------------ ------------ ----------- $ (453,594) $ (611,353) $ (756,487) $ (1,649,125) $ (953,952) $ (2,650,815) $ (4,047) $ 147,036 0 0 0 0 7,442,206 0 0 0 (2,217,568) 3,333,434 (7,614,457) 7,004,619 (63,995,253) 77,228,833 (10,890,814) (2,352,518) (19,280,454) 3,430,262 (14,108,911) (6,204,445) (10,824,163) (22,040,130) (978,037) (585,082) ------------ ----------- ------------ ------------ ------------- ------------ ------------ ----------- (21,951,616) 6,152,343 (22,479,855) (848,951) (68,331,162) 52,537,888 (11,872,898) (2,790,564) ------------ ----------- ------------ ------------ ------------- ------------ ------------ ----------- 3,194,013 5,419,985 4,356,801 16,958,884 6,731,429 20,195,180 1,113,897 1,329,100 (8,176,403) (5,240,270) (5,383,779) (8,010,283) (10,852,390) (20,001,165) (1,426,034) (1,211,579) (1,853,190) (6,045,029) (38,988,621) (26,042,618) (114,002,334) 4,539,932 20,277,748 (744,406) (24,096) (26,325) (47,304) (55,679) (68,467) (77,426) (10,518) (5,519) ------------ ----------- ------------ ------------ ------------- ------------ ------------ ----------- (6,859,676) (5,891,639) (40,062,903) (17,149,696) (118,191,762) 4,656,521 19,955,093 (632,404) ------------ ----------- ------------ ------------ ------------- ------------ ------------ ----------- (28,811,292) 260,704 (62,542,758) (17,998,647) (186,522,924) 57,194,409 8,082,195 (3,422,968) 44,021,012 43,760,308 82,923,224 100,921,871 229,468,373 172,273,964 9,868,250 13,291,218 ------------ ----------- ------------ ------------ ------------- ------------ ------------ ----------- $ 15,209,720 $44,021,012 $ 20,380,466 $ 82,923,224 $ 42,945,449 $229,468,373 $ 17,950,445 $ 9,868,250 ============ =========== ============ ============ ============= ============ ============ =========== 3,219,457 3,690,582 7,364,976 8,908,522 7,318,886 8,238,599 978,439 961,152 ------------ ----------- ------------ ------------ ------------- ------------ ------------ ----------- 1,689,788 1,593,740 4,061,139 7,564,240 15,422,807 34,400,771 23,835,400 6,315,686 (2,486,435) (2,064,865) (8,339,159) (9,107,786) (19,759,712) (35,320,484) (21,275,591) (6,298,399) ------------ ----------- ------------ ------------ ------------- ------------ ------------ ----------- 2,422,810 3,219,457 3,086,956 7,364,976 2,981,981 7,318,886 3,538,248 978,439 ============ =========== ============ ============ ============= ============ ============ ===========
The accompanying notes are an integral part of these financial statements. A40 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS --------------------------------------------------------------------------------- ProFund VP Bear ProFund VP Biotechnology ProFund VP Basic Materials --------------------------- ------------------------ -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------- ------------ ----------- ----------- ------------ ------------ OPERATIONS Net investment income (loss)...................... $ 269,388 $ 995,313 $ (261,526) $ (201,487) $ (1,194,966) $ (961,895) Capital gains distributions received.................... 0 0 0 0 0 0 Realized gain (loss) on shares redeemed............. 28,090,225 (4,551,808) (4,625,844) (911,792) (20,146,961) 11,983,636 Net change in unrealized gain (loss) on investments................. (2,416,610) (158,292) 1,491,544 (1,218,303) (14,995,436) 933,227 ------------- ------------ ----------- ----------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. 25,943,003 (3,714,787) (3,395,826) (2,331,582) (36,337,363) 11,954,968 ------------- ------------ ----------- ----------- ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 2,049,263 987,250 689,237 512,539 5,525,684 8,864,895 Surrenders, withdrawals and death benefits.............. (8,636,059) (5,232,670) (2,287,445) (2,573,473) (10,255,836) (9,072,221) Net transfers between other subaccounts or fixed rate option...................... (132,855) 9,118,682 10,647,379 8,696,611 (50,080,030) 69,507,252 Withdrawal and other charges..................... (44,946) (25,975) (10,279) (8,021) (55,095) (40,198) ------------- ------------ ----------- ----------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (6,764,597) 4,847,287 9,038,892 6,627,656 (54,865,277) 69,259,728 ------------- ------------ ----------- ----------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... 19,178,406 1,132,500 5,643,066 4,296,074 (91,202,640) 81,214,696 NET ASSETS Beginning of period.......... 29,520,523 28,388,023 16,585,585 12,289,511 111,823,806 30,609,110 ------------- ------------ ----------- ----------- ------------ ------------ End of period................ $ 48,698,929 $ 29,520,523 $22,228,651 $16,585,585 $ 20,621,166 $111,823,806 ============= ============ =========== =========== ============ ============ Beginning units.............. 4,416,686 4,204,752 1,762,789 1,291,025 6,010,400 2,130,572 ------------- ------------ ----------- ----------- ------------ ------------ Units issued................. 123,989,856 99,137,778 9,267,914 7,899,874 19,110,357 32,416,176 Units redeemed............... (123,145,085) (98,925,844) (8,826,010) (7,428,110) (22,736,285) (28,536,348) ------------- ------------ ----------- ----------- ------------ ------------ Ending units................. 5,261,457 4,416,686 2,204,693 1,762,789 2,384,472 6,010,400 ============= ============ =========== =========== ============ ============
The accompanying notes are an integral part of these financial statements. A41
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------ ProFund VP ProFund VP ProFund VP UltraBull ProFund VP Bull Consumer Services Consumer Goods -------------------------- --------------------------- ------------------------ ------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ ------------ ------------- ----------- ----------- ------------ ----------- $ 7,716 $ (477,430) $ (1,332,602) $ (1,285,499) $ (42,997) $ (101,955) $ (49,214) $ (127,531) 0 4,237,192 1,132,567 1,322,855 0 0 377,964 0 (23,575,521) (2,471,728) (37,161,445) 6,424,520 (1,269,224) (226,149) (4,700,887) 1,539,797 1,784,878 (2,251,381) 1,545,975 (3,650,949) 161,956 (155,137) (111,971) (861,787) ------------ ------------ ------------ ------------- ----------- ----------- ------------ ----------- (21,782,927) (963,347) (35,815,505) 2,810,927 (1,150,265) (483,241) (4,484,108) 550,479 ------------ ------------ ------------ ------------- ----------- ----------- ------------ ----------- 631,236 2,760,719 973,059 3,545,828 182,459 530,210 914,026 719,302 (4,260,914) (6,147,562) (12,543,524) (17,791,653) (287,670) (451,651) (1,300,664) (1,851,758) 24,273,405 437,128 (28,543,333) (86,624,455) 3,862,715 (3,643,498) (16,443,587) 12,139,607 (19,644) (29,853) (82,460) (83,552) (2,145) (3,389) (6,071) (7,539) ------------ ------------ ------------ ------------- ----------- ----------- ------------ ----------- 20,624,083 (2,979,568) (40,196,258) (100,953,832) 3,755,359 (3,568,328) (16,836,296) 10,999,612 ------------ ------------ ------------ ------------- ----------- ----------- ------------ ----------- (1,158,844) (3,942,915) (76,011,763) (98,142,905) 2,605,094 (4,051,569) (21,320,404) 11,550,091 49,950,234 53,893,149 128,911,345 227,054,250 2,446,978 6,498,547 30,124,280 18,574,189 ------------ ------------ ------------ ------------- ----------- ----------- ------------ ----------- $ 48,791,390 $ 49,950,234 $ 52,899,582 $ 128,911,345 $ 5,052,072 $ 2,446,978 $ 8,803,876 $30,124,280 ============ ============ ============ ============= =========== =========== ============ =========== 4,135,400 4,654,736 10,228,754 18,245,182 239,644 601,586 2,348,631 1,569,847 ------------ ------------ ------------ ------------- ----------- ----------- ------------ ----------- 35,818,464 26,579,294 79,152,399 74,417,266 3,781,978 4,166,245 6,596,518 9,361,091 (28,227,993) (27,098,630) (82,569,150) (82,433,694) (3,204,762) (4,528,187) (7,945,382) (8,582,307) ------------ ------------ ------------ ------------- ----------- ----------- ------------ ----------- 11,725,871 4,135,400 6,812,003 10,228,754 816,860 239,644 999,767 2,348,631 ============ ============ ============ ============= =========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements. A42 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS ----------------------------------------------------------------------------------- ProFund VP Oil & Gas ProFund VP Europe 30 ProFund VP Financials --------------------------- -------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------- ------------ ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)...................... $ (2,146,300) $ (2,715,646) $ 109,940 $ 263,996 $ (64,302) $ (214,548) Capital gains distributions received.................... 8,010,542 4,189,010 5,687,632 865,529 0 0 Realized gain (loss) on shares redeemed............. (24,089,803) 26,880,300 (23,170,283) 14,793,820 (14,692,005) (2,242,419) Net change in unrealized gain (loss) on investments................. (33,580,439) 10,665,648 (5,948,370) (7,985,579) 362,168 (3,139,583) ------------- ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (51,806,000) 39,019,312 (23,321,081) 7,937,766 (14,394,139) (5,596,550) ------------- ------------ ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 8,421,066 15,536,260 2,057,270 7,105,755 3,479,552 2,810,645 Surrenders, withdrawals and death benefits.............. (17,420,502) (19,198,537) (8,103,366) (16,481,204) (1,877,322) (4,179,991) Net transfers between other subaccounts or fixed rate option...................... (71,775,383) 9,515,726 (45,358,814) (31,791,285) 9,273,915 (17,300,745) Withdrawal and other charges..................... (95,399) (94,786) (29,512) (56,329) (13,582) (13,873) ------------- ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (80,870,218) 5,758,663 (51,434,422) (41,223,063) 10,862,563 (18,683,964) ------------- ------------ ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (132,676,218) 44,777,975 (74,755,503) (33,285,297) (3,531,576) (24,280,514) NET ASSETS Beginning of period.......... 188,297,744 143,519,769 92,831,733 126,117,030 20,400,301 44,680,815 ------------- ------------ ------------ ------------ ------------ ------------ End of period................ $ 55,621,526 $188,297,744 $ 18,076,230 $ 92,831,733 $ 16,868,725 $ 20,400,301 ============= ============ ============ ============ ============ ============ Beginning units.............. 7,070,957 7,128,072 5,887,592 9,520,644 1,779,162 3,162,737 ------------- ------------ ------------ ------------ ------------ ------------ Units issued................. 17,885,916 30,040,226 13,068,423 43,234,150 20,583,883 10,228,546 Units redeemed............... (21,465,318) (30,097,341) (16,665,790) (46,867,202) (19,302,334) (11,612,121) ------------- ------------ ------------ ------------ ------------ ------------ Ending units................. 3,491,555 7,070,957 2,290,225 5,887,592 3,060,711 1,779,162 ============= ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A43
SUBACCOUNTS (Continued) -------------------------------------------------------------------------------------------------------------- ProFund VP U.S. Government Plus ProFund VP Health Care ACCESS VP High Yield Fund ProFund VP Industrials -------------------------- -------------------------- -------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 98,343 $ 1,296,555 $ (316,842) $ (829,605) $ 1,047,349 $ 1,249,287 $ (246,689) $ (379,939) 0 0 0 0 0 253,447 472,306 0 8,327,542 2,612,621 (9,564,909) 6,344,500 (3,130,092) (751,288) (8,024,093) 1,623,314 24,252,590 1,768,134 408,200 (3,064,569) 666,569 (341,674) (590,021) (691,733) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 32,678,475 5,677,310 (9,473,551) 2,450,326 (1,416,174) 409,772 (8,388,497) 551,642 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 4,061,311 1,186,022 2,010,935 2,747,762 71,488 557,453 551,470 1,139,306 (12,725,187) (8,561,714) (3,011,399) (7,150,639) (6,326,984) (4,055,193) (2,377,892) (2,915,594) (9,313,633) 58,128,356 (26,147,452) (4,148,277) 2,553,257 (1,338,235) (4,577,339) 15,135,347 (58,301) (45,033) (21,756) (25,478) (7,136) (7,161) (10,447) (10,252) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ (18,035,810) 50,707,631 (27,169,672) (8,576,632) (3,709,375) (4,843,136) (6,414,208) 13,348,807 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 14,642,665 56,384,941 (36,643,223) (6,126,306) (5,125,549) (4,433,364) (14,802,705) 13,900,449 87,800,417 31,415,476 57,795,006 63,921,312 26,923,864 31,357,228 23,481,158 9,580,709 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $102,443,082 $ 87,800,417 $ 21,151,783 $ 57,795,006 $ 21,798,315 $ 26,923,864 $ 8,678,453 $ 23,481,158 ============ ============ ============ ============ ============ ============ ============ ============ 7,086,946 2,703,814 5,321,093 6,342,850 2,274,168 2,745,535 1,594,141 738,445 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 45,247,995 55,034,044 16,589,739 19,306,974 12,796,059 11,509,725 7,846,470 13,430,608 (46,843,993) (50,650,912) (19,180,929) (20,328,731) (13,109,207) (11,981,092) (8,395,880) (12,574,912) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 5,490,948 7,086,946 2,729,903 5,321,093 1,961,020 2,274,168 1,044,731 1,594,141 ============ ============ ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A44 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS --------------------------------------------------------------------------------- ProFund VP Internet ProFund VP Japan ProFund VP Precious Metals ------------------------- -------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ----------- ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)...................... $ (103,848) $ (97,076) $ 1,480,967 $ 1,530,873 $ 1,580,995 $ 2,294,619 Capital gains distributions received.................... 668,253 0 0 0 8,251,593 0 Realized gain (loss) on shares redeemed............. (3,864,514) 373,841 (10,682,844) (2,844,520) (44,946,113) 12,704,273 Net change in unrealized gain (loss) on investments................. (224,844) (266,008) 1,936,228 (2,831,176) (19,503,001) 1,642,755 ------------ ----------- ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (3,524,953) 10,757 (7,265,649) (4,144,823) (54,616,526) 16,641,647 ------------ ----------- ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 592,701 1,669,222 842,661 3,676,297 10,315,936 10,607,776 Surrenders, withdrawals and death benefits.............. (771,297) (1,687,210) (1,741,883) (5,935,533) (15,119,088) (14,277,815) Net transfers between other subaccounts or fixed rate option...................... (7,268,334) 4,036,044 (5,735,434) (36,643,066) (14,928,270) 17,962,260 Withdrawal and other charges..................... (4,666) (5,246) (9,964) (23,921) (85,570) (68,809) ------------ ----------- ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (7,451,596) 4,012,810 (6,644,620) (38,926,223) (19,816,992) 14,223,412 ------------ ----------- ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (10,976,549) 4,023,567 (13,910,269) (43,071,046) (74,433,518) 30,865,059 NET ASSETS Beginning of period.......... 13,298,831 9,275,264 24,755,484 67,826,530 155,610,072 124,745,013 ------------ ----------- ------------ ------------ ------------ ------------ End of period................ $ 2,322,282 $13,298,831 $ 10,845,215 $ 24,755,484 $ 81,176,554 $155,610,072 ============ =========== ============ ============ ============ ============ Beginning units.............. 647,306 487,568 1,734,202 4,321,658 8,057,488 7,735,448 ------------ ----------- ------------ ------------ ------------ ------------ Units issued................. 1,206,611 4,369,018 8,559,035 17,346,877 29,717,732 34,486,182 Units redeemed............... (1,646,181) (4,209,280) (8,919,595) (19,934,333) (31,533,861) (34,164,142) ------------ ----------- ------------ ------------ ------------ ------------ Ending units................. 207,736 647,306 1,373,642 1,734,202 6,241,359 8,057,488 ============ =========== ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A45
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------- ProFund VP Mid-Cap Growth ProFund VP Mid-Cap Value ProFund VP Pharmaceuticals ProFund VP Real Estate -------------------------- -------------------------- ------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ $ (708,236) $ (1,298,722) $ (645,655) $ (1,072,996) $ 19,699 $ (119,236) $ (388,974) $ (444,635) 7,081,159 6,386,740 7,713,524 1,841,381 0 0 271,021 1,688,286 (23,766,187) 210,042 (29,926,524) 8,068,195 (3,629,209) (9,955) (15,676,529) (8,535,690) (4,098,775) (129,354) 4,236,882 (7,128,681) 714,070 118,656 4,040,802 (4,826,580) ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ (21,492,039) 5,168,706 (18,621,773) 1,707,899 (2,895,440) (10,535) (11,753,680) (12,118,619) ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ 1,654,123 3,436,635 1,051,285 5,376,018 878,363 2,117,907 1,559,958 7,343,219 (7,263,918) (10,455,388) (7,001,921) (11,672,406) (1,009,333) (2,198,128) (3,230,997) (7,200,460) (18,216,777) (661,847) (22,217,643) (34,672,699) (590,618) (8,535,100) (2,345,581) (29,298,928) (34,846) (38,465) (29,169) (41,675) (8,743) (10,452) (20,700) (31,585) ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ (23,861,418) (7,719,065) (28,197,448) (41,010,762) (730,331) (8,625,773) (4,037,320) (29,187,754) ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ (45,353,457) (2,550,359) (46,819,221) (39,302,863) (3,625,771) (8,636,308) (15,791,000) (41,306,373) 64,542,009 67,092,368 65,127,246 104,430,109 12,439,058 21,075,366 28,410,648 69,717,021 ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ $ 19,188,552 $ 64,542,009 $ 18,308,025 $ 65,127,246 $ 8,813,287 $ 12,439,058 $ 12,619,648 $ 28,410,648 ============ ============ ============ ============ =========== ============ ============ ============ 4,690,015 5,245,813 4,472,653 6,923,953 1,426,223 2,412,795 1,572,169 3,041,223 ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ 21,826,775 46,075,271 13,540,678 27,042,120 9,841,955 12,044,838 9,793,434 21,750,815 (24,147,294) (46,631,069) (15,960,871) (29,493,420) (9,976,352) (13,031,410) (10,153,296) (23,219,869) ------------ ------------ ------------ ------------ ----------- ------------ ------------ ------------ 2,369,496 4,690,015 2,052,460 4,472,653 1,291,826 1,426,223 1,212,307 1,572,169 ============ ============ ============ ============ =========== ============ ============ ============
The accompanying notes are an integral part of these financial statements. A46 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS -------------------------------------------------------------------------------- ProFund VP Rising Rates Opportunity ProFund VP NASDAQ-100 ProFund VP Semiconductor -------------------------- -------------------------- ------------------------ 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ ------------ ------------ ----------- ----------- OPERATIONS Net investment income (loss)...................... $ 1,479,254 $ 1,558,880 $ (718,556) $ (1,363,571) $ (48,659) $ (111,218) Capital gains distributions received.................... 0 0 0 0 0 0 Realized gain (loss) on shares redeemed............. (10,984,877) (5,411,250) (23,127,285) 9,225,791 (1,723,023) 148,468 Net change in unrealized gain (loss) on investments................. (3,036,562) (1,752,421) 1,616,093 (1,158,932) (334,400) (314) ------------ ------------ ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (12,542,185) (5,604,791) (22,229,748) 6,703,288 (2,106,082) 36,936 ------------ ------------ ------------ ------------ ----------- ----------- CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 803,235 2,556,856 944,547 3,375,601 285,625 86,736 Surrenders, withdrawals and death benefits.............. (3,754,958) (6,336,299) (5,547,492) (11,202,446) (375,721) (1,748,051) Net transfers between other subaccounts or fixed rate option...................... (1,296,514) (26,421,499) (47,987,046) 28,110,472 (1,889,029) 971,248 Withdrawal and other charges..................... (25,792) (38,765) (43,738) (50,618) (1,739) (3,664) ------------ ------------ ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (4,274,029) (30,239,707) (52,633,729) 20,233,009 (1,980,864) (693,731) ------------ ------------ ------------ ------------ ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (16,816,214) (35,844,498) (74,863,477) 26,936,297 (4,086,946) (656,795) NET ASSETS Beginning of period.......... 35,125,766 70,970,264 94,213,373 67,277,076 5,296,440 5,953,235 ------------ ------------ ------------ ------------ ----------- ----------- End of period................ $ 18,309,552 $ 35,125,766 $ 19,349,896 $ 94,213,373 $ 1,209,494 $ 5,296,440 ============ ============ ============ ============ =========== =========== Beginning units.............. 5,406,511 10,313,304 8,873,160 7,599,738 707,006 842,301 ------------ ------------ ------------ ------------ ----------- ----------- Units issued................. 53,553,102 55,340,107 52,011,916 82,514,143 2,481,635 9,672,802 Units redeemed............... (54,230,076) (60,246,900) (57,011,079) (81,240,721) (2,858,716) (9,808,097) ------------ ------------ ------------ ------------ ----------- ----------- Ending units................. 4,729,537 5,406,511 3,873,997 8,873,160 329,925 707,006 ============ ============ ============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements. A47
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------------- ProFund VP Small-Cap ProFund VP Short Growth ProFund VP Short Mid-Cap NASDAQ-100 ProFund VP Short Small-Cap -------------------------- -------------------------- --------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------ $ (548,775) $ (1,233,892) $ 56,102 $ 189,325 $ 571,709 $ 1,470,206 $ 679,127 $ 342,109 600,722 10,679,126 0 0 0 0 0 0 (15,954,512) (10,525,394) 2,925,437 (373,955) 7,746,333 (5,794,133) 6,095,409 841,733 1,058,974 (1,715,420) (237,901) (15,226) (1,238,649) (288,413) (985,936) (38,503) ------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------ (14,843,591) (2,795,580) 2,743,638 (199,856) 7,079,393 (4,612,340) 5,788,600 1,145,339 ------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------ 987,059 3,734,214 67,880 208,172 2,008,316 780,260 97,670 379,674 (5,342,206) (10,703,202) (1,014,776) (470,016) (2,816,655) (3,161,015) (2,761,219) (2,566,465) 5,712,948 (32,518,721) 172,547 (3,203,297) (6,056,742) (5,244,240) (10,906,490) 1,343,659 (26,054) (39,091) (2,950) (1,862) (21,129) (20,651) (7,789) (8,133) ------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------ 1,331,747 (39,526,800) (777,299) (3,467,003) (6,886,210) (7,645,646) (13,577,828) (851,265) ------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------ (13,511,844) (42,322,380) 1,966,339 (3,666,859) 193,183 (12,257,986) (7,789,228) 294,074 36,924,801 79,247,181 1,436,856 5,103,715 11,446,026 23,704,012 12,741,860 12,447,786 ------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------ $ 23,412,957 $ 36,924,801 $ 3,403,195 $ 1,436,856 $ 11,639,209 $ 11,446,026 $ 4,952,632 $ 12,741,860 ============ ============ ============ ============ ============ ============= ============ ============ 2,403,287 5,414,930 183,108 616,685 2,314,336 4,161,359 1,562,566 1,564,369 ------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------ 14,800,575 31,898,795 14,816,571 16,996,708 67,835,076 133,681,404 32,823,911 70,775,536 (14,705,628) (34,910,438) (14,667,428) (17,430,285) (68,532,197) (135,528,427) (33,891,904) (70,777,339) ------------ ------------ ------------ ------------ ------------ ------------- ------------ ------------ 2,498,234 2,403,287 332,251 183,108 1,617,215 2,314,336 494,573 1,562,566 ============ ============ ============ ============ ============ ============= ============ ============
The accompanying notes are an integral part of these financial statements. A48 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS ---------------------------------------------------------------------------------- ProFund VP ProFund VP Small-Cap Value ProFund VP Technology Telecommunications -------------------------- -------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)...................... $ (451,595) $ (790,784) $ (137,122) $ (271,632) $ 603,093 $ (564,145) Capital gains distributions received.................... 2,987,019 5,396,689 0 0 4,714,561 154,513 Realized gain (loss) on shares redeemed............. (24,533,315) (3,075,722) (5,105,932) 1,904,584 (14,737,912) 6,993,715 Net change in unrealized gain (loss) on investments................. 5,294,165 (5,752,978) (345,562) (461,432) 1,530,851 (3,026,516) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (16,703,726) (4,222,795) (5,588,616) 1,171,520 (7,889,407) 3,557,567 ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 1,063,165 4,025,061 209,127 607,692 837,362 6,969,294 Surrenders, withdrawals and death benefits.............. (3,528,231) (5,839,730) (1,556,965) (3,502,191) (1,630,940) (7,846,075) Net transfers between other subaccounts or fixed rate option...................... 5,551,891 (64,297,653) (16,307,897) 14,421,097 (13,688,784) (11,213,581) Withdrawal and other charges..................... (19,838) (25,638) (4,649) (7,453) (13,164) (30,250) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ 3,066,987 (66,137,960) (17,660,384) 11,519,145 (14,495,526) (12,120,612) ------------ ------------ ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (13,636,739) (70,360,755) (23,249,000) 12,690,665 (22,384,933) (8,563,045) NET ASSETS Beginning of period.......... 30,153,917 100,514,672 27,214,619 14,523,954 35,538,019 44,101,064 ------------ ------------ ------------ ------------ ------------ ------------ End of period................ $ 16,517,178 $ 30,153,917 $ 3,965,619 $ 27,214,619 $ 13,153,086 $ 35,538,019 ============ ============ ============ ============ ============ ============ Beginning units.............. 2,208,392 6,877,715 3,423,035 2,300,676 3,377,679 5,122,795 ------------ ------------ ------------ ------------ ------------ ------------ Units issued................. 15,947,694 17,639,985 7,162,844 19,884,883 9,007,427 28,928,530 Units redeemed............... (16,273,484) (22,309,308) (9,592,146) (18,762,524) (10,055,794) (30,673,646) ------------ ------------ ------------ ------------ ------------ ------------ Ending units................. 1,882,602 2,208,392 993,733 3,423,035 2,329,312 3,377,679 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A49
SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------------------- ProFund VP ProFund VP UltraMid-Cap UltraNASDAQ-100 ProFund VP UltraSmall-Cap ProFund VP Utilities -------------------------- ---------------------------- -------------------------- --------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------ $ (185,731) $ (1,151,102) $ (612,938) $ (975,140) $ (15,051) $ (168,444) $ 163,104 $ (768,315) 0 1,657,662 0 0 0 0 1,416,378 1,109,981 (28,303,496) (3,683,462) (48,651,573) 14,380,129 (15,030,787) (6,022,267) (24,270,299) 14,467,941 2,766,367 (265,895) 2,194,234 (3,407,379) 1,067,110 63,409 (6,060,031) (4,092,928) ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------ (25,722,860) (3,442,797) (47,070,277) 9,997,610 (13,978,728) (6,127,302) (28,750,848) 10,716,679 ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------ 1,332,363 7,237,442 1,814,531 1,901,053 351,877 1,091,284 5,471,586 13,215,301 (4,064,512) (9,273,569) (3,720,963) (7,232,539) (2,005,012) (4,906,882) (10,195,575) (15,163,779) (13,577,223) (8,382,163) (26,594,889) 24,979,371 12,842,983 (24,540,597) (117,652,737) 70,815,459 (24,439) (44,035) (49,127) (59,897) (11,555) (18,645) (50,769) (64,234) ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------ (16,333,811) (10,462,325) (28,550,448) 19,587,988 11,178,293 (28,374,840) (122,427,495) 68,802,747 ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------ (42,056,671) (13,905,122) (75,620,725) 29,585,598 (2,800,435) (34,502,142) (151,178,343) 79,519,426 64,811,745 78,716,867 94,290,483 64,704,885 22,491,958 56,994,100 183,429,130 103,909,704 ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------ $ 22,755,074 $ 64,811,745 $ 18,669,758 $ 94,290,483 $ 19,691,523 $ 22,491,958 $ 32,250,787 $183,429,130 ============ ============ ============= ============= ============ ============ ============= ============ 3,252,355 4,459,972 39,701,568 40,480,462 1,630,340 3,417,950 10,701,461 7,381,263 ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------ 24,456,862 44,823,444 126,707,787 194,852,292 14,747,341 18,150,861 14,193,690 32,754,129 (23,552,859) (46,031,061) (139,973,939) (195,631,186) (12,398,012) (19,938,471) (21,868,603) (29,433,931) ------------ ------------ ------------- ------------- ------------ ------------ ------------- ------------ 4,156,358 3,252,355 26,435,416 39,701,568 3,979,669 1,630,340 3,026,548 10,701,461 ============ ============ ============= ============= ============ ============ ============= ============
The accompanying notes are an integral part of these financial statements. A50 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS -------------------------------------------------------------------------------- ProFund VP Large-Cap Growth ProFund VP Large-Cap Value Rydex VT Nova -------------------------- -------------------------- ------------------------ 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ ------------ ------------ ----------- ----------- OPERATIONS Net investment income (loss)...................... $ (888,174) $ (1,177,562) $ 224,667 $ (1,244,615) $ (35,289) $ (12,754) Capital gains distributions received.................... 1,005,470 1,384,240 6,545,241 5,037,853 0 0 Realized gain (loss) on shares redeemed............. (23,027,881) 6,085,460 (31,035,851) 3,180,466 46,377 633,954 Net change in unrealized gain (loss) on investments................. 1,182,705 (3,722,468) 2,526,668 (7,973,921) (2,404,541) (571,755) ------------ ------------ ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (21,727,880) 2,569,670 (21,739,275) (1,000,217) (2,393,453) 49,445 ------------ ------------ ------------ ------------ ----------- ----------- CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 986,336 3,315,205 589,610 2,703,968 17,072 (4,932) Surrenders, withdrawals and death benefits.............. (10,364,558) (11,191,105) (7,424,092) (16,150,222) (693,462) (1,354,724) Net transfers between other subaccounts or fixed rate option...................... (20,741,953) 4,372,555 (9,480,791) (67,923,315) (243,280) (830,019) Withdrawal and other charges..................... (36,342) (35,830) (25,603) (50,896) (4,749) (6,484) ------------ ------------ ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (30,156,517) (3,539,175) (16,340,876) (81,420,465) (924,419) (2,196,159) ------------ ------------ ------------ ------------ ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (51,884,397) (969,505) (38,080,151) (82,420,682) (3,317,872) (2,146,714) NET ASSETS Beginning of period.......... 74,680,616 75,650,121 69,711,468 152,132,150 5,108,783 7,255,497 ------------ ------------ ------------ ------------ ----------- ----------- End of period................ $ 22,796,219 $ 74,680,616 $ 31,631,317 $ 69,711,468 $ 1,790,911 $ 5,108,783 ============ ============ ============ ============ =========== =========== Beginning units.............. 6,418,447 6,835,604 5,753,874 12,385,897 670,258 949,995 ------------ ------------ ------------ ------------ ----------- ----------- Units issued................. 20,628,903 28,411,156 20,669,348 41,025,923 56,403 23,146 Units redeemed............... (23,966,928) (28,828,313) (21,981,528) (47,657,946) (201,216) (302,883) ------------ ------------ ------------ ------------ ----------- ----------- Ending units................. 3,080,422 6,418,447 4,441,694 5,753,874 525,445 670,258 ============ ============ ============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements. A51
SUBACCOUNTS (Continued) ---------------------------------------------------------------------------------------------------------- Rydex VT Inverse S&P 500 AIM V.I. Financial Services Rydex VT NASDAQ-100 Strategy AIM V.I. Dynamics Fund Fund ------------------------- ----------------------- -------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ----------- ---------- ---------- ------------ ------------ ------------ ------------ $ (180,727) $ (300,740) $ (3,956) $ 14,959 $ (567,765) $ (1,114,077) $ 182,122 $ (40,718) 0 0 0 0 0 0 1,613,843 3,280,015 (2,071,954) (3,069,291) (87,428) (156,980) (2,230,983) 6,621,123 (16,342,249) 6,054,077 (5,191,457) 6,810,575 241,012 136,665 (19,960,954) 947,861 (6,450,388) (22,776,808) ------------ ----------- --------- --------- ------------ ------------ ------------ ------------ (7,444,138) 3,440,544 149,628 (5,356) (22,759,702) 6,454,907 (20,996,672) (13,483,434) ------------ ----------- --------- --------- ------------ ------------ ------------ ------------ 15,768 44,680 0 (1,671) 1,717,309 4,421,233 2,310,087 3,037,088 (2,343,702) (4,363,125) (123,679) (83,646) (5,829,977) (11,256,403) (4,036,962) (8,850,724) (1,464,177) (2,910,701) (91,861) (164,685) (16,761,678) (4,635,697) (4,848,256) (16,855,108) (27,470) (40,688) (575) (563) (44,456) (61,002) (27,547) (46,190) ------------ ----------- --------- --------- ------------ ------------ ------------ ------------ (3,819,581) (7,269,834) (216,115) (250,565) (20,918,802) (11,531,869) (6,602,678) (22,714,934) ------------ ----------- --------- --------- ------------ ------------ ------------ ------------ (11,263,719) (3,829,290) (66,487) (255,921) (43,678,504) (5,076,962) (27,599,350) (36,198,368) 20,181,336 24,010,626 480,422 736,343 61,006,736 66,083,698 39,354,939 75,553,307 ------------ ----------- --------- --------- ------------ ------------ ------------ ------------ $ 8,917,617 $20,181,336 $ 413,935 $ 480,422 $ 17,328,232 $ 61,006,736 $ 11,755,589 $ 39,354,939 ============ =========== ========= ========= ============ ============ ============ ============ 2,687,008 3,716,598 56,187 85,606 4,321,211 5,239,057 3,134,693 4,622,845 ------------ ----------- --------- --------- ------------ ------------ ------------ ------------ 49,282 84,173 1,859 25,594 1,436,218 3,197,483 2,899,724 2,007,292 (658,455) (1,113,763) (22,622) (55,013) (3,197,129) (4,115,329) (3,664,882) (3,495,444) ------------ ----------- --------- --------- ------------ ------------ ------------ ------------ 2,077,835 2,687,008 35,424 56,187 2,560,300 4,321,211 2,369,535 3,134,693 ============ =========== ========= ========= ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A52 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS ---------------------------------------------------------------------------------- AIM V.I. Global Health Care Wells Fargo Advantage VT Fund AIM V.I. Technology Fund Asset Allocation Fund -------------------------- -------------------------- -------------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)...................... $ (1,014,624) $ (1,522,979) $ (510,150) $ (826,324) $ 516,987 $ 647,856 Capital gains distributions received.................... 10,887,267 0 0 0 4,299,202 1,325,177 Realized gain (loss) on shares redeemed............. 4,373,349 11,989,367 1,475,952 4,939,710 (2,611,345) 39,212 Net change in unrealized gain (loss) on investments................. (38,381,275) (1,461,035) (21,342,898) (636,723) (21,105,690) 3,434,674 ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (24,135,283) 9,005,353 (20,377,096) 3,476,663 (18,900,846) 5,446,919 ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 2,556,963 3,768,535 660,973 864,689 1,644 (6,589) Surrenders, withdrawals and death benefits.............. (10,715,316) (15,489,160) (5,395,009) (9,813,625) (13,084,295) (25,746,288) Net transfers between other subaccounts or fixed rate option...................... (17,431,334) (8,624,657) (4,958,159) (5,286,227) (5,485,200) (4,472,432) Withdrawal and other charges..................... (82,970) (84,166) (51,113) (64,227) (33,751) (50,090) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (25,672,657) (20,429,448) (9,743,308) (14,299,390) (18,601,602) (30,275,399) ------------ ------------ ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (49,807,940) (11,424,095) (30,120,404) (10,822,727) (37,502,448) (24,828,480) NET ASSETS Beginning of period.......... 90,893,321 102,317,416 51,563,167 62,385,894 73,917,312 98,745,792 ------------ ------------ ------------ ------------ ------------ ------------ End of period................ $ 41,085,381 $ 90,893,321 $ 21,442,763 $ 51,563,167 $ 36,414,864 $ 73,917,312 ============ ============ ============ ============ ============ ============ Beginning units.............. 6,150,509 7,589,339 8,248,236 10,801,420 2,721,353 3,848,459 ------------ ------------ ------------ ------------ ------------ ------------ Units issued................. 4,213,666 3,839,422 1,504,594 2,721,160 55,925 80,017 Units redeemed............... (6,396,992) (5,278,252) (3,475,072) (5,274,344) (871,978) (1,207,123) ------------ ------------ ------------ ------------ ------------ ------------ Ending units................. 3,967,183 6,150,509 6,277,758 8,248,236 1,905,300 2,721,353 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A53
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------- Wells Fargo Advantage VT Wells Fargo Advantage VT Wells Fargo Advantage VT Wells Fargo Advantage VT Equity Income Fund C&B Large Cap Value Fund Large Company Core Fund International Core Fund -------------------------- ------------------------ ------------------------ ----------------------- 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ------------ ----------- ----------- ----------- ----------- ----------- ---------- $ 38,039 $ (62,579) $ 7,185 $ (61,464) $ (31,084) $ (274,159) $ 9,474 $ (41,762) 2,901,833 2,155,192 0 0 0 0 374,639 207,783 (4,265,804) 3,826,425 571,788 2,285,767 (1,393,867) (2,019,701) (164,034) 394,270 (7,067,869) (5,510,395) (4,451,221) (2,495,401) (4,404,905) 2,675,937 (1,243,212) (239,318) ------------ ------------ ----------- ----------- ----------- ----------- ----------- ---------- (8,393,801) 408,643 (3,872,248) (271,098) (5,829,856) 382,077 (1,023,133) 320,973 ------------ ------------ ----------- ----------- ----------- ----------- ----------- ---------- 1,164,437 3,276,975 8,997 58,054 19,748 7,984 7,436 (7,111) (3,087,821) (5,221,258) (2,105,164) (4,174,932) (2,024,199) (4,310,572) (346,810) (636,914) (7,673,607) (8,743,494) (841,909) (676,916) (598,031) (949,959) (405,062) 399,413 (17,628) (19,870) (5,089) (6,850) (6,050) (8,786) (1,819) (2,122) ------------ ------------ ----------- ----------- ----------- ----------- ----------- ---------- (9,614,619) (10,707,647) (2,943,165) (4,800,644) (2,608,532) (5,261,333) (746,255) (246,734) ------------ ------------ ----------- ----------- ----------- ----------- ----------- ---------- (18,008,420) (10,299,004) (6,815,413) (5,071,742) (8,438,388) (4,879,256) (1,769,388) 74,239 28,699,296 38,998,300 12,736,660 17,808,402 16,323,095 21,202,351 2,740,167 2,665,928 ------------ ------------ ----------- ----------- ----------- ----------- ----------- ---------- $ 10,690,876 $ 28,699,296 $ 5,921,247 $12,736,660 $ 7,884,707 $16,323,095 $ 970,779 $2,740,167 ============ ============ =========== =========== =========== =========== =========== ========== 2,029,147 2,821,977 1,162,646 1,591,535 822,836 1,079,378 227,655 240,001 ------------ ------------ ----------- ----------- ----------- ----------- ----------- ---------- 824,559 1,592,635 135,583 167,293 9,253 14,344 38,304 105,462 (1,635,793) (2,385,465) (442,797) (596,182) (166,960) (270,886) (112,430) (117,808) ------------ ------------ ----------- ----------- ----------- ----------- ----------- ---------- 1,217,913 2,029,147 855,432 1,162,646 665,129 822,836 153,529 227,655 ============ ============ =========== =========== =========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements. A54 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS ------------------------------------------------------------------------------ Wells Fargo Advantage VT Wells Fargo Advantage VT Wells Fargo Advantage VT Large Company Growth Fund Money Market Fund Small Cap Growth Fund ------------------------ -------------------------- ------------------------ 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ----------- ----------- ------------ ------------ ----------- ----------- OPERATIONS Net investment income (loss)...................... $ (66,244) $ (145,679) $ 198,319 $ 790,804 $ (42,406) $ (74,289) Capital gains distributions received.................... 0 0 0 0 784,343 778,814 Realized gain (loss) on shares redeemed............. 364,464 276,367 0 0 173,443 113,297 Net change in unrealized gain (loss) on investments................. (2,987,364) 514,174 0 0 (2,451,220) (204,670) ----------- ----------- ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (2,689,144) 644,862 198,319 790,804 (1,535,840) 613,152 ----------- ----------- ------------ ------------ ----------- ----------- CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 0 1,580 0 (34,331) 0 3,364 Surrenders, withdrawals and death benefits.............. (1,629,729) (2,020,084) (19,730,200) (24,232,850) (821,077) (1,026,761) Net transfers between other subaccounts or fixed rate option...................... (1,256,028) (605,042) 16,819,515 22,643,587 (485,341) (343,476) Withdrawal and other charges..................... (5,594) (6,638) (8,908) (9,686) (3,039) (3,730) ----------- ----------- ------------ ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (2,891,351) (2,630,184) (2,919,593) (1,633,280) (1,309,457) (1,370,603) ----------- ----------- ------------ ------------ ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (5,580,495) (1,985,322) (2,721,274) (842,476) (2,845,297) (757,451) NET ASSETS Beginning of period.......... 8,643,925 10,629,247 24,425,651 25,268,127 4,545,477 5,302,928 ----------- ----------- ------------ ------------ ----------- ----------- End of period................ $ 3,063,430 $ 8,643,925 $ 21,704,377 $ 24,425,651 $ 1,700,180 $ 4,545,477 =========== =========== ============ ============ =========== =========== Beginning units.............. 891,899 1,164,432 1,804,364 1,926,769 336,563 441,783 ----------- ----------- ------------ ------------ ----------- ----------- Units issued................. 80,677 122,619 1,500,370 2,166,245 19,965 35,643 Units redeemed............... (430,364) (395,152) (1,704,039) (2,288,650) (128,713) (140,863) ----------- ----------- ------------ ------------ ----------- ----------- Ending units................. 542,212 891,899 1,600,695 1,804,364 227,815 336,563 =========== =========== ============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements. A55
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------------ Wells Fargo Advantage VT AST First Trust Balanced AST First Trust Capital AST Advanced Strategies Total Return Bond Fund Target Portfolio Appreciation Target Portfolio Portfolio ------------------------ ------------------------------ ------------------------------ ------------------------------ 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ----------- ----------- -------------- -------------- -------------- -------------- -------------- -------------- $ 309,218 $ 370,833 $ 1,557,832 $ (13,590,949) $ (10,293,588) $ (17,154,322) $ (1,916,983) $ (14,825,778) 0 0 17,837,287 363,764 15,114,536 988,883 27,850,964 1,428,984 (138,830) (213,183) (132,701,215) 3,377,195 (203,503,694) 6,094,020 (101,693,430) 2,988,920 (101,108) 354,473 (279,892,444) 47,974,997 (384,386,787) 64,620,842 (321,227,132) 65,925,385 ----------- ----------- -------------- -------------- -------------- -------------- -------------- -------------- 69,280 512,123 (393,198,540) 38,125,007 (583,069,533) 54,549,423 (396,986,581) 55,517,511 ----------- ----------- -------------- -------------- -------------- -------------- -------------- -------------- 2,645 10,183 438,973,327 552,844,037 617,034,673 681,538,652 485,302,055 580,951,644 (1,879,875) (2,953,602) (48,405,108) (36,077,943) (47,417,948) (37,356,892) (48,625,188) (41,405,070) (378,399) (900,319) (594,701,864) 130,672,423 (757,961,524) 193,124,716 (537,889,522) 83,929,680 (3,530) (7,203) (593,618) (160,173) (840,963) (189,948) (730,840) (170,411) ----------- ----------- -------------- -------------- -------------- -------------- -------------- -------------- (2,259,159) (3,850,941) (204,727,263) 647,278,344 (189,185,762) 837,116,528 (101,943,495) 623,305,843 ----------- ----------- -------------- -------------- -------------- -------------- -------------- -------------- (2,189,879) (3,338,818) (597,925,803) 685,403,351 (772,255,295) 891,665,951 (498,930,076) 678,823,354 10,374,997 13,713,815 1,144,841,327 459,437,976 1,390,642,534 498,976,583 1,216,235,940 537,412,586 ----------- ----------- -------------- -------------- -------------- -------------- -------------- -------------- $ 8,185,118 $10,374,997 $ 546,915,524 $1,144,841,327 $ 618,387,239 $1,390,642,534 $ 717,305,864 $1,216,235,940 =========== =========== ============== ============== ============== ============== ============== ============== 726,344 1,003,059 102,271,015 43,588,111 122,278,610 47,802,399 106,913,305 50,595,548 ----------- ----------- -------------- -------------- -------------- -------------- -------------- -------------- 59,434 20,802 102,372,033 117,598,802 159,236,242 152,194,988 118,575,596 112,381,079 (220,591) (297,517) (128,568,127) (58,915,898) (187,912,214) (77,718,777) (133,864,380) (56,063,322) ----------- ----------- -------------- -------------- -------------- -------------- -------------- -------------- 565,187 726,344 76,074,921 102,271,015 93,602,638 122,278,610 91,624,521 106,913,305 =========== =========== ============== ============== ============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements. A56 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS -------------------------------------------------------------------------- Columbia High Yield AST CLS Growth Asset AST CLS Moderate Asset Fund, VS Allocation Portfolio Allocation Portfolio -------------------- ------------------------- ------------------------- 01/01/2008 01/01/2007 01/01/2008 11/19/2007* 01/01/2008 11/19/2007* to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ---------- ---------- ------------ ----------- ------------ ----------- OPERATIONS Net investment income (loss)...................... $ 33,629 $ 17,156 $ (1,116,147) $ (15,681) $ (1,308,723) $ (10,309) Capital gains distributions received.................... 0 0 193,787 0 51,033 0 Realized gain (loss) on shares redeemed............. (15,357) 2,502 (23,348,195) (28,693) (21,468,476) 7,508 Net change in unrealized gain (loss) on investments................. (113,895) (15,598) (7,220,866) 83,563 (8,017,315) 15,493 --------- -------- ------------ ----------- ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. (95,623) 4,060 (31,491,421) 39,189 (30,743,481) 12,692 --------- -------- ------------ ----------- ------------ ----------- CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 209 353 109,860,136 3,695,286 147,790,676 2,275,332 Surrenders, withdrawals and death benefits.............. (39,379) (58,025) (1,429,750) (12,049) (2,448,989) (1,065,062) Net transfers between other subaccounts or fixed rate option...................... (28,058) 2,267 (30,401,042) 9,820,670 (5,573,343) 6,676,054 Withdrawal and other charges..................... (223) (276) (85,431) (284) (109,471) (22) --------- -------- ------------ ----------- ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ (67,451) (55,681) 77,943,913 13,503,623 139,658,873 7,886,302 --------- -------- ------------ ----------- ------------ ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS...................... (163,074) (51,621) 46,452,492 13,542,812 108,915,392 7,898,994 NET ASSETS Beginning of period.......... 411,604 463,225 13,542,812 0 7,898,994 0 --------- -------- ------------ ----------- ------------ ----------- End of period................ $ 248,530 $411,604 $ 59,995,304 $13,542,812 $116,814,386 $ 7,898,994 ========= ======== ============ =========== ============ =========== Beginning units.............. 38,085 43,213 1,177,501 0 787,150 0 --------- -------- ------------ ----------- ------------ ----------- Units issued................. 2,269 553 25,006,574 1,895,177 35,605,422 938,813 Units redeemed............... (9,475) (5,681) (17,974,344) (717,676) (20,023,500) (151,663) --------- -------- ------------ ----------- ------------ ----------- Ending units................. 30,879 38,085 8,209,731 1,177,501 16,369,072 787,150 ========= ======== ============ =========== ============ ===========
* Date subaccount became available for investment The accompanying notes are an integral part of these financial statements. A57
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------- AST Horizon Growth Asset AST Horizon Moderate Asset AST Niemann Capital Growth AST Western Asset Core Plus Allocation Portfolio Allocation Portfolio Asset Allocation Portfolio Bond Portfolio ------------------------ ------------------------ ------------------------ ------------------------- 01/01/2008 11/19/2007* 01/01/2008 11/19/2007* 01/01/2008 11/19/2007* 01/01/2008 11/19/2007* to to to to to to to to 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ------------ ----------- ------------ ----------- ------------ ----------- ------------ ----------- $ (601,585) $ (5,604) $ (806,770) $ (3,389) $ (751,761) $ (6,671) $ (2,088,978) $ (48,096) 16,116 0 8,002 0 22,421 0 20,728 0 (11,821,375) 8,482 (10,435,429) 3 (12,183,942) (5,736) (3,167,597) 0 (2,734,288) 30,732 (3,693,834) 15,633 (3,452,573) (33,565) (5,265,748) 94,910 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ----------- (15,141,132) 33,610 (14,928,031) 12,247 (16,365,855) (45,972) (10,501,595) 46,814 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ----------- 71,609,379 1,725,204 90,452,726 1,163,392 69,508,408 2,159,147 119,562,503 14,648,253 (844,325) (1,153) (1,096,842) (32,341) (965,686) (7,666) (3,667,243) (50,908) (14,805,847) 3,174,633 4,355,116 1,684,298 (5,412,740) 2,911,056 (1,815,435) 17,217,560 (53,917) (39) (63,410) (19) (62,448) (126) (94,303) (252) ------------ ---------- ------------ ---------- ------------ ---------- ------------ ----------- 55,905,290 4,898,645 93,647,590 2,815,330 63,067,534 5,062,411 113,985,522 31,814,653 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ----------- 40,764,158 4,932,255 78,719,559 2,827,577 46,701,679 5,016,439 103,483,927 31,861,467 4,932,255 0 2,827,577 0 5,016,439 0 31,861,467 0 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ----------- $ 45,696,413 $4,932,255 $ 81,547,136 $2,827,577 $ 51,718,118 $5,016,439 $135,345,394 $31,861,467 ============ ========== ============ ========== ============ ========== ============ =========== 484,269 0 278,218 0 502,005 0 3,194,572 0 ------------ ---------- ------------ ---------- ------------ ---------- ------------ ----------- 17,570,476 601,445 22,843,234 294,105 19,783,397 824,545 28,441,903 3,468,998 (11,457,120) (117,176) (12,338,093) (15,887) (13,041,632) (322,540) (17,036,144) (274,426) ------------ ---------- ------------ ---------- ------------ ---------- ------------ ----------- 6,597,625 484,269 10,783,359 278,218 7,243,770 502,005 14,600,331 3,194,572 ============ ========== ============ ========== ============ ========== ============ ===========
The accompanying notes are an integral part of these financial statements. A58 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2008 and 2007
SUBACCOUNTS -------------------------------------------------------------------------------------- AST Parametric AST Investment AST Global Emerging Grade Bond AST Bond AST Bond AST Bond Real Estate Markets Equity Portfolio Portfolio 2015 Portfolio 2018 Portfolio 2019 Portfolio Portfolio -------------- -------------- -------------- -------------- ----------- -------------- 01/28/2008* 01/28/2008* 01/28/2008* 01/28/2008* 07/21/2008* 07/21/2008* to to to to to to 12/31/2008 12/31/2008 12/31/2008 12/31/2008 12/31/2008 12/31/2008 -------------- -------------- -------------- -------------- ----------- -------------- OPERATIONS Net investment income (loss)...................... $ (11,504,094) $ (1,406,518) $ (774,550) $ (560,636) $ (7,385) $ (9,409) Capital gains distributions received.................... 0 0 0 0 0 0 Realized gain (loss) on shares redeemed............. 23,296,852 6,437,948 6,553,200 2,858,592 (477,937) (324,603) Net change in unrealized gain (loss) on investments................. 182,288,648 23,952,561 21,479,414 15,698,933 (13,958) (213,103) -------------- ------------ ------------ ----------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............. 194,081,406 28,983,991 27,258,064 17,996,889 (499,280) (547,115) -------------- ------------ ------------ ----------- ---------- ---------- CONTRACT OWNER TRANSACTIONS Contract owner net payments.................... 0 0 191,951 0 1,397,794 1,153,940 Surrenders, withdrawals and death benefits.............. (15,201,904) (2,298,902) (977,921) (831,355) (8,518) (23,254) Net transfers between other subaccounts or fixed rate option...................... 1,893,744,155 189,326,177 108,087,744 81,553,740 561,127 1,841,028 Withdrawal and other charges..................... (5,244,595) (3,896) (2,178) (2,581) (324) (348) -------------- ------------ ------------ ----------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS................ 1,873,297,656 187,023,379 107,299,596 80,719,804 1,950,079 2,971,366 -------------- ------------ ------------ ----------- ---------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS...................... 2,067,379,062 216,007,370 134,557,660 98,716,693 1,450,799 2,424,251 NET ASSETS Beginning of period.......... 0 0 0 0 0 0 -------------- ------------ ------------ ----------- ---------- ---------- End of period................ $2,067,379,062 $216,007,370 $134,557,660 $98,716,693 $1,450,799 $2,424,251 ============== ============ ============ =========== ========== ========== Beginning units.............. 0 0 0 0 0 0 -------------- ------------ ------------ ----------- ---------- ---------- Units issued................. 366,667,668 30,253,887 28,482,376 11,410,519 529,548 660,670 Units redeemed............... (174,042,824) (11,108,689) (17,287,327) (3,238,986) (292,122) (225,425) -------------- ------------ ------------ ----------- ---------- ---------- Ending units................. 192,624,844 19,145,198 11,195,049 8,171,533 237,426 435,245 ============== ============ ============ =========== ========== ==========
* Date subaccount became available for investment The accompanying notes are an integral part of these financial statements. A59
SUBACCOUNTS (Continued) -------------------------------------------------------------------------------- Franklin Templeton AST Focus VIP Founding Four Plus Funds Allocation Columbia Asset Columbia Federal Portfolio Fund Allocation VS Securities VS ----------- ------------------ ------------------------ ---------------------- 07/21/2008* 05/01/2008* 01/01/2008 01/01/2007 01/01/2008 01/01/2007 to to to to to to 12/31/2008 12/31/2008 12/31/2008 12/31/2007 12/31/2008 12/31/2007 ----------- ------------------ ----------- ----------- ---------- ---------- $ (123,579) $ 1,799,921 $ 232,539 $ 229,705 $ 117,039 $ 118,397 0 2,484,853 1,173,642 1,177,684 0 0 (3,552,381) (25,408,030) 147,914 692,486 (25,147) (21,012) (913,617) (9,263,613) (4,447,220) (1,041,317) 53,271 22,860 ----------- ------------ ----------- ----------- ---------- ---------- (4,589,577) (30,386,869) (2,893,125) 1,058,558 145,163 120,245 ----------- ------------ ----------- ----------- ---------- ---------- 25,745,854 155,168,795 0 16,624 0 915 (111,163) (1,381,048) (1,654,080) (1,978,147) (350,582) (134,758) 7,258,423 (10,746,544) (711,959) (363,933) (22,803) (62,842) (8,166) (59,574) (11,680) (13,599) (2,482) (2,268) ----------- ------------ ----------- ----------- ---------- ---------- 32,884,948 142,981,629 (2,377,719) (2,339,055) (375,867) (198,953) ----------- ------------ ----------- ----------- ---------- ---------- 28,295,371 112,594,760 (5,270,844) (1,280,497) (230,704) (78,708) 0 0 11,876,287 13,156,784 2,037,090 2,115,798 ----------- ------------ ----------- ----------- ---------- ---------- $28,295,371 $112,594,760 $ 6,605,443 $11,876,287 $1,806,386 $2,037,090 =========== ============ =========== =========== ========== ========== 0 0 719,278 861,185 178,440 194,823 ----------- ------------ ----------- ----------- ---------- ---------- 7,618,002 37,574,588 27,569 9,909 8,757 18,018 (3,828,703) (20,605,025) (183,068) (151,816) (39,329) (34,401) ----------- ------------ ----------- ----------- ---------- ---------- 3,789,299 16,969,563 563,779 719,278 147,868 178,440 =========== ============ =========== =========== ========== ==========
The accompanying notes are an integral part of these financial statements. A60 NOTES TO FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") Note 1: General Prudential Annuities Life Assurance Corporation Variable Account B, also referred to as the "Separate Account", is organized as a unit investment trust, a type of investment company, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940. Prudential Annuities Life Assurance Corporation ("Prudential Annuities" or the "Company"), which became a majority owned subsidiary of Prudential Financial, Inc. on May 1, 2003, commenced operations of the Separate Account, pursuant to Connecticut law on November 25, 1987. Under (S)38a-433 of the Connecticut General Statutes, the assets and liabilities of the Separate Account are clearly identified and distinguished from the other assets and liabilities of the Company. The assets of the Separate Account will not be charged with any liabilities arising out of any other business conducted by Prudential Annuities. However, the Separate Account's obligations, including insurance benefits related to the annuities, are the obligations of Prudential Annuities. Effective May 1, 2007, American Skandia Trust and American Skandia Investment Services, Inc. were renamed Advanced Series Trust and AST Investment Services, Inc., respectively. On January 1, 2008 American Skandia Life Assurance Corporation (ASLAC) was renamed Prudential Annuities Life Assurance Corporation (PALAC). On January 28, 2008, any product name that contained "American Skandia" was updated with "Advanced Series." The Separate Account is used as a funding vehicle for several flexible premium deferred variable annuity contracts, as well as two immediate variable annuities issued by Prudential Annuities. The following is a list of each variable annuity product funded through the Separate Account. LifeVest Personal Advanced Series XTra Security Annuity ("PSA") Credit Premier ("XTra Alliance Capital Credit Premier") Navigator ("ACN") Advanced Series XTra Advanced Series Advisor Credit FOUR ("XTtra Plan ("ASAP") Credit FOUR") Advanced Series Advisor Advanced Series XTra Plan II ("ASAP II") Credit FOUR Premier Harvester Variable ("XTra Credit FOUR Annuity ("Harvester Premier") Variable Annuity") Advanced Series XTra Advanced Series Advisor Credit SIX ("XTra Plan II Premier ("ASAP Credit SIX") II Premier") Advanced Series XTra Advanced Series Advisor Credit EIGHT ("XTra Plan III ("ASAP III") Credit EIGHT") Advanced Series Apex Advanced Series ("Apex") Protector ("AS Wells Fargo Stagecoach Protector") Apex Wells Fargo Stagecoach Advanced Series Apex II Variable Annuity ("Apex II") ("Stagecoach") Advanced Series LifeVest Wells Fargo Stagecoach ("ASL") Variable Annuity Plus Wells Fargo Stagecoach ("Stagecoach VA+") Variable Annuity Flex Advanced Series Advisors ("Stagecoach Flex") Choice ("Choice") Advanced Series LifeVest Advanced Series Advisors Premier ("ASL Premier") Choice 2000 ("Choice Advanced Series LifeVest 2000") II ("ASL II") Advanced Series Impact Advanced Series LifeVest ("AS Impact") II Premier ("ASL II Defined Investments Premier") Annuity Advanced Series XTra Galaxy Variable Annuity Credit ("XTra Credit") III ("Galaxy III") Stagecoach Apex II Advanced Series Advisors Stagecoach ASAP III Income Annuity ("ASAIA") Stagecoach XTra Credit Advanced Series Variable SIX Immediate Annuity Wells Fargo Stagecoach ("ASVIA") Extra Credit Advanced Series Optimum ("Stagecoach Extra Advanced Series Optimum Credit") Plus Harvester XTra Credit Advanced Series Optimum ("Harvester XTra Four Credit") The Annuities named above may be used as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Roth IRA or Tax Sheltered Annuity (or 403(b)) or A61 Note 1: General (Continued) as an investment vehicle for "non-qualified" investments. When an Annuity is purchased as a "qualified" investment, it does not provide any tax advantages in addition to the preferential treatment already available under the Internal Revenue Code. The Separate Account consists of one hundred and thirty-six subaccounts, each of which invests in either a corresponding portfolio of The Prudential Series Fund, Advanced Series Trust, (collectively the "Series Funds") or one of the non-Prudential administered funds (collectively, the "portfolios"). Certain subaccounts are available with only certain variable annuities offered through the Separate Account. The name of each Portfolio and the corresponding subaccount name are as follows: Advanced Series Trust AST International Value Wells Fargo Advantage AST AllianceBernstein Portfolio Variable Trust Growth & Income AST MFS Global Equity Asset Allocation Fund Portfolio Portfolio Equity Income Fund AST T. Rowe Price AST JPMorgan C&B Large Cap Value Fund Large-Cap Growth International Equity Large Company Core Fund Portfolio Portfolio International Core Fund AST American Century AST T. Rowe Price Global Large Company Growth Fund Income & Growth Bond Portfolio Money Market Fund Portfolio AST International Growth Small Cap Growth Fund AST Schroders Multi Portfolio Total Return Bond Fund Asset World Strategies AST Aggressive Asset Portfolio Allocation Portfolio Evergreen Variable AST Money Market AST Capital Growth Asset Annuity Portfolio Allocation Portfolio Diversified Capital AST Cohen & Steers AST Academic Strategies Builder Fund Realty Portfolio Asset Allocation Growth Fund AST UBS Dynamic Alpha Portfolio International Equity Fund Portfolio AST Balanced Asset Fundamental Large Cap AST DeAm Large-Cap Value Allocation Portfolio Fund Portfolio AST Preservation Asset Omega Fund AST Neuberger Berman Allocation Portfolio Special Values Fund Small-Cap Growth AST First Trust Balanced Diversified Income Portfolio Target Portfolio Builder Fund AST DeAm Small-Cap Value AST First Trust Capital Portfolio Appreciation Target First Trust AST High Yield Portfolio Portfolio Target Managed VIP AST Federated Aggressive AST Advanced Strategies Portfolio Growth Portfolio Portfolio The Dow DART 10 Portfolio AST Mid-Cap Value AST CLS Growth Asset Global Dividend Target Portfolio Allocation Portfolio 15 Portfolio AST Small-Cap Value AST CLS Moderate Asset S&P Target 24 Portfolio Portfolio Allocation Portfolio NASDAQ Target 15 AST Goldman Sachs AST Horizon Growth Asset Portfolio Concentrated Growth Allocation Portfolio Value Line Target 25 Portfolio AST Horizon Moderate Portfolio AST Goldman Sachs Asset Allocation Target Focus Four Mid-Cap Growth Portfolio Portfolio Portfolio AST Goldman Sachs AST Niemann Capital The Dow Target Dividend Small-Cap Value Growth Asset Allocation Portfolio Portfolio Portfolio AST Large-Cap Value AST Western Asset Core AIM Variable Insurance Portfolio Plus Bond Portfolio Dynamics Fund AST Lord Abbett AST Investment Grade Financial Services Fund Bond-Debenture Portfolio Bond Portfolio Global Health Care Fund AST Marsico Capital AST Bond Portfolio 2015 Technology Fund Growth Portfolio AST Bond Portfolio 2018 AST MFS Growth Portfolio AST Bond Portfolio 2019 Columbia AST Neuberger Berman AST Global Real Estate Large Cap Growth Stock Mid-Cap Growth Portfolio Portfolio Fund, VS AST Neuberger Berman / AST Parametric Emerging Asset Allocation Fund, VS LSV Mid-Cap Value Markets Equity Portfolio Federal Securities Fund, Portfolio AST Focus Four Plus VS AST Small-Cap Growth Portfolio Money Market Fund, VS Portfolio Small Company Growth AST PIMCO Limited Gartmore NVIT Fund, VS Maturity Bond Portfolio Developing Markets High Yield Fund, VS AST PIMCO Total Return Bond Portfolio Prudential Series Funds Franklin Templeton AST AllianceBernstein SP International Growth VIP Founding Funds Core Value Portfolio Portfolio Allocation Fund AST QMA US Equity Alpha AST T. Rowe Price ProFunds VP Natural Resources Asia 30 Portfolio Banks AST T. Rowe Price Asset Allocation Portfolio A62 Note 1: General (Continued) Bear Mid-Cap Growth UltraSmall-Cap Biotechnology Mid-Cap Value Utilities Basic Materials Pharmaceuticals Large-Cap Growth UltraBull Real Estate Large-Cap Value Bull Rising Rates Opportunity Consumer Services NASDAQ-100 Rydex Variable Trust Consumer Goods Semiconductor Nova Oil & Gas Small-Cap Growth NASDAQ-100 Europe 30 Short Mid-Cap Inverse S&P 500 Strategy Financials Short NASDAQ-100 U.S. Government Plus Short Small-Cap Davis Health Care Small-Cap Value Value Portfolio Industrials Technology Internet Telecommunications Access One Trust Japan UltraMid-Cap VP High Yield Fund Precious Metals UltraNASDAQ-100 The Series Funds are diversified open-ended management investment companies, and are managed by affiliates of Prudential. Each of the variable investment options of the Account indirectly bears exposure to the market, credit and liquidity risks of the portfolio in which it invests. These financial statements should be read in conjunction with the financial statements and footnotes of the Series Funds and externally managed portfolios. Additional information on these subaccounts is available upon request to the appropriate companies. On July 18, 2008, AST DeAm Small-Cap Value Portfolio was merged into the existing AST Small-Cap Value Portfolio. The transfer from the old subaccount to the new subaccount is reflected in the Statement of Changes in Net Assets for the year ended December 31, 2008 as net transfers between subaccounts. The transfer occurred as follows:
Transferred From: NAV Transferred To: NAV Balance Transferred: ----------------- --- --------------- --- -------------------- AST DeAm Small-Cap Value Portfolio 8.23 AST Small-Cap Value Portfolio 11.38 $48,939,885
Note 2: Significant Accounting Policies The accompanying financial statements are prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"). The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual results could differ from those estimates. In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Account adopted this guidance effective January 1, 2008. For further discussion please refer to Note 3: Fair Value. Investments--The investments in shares of the portfolios are stated at the net asset value of the respective portfolios, whose investment securities are stated at fair value. Security Transactions--Realized gains and losses on security transactions are determined based upon an average cost. Purchase and sale transactions are recorded as of the trade date of the security being purchased or sold. Dividend and Distributions Received--Dividend and capital gain distributions received are reinvested in additional shares of the portfolios and are recorded on the ex distribution date. A63 Note 3: Fair Value SFAS No. 157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an ordinary transaction between market participants on the measurement date. SFAS No. 157 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and identifies three levels of inputs that may be used to measure fair value: Level 1--Quotes prices for identical instruments in active markets. Level 1 fair values generally are supported by market transactions that occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2--Observable inputs other than Level 1 prices, such as quotes prices for similar instruments, quotes prices in market that are not active, and inputs to model-derived valuations that are not directly observable or can be corroborated by observable market data. Level 3--Unobservable inputs supported by little or no market activity and often requiring significant judgment or estimation, such as an entity's own assumptions about the cash flows or other significant components of value that market participants would use in pricing the asset or liability. All investment assets of each subaccount are classified as Level 1. The Account invests in open-ended mutual funds, available to contract holders of variable annuity insurance policies. Contract holders may, without restriction, transact at the daily Net Asset Value(s) ("NAV") of the mutual funds. The NAV represents the daily per share value of the portfolio of investments of the mutual funds, at which sufficient volumes of transactions occur. As all assets of the account are classified as Level 1, no reconciliation of Level 3 assets and change in unrealized gains (losses) for Level 3 assets still held as of December 31, 2008 are presented. Note 4: Taxes Prudential Annuities Life Assurance Corporation is taxed as a "life insurance company" as defined by the Internal Revenue Code. The results of operations of the Account form a part of PFI's consolidated federal tax return. Under current federal law, no federal income taxes are payable by the Account. As such, no provision for tax liability has been recorded in these financial statements. Prudential Management will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any federal income taxes that would be attributable to the contracts. Note 5: Purchases and Sales of Investments The aggregate costs of purchases and proceeds from sales, excluding distributions received and reinvested, of investments in the portfolios for the year ended December 31, 2008 were as follows:
Purchases Sales -------------- --------------- AST AllianceBernstein Growth & Income Portfolio...... $ 210,836,715 $ (809,523,382) AST T. Rowe Price Large-Cap Growth Portfolio......... $ 88,941,810 $ (178,288,404) AST American Century Income & Growth Portfolio....... $ 39,006,956 $ (115,567,430) AST Schroders Multi Asset World Strategies Portfolio. $ 143,399,475 $ (143,936,952) AST Money Market Portfolio........................... $3,986,694,681 $(3,272,103,334) AST Cohen & Steers Realty Portfolio.................. $ 72,931,853 $ (165,409,328) AST UBS Dynamic Alpha Portfolio...................... $1,093,602,789 $ (638,047,424) AST DeAM Large-Cap Value Portfolio................... $ 62,600,185 $ (176,678,016)
A64 Note 5: Purchases and Sales of Investments (Continued)
Purchases Sales -------------- --------------- AST Neuberger Berman Small-Cap Growth Portfolio....... $ 23,229,631 $ (73,939,211) AST DeAM Small-Cap Value Portfolio.................... $ 11,594,750 $ (77,718,618) AST High Yield Portfolio.............................. $ 273,052,173 $ (380,962,856) AST Federated Aggressive Growth Portfolio............. $ 69,597,220 $ (238,353,034) AST Mid-Cap Value Portfolio........................... $ 29,158,709 $ (59,148,640) AST Small-Cap Value Portfolio......................... $ 128,190,698 $ (414,947,824) AST Goldman Sachs Concentrated Growth Portfolio....... $ 51,657,563 $ (179,532,145) AST Goldman Sachs Mid-Cap Growth Portfolio............ $ 74,879,717 $ (197,584,810) AST Goldman Sachs Small-Cap Value Portfolio........... $ 24,272,780 $ (53,933,955) AST Large-Cap Value Portfolio......................... $ 82,052,052 $ (209,459,480) AST Lord Abbett Bond-Debenture Portfolio.............. $ 179,237,626 $ (335,708,258) AST Marsico Capital Growth Portfolio.................. $ 254,455,272 $(1,056,797,810) AST MFS Growth Portfolio.............................. $ 57,333,557 $ (148,207,336) AST Neuberger Berman Mid-Cap Growth Portfolio......... $ 58,635,639 $ (314,932,385) AST Neuberger Berman / LSV Mid-Cap Value Portfolio.... $ 79,914,703 $ (435,461,308) AST Small-Cap Growth Portfolio........................ $ 51,307,933 $ (80,776,370) AST PIMCO Limited Maturity Bond Portfolio............. $ 247,475,056 $ (773,025,612) AST PIMCO Total Return Bond Portfolio................. $ 368,983,953 $ (816,179,249) AST AllianceBernstein Core Value Portfolio............ $ 54,291,567 $ (169,431,028) AST QMA US Equity Alpha............................... $ 27,162,910 $ (160,137,538) AST T. Rowe Price Natural Resources Portfolio......... $ 135,076,918 $ (383,618,440) AST T. Rowe Price Asset Allocation Portfolio.......... $ 509,021,289 $ (588,444,791) AST International Value Portfolio..................... $ 58,434,990 $ (204,777,655) AST MFS Global Equity Portfolio....................... $ 48,074,026 $ (111,459,401) AST JPMorgan International Equity Portfolio........... $ 51,046,495 $ (230,319,299) AST T. Rowe Price Global Bond Portfolio............... $ 142,705,290 $ (374,818,005) AST International Growth Portfolio.................... $ 196,762,706 $ (611,183,176) AST Aggressive Asset Allocation Portfolio............. $ 140,028,439 $ (426,052,504) AST Capital Growth Asset Allocation Portfolio......... $1,437,083,858 $(3,026,632,592) AST Academic Strategies Asset Allocation Portfolio.... $1,125,370,414 $(2,103,276,451) AST Balanced Asset Allocation Portfolio............... $ 961,154,471 $ (875,979,689) AST Preservation Asset Allocation Portfolio........... $1,306,654,673 $ (627,801,768) AST CLS Growth Asset Allocation Portfolio............. $ 195,923,293 $ (119,150,378) AST CLS Moderate Asset Allocation Portfolio........... $ 246,258,974 $ (107,951,982) AST Horizon Growth Asset Allocation Portfolio......... $ 124,563,747 $ (69,282,570) AST Horizon Moderate Asset Allocation Portfolio....... $ 163,064,669 $ (70,241,779) AST Niemann Capital Growth Asset Allocation Portfolio. $ 140,294,552 $ (77,999,760) AST Western Asset Core Plus Bond Portfolio............ $ 225,499,335 $ (113,833,306) Davis Value Portfolio................................. $ 532,233 $ (8,052,508) Evergreen VA Diversified Capital Builder Fund......... $ 169,017 $ (2,414,152) Evergreen VA Growth Fund.............................. $ 8,340,938 $ (24,393,278) Evergreen VA International Equity Fund................ $ 21,170,483 $ (62,053,532) Evergreen VA Fundamental Large Cap Fund............... $ 882,894 $ (2,578,667) Evergreen VA Omega Fund............................... $ 7,475,788 $ (12,692,627) Evergreen VA Special Values Fund...................... $ 526,243 $ (3,945,145) Evergreen VA Diversified Income Builder Fund.......... $ 486,905 $ (2,349,685) Columbia Asset Allocation Fund, VS.................... $ 286,417 $ (2,526,818) Columbia Federal Securities Fund, VS.................. $ 81,806 $ (439,251) Columbia Money Market Fund, VS........................ $ 993,911 $ (1,846,841) Columbia Small Company Growth Fund, VS................ $ 988 $ (232,588) Columbia Large Cap Growth Fund, VS.................... $ 9,196 $ (2,375,658) Prudential SP International Growth Portfolio.......... $ 13,695,997 $ (37,666,493) Gartmore NVIT Developing Markets Fund................. $ 111,115,152 $ (325,039,756) The DOW DART 10 Portfolio............................. $ 5,823,825 $ (11,724,385) First Trust Target Focus Four Portfolio............... $ 18,156,631 $ (20,889,545) Global Dividend Target 15 Portfolio................... $ 31,032,716 $ (124,078,626) NASDAQ Target 15 Portfolio............................ $ 5,074,674 $ (8,480,226) S&P Target 24 Portfolio............................... $ 10,877,424 $ (15,395,265) Target Managed VIP Portfolio.......................... $ 27,715,385 $ (122,633,981) Value Line Target 25 Portfolio........................ $ 15,485,321 $ (22,798,591) The DOW Target Dividend Portfolio..................... $ 26,992,668 $ (67,812,060)
A65 Note 5: Purchases and Sales of Investments (Continued)
Purchases Sales -------------- --------------- ProFund VP Asia 30.................................... $ 231,257,581 $ (351,004,688) ProFund VP Banks...................................... $ 153,420,289 $ (133,687,415) ProFund VP Bear....................................... $ 629,465,088 $ (637,310,231) ProFund VP Biotechnology.............................. $ 79,009,683 $ (70,232,316) ProFund VP Basic Materials............................ $ 213,211,183 $ (269,485,767) ProFund VP UltraBull.................................. $ 151,095,333 $ (130,856,425) ProFund VP Bull....................................... $ 609,303,647 $ (650,832,506) ProFund VP Consumer Services.......................... $ 29,313,025 $ (25,600,663) ProFund VP Consumer Goods............................. $ 61,810,835 $ (78,808,223) ProFund VP Oil & Gas.................................. $ 250,213,298 $ (333,229,817) ProFund VP Europe 30.................................. $ 126,567,546 $ (178,704,142) ProFund VP Financials................................. $ 146,344,658 $ (135,805,947) ProFund VP U.S. Government Plus....................... $ 387,437,846 $ (406,750,876) ProFund VP Health Care................................ $ 115,272,553 $ (142,875,666) ACCESS VP High Yield Fund............................. $ 130,157,675 $ (134,175,751) ProFund VP Industrials................................ $ 81,418,510 $ (88,087,769) ProFund VP Internet................................... $ 18,575,652 $ (26,131,098) ProFund VP Japan...................................... $ 80,037,691 $ (86,903,232) ProFund VP Precious Metals............................ $ 308,292,593 $ (330,258,229) ProFund VP Mid-Cap Growth............................. $ 213,277,752 $ (237,847,408) ProFund VP Mid-Cap Value.............................. $ 137,554,274 $ (166,397,379) ProFund VP Pharmaceuticals............................ $ 61,405,940 $ (62,298,790) ProFund VP Real Estate................................ $ 120,085,150 $ (124,511,447) ProFund VP Rising Rates Opportunity................... $ 244,808,937 $ (249,635,039) ProFund VP NASDAQ-100................................. $ 287,516,518 $ (340,868,802) ProFund VP Semiconductor.............................. $ 13,020,839 $ (15,050,363) ProFund VP Small-Cap Growth........................... $ 147,391,678 $ (146,608,703) ProFund VP Short Mid-Cap.............................. $ 100,864,333 $ (101,763,875) ProFund VP Short NASDAQ-100........................... $ 275,225,413 $ (282,514,295) ProFund VP Short Small-Cap............................ $ 213,114,273 $ (226,962,334) ProFund VP Small-Cap Value............................ $ 153,300,360 $ (150,684,969) ProFund VP Technology................................. $ 35,802,544 $ (53,600,050) ProFund VP Telecommunications......................... $ 60,336,118 $ (75,081,916) ProFund VP UltraMid-Cap............................... $ 241,831,158 $ (258,704,398) ProFund VP UltraNASDAQ-100............................ $ 181,122,235 $ (210,285,623) ProFund VP UltraSmall-Cap............................. $ 83,550,319 $ (72,604,941) ProFund VP Utilities.................................. $ 111,405,572 $ (235,092,404) ProFund VP Large-Cap Growth........................... $ 156,451,226 $ (187,495,918) ProFund VP Large-Cap Value............................ $ 153,019,126 $ (170,009,495) Rydex VT Nova......................................... $ 180,315 $ (1,151,189) Rydex VT NASDAQ-100................................... $ 81,827 $ (4,103,746) Rydex VT Inverse S&P 500 Strategy..................... $ 16,765 $ (239,725) AIM V.I. Dynamics Fund................................ $ 12,930,993 $ (34,417,557) AIM V.I. Financial Services Fund...................... $ 17,755,447 $ (24,736,115) AIM V.I. Global Health Care Fund...................... $ 33,075,047 $ (59,762,328) AIM V.I. Technology Fund.............................. $ 6,365,732 $ (16,619,189) Wells Fargo Advantage VT Asset Allocation Fund........ $ 535,543 $ (19,901,687) Wells Fargo Advantage VT Equity Income Fund........... $ 7,516,331 $ (17,433,821) Wells Fargo Advantage VT C&B Large Cap Value Fund..... $ 895,538 $ (3,967,820) Wells Fargo Advantage VT Large Company Core Fund...... $ 78,382 $ (2,863,895) Wells Fargo Advantage VT International Core Fund...... $ 380,053 $ (1,152,735) Wells Fargo Advantage VT Large Company Growth Fund.... $ 569,767 $ (3,541,695) Wells Fargo Advantage VT Money Market Fund............ $ 11,170,169 $ (14,409,396) Wells Fargo Advantage VT Small Cap Growth Fund........ $ 220,373 $ (1,572,234) Wells Fargo Advantage VT Total Return Bond Fund....... $ 698,107 $ (3,087,744) AST First Trust Balanced Target Portfolio............. $ 610,433,098 $ (834,790,183) AST First Trust Capital Appreciation Target Portfolio. $ 900,059,587 $(1,114,001,740) AST Advanced Strategies Portfolio..................... $ 764,017,799 $ (889,461,232) Columbia High Yield Fund, VS.......................... $ 584 $ (71,611) AST Investment Grade Bond Portfolio................... $3,539,160,882 $(1,677,367,320) AST Bond Portfolio 2015............................... $ 281,174,085 $ (95,557,225)
A66 Note 5: Purchases and Sales of Investments (Continued)
Purchases Sales ------------ ------------- AST Bond Portfolio 2018............................... $215,155,460 $(108,630,414) AST Bond Portfolio 2019............................... $108,708,546 $ (28,549,378) AST Global Real Estate Portfolio...................... $ 3,732,288 $ (1,789,594) AST Parametric Emerging Markets Equity Portfolio...... $ 4,053,147 $ (1,091,191) AST Focus Four Plus Portfolio......................... $ 55,036,409 $ (22,275,040) Franklin Templeton VIP Founding Funds Allocation Fund. $241,268,641 $ (99,057,729)
Note 6: Related Party Transactions PFI and its affiliates perform various services on behalf of the Series Funds in which the Account invests and may receive fees for the services performed. These services include, among other things, shareholder communications, preparation, postage, fund transfer agency and various other record keeping and customer service functions. The Series Funds have management agreements with Prudential Investment LLC ("PI") and AST Investment Services, Inc, indirect, wholly-owned subsidiaries of PFI (together the "Investment Managers"). Pursuant to these agreements, the Investment Managers have responsibility for all investment advisory services and supervise the subadvisors' performance of such services. The Investment Managers entered into subadvisory agreements with several subadvisors, including Prudential Investment Management, Inc. and Jennison Associates LLC, which are indirect, wholly-owned subsidiaries of PFI. The Prudential Series Fund has a distribution agreement with Prudential Investment Management Services LLC ("PIMS"), an indirect, wholly-owned subsidiary of PFI, which acts as the distributor of the Class I and Class II shares of the Series Fund. No distribution or service fees are paid to PIMS as distributor of the Class I shares of the Series Fund. The Investment Managers have agreed to reimburse certain portfolios of the Series Funds the portion of the management fee for that Portfolio equal to the amount that the aggregate annual ordinary operating expenses (excluding interest, taxes, and brokerage commissions) exceeds various agreed upon percentages of the portfolio's average daily net assets. Note 7: Financial Highlights Prudential Annuities Life Assurance Corporation sells a number of variable annuity products that are funded by the Account. These products have unique combinations of features and fees that are charged against the contract owner's account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns. The following table was developed by determining which products offered by Prudential Annuities Life Assurance Corporation and funded by the Account have the lowest and highest expense ratio. Only product designs within each subaccount that had units outstanding during the respective periods were considered when determining the lowest and highest expense ratio. The summary may not reflect the minimum and maximum contract charges offered by Prudential Annuities Life Assurance Corporation as contract owners may not have selected all available and applicable contract options.
At year ended For year ended --------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ------------------ AST AllianceBernstein Growth & Income Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 61,431 $ 6.83984 to $22.05507 $ 677,520 1.72% 0.65 - 2.85% -42.32% to -29.74% December 31, 2007 100,698 $11.85905 to $37.71457 $1,903,009 0.89% 0.65 - 2.75% 2.22% to 4.44% December 31, 2006 119,941 $11.60125 to $36.38702 $2,257,991 1.04% 0.65 - 2.75% 14.05% to 16.51% December 31, 2005 167,797 $11.74580 to $28.96918 $2,733,461 1.08% 0.65 - 2.50% 2.16% to 4.09% December 31, 2004 111,669 $11.49737 to $27.83006 $2,126,109 0.70% 0.65 - 2.50% 10.29% to 14.97%
A67 Note 7: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ------------------ AST T. Rowe Price Large-Cap Growth Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 26,781 $ 4.26859 to $10.38047 $ 181,315 0.13% 0.65 - 2.85% -42.20% to -35.44% December 31, 2007 33,936 $ 7.34782 to $17.57996 $ 412,631 0.13% 0.65 - 2.75% 5.24% to 7.53% December 31, 2006 25,618 $ 6.94589 to $16.34919 $ 311,810 0.00% 0.65 - 2.75% 2.74% to 4.96% December 31, 2005 18,694 $11.99910 to $15.57709 $ 248,066 0.00% 0.65 - 2.50% 13.52% to 15.67% December 31, 2004 17,249 $10.56992 to $13.46712 $ 204,984 0.00% 0.65 - 2.50% 5.06% to 5.70% AST American Century Income & Growth Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 13,554 $ 6.57913 to $11.80550 $ 134,022 2.20% 0.65 - 2.75% -36.54% to -35.17% December 31, 2007 18,555 $10.31462 to $18.20953 $ 292,154 1.62% 0.65 - 2.75% -2.87% to -0.76% December 31, 2006 23,133 $10.56467 to $18.34880 $ 372,464 1.81% 0.65 - 2.75% 13.65% to 16.10% December 31, 2005 27,143 $11.95769 to $15.80446 $ 382,331 1.73% 0.65 - 2.50% 2.02% to 3.95% December 31, 2004 32,369 $11.72086 to $15.20389 $ 444,889 0.92% 0.65 - 2.50% 11.85% to 17.21% AST Schroders Multi Asset World Strategies Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 13,107 $ 7.31044 to $13.64345 $ 130,494 1.77% 0.65 - 2.85% -32.11% to -26.99% December 31, 2007 12,599 $11.54620 to $19.67187 $ 191,018 1.80% 0.65 - 2.75% 5.91% to 8.21% December 31, 2006 11,074 $11.04670 to $18.17968 $ 168,793 2.06% 0.65 - 2.50% 6.93% to 8.96% December 31, 2005 13,907 $11.19489 to $16.68539 $ 199,852 1.70% 0.65 - 2.50% 2.00% to 3.93% December 31, 2004 15,965 $10.97516 to $16.05433 $ 226,427 1.41% 0.65 - 2.50% 8.28% to 9.75% AST Money Market Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 230,705 $10.11620 to $15.56403 $2,693,670 2.44% 0.65 - 2.75% -0.31% to 1.84% December 31, 2007 161,788 $10.11124 to $15.28249 $1,920,245 4.78% 0.65 - 2.75% 2.00% to 4.22% December 31, 2006 137,602 $ 9.87678 to $14.66380 $1,602,715 4.50% 0.65 - 2.75% 1.71% to 3.90% December 31, 2005 139,358 $ 9.80561 to $14.11325 $1,610,700 2.68% 0.65 - 2.50% 0.18% to 2.07% December 31, 2004 113,670 $ 9.78845 to $13.82701 $1,340,662 0.85% 0.65 - 2.50% 0.18% to -2.12% AST Cohen & Steers Realty Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 6,441 $ 6.59702 to $17.09976 $ 94,541 5.40% 0.65 - 2.85% -36.84% to -34.13% December 31, 2007 10,855 $12.32711 to $26.66162 $ 249,538 2.87% 0.65 - 2.75% -22.15% to -20.46% December 31, 2006 18,292 $15.83481 to $33.72469 $ 533,825 1.34% 0.65 - 2.75% 32.99% to 35.85% December 31, 2005 18,374 $15.75675 to $23.64628 $ 399,859 1.49% 0.65 - 2.50% 11.96% to 14.08% December 31, 2004 21,624 $14.07377 to $20.72860 $ 417,810 2.35% 0.65 - 2.50% 37.05% to 40.74% AST UBS Dynamic Alpha Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 64,615 $ 8.10022 to $18.70596 $ 681,463 0.32% 0.65 - 2.85% -19.88% to -18.15% December 31, 2007 28,098 $10.31616 to $22.85438 $ 391,124 1.11% 0.65 - 2.90% -1.03% to 1.28% December 31, 2006 9,287 $10.35382 to $22.56635 $ 180,123 2.76% 0.65 - 2.75% 8.09% to 10.42% December 31, 2005 10,921 $11.70740 to $20.43690 $ 198,585 3.48% 0.65 - 2.50% 4.27% to 6.24% December 31, 2004 12,928 $11.22783 to $19.23581 $ 227,847 1.17% 0.65 - 2.50% 10.37% to 12.28% AST DeAM Large-Cap Value Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 10,045 $ 7.53946 to $11.94926 $ 94,921 2.58% 0.65 - 2.75% -39.03% to -37.71% December 31, 2007 17,720 $12.36544 to $19.23120 $ 284,270 0.95% 0.65 - 2.75% -1.62% to 0.52% December 31, 2006 20,638 $12.56881 to $19.18071 $ 326,334 0.87% 0.65 - 2.75% 18.39% to 20.94% December 31, 2005 12,952 $12.46025 to $13.06300 $ 168,747 0.89% 0.65 - 2.50% 6.60% to 8.62% December 31, 2004 11,312 $11.47150 to $12.25374 $ 135,506 0.73% 0.65 - 2.50% 17.40% to 22.54% AST Neuberger Berman Small-Cap Growth Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 11,216 $ 4.76442 to $10.97613 $ 76,944 0.00% 0.65 - 2.75% -44.12% to -42.91% December 31, 2007 15,777 $ 8.48266 to $19.27534 $ 197,277 0.00% 0.65 - 2.75% 15.43% to 17.94% December 31, 2006 19,451 $ 7.31073 to $16.38481 $ 205,153 0.00% 0.65 - 2.75% 4.80% to 7.06% December 31, 2005 25,315 $10.04561 to $10.79424 $ 249,998 0.00% 0.65 - 2.50% -2.14% to -0.29% December 31, 2004 33,206 $10.07492 to $11.03040 $ 329,275 0.00% 0.65 - 2.50% 8.72% to 10.30% AST DeAM Small-Cap Value Portfolio (expired July 18th, 2008) --------------------------------------------------------------------------------------------- December 31, 2008 0 $ 0.00000 to $ 0.00000 $ 0 2.14% 0.65 - 2.75% -8.94% to -7.87% December 31, 2007 5,256 $ 9.25847 to $16.86885 $ 71,380 0.76% 0.65 - 2.75% -20.04% to -18.30% December 31, 2006 6,906 $11.57921 to $20.70077 $ 115,527 0.27% 0.65 - 2.75% 16.66% to 19.17% December 31, 2005 7,609 $12.54150 to $13.41301 $ 107,012 0.14% 0.65 - 2.50% -1.33% to 0.53% December 31, 2004 7,655 $12.71086 to $13.34194 $ 106,466 0.17% 0.65 - 2.50% 21.32% to 27.11%
A68 Note 7: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ------------------ AST High Yield Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 17,905 $ 7.56409 to $14.55813 $ 208,084 10.40% 0.65 - 2.75% -27.59% to -26.03% December 31, 2007 24,064 $10.44649 to $19.68057 $ 380,467 8.75% 0.65 - 2.75% -0.35% to 1.81% December 31, 2006 33,761 $10.48319 to $19.33036 $ 532,516 9.16% 0.65 - 2.75% 7.33% to 9.64% December 31, 2005 39,067 $11.08735 to $17.63140 $ 576,165 7.99% 0.65 - 2.50% -1.40% to 0.47% December 31, 2004 53,427 $11.24489 to $17.54975 $ 798,600 7.93% 0.65 - 2.50% 10.36% to 12.45% AST Federated Aggressive Growth Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 16,316 $ 6.56016 to $14.98634 $ 142,111 0.00% 0.65 - 2.85% -45.63% to -33.63% December 31, 2007 25,503 $12.44805 to $27.04882 $ 462,627 0.00% 0.65 - 2.75% 8.14% to 10.49% December 31, 2006 29,587 $11.45211 to $24.54379 $ 485,583 0.00% 0.65 - 2.75% 9.81% to 12.18% December 31, 2005 36,136 $11.28778 to $13.48578 $ 531,526 0.00% 0.65 - 2.50% 6.71% to 8.73% December 31, 2004 24,666 $10.38145 to $12.64000 $ 346,354 0.00% 0.65 - 2.50% 22.26% to 26.40% AST Mid-Cap Value Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 5,546 $ 6.85171 to $11.42511 $ 48,331 1.09% 0.65 - 2.75% -39.83% to -38.53% December 31, 2007 7,637 $11.38711 to $18.63248 $ 111,950 0.29% 0.65 - 2.75% -0.09% to 2.08% December 31, 2006 10,060 $12.82794 to $18.29892 $ 143,922 0.54% 0.65 - 2.50% 11.40% to 13.50% December 31, 2005 12,416 $12.44692 to $12.49605 $ 156,575 0.42% 0.65 - 2.50% 2.80% to 4.74% December 31, 2004 15,879 $11.92999 to $12.10784 $ 191,481 0.27% 0.65 - 2.50% 14.57% to 21.08% AST Small-Cap Value Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 25,034 $ 7.44092 to $16.98067 $ 318,508 1.36% 0.65 - 2.85% -31.65% to -24.79% December 31, 2007 42,347 $11.30363 to $24.31821 $ 775,321 0.88% 0.65 - 2.75% -8.22% to -6.22% December 31, 2006 47,594 $12.31589 to $25.93237 $ 956,554 0.45% 0.65 - 2.75% 16.75% to 19.27% December 31, 2005 60,672 $12.59028 to $21.74339 $1,038,873 0.08% 0.65 - 2.50% 3.99% to 5.95% December 31, 2004 53,139 $12.10770 to $20.52193 $ 909,575 0.01% 0.65 - 2.50% 15.68% to 21.08% AST Goldman Sachs Concentrated Growth Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 16,299 $ 3.15269 to $17.70351 $ 242,317 0.15% 0.65 - 2.60% -41.83% to -40.66% December 31, 2007 23,248 $ 5.39999 to $30.06012 $ 558,900 0.00% 0.65 - 2.50% 11.13% to 13.25% December 31, 2006 27,074 $ 4.84678 to $26.74648 $ 618,327 0.00% 0.65 - 2.50% 7.25% to 9.28% December 31, 2005 33,371 $10.62353 to $23.28207 $ 728,589 0.54% 0.65 - 2.50% 0.75% to 2.65% December 31, 2004 42,899 $10.54471 to $22.68033 $ 941,719 0.00% 0.65 - 2.50% 3.02% to 5.45% AST Goldman Sachs Mid-Cap Growth Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 21,632 $ 3.04521 to $11.28124 $ 98,369 0.00% 0.65 - 2.75% -42.42% to -41.18% December 31, 2007 31,878 $ 5.26189 to $19.22684 $ 307,677 0.00% 0.65 - 2.75% 16.05% to 18.57% December 31, 2006 38,464 $ 4.47207 to $16.25689 $ 307,253 0.00% 0.65 - 2.75% 3.36% to 5.59% December 31, 2005 52,068 $ 4.45507 to $12.16699 $ 388,958 0.00% 0.65 - 2.50% 2.15% to 4.08% December 31, 2004 38,744 $ 4.28036 to $11.91091 $ 273,819 0.00% 0.65 - 2.50% 15.60% to 19.11% AST Goldman Sachs Small-Cap Value Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 4,794 $ 7.85000 to $19.90636 $ 82,391 1.49% 0.65 - 2.75% -28.66% to -27.11% December 31, 2007 6,019 $11.00312 to $27.31110 $ 144,929 0.57% 0.65 - 2.75% -7.75% to -5.74% December 31, 2006 8,373 $11.92689 to $28.97468 $ 216,393 0.35% 0.65 - 2.75% 14.02% to 16.48% December 31, 2005 11,096 $16.69493 to $24.87582 $ 248,951 0.34% 0.65 - 2.40% 2.47% to 4.30% December 31, 2004 14,436 $19.57911 to $23.85041 $ 314,031 0.22% 0.65 - 2.25% 19.39% to 17.47% AST Large-Cap Value Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 25,394 $ 6.38846 to $16.24413 $ 248,148 1.59% 0.65 - 2.85% -43.10% to -30.98% December 31, 2007 33,134 $11.17043 to $27.94403 $ 581,479 1.08% 0.65 - 2.75% -5.67% to -3.62% December 31, 2006 34,654 $11.78079 to $28.99375 $ 695,105 0.81% 0.65 - 2.75% 15.21% to 17.69% December 31, 2005 34,769 $12.19413 to $24.63567 $ 659,997 0.88% 0.65 - 2.50% 3.80% to 5.77% December 31, 2004 31,863 $11.74725 to $23.29235 $ 621,342 1.54% 0.65 - 2.50% 14.70% to 17.47% AST Lord Abbett Bond-Debenture Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 25,649 $ 8.10499 to $11.48243 $ 265,996 9.00% 0.65 - 2.75% -25.36% to -23.75% December 31, 2007 35,946 $10.85945 to $15.05922 $ 494,617 5.68% 0.65 - 2.75% 3.16% to 5.39% December 31, 2006 44,058 $10.52727 to $14.28842 $ 582,676 5.00% 0.65 - 2.75% 6.79% to 9.09% December 31, 2005 54,113 $10.73312 to $13.09818 $ 662,777 3.54% 0.65 - 2.50% -1.36% to 0.51% December 31, 2004 34,381 $10.88128 to $13.03231 $ 430,122 3.22% 0.65 - 2.50% 6.72% to 8.81%
A69 Note 7: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ------------------ AST Marsico Capital Growth Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 89,246 $ 6.24776 to $12.92584 $ 792,227 0.45% 0.65 - 2.85% -45.21% to -36.07% December 31, 2007 143,872 $11.34517 to $23.09247 $2,388,547 0.17% 0.65 - 2.75% 11.79% to 14.21% December 31, 2006 166,628 $10.09670 to $20.21861 $2,486,479 0.06% 0.65 - 2.75% 4.30% to 6.54% December 31, 2005 206,076 $12.09065 to $18.97741 $2,944,324 0.00% 0.65 - 2.50% 4.17% to 6.14% December 31, 2004 153,174 $11.60677 to $17.87989 $2,275,906 0.00% 0.65 - 2.50% 14.92% to 16.07% AST MFS Growth Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 28,733 $ 5.24253 to $10.44074 $ 186,479 0.26% 0.65 - 2.75% -38.06% to -36.72% December 31, 2007 36,836 $ 8.42015 to $16.54009 $ 394,445 0.03% 0.65 - 2.75% 11.93% to 14.36% December 31, 2006 47,011 $ 7.48410 to $14.50009 $ 440,821 0.00% 0.65 - 2.75% 6.66% to 8.95% December 31, 2005 63,684 $ 8.25189 to $11.40772 $ 549,513 0.01% 0.65 - 2.50% 3.67% to 5.63% December 31, 2004 66,404 $ 7.81177 to $11.00344 $ 529,399 0.00% 0.65 - 2.50% 9.96% to 10.03% AST Neuberger Berman Mid-Cap Growth Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 16,039 $ 5.59083 to $17.79631 $ 219,680 0.00% 0.65 - 2.75% -44.75% to -43.55% December 31, 2007 29,931 $10.06697 to $31.52655 $ 696,088 0.00% 0.65 - 2.75% 18.83% to 21.41% December 31, 2006 31,116 $ 8.42839 to $25.96795 $ 632,362 0.00% 0.65 - 2.75% 10.93% to 13.32% December 31, 2005 37,762 $12.95087 to $22.91637 $ 697,198 0.00% 0.65 - 2.50% 10.66% to 12.76% December 31, 2004 24,055 $11.70285 to $20.32356 $ 391,202 0.00% 0.65 - 2.50% 15.31% to 17.03% AST Neuberger Berman/LSV Mid-Cap Value Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 21,731 $ 6.54354 to $21.12901 $ 316,843 1.77% 0.65 - 2.75% -43.85% to -42.63% December 31, 2007 39,786 $11.65359 to $36.83127 $ 967,176 0.68% 0.65 - 2.75% 0.32% to 2.50% December 31, 2006 48,463 $11.61672 to $35.93418 $1,194,348 0.51% 0.65 - 2.75% 7.71% to 10.03% December 31, 2005 63,124 $14.17677 to $32.65772 $1,446,831 0.14% 0.65 - 2.50% 9.26% to 11.33% December 31, 2004 57,066 $12.97478 to $29.33422 $1,293,638 0.10% 0.65 - 2.50% 22.04% to 29.75% AST Small-Cap Growth Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 7,246 $ 6.68777 to $14.01478 $ 76,253 0.00% 0.65 - 2.85% -36.79% to -32.53% December 31, 2007 9,716 $10.54500 to $21.70159 $ 157,938 0.00% 0.65 - 2.75% 4.19% to 6.45% December 31, 2006 10,695 $10.00731 to $20.38629 $ 169,871 0.00% 0.65 - 2.75% 9.52% to 11.88% December 31, 2005 12,337 $ 9.22813 to $18.22237 $ 182,203 0.00% 0.65 - 2.50% -1.04% to 0.83% December 31, 2004 14,656 $ 9.32482 to $18.07152 $ 221,444 0.00% 0.65 - 2.50% -7.55% to 6.75% AST PIMCO Limited Maturity Bond Portfolio ------------------------------------------------------------------------------------- ------- December 31, 2008 55,649 $10.25361 to $17.35746 $ 703,455 5.55% 0.65 - 2.75% -1.66% to 0.46% December 31, 2007 98,431 $10.40058 to $17.27843 $1,209,317 4.60% 0.65 - 2.75% 3.85% to 6.10% December 31, 2006 113,953 $ 9.98960 to $16.28462 $1,352,973 3.08% 0.65 - 2.75% 0.98% to 3.15% December 31, 2005 142,948 $ 9.86775 to $15.78739 $1,673,435 1.15% 0.65 - 2.50% -0.90% to 0.97% December 31, 2004 98,739 $ 9.95764 to $15.63518 $1,227,262 3.16% 0.65 - 2.50% 1.40% to -0.42% AST PIMCO Total Return Bond Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 74,757 $10.15674 to $21.03675 $1,089,746 4.01% 0.65 - 2.75% -4.95% to -2.89% December 31, 2007 105,808 $10.68542 to $21.66391 $1,562,280 2.28% 0.65 - 2.75% 5.32% to 7.60% December 31, 2006 106,511 $10.14614 to $20.13354 $1,532,655 3.72% 0.65 - 2.75% 0.89% to 3.07% December 31, 2005 109,303 $10.30972 to $19.53471 $1,607,279 3.73% 0.65 - 2.50% -0.05% to 1.84% December 31, 2004 153,053 $10.31507 to $19.18174 $2,195,640 3.96% 0.65 - 2.50% 4.28% to 3.15% AST AllianceBernstein Core Value Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 16,283 $ 6.38950 to $10.02666 $ 133,646 3.44% 0.65 - 2.75% -43.49% to -42.26% December 31, 2007 25,319 $11.30608 to $17.40971 $ 372,910 1.38% 0.65 - 2.75% -6.23% to -4.20% December 31, 2006 28,556 $12.05765 to $18.21836 $ 450,429 1.21% 0.65 - 2.75% 18.02% to 20.56% December 31, 2005 21,260 $12.20566 to $13.16051 $ 280,083 1.21% 0.65 - 2.50% 2.88% to 4.83% December 31, 2004 22,498 $12.55472 to $11.86399 $ 285,690 1.31% 0.65 - 2.50% 13.18% to 18.64% AST QMA US Equity Alpha --------------------------------------------------------------------------------------------- December 31, 2008 13,410 $ 5.71453 to $ 9.59861 $ 112,798 2.39% 0.65 - 2.75% -40.41% to -39.11% December 31, 2007 24,740 $ 9.53992 to $15.76502 $ 345,824 1.33% 0.65 - 2.75% -0.74% to 1.42% December 31, 2006 31,311 $ 9.56159 to $15.54492 $ 438,379 1.10% 0.65 - 2.75% 9.51% to 11.87% December 31, 2005 38,738 $11.42202 to $13.89566 $ 491,179 1.37% 0.65 - 2.50% 0.96% to 2.87% December 31, 2004 43,544 $13.50788 to $11.31331 $ 544,672 0.84% 0.65 - 2.50% 9.27% to 13.13%
A70 Note 7: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ------------------ AST T. Rowe Price Natural Resources Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 5,935 $ 8.76037 to $34.88343 $ 134,397 0.66% 0.65 - 2.60% -51.29% to -50.31% December 31, 2007 13,323 $17.90678 to $70.20328 $ 567,927 0.58% 0.65 - 2.75% 36.63% to 39.59% December 31, 2006 11,347 $13.10637 to $50.29168 $ 377,853 0.33% 0.65 - 2.75% 12.69% to 15.11% December 31, 2005 12,696 $18.39757 to $43.68918 $ 380,931 0.23% 0.65 - 2.50% 28.13% to 30.55% December 31, 2004 9,328 $14.35838 to $33.46498 $ 235,650 0.98% 0.65 - 2.50% 30.34% to 43.58% AST T. Rowe Price Asset Allocation Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 46,873 $ 7.79315 to $20.93279 $ 538,360 1.79% 0.65 - 2.85% -27.98% to -22.10% December 31, 2007 52,178 $11.60522 to $28.45091 $ 838,230 1.21% 0.65 - 2.75% 3.38% to 5.63% December 31, 2006 23,736 $11.22531 to $26.93478 $ 453,918 1.80% 0.65 - 2.75% 9.41% to 11.76% December 31, 2005 22,882 $11.58355 to $24.09982 $ 421,752 1.86% 0.65 - 2.50% 2.07% to 4.00% December 31, 2004 22,590 $11.34848 to $23.17239 $ 422,821 1.49% 0.65 - 2.50% 10.45% to 13.48% AST International Value Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 12,595 $ 5.83552 to $14.38680 $ 132,504 2.67% 0.65 - 2.85% -45.55% to -36.07% December 31, 2007 20,459 $10.66136 to $25.92537 $ 418,511 0.98% 0.65 - 2.75% 14.55% to 17.04% December 31, 2006 16,918 $ 9.25940 to $22.20794 $ 307,009 0.82% 0.65 - 2.75% 23.96% to 26.63% December 31, 2005 12,495 $14.08614 to $16.78896 $ 187,615 1.51% 0.65 - 2.50% 10.87% to 12.97% December 31, 2004 12,660 $12.70454 to $14.86117 $ 173,233 1.33% 0.65 - 2.50% 20.25% to 27.05% AST MFS Global Equity Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 6,101 $ 8.57011 to $13.60103 $ 66,707 1.29% 0.65 - 2.75% -35.81% to -34.42% December 31, 2007 10,147 $13.35080 to $20.79180 $ 175,144 1.95% 0.65 - 2.75% 6.38% to 8.69% December 31, 2006 14,954 $12.55031 to $19.17844 $ 240,811 0.50% 0.65 - 2.75% 20.89% to 23.49% December 31, 2005 11,543 $12.58753 to $13.00551 $ 148,907 0.28% 0.65 - 2.50% 4.89% to 6.87% December 31, 2004 13,548 $11.77784 to $12.39912 $ 164,748 0.18% 0.65 - 2.50% 17.62% to 23.99% AST JPMorgan International Equity Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 9,827 $ 6.27937 to $24.00705 $ 149,580 2.57% 0.65 - 2.75% -43.00% to -41.76% December 31, 2007 18,705 $10.95909 to $41.53619 $ 466,812 1.42% 0.65 - 2.75% 6.42% to 8.73% December 31, 2006 20,776 $10.24548 to $38.49496 $ 502,228 1.24% 0.65 - 2.75% 19.43% to 22.00% December 31, 2005 22,661 $13.33803 to $21.16585 $ 460,659 1.07% 0.65 - 2.50% 8.25% to 10.29% December 31, 2004 17,054 $12.32188 to $19.19038 $ 373,796 1.11% 0.65 - 2.50% 16.35% to 23.22% AST T. Rowe Price Global Bond Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 16,218 $ 9.78879 to $16.30778 $ 221,914 4.60% 0.65 - 2.75% -5.12% to -3.07% December 31, 2007 33,381 $10.31681 to $16.82426 $ 461,638 2.66% 0.65 - 2.75% 6.62% to 8.93% December 31, 2006 35,161 $ 9.67663 to $15.44498 $ 452,330 1.66% 0.65 - 2.75% 3.36% to 5.58% December 31, 2005 41,856 $10.18964 to $14.62839 $ 514,830 3.18% 0.65 - 2.50% -6.87% to -5.10% December 31, 2004 26,802 $10.94108 to $15.41527 $ 360,549 5.66% 0.65 - 2.50% 7.93% to 9.41% AST International Growth Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 38,892 $ 5.57041 to $13.55477 $ 455,778 1.44% 0.65 - 2.85% -51.60% to -44.28% December 31, 2007 59,911 $15.23165 to $27.41378 $1,450,281 0.41% 0.65 - 2.75% 15.76% to 18.28% December 31, 2006 74,076 $13.15766 to $23.17793 $1,536,181 1.32% 0.65 - 2.75% 17.66% to 20.19% December 31, 2005 98,133 $13.56645 to $19.28436 $1,709,821 0.96% 0.65 - 2.50% 13.66% to 15.80% December 31, 2004 85,371 $11.93649 to $16.65262 $1,326,329 0.73% 0.65 - 2.50% 15.40% to 19.36% AST Aggressive Asset Allocation Portfolio (available December 5, 2005) --------------------------------------------------------------------------------------------- December 31, 2008 13,508 $ 6.74653 to $ 7.17163 $ 93,861 0.78% 0.65 - 2.60% -43.83% to -42.70% December 31, 2007 41,420 $11.97230 to $12.51606 $ 506,044 0.15% 0.65 - 2.75% 6.53% to 8.84% December 31, 2006 29,759 $11.26947 to $11.49911 $ 338,015 0.00% 0.65 - 2.50% 12.80% to 14.93% December 31, 2005 3,409 $ 9.99132 to $10.00500 $ 34,084 0.00% 0.65 - 2.40% -0.07% to 0.06% AST Capital Growth Asset Allocation Portfolio (available December 5, 2005) --------------------------------------------------------------------------------------------- December 31, 2008 280,192 $ 7.09516 to $ 7.96999 $2,131,831 1.00% 0.65 - 3.00% -36.89% to -29.03% December 31, 2007 437,914 $11.73121 to $12.33007 $5,234,701 0.22% 0.65 - 3.00% 6.42% to 9.01% December 31, 2006 274,471 $11.02337 to $11.31058 $3,056,729 0.00% 0.65 - 3.00% 10.27% to 12.94% December 31, 2005 21,855 $10.00055 to $10.01499 $ 218,657 0.00% 0.65 - 2.50% 0.05% to 0.16% AST Academic Strategies Asset Allocation Portfolio (available December 5, 2005) --------------------------------------------------------------------------------------------- December 31, 2008 226,152 $ 7.32007 to $ 8.17979 $1,769,603 1.15% 0.65 - 3.00% -33.88% to -26.78% December 31, 2007 324,959 $11.49114 to $12.07747 $3,809,076 0.36% 0.65 - 3.00% 5.92% to 8.50% December 31, 2006 209,952 $10.84925 to $11.13179 $2,302,446 0.00% 0.65 - 3.00% 8.42% to 11.04% December 31, 2005 19,037 $10.01052 to $10.02498 $ 190,659 0.00% 0.65 - 2.50% 0.13% to 0.26%
A71 Note 7: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ------------------ AST Balanced Asset Allocation Portfolio (available December 5, 2005) --------------------------------------------------------------------------------------------- December 31, 2008 105,696 $ 7.53624 to $ 8.46087 $ 857,571 1.08% 0.65 - 3.00% -30.84% to -24.62% December 31, 2007 98,554 $11.36451 to $11.94439 $1,143,188 0.33% 0.65 - 3.00% 5.79% to 8.36% December 31, 2006 51,725 $10.77257 to $11.02254 $ 561,804 0.00% 0.65 - 2.75% 7.53% to 9.84% December 31, 2005 4,156 $10.02051 to $10.03225 $ 41,665 0.00% 1.00 - 2.50% 0.23% to 0.33% AST Preservation Asset Allocation Portfolio (available December 5, 2005) --------------------------------------------------------------------------------------------- December 31, 2008 117,435 $ 8.26395 to $ 9.30874 $1,047,168 0.85% 0.65 - 3.00% -21.90% to -17.26% December 31, 2007 50,338 $11.13156 to $11.63721 $ 568,796 0.29% 0.65 - 2.75% 5.71% to 8.01% December 31, 2006 23,554 $10.52984 to $10.77434 $ 250,007 0.00% 0.65 - 2.75% 5.00% to 7.26% December 31, 2005 1,112 $10.03049 to $10.04496 $ 11,156 0.00% 0.65 - 2.50% 0.33% to 0.46% Davis Value Portfolio --------------------------------------------------------------------------------------------- December 31, 2008 323 $ 7.60022 to $10.39039 $ 2,459 0.52% 1.40 - 1.65% -41.31% to -41.16% December 31, 2007 968 $12.91696 to $17.70411 $ 12,664 1.06% 1.40 - 1.65% 2.90% to 3.16% December 31, 2006 1,082 $12.52070 to $17.20481 $ 13,706 0.82% 1.40 - 2.15% 12.54% to 13.40% December 31, 2005 912 $11.04159 to $15.21083 $ 10,162 1.09% 1.40 - 1.65% 7.64% to 7.92% December 31, 2004 773 $10.23170 to $14.13079 $ 7,961 0.87% 1.40 - 1.65% 10.47% to 10.75% Evergreen VA Diversified Capital Builder Fund --------------------------------------------------------------------------------------------- December 31, 2008 277 $ 5.88992 to $ 6.84098 $ 1,634 0.00% 1.40 - 1.65% -46.42% to -46.28% December 31, 2007 505 $10.96366 to $12.76662 $ 5,550 4.04% 1.40 - 1.65% 4.91% to 5.18% December 31, 2006 591 $10.42346 to $12.16865 $ 6,174 2.45% 1.40 - 1.65% 8.04% to 8.31% December 31, 2005 704 $ 9.62335 to $11.26309 $ 6,791 2.34% 1.40 - 1.65% 3.56% to 3.82% December 31, 2004 809 $ 9.26928 to $10.87628 $ 7,495 0.88% 1.40 - 1.65% 4.55% to 4.82% Evergreen VA Growth Fund (available April 15, 2005) --------------------------------------------------------------------------------------------- December 31, 2008 1,613 $ 7.64727 to $ 8.20083 $ 12,814 0.02% 0.65 - 2.50% -42.61% to -41.51% December 31, 2007 3,052 $13.32397 to $14.02140 $ 41,697 0.00% 0.65 - 2.50% 8.25% to 10.32% December 31, 2006 3,504 $12.25417 to $12.70979 $ 43,826 0.00% 0.65 - 2.75% 7.99% to 10.32% December 31, 2005 4,019 $11.36821 to $11.52122 $ 46,002 0.00% 0.65 - 2.50% 15.79% to 17.34% Evergreen VA International Equity Fund --------------------------------------------------------------------------------------------- December 31, 2008 3,073 $ 8.30863 to $13.30448 $ 36,054 0.00% 0.65 - 2.75% -43.10% to -41.87% December 31, 2007 5,409 $14.60200 to $23.17876 $ 112,461 2.56% 0.65 - 2.75% 11.82% to 14.25% December 31, 2006 5,001 $13.05828 to $20.54770 $ 91,052 4.02% 0.65 - 2.75% 19.78% to 22.36% December 31, 2005 4,304 $13.97774 to $14.27529 $ 64,078 3.12% 0.65 - 2.50% 13.11% to 15.24% December 31, 2004 2,417 $12.38709 to $12.35815 $ 31,264 1.57% 0.65 - 2.50% 18.43% to 23.58% Evergreen VA Fundamental Large Cap Fund --------------------------------------------------------------------------------------------- December 31, 2008 460 $ 9.40790 to $ 9.52968 $ 4,381 1.31% 1.40 - 1.65% -33.96% to -33.79% December 31, 2007 592 $14.24555 to $14.39332 $ 8,514 1.03% 1.40 - 1.65% 6.49% to 6.77% December 31, 2006 704 $13.37676 to $13.48107 $ 9,482 1.25% 1.40 - 1.65% 10.82% to 11.10% December 31, 2005 765 $12.07080 to $12.13421 $ 9,286 1.02% 1.40 - 1.65% 7.22% to 7.49% December 31, 2004 555 $11.25809 to $11.28865 $ 6,261 1.19% 1.40 - 1.65% 7.40% to 7.68% Evergreen VA Omega Fund --------------------------------------------------------------------------------------------- December 31, 2008 1,626 $ 6.10870 to $12.28160 $ 11,496 0.00% 0.65 - 2.60% -29.09% to -27.67% December 31, 2007 2,126 $ 8.50981 to $17.02269 $ 21,935 0.53% 0.65 - 2.50% 9.15% to 11.23% December 31, 2006 2,450 $ 7.70917 to $15.34297 $ 22,281 0.00% 0.65 - 2.50% 3.37% to 5.33% December 31, 2005 3,270 $10.28912 to $11.05312 $ 28,491 0.22% 0.65 - 2.50% 1.26% to 3.17% December 31, 2004 4,624 $ 9.97258 to $10.91573 $ 39,972 0.00% 0.65 - 2.50% 6.52% to 9.16% Evergreen VA Special Values Fund --------------------------------------------------------------------------------------------- December 31, 2008 146 $12.15328 to $15.04581 $ 2,186 0.84% 1.40 - 1.90% -32.61% to -32.27% December 31, 2007 316 $18.03551 to $22.21472 $ 6,903 1.32% 1.40 - 1.90% -9.28% to -8.82% December 31, 2006 368 $19.88133 to $24.36340 $ 8,852 0.76% 1.40 - 1.90% 19.25% to 19.85% December 31, 2005 393 $16.67261 to $20.32795 $ 7,894 1.09% 1.40 - 1.90% 8.66% to 9.22% December 31, 2004 322 $15.42626 to $18.61254 $ 5,914 1.03% 1.40 - 1.65% 18.38% to 18.69% Evergreen VA Diversified Income Builder Fund --------------------------------------------------------------------------------------------- December 31, 2008 264 $ 9.04154 to $10.46656 $ 2,762 6.53% 1.40 - 1.65% -29.68% to -29.50% December 31, 2007 402 $13.02529 to $15.03981 $ 5,989 4.76% 1.40 - 1.65% 1.99% to 2.25% December 31, 2006 468 $12.77150 to $14.70915 $ 6,869 3.50% 1.40 - 1.65% 4.20% to 4.46% December 31, 2005 480 $12.16009 to $14.08098 $ 6,740 4.97% 1.40 - 1.90% -2.57% to -2.07% December 31, 2004 476 $12.54808 to $14.37891 $ 6,826 4.60% 1.40 - 1.65% 6.62% to 6.89%
A72 Note 7: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ Columbia Money Market Fund, VS ------------------------------------------------------------------------------------------- December 31, 2008 159 $11.12662 to $11.12662 $ 1,771 2.59% 1.00 - 1.00% 1.55% to 1.55% December 31, 2007 234 $10.95647 to $10.95647 $ 2,568 4.91% 1.00 - 1.00% 3.97% to 3.97% December 31, 2006 246 $10.53788 to $10.53788 $ 2,597 4.61% 1.00 - 1.00% 3.69% to 3.69% December 31, 2005 321 $10.16333 to $10.16333 $ 3,259 2.96% 1.00 - 1.00% 2.03% to 2.03% December 31, 2004 400 $ 9.96100 to $ 9.96100 $ 3,988 0.83% 1.00 - 1.00% -0.14% to -0.14% Columbia Small Company Growth Fund, VS ------------------------------------------------------------------------------------------- December 31, 2008 37 $12.34900 to $12.34900 $ 462 0.00% 1.00 - 1.00% -41.42% to -41.42% December 31, 2007 51 $21.07999 to $21.07999 $ 1,069 0.00% 1.00 - 1.00% 12.32% to 12.32% December 31, 2006 62 $18.76807 to $18.76807 $ 1,155 0.00% 1.00 - 1.00% 11.28% to 11.28% December 31, 2005 82 $16.86565 to $16.86565 $ 1,386 0.01% 1.00 - 1.00% 1.69% to 1.69% December 31, 2004 114 $16.58595 to $16.58595 $ 1,892 0.00% 1.00 - 1.00% 10.36% to 10.36% Columbia Large Cap Growth Fund, VS (available February 25, 2005) ------------------------------------------------------------------------------------------- December 31, 2008 592 $ 7.65036 to $ 7.72535 $ 4,575 0.25% 1.00 - 1.25% -41.18% to -41.03% December 31, 2007 800 $13.00621 to $13.10033 $ 10,478 0.37% 1.00 - 1.25% 14.32% to 14.61% December 31, 2006 1,028 $11.37734 to $11.43058 $ 11,755 0.36% 1.00 - 1.25% 8.86% to 9.13% December 31, 2005 1,359 $10.45138 to $10.47393 $ 14,238 0.68% 1.00 - 1.25% 3.81% to 4.04% Prudential SP International Growth Portfolio ------------------------------------------------------------------------------------------- December 31, 2008 1,323 $ 7.40821 to $ 8.59118 $ 10,961 1.60% 0.65 - 2.75% -51.67% to -50.62% December 31, 2007 3,043 $15.32754 to $17.39805 $ 51,415 0.73% 0.65 - 2.75% 16.24% to 18.76% December 31, 2006 3,004 $13.18590 to $14.64915 $ 43,166 1.77% 0.65 - 2.75% 17.73% to 20.26% December 31, 2005 2,709 $11.94145 to $12.18096 $ 32,672 0.56% 0.65 - 2.50% 13.49% to 15.63% December 31, 2004 1,458 $10.52413 to $10.53434 $ 15,350 0.00% 0.65 - 2.50% 33.82% to 39.61% Gartmore NVIT Developing Markets Fund ------------------------------------------------------------------------------------------- December 31, 2008 6,642 $ 8.94425 to $19.28675 $ 86,010 0.64% 0.65 - 2.75% -59.02% to -58.13% December 31, 2007 14,104 $21.82742 to $46.18441 $478,758 0.45% 0.65 - 2.75% 39.55% to 42.57% December 31, 2006 14,181 $15.64163 to $32.47568 $323,571 0.56% 0.65 - 2.75% 30.88% to 33.70% December 31, 2005 17,521 $14.97909 to $16.29013 $293,345 0.53% 0.65 - 2.50% 28.24% to 30.66% December 31, 2004 15,105 $11.46381 to $12.70271 $185,833 0.55% 0.65 - 2.50% 19.00% to 27.03% The DOW DART 10 Portfolio ------------------------------------------------------------------------------------------- December 31, 2008 857 $ 6.92452 to $10.27256 $ 7,084 0.00% 0.65 - 2.50% -30.30% to -28.97% December 31, 2007 1,361 $ 9.78319 to $14.55047 $ 16,177 0.00% 0.65 - 2.50% -1.87% to 0.00% December 31, 2006 2,311 $ 9.81749 to $14.63859 $ 27,950 0.00% 0.65 - 2.50% 22.44% to 24.75% December 31, 2005 1,226 $ 9.83399 to $10.14565 $ 11,614 0.00% 0.65 - 2.50% -5.63% to -3.85% December 31, 2004 1,295 $10.55000 to $10.42110 $ 12,754 0.00% 0.65 - 2.50% 4.21% to 31.55% First Trust Target Focus Four Portfolio ------------------------------------------------------------------------------------------- December 31, 2008 1,208 $ 2.55578 to $ 8.80712 $ 4,702 0.00% 0.65 - 2.60% -45.29% to -40.07% December 31, 2007 1,492 $ 4.61460 to $15.33676 $ 12,698 0.00% 0.65 - 1.90% 3.68% to 5.01% December 31, 2006 1,129 $ 4.42816 to $10.14977 $ 5,732 0.00% 0.65 - 1.65% 2.30% to 3.34% December 31, 2005 1,468 $ 4.50117 to $14.19739 $ 7,002 0.00% 0.65 - 1.90% -1.33% to -0.07% December 31, 2004 2,085 $ 4.50450 to $14.38846 $ 9,808 0.00% 0.65 - 1.90% 9.23% to 10.62% Global Dividend Target 15 Portfolio ------------------------------------------------------------------------------------------- December 31, 2008 3,199 $ 9.01244 to $15.09443 $ 36,070 0.00% 0.65 - 2.60% -44.27% to -43.15% December 31, 2007 8,705 $16.10195 to $26.71430 $173,717 0.00% 0.65 - 2.75% 10.21% to 12.60% December 31, 2006 7,225 $17.08339 to $23.86991 $128,826 0.00% 0.65 - 2.50% 34.99% to 37.54% December 31, 2005 2,795 $12.65511 to $13.05592 $ 36,800 0.00% 0.65 - 2.50% 7.43% to 9.46% December 31, 2004 1,858 $11.93000 to $11.78007 $ 22,624 0.00% 0.65 - 2.50% 12.65% to 17.80% NASDAQ Target 15 Portfolio ------------------------------------------------------------------------------------------- December 31, 2008 501 $ 5.53942 to $ 8.01883 $ 3,179 0.00% 0.65 - 1.90% -51.83% to -39.68% December 31, 2007 857 $11.39370 to $16.53539 $ 11,317 0.00% 0.65 - 1.90% 19.41% to 20.94% December 31, 2006 686 $ 9.45483 to $13.75647 $ 7,316 0.00% 0.65 - 1.65% 7.09% to 8.18% December 31, 2005 673 $10.78336 to $11.01244 $ 6,552 0.00% 0.65 - 1.90% 1.36% to 2.65% December 31, 2004 748 $10.63850 to $10.72820 $ 7,024 0.00% 0.65 - 1.90% 19.52% to 20.53%
A73 Note 7: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ S&P Target 24 Portfolio ------------------------------------------------------------------------------------------- December 31, 2008 992 $ 6.35065 to $10.21125 $ 7,753 0.00% 0.65 - 2.50% -29.73% to -28.39% December 31, 2007 1,425 $ 8.89991 to $14.34653 $ 15,798 0.00% 0.65 - 2.50% 1.58% to 3.52% December 31, 2006 1,497 $ 8.62770 to $13.94316 $ 16,056 0.00% 0.65 - 2.50% 0.32% to 2.22% December 31, 2005 1,716 $10.85174 to $11.19548 $ 18,042 0.00% 0.65 - 2.50% 1.56% to 3.48% December 31, 2004 1,433 $10.68490 to $10.81888 $ 14,152 0.00% 0.65 - 2.50% 6.85% to 48.18% Target Managed VIP Portfolio ------------------------------------------------------------------------------------------- December 31, 2008 4,209 $ 6.45063 to $10.05410 $ 32,278 0.00% 0.65 - 2.60% -46.26% to -45.18% December 31, 2007 12,029 $11.80803 to $18.45100 $174,193 0.00% 0.65 - 2.75% 6.44% to 8.76% December 31, 2006 15,281 $10.89598 to $17.06925 $203,898 0.00% 0.65 - 2.50% 8.73% to 10.79% December 31, 2005 15,096 $11.77287 to $12.14584 $182,873 0.00% 0.65 - 2.50% 4.57% to 6.55% December 31, 2004 9,571 $11.25812 to $11.39923 $108,508 0.00% 0.65 - 2.50% 12.58% to 36.28% Value Line Target 25 Portfolio ------------------------------------------------------------------------------------------- December 31, 2008 2,423 $ 2.43273 to $10.38685 $ 15,210 0.00% 0.65 - 1.90% -55.68% to -54.06% December 31, 2007 3,219 $ 5.43929 to $23.28349 $ 44,021 0.00% 0.65 - 1.90% 15.94% to 17.43% December 31, 2006 3,691 $ 4.64840 to $19.94915 $ 43,760 0.00% 0.65 - 2.75% 0.06% to 2.21% December 31, 2005 4,713 $14.75809 to $15.07130 $ 54,045 0.00% 0.65 - 1.90% 17.44% to 18.93% December 31, 2004 2,730 $12.67240 to $12.56662 $ 21,764 0.00% 0.65 - 1.90% 292.72% to 296.02% The DOW Target Dividend Portfolio (available May 2, 2005) ------------------------------------------------------------------------------------------- December 31, 2008 3,087 $ 6.36274 to $ 6.84383 $ 20,380 0.00% 0.65 - 2.60% -42.10% to -40.93% December 31, 2007 7,365 $10.94328 to $11.58623 $ 82,923 0.00% 0.65 - 2.75% -1.68% to 0.45% December 31, 2006 8,909 $11.17799 to $11.53380 $100,922 0.00% 0.65 - 2.50% 15.19% to 17.37% December 31, 2005 5,988 $ 9.70374 to $ 9.82689 $ 58,424 0.00% 0.65 - 2.50% -2.94% to -1.73% ProFund VP Asia 30 ------------------------------------------------------------------------------------------- December 31, 2008 2,982 $11.04280 to $18.55842 $ 42,945 0.64% 0.65 - 2.50% -52.06% to -51.14% December 31, 2007 7,319 $21.64038 to $38.08052 $229,468 0.07% 0.65 - 2.75% 43.66% to 46.78% December 31, 2006 8,239 $15.06343 to $26.01023 $172,274 0.41% 0.65 - 2.75% 35.47% to 38.39% December 31, 2005 4,504 $11.77381 to $14.99956 $ 68,490 0.30% 0.65 - 2.50% 16.53% to 18.73% December 31, 2004 3,205 $12.63287 to $10.10342 $ 40,955 0.29% 0.65 - 2.50% -1.19% to 1.03% ProFund VP Banks ------------------------------------------------------------------------------------------- December 31, 2008 3,538 $ 4.64022 to $ 6.18259 $ 17,950 1.62% 0.65 - 2.50% -48.25% to -47.26% December 31, 2007 978 $ 8.96638 to $11.75272 $ 9,868 3.33% 0.65 - 2.50% -29.10% to -27.75% December 31, 2006 961 $12.64709 to $16.30793 $ 13,291 0.82% 0.65 - 2.50% 12.53% to 14.66% December 31, 2005 975 $11.23895 to $12.20988 $ 11,872 2.58% 0.65 - 2.50% -2.63% to -0.79% December 31, 2004 1,047 $11.54299 to $12.30741 $ 13,102 0.45% 0.65 - 2.50% 11.04% to 15.43% ProFund VP Bear ------------------------------------------------------------------------------------------- December 31, 2008 5,261 $ 7.60268 to $11.65146 $ 48,699 2.01% 0.65 - 2.50% 36.43% to 39.01% December 31, 2007 4,417 $ 5.56702 to $ 8.38154 $ 29,521 4.17% 0.65 - 2.50% -1.93% to -0.06% December 31, 2006 4,205 $ 5.67078 to $ 8.38655 $ 28,388 1.80% 0.65 - 2.50% -9.81% to -8.10% December 31, 2005 6,309 $ 7.81248 to $ 9.12581 $ 48,454 0.00% 0.65 - 2.50% -3.82% to -2.00% December 31, 2004 3,448 $ 8.12302 to $ 9.31230 $ 28,157 0.00% 0.65 - 2.50% -12.53% to -10.87% ProFund VP Biotechnology ------------------------------------------------------------------------------------------- December 31, 2008 2,205 $ 8.36476 to $16.51663 $ 22,229 0.00% 0.65 - 1.90% -0.09% to 1.18% December 31, 2007 1,763 $ 8.32997 to $16.36489 $ 16,586 0.00% 0.65 - 1.90% -3.04% to -1.80% December 31, 2006 1,291 $ 8.54742 to $16.70677 $ 12,290 0.00% 0.65 - 1.90% -5.91% to -4.72% December 31, 2005 2,503 $ 9.38369 to $17.03129 $ 25,003 0.00% 0.65 - 1.90% 16.98% to 18.47% December 31, 2004 2,930 $ 7.92074 to $14.55869 $ 24,751 0.00% 0.65 - 1.90% 7.64% to 9.01% ProFund VP Basic Materials ------------------------------------------------------------------------------------------- December 31, 2008 2,384 $ 8.33841 to $10.68164 $ 20,621 0.25% 0.65 - 2.50% -52.64% to -51.74% December 31, 2007 6,010 $13.55624 to $22.18935 $111,824 0.42% 0.65 - 2.75% 27.10% to 29.86% December 31, 2006 2,131 $13.57865 to $17.13093 $ 30,609 0.27% 0.65 - 2.50% 12.60% to 14.73% December 31, 2005 2,619 $12.38177 to $12.40714 $ 34,114 0.06% 0.65 - 2.50% -0.11% to 1.77% December 31, 2004 2,088 $12.19078 to $12.39593 $ 25,614 0.29% 0.65 - 2.50% 9.51% to 23.96%
A74 Note 7: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ ProFund VP UltraBull ------------------------------------------------------------------------------------------- December 31, 2008 11,726 $ 3.21703 to $ 6.78269 $ 48,791 1.50% 0.65 - 1.90% -68.02% to -67.61% December 31, 2007 4,135 $10.00785 to $20.99317 $ 49,950 0.53% 0.65 - 1.90% -1.07% to 0.20% December 31, 2006 4,655 $10.06481 to $21.00543 $ 53,893 0.33% 0.65 - 1.90% 20.73% to 22.26% December 31, 2005 4,472 $ 8.61103 to $16.68766 $ 41,431 0.13% 0.65 - 1.90% 0.66% to 1.94% December 31, 2004 8,988 $ 8.44700 to $16.57769 $ 83,929 0.00% 0.65 - 1.90% 14.95% to 16.41% ProFund VP Bull ------------------------------------------------------------------------------------------- December 31, 2008 6,812 $ 7.42681 to $ 9.52283 $ 52,900 0.00% 0.65 - 2.50% -39.23% to -38.07% December 31, 2007 10,229 $12.11519 to $15.41660 $128,911 0.50% 0.65 - 2.50% 0.95% to 2.87% December 31, 2006 18,245 $11.89713 to $15.02392 $227,054 0.23% 0.65 - 2.50% 10.82% to 12.92% December 31, 2005 20,272 $11.04492 to $11.23459 $222,568 0.26% 0.65 - 2.50% 0.18% to 2.07% December 31, 2004 26,232 $10.82090 to $11.21483 $284,797 0.00% 0.65 - 2.50% 8.12% to 12.15% ProFund VP Consumer Services ------------------------------------------------------------------------------------------- December 31, 2008 817 $ 6.01368 to $ 8.15142 $ 5,052 0.00% 0.65 - 2.50% -33.10% to -31.83% December 31, 2007 240 $ 8.91144 to $11.98752 $ 2,447 0.00% 0.65 - 2.50% -10.55% to -8.85% December 31, 2006 602 $ 9.87614 to $13.18401 $ 6,499 0.00% 0.65 - 2.50% 9.21% to 11.27% December 31, 2005 349 $ 9.30453 to $ 9.90834 $ 3,521 0.00% 0.65 - 2.50% -7.04% to -5.29% December 31, 2004 1,192 $ 9.82392 to $10.65926 $ 11,879 0.00% 0.65 - 2.50% 6.59% to 6.90% ProFund VP Consumer Goods ------------------------------------------------------------------------------------------- December 31, 2008 1,000 $ 8.57802 to $10.75388 $ 8,804 1.14% 0.65 - 2.50% -28.55% to -27.19% December 31, 2007 2,349 $11.90105 to $14.80676 $ 30,124 0.81% 0.65 - 2.50% 4.89% to 6.89% December 31, 2006 1,570 $11.24740 to $13.88705 $ 18,574 0.10% 0.65 - 2.50% 9.81% to 11.89% December 31, 2005 630 $10.53789 to $11.03962 $ 6,913 0.34% 0.65 - 2.50% -2.85% to -1.01% December 31, 2004 921 $10.64584 to $12.20066 $ 9,972 0.03% 0.65 - 2.40% 8.54% to 14.30% ProFund VP Oil & Gas ------------------------------------------------------------------------------------------- December 31, 2008 3,492 $14.44920 to $20.07614 $ 55,622 0.00% 0.65 - 2.50% -38.53% to -37.36% December 31, 2007 7,071 $16.54018 to $32.13077 $188,298 0.00% 0.65 - 2.75% 28.81% to 31.61% December 31, 2006 7,128 $12.84063 to $24.47578 $143,520 0.00% 0.65 - 2.75% 17.32% to 19.84% December 31, 2005 8,943 $15.53164 to $17.61397 $148,186 0.00% 0.65 - 2.50% 28.04% to 30.46% December 31, 2004 6,640 $11.90553 to $13.75686 $ 85,038 0.00% 0.65 - 2.50% 28.51% to 37.57% ProFund VP Europe 30 ------------------------------------------------------------------------------------------- December 31, 2008 2,290 $ 6.12200 to $11.88516 $ 18,076 1.83% 0.65 - 2.50% -45.41% to -44.37% December 31, 2007 5,888 $11.07157 to $21.41832 $ 92,832 1.86% 0.65 - 2.50% 11.70% to 13.83% December 31, 2006 9,521 $ 9.78576 to $18.86370 $126,117 0.39% 0.65 - 2.50% 14.58% to 16.74% December 31, 2005 7,481 $ 9.92756 to $13.01970 $ 81,339 0.14% 0.65 - 2.50% 5.40% to 7.39% December 31, 2004 10,431 $ 9.24454 to $12.35313 $102,514 0.14% 0.65 - 2.50% 13.58% to 23.53% ProFund VP Financials ------------------------------------------------------------------------------------------- December 31, 2008 3,061 $ 4.93780 to $ 6.48378 $ 16,869 1.36% 0.65 - 2.50% -51.78% to -50.86% December 31, 2007 1,779 $10.12613 to $13.22887 $ 20,400 0.97% 0.65 - 2.50% -21.15% to -19.64% December 31, 2006 3,163 $12.12850 to $16.50435 $ 44,681 0.50% 0.65 - 2.50% 14.42% to 16.59% December 31, 2005 2,568 $11.38546 to $11.39228 $ 31,419 0.72% 0.65 - 2.50% 1.39% to 3.31% December 31, 2004 2,337 $11.02715 to $13.33338 $ 27,138 0.28% 0.65 - 2.40% 7.38% to 9.62% ProFund VP U.S. Government Plus ------------------------------------------------------------------------------------------- December 31, 2008 5,491 $15.35403 to $20.24014 $102,443 1.74% 0.65 - 2.65% 45.77% to 48.76% December 31, 2007 7,087 $10.53295 to $13.60595 $ 87,800 3.52% 0.65 - 2.65% 7.19% to 9.40% December 31, 2006 2,704 $ 9.82620 to $12.43644 $ 31,415 3.44% 0.65 - 2.65% -7.07% to -5.17% December 31, 2005 7,185 $11.44316 to $13.11433 $ 89,133 2.31% 0.65 - 2.50% 6.29% to 8.31% December 31, 2004 3,732 $10.23058 to $12.10868 $ 43,240 0.86% 0.65 - 2.40% 5.28% to 7.48% ProFund VP Health Care ------------------------------------------------------------------------------------------- December 31, 2008 2,730 $ 7.08869 to $ 9.84534 $ 21,152 0.45% 0.65 - 2.50% -26.19% to -24.79% December 31, 2007 5,321 $ 9.49653 to $13.12280 $ 57,795 0.00% 0.65 - 2.50% 3.90% to 5.88% December 31, 2006 6,343 $ 9.03730 to $12.42496 $ 63,921 0.00% 0.65 - 2.50% 2.62% to 4.56% December 31, 2005 5,511 $ 9.04054 to $10.97896 $ 53,879 0.00% 0.65 - 2.50% 3.37% to 5.33% December 31, 2004 4,053 $ 8.58298 to $10.97696 $ 37,119 0.00% 0.65 - 2.40% -0.10% to 1.70%
A75 Note 7: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ ACCESS VP High Yield Fund (available May 2, 2005) ------------------------------------------------------------------------------------------- December 31, 2008 1,961 $10.94080 to $11.46149 $ 21,798 6.62% 0.65 - 1.90% -6.46% to -5.26% December 31, 2007 2,274 $11.58477 to $12.09846 $ 26,924 7.03% 0.65 - 2.25% 2.81% to 4.50% December 31, 2006 2,746 $11.23960 to $11.57769 $ 31,357 6.19% 0.65 - 2.40% 6.95% to 8.86% December 31, 2005 3,308 $10.54502 to $10.63499 $ 35,001 3.74% 0.65 - 1.90% 5.47% to 6.36% ProFund VP Industrials ------------------------------------------------------------------------------------------- December 31, 2008 1,045 $ 7.93126 to $10.69572 $ 8,678 0.05% 0.65 - 2.50% -41.98% to -40.87% December 31, 2007 1,594 $13.55087 to $18.13551 $ 23,481 0.00% 0.65 - 2.50% 8.92% to 10.99% December 31, 2006 738 $12.33357 to $16.38084 $ 9,581 0.00% 0.65 - 2.50% 8.87% to 10.93% December 31, 2005 828 $11.65524 to $12.02792 $ 10,102 0.00% 0.65 - 2.50% -0.12% to 1.77% December 31, 2004 808 $11.45243 to $12.04227 $ 9,459 0.00% 0.65 - 2.50% 12.48% to 20.42% ProFund VP Internet ------------------------------------------------------------------------------------------- December 31, 2008 208 $11.07782 to $12.93669 $ 2,322 0.00% 0.65 - 1.90% -45.88% to -45.19% December 31, 2007 647 $20.41623 to $23.66106 $ 13,299 0.62% 0.65 - 1.90% 8.08% to 9.47% December 31, 2006 488 $18.84122 to $21.66964 $ 9,275 0.00% 0.65 - 1.90% -0.56% to 0.70% December 31, 2005 1,329 $19.61413 to $20.90237 $ 25,339 0.00% 0.65 - 1.90% 5.40% to 6.74% December 31, 2004 2,334 $18.37524 to $19.83065 $ 41,983 0.00% 0.65 - 1.90% 18.95% to 20.47% ProFund VP Japan ------------------------------------------------------------------------------------------- December 31, 2008 1,374 $ 7.47329 to $11.05065 $ 10,845 12.46% 0.65 - 2.50% -42.33% to -41.23% December 31, 2007 1,734 $12.84546 to $18.85032 $ 24,755 4.66% 0.65 - 2.50% -12.26% to -10.58% December 31, 2006 4,322 $14.47744 to $21.13429 $ 67,827 0.79% 0.65 - 2.65% 7.89% to 10.10% December 31, 2005 9,016 $13.81772 to $14.27008 $129,124 0.00% 0.65 - 2.50% 38.25% to 40.86% December 31, 2004 2,766 $ 9.80926 to $13.25999 $ 27,662 0.00% 0.65 - 2.40% 4.68% to 6.86% ProFund VP Precious Metals ------------------------------------------------------------------------------------------- December 31, 2008 6,241 $10.53746 to $15.45524 $ 81,177 2.85% 0.65 - 2.50% -32.49% to -31.21% December 31, 2007 8,057 $14.94561 to $22.52410 $155,610 3.56% 0.65 - 2.75% 19.07% to 21.66% December 31, 2006 7,735 $12.55178 to $18.56096 $124,745 0.69% 0.65 - 2.75% 4.42% to 6.67% December 31, 2005 7,464 $12.49053 to $15.17761 $113,120 0.00% 0.65 - 2.50% 23.15% to 25.48% December 31, 2004 5,015 $10.14273 to $12.09584 $ 60,442 0.00% 0.65 - 2.50% -12.17% to -10.50% ProFund VP Mid-Cap Growth ------------------------------------------------------------------------------------------- December 31, 2008 2,369 $ 7.04708 to $10.45994 $ 19,189 0.00% 0.65 - 2.75% -40.50% to -39.21% December 31, 2007 4,690 $11.84301 to $17.24942 $ 64,542 0.00% 0.65 - 2.75% 8.66% to 11.01% December 31, 2006 5,246 $10.89955 to $15.57741 $ 67,092 0.00% 0.65 - 2.75% 1.12% to 3.30% December 31, 2005 12,852 $12.01395 to $12.02225 $155,726 0.00% 0.65 - 2.50% 8.45% to 10.50% December 31, 2004 6,821 $10.87246 to $11.08578 $ 75,036 0.00% 0.65 - 2.50% 10.36% to 10.86% ProFund VP Mid-Cap Value ------------------------------------------------------------------------------------------- December 31, 2008 2,052 $ 8.58307 to $11.81078 $ 18,308 0.00% 0.65 - 2.50% -37.89% to -36.71% December 31, 2007 4,473 $13.70000 to $18.70876 $ 65,127 0.40% 0.65 - 2.50% -1.57% to 0.31% December 31, 2006 6,924 $13.79740 to $18.69833 $104,430 0.02% 0.65 - 2.50% 9.50% to 11.57% December 31, 2005 7,507 $12.91090 to $12.96407 $ 99,111 0.00% 0.65 - 2.50% 6.13% to 8.14% December 31, 2004 10,344 $11.98840 to $12.16502 $125,392 0.00% 0.65 - 2.50% 15.21% to 21.65% ProFund VP Pharmaceuticals ------------------------------------------------------------------------------------------- December 31, 2008 1,292 $ 6.59683 to $ 7.92536 $ 8,813 1.89% 0.65 - 2.50% -21.52% to -20.03% December 31, 2007 1,426 $ 8.33325 to $10.00645 $ 12,439 1.10% 0.65 - 2.50% -0.25% to 1.65% December 31, 2006 2,413 $ 8.28177 to $ 9.93954 $ 21,075 0.37% 0.65 - 2.50% 9.38% to 11.45% December 31, 2005 1,378 $ 7.79007 to $ 8.82252 $ 10,783 0.29% 0.65 - 2.50% -6.21% to -4.44% December 31, 2004 1,435 $ 8.15189 to $ 8.78326 $ 11,802 0.00% 0.65 - 2.40% -11.40% to -9.81% ProFund VP Real Estate ------------------------------------------------------------------------------------------- December 31, 2008 1,212 $ 7.85776 to $11.71721 $ 12,620 0.00% 0.65 - 2.50% -42.73% to -41.64% December 31, 2007 1,572 $13.72045 to $20.07626 $ 28,411 0.91% 0.65 - 2.50% -21.63% to -20.14% December 31, 2006 3,041 $14.53445 to $25.13870 $ 69,717 0.57% 0.65 - 2.50% 29.19% to 31.63% December 31, 2005 1,949 $13.55256 to $19.09812 $ 34,432 2.04% 0.65 - 2.50% 4.09% to 6.06% December 31, 2004 4,720 $13.02029 to $18.00747 $ 79,438 1.89% 0.65 - 2.50% 26.37% to 30.20%
A76 Note 7: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ ProFund VP Rising Rates Opportunity ------------------------------------------------------------------------------------------- December 31, 2008 4,730 $ 3.69802 to $ 4.68636 $ 18,310 5.99% 0.65 - 2.50% -39.53% to -38.38% December 31, 2007 5,407 $ 6.06214 to $ 7.67436 $ 35,126 4.72% 0.65 - 2.50% -7.58% to -5.82% December 31, 2006 10,313 $ 6.50235 to $ 8.22730 $ 70,970 1.36% 0.65 - 2.50% 7.40% to 9.43% December 31, 2005 11,309 $ 6.22921 to $ 7.43736 $ 72,023 0.00% 0.65 - 2.50% -10.19% to -8.49% December 31, 2004 16,152 $ 6.80694 to $ 8.28113 $112,263 0.00% 0.65 - 2.50% -17.19% to -11.47% ProFund VP NASDAQ-100 ------------------------------------------------------------------------------------------- December 31, 2008 3,874 $ 3.64996 to $10.10445 $ 19,350 0.00% 0.65 - 2.50% -43.92% to -42.86% December 31, 2007 8,873 $ 6.43605 to $17.72715 $ 94,213 0.00% 0.65 - 2.50% 14.67% to 16.86% December 31, 2006 7,600 $ 5.54980 to $15.20854 $ 67,277 0.00% 0.65 - 2.50% 2.83% to 4.78% December 31, 2005 11,466 $ 5.54081 to $10.62917 $ 89,367 0.00% 0.65 - 2.50% -2.32% to -0.47% December 31, 2004 20,721 $ 5.56695 to $10.88139 $156,073 0.00% 0.65 - 2.50% 7.82% to 8.81% ProFund VP Semiconductor ------------------------------------------------------------------------------------------- December 31, 2008 330 $ 3.63084 to $ 6.15450 $ 1,209 0.00% 0.65 - 1.90% -50.75% to -50.12% December 31, 2007 707 $ 7.35362 to $12.83893 $ 5,296 0.00% 0.65 - 1.90% 5.03% to 6.38% December 31, 2006 842 $ 6.98349 to $12.09994 $ 5,953 0.00% 0.65 - 1.90% -8.85% to -7.69% December 31, 2005 1,778 $ 7.93141 to $12.73195 $ 13,685 0.00% 0.65 - 1.90% 6.58% to 7.94% December 31, 2004 1,507 $ 7.34818 to $11.94555 $ 10,853 0.00% 0.65 - 1.90% -25.00% to -24.04% ProFund VP Small-Cap Growth ------------------------------------------------------------------------------------------- December 31, 2008 2,498 $ 7.20263 to $12.12382 $ 23,413 0.00% 0.65 - 2.75% -35.85% to -34.46% December 31, 2007 2,403 $11.22750 to $18.54517 $ 36,925 0.00% 0.65 - 2.75% 1.18% to 3.38% December 31, 2006 5,415 $11.09652 to $17.98465 $ 79,247 0.00% 0.65 - 2.75% 5.67% to 7.95% December 31, 2005 13,797 $12.77991 to $13.14465 $184,753 0.00% 0.65 - 2.50% 4.86% to 6.84% December 31, 2004 16,741 $12.18762 to $12.30294 $208,744 0.00% 0.65 - 2.50% 19.02% to 21.88% ProFund VP Short Mid-Cap (available November 22, 2004) ------------------------------------------------------------------------------------------- December 31, 2008 332 $10.03297 to $10.56935 $ 3,403 2.18% 0.65 - 1.90% 29.33% to 30.97% December 31, 2007 183 $ 7.75791 to $ 8.06997 $ 1,437 5.33% 0.65 - 1.90% -4.71% to -3.49% December 31, 2006 617 $ 8.14103 to $ 8.36143 $ 5,104 0.68% 0.65 - 1.90% -5.46% to -4.26% December 31, 2005 472 $ 8.61142 to $ 8.73367 $ 4,080 0.00% 0.65 - 1.90% -11.18% to -10.05% December 31, 2004 53 $ 9.69807 to $ 9.70092 $ 515 0.00% 1.00 - 1.65% -0.35% to -0.34% ProFund VP Short NASDAQ-100 ------------------------------------------------------------------------------------------- December 31, 2008 1,617 $ 6.54522 to $10.15367 $ 11,639 3.95% 0.65 - 2.50% 44.46% to 47.20% December 31, 2007 2,314 $ 4.52611 to $ 6.96446 $ 11,446 6.82% 0.65 - 2.50% -13.78% to -12.13% December 31, 2006 4,161 $ 5.24385 to $ 8.00285 $ 23,704 0.86% 0.65 - 2.50% -3.83% to -2.01% December 31, 2005 5,301 $ 6.10193 to $ 8.07924 $ 31,249 0.00% 0.65 - 2.50% -1.70% to 0.16% December 31, 2004 2,547 $ 5.53538 to $ 6.09211 $ 15,078 0.00% 0.65 - 2.40% -13.25% to -11.69% ProFund VP Short Small-Cap (available November 22, 2004) ------------------------------------------------------------------------------------------- December 31, 2008 495 $ 9.81160 to $10.33629 $ 4,953 5.17% 0.65 - 1.90% 21.73% to 23.27% December 31, 2007 1,563 $ 8.06040 to $ 8.38481 $ 12,742 3.07% 0.65 - 1.90% 2.54% to 3.85% December 31, 2006 1,564 $ 7.86107 to $ 8.07403 $ 12,448 0.90% 0.65 - 1.90% -13.46% to -12.36% December 31, 2005 726 $ 9.08360 to $ 9.21260 $ 6,654 0.00% 0.65 - 1.90% -4.76% to -3.55% December 31, 2004 268 $ 9.54341 to $ 9.54061 $ 2,559 0.00% 1.00 - 1.65% -0.53% to -0.52% ProFund VP Small-Cap Value ------------------------------------------------------------------------------------------- December 31, 2008 1,883 $ 7.16486 to $12.22696 $ 16,517 0.00% 0.65 - 2.75% -32.59% to -31.13% December 31, 2007 2,208 $10.62939 to $17.79955 $ 30,154 0.00% 0.65 - 2.75% -9.79% to -7.83% December 31, 2006 6,878 $11.78269 to $19.36027 $100,515 0.00% 0.65 - 2.75% 14.21% to 16.67% December 31, 2005 4,740 $11.77792 to $12.66318 $ 61,212 0.00% 0.65 - 2.50% 1.40% to 3.32% December 31, 2004 14,281 $11.39922 to $12.48776 $175,602 0.00% 0.65 - 2.50% 19.34% to 24.88% ProFund VP Technology ------------------------------------------------------------------------------------------- December 31, 2008 994 $ 3.21528 to $ 8.59101 $ 3,966 0.00% 0.65 - 1.90% -45.41% to -44.72% December 31, 2007 3,423 $ 5.86031 to $16.16945 $ 27,215 0.00% 0.65 - 1.90% 12.23% to 13.66% December 31, 2006 2,301 $ 5.19529 to $14.26170 $ 14,524 0.00% 0.65 - 1.90% 6.02% to 7.37% December 31, 2005 2,697 $ 5.06142 to $12.90161 $ 15,241 0.60% 0.65 - 1.90% -0.69% to 0.57% December 31, 2004 3,442 $ 5.03294 to $12.99168 $ 19,542 0.00% 0.65 - 1.90% -2.33% to -1.08%
A77 Note 7: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ ProFund VP Telecommunications ------------------------------------------------------------------------------------------- December 31, 2008 2,329 $ 4.21647 to $10.55780 $ 13,153 5.78% 0.65 - 2.50% -36.06% to -34.85% December 31, 2007 3,378 $ 6.52098 to $16.36117 $ 35,538 0.73% 0.65 - 2.75% 5.40% to 7.69% December 31, 2006 5,123 $ 6.10191 to $15.34089 $ 44,101 0.69% 0.65 - 2.50% 30.94% to 33.41% December 31, 2005 1,289 $ 4.78437 to $11.37557 $ 8,800 2.21% 0.65 - 2.50% -8.97% to -7.25% December 31, 2004 2,863 $ 5.15817 to $12.49641 $ 17,888 1.22% 0.65 - 2.50% 14.81% to 24.96% ProFund VP UltraMid-Cap ------------------------------------------------------------------------------------------- December 31, 2008 4,156 $ 5.04475 to $ 9.13338 $ 22,755 1.09% 0.65 - 2.50% -68.29% to -67.69% December 31, 2007 3,252 $15.77244 to $28.33786 $ 64,812 0.27% 0.65 - 2.50% 3.30% to 5.28% December 31, 2006 4,460 $15.13524 to $26.98605 $ 78,717 0.00% 0.65 - 2.50% 7.88% to 9.92% December 31, 2005 5,482 $14.43434 to $15.87782 $ 87,663 0.00% 0.65 - 2.50% 14.96% to 17.13% December 31, 2004 6,891 $12.32354 to $13.81214 $ 88,422 0.00% 0.65 - 2.50% 26.87% to 38.12% ProFund VP UltraNASDAQ-100 ------------------------------------------------------------------------------------------- December 31, 2008 26,435 $ 0.29163 to $ 6.74463 $ 18,670 0.00% 0.65 - 1.90% -73.27% to -72.92% December 31, 2007 39,702 $ 1.08370 to $24.97224 $ 94,290 0.00% 0.65 - 1.90% 26.03% to 27.64% December 31, 2006 40,480 $ 0.85424 to $19.61369 $ 64,705 0.00% 0.65 - 1.90% 2.89% to 4.19% December 31, 2005 55,242 $ 1.30702 to $18.28341 $ 96,201 0.00% 0.65 - 1.90% -5.58% to -4.38% December 31, 2004 80,485 $ 1.36684 to $19.36302 $146,750 0.00% 0.65 - 1.90% 11.93% to 13.36% ProFund VP UltraSmall-Cap ------------------------------------------------------------------------------------------- December 31, 2008 3,980 $ 4.19697 to $ 9.08724 $ 19,692 1.40% 0.65 - 1.90% -66.83% to -66.41% December 31, 2007 1,630 $12.58880 to $27.11850 $ 22,492 1.00% 0.65 - 1.90% -14.84% to -13.75% December 31, 2006 3,418 $14.70667 to $31.51979 $ 56,994 0.03% 0.65 - 1.90% 23.61% to 25.19% December 31, 2005 3,107 $12.40722 to $24.45672 $ 39,714 0.00% 0.65 - 1.90% -2.10% to -0.86% December 31, 2004 12,861 $12.51485 to $24.98207 $173,324 0.00% 0.65 - 1.90% 28.58% to 30.22% ProFund VP Utilities ------------------------------------------------------------------------------------------- December 31, 2008 3,027 $ 8.89627 to $15.99426 $ 32,251 1.91% 0.65 - 2.50% -32.43% to -31.15% December 31, 2007 10,701 $13.01933 to $23.28866 $183,429 1.08% 0.65 - 2.75% 12.60% to 15.04% December 31, 2006 7,381 $11.40328 to $20.29430 $103,910 1.78% 0.65 - 2.50% 16.25% to 18.45% December 31, 2005 6,383 $10.07028 to $13.74600 $ 75,840 0.68% 0.65 - 2.50% 10.24% to 12.33% December 31, 2004 5,238 $ 8.96510 to $12.46874 $ 51,953 1.01% 0.65 - 2.50% 20.29% to 24.69% ProFund VP Large-Cap Growth (available November 22, 2004) ------------------------------------------------------------------------------------------- December 31, 2008 3,080 $ 7.11080 to $ 7.68284 $ 22,796 0.00% 0.65 - 2.50% -37.13% to -35.94% December 31, 2007 6,418 $11.31071 to $11.99261 $ 74,681 0.00% 0.65 - 2.50% 4.27% to 6.26% December 31, 2006 6,836 $10.84734 to $11.28595 $ 75,650 0.00% 0.65 - 2.50% 6.34% to 8.35% December 31, 2005 8,052 $10.20039 to $10.41581 $ 83,058 0.00% 0.65 - 2.50% -1.58% to 0.28% December 31, 2004 337 $10.36577 to $10.38693 $ 3,498 0.00% 0.65 - 2.40% 0.42% to 0.44% ProFund VP Large-Cap Value (available November 22, 2004) ------------------------------------------------------------------------------------------- December 31, 2008 4,442 $ 6.82238 to $ 7.37137 $ 31,631 2.09% 0.65 - 2.50% -41.95% to -40.85% December 31, 2007 5,754 $11.48634 to $12.46217 $ 69,711 0.50% 0.65 - 2.75% -2.62% to -0.51% December 31, 2006 12,386 $11.79581 to $12.52595 $152,132 0.17% 0.65 - 2.75% 15.41% to 17.90% December 31, 2005 7,437 $10.40456 to $10.62437 $ 78,232 0.00% 0.65 - 2.50% 0.46% to 2.36% December 31, 2004 440 $10.37933 to $10.35694 $ 4,561 0.00% 0.65 - 2.40% 0.41% to 0.44% Rydex VT Nova ------------------------------------------------------------------------------------------- December 31, 2008 525 $ 3.39843 to $ 7.90563 $ 1,791 0.33% 0.65 - 1.65% -55.23% to -54.77% December 31, 2007 670 $ 7.57123 to $17.65749 $ 5,109 1.17% 0.65 - 1.65% -0.55% to 0.47% December 31, 2006 950 $ 7.59388 to $17.75553 $ 7,255 1.18% 0.65 - 1.65% 17.31% to 18.50% December 31, 2005 1,194 $ 6.79147 to $15.13531 $ 7,743 0.31% 0.65 - 1.65% 2.26% to 3.29% December 31, 2004 1,584 $ 6.57506 to $14.80144 $ 10,006 0.05% 0.65 - 1.65% 13.87% to 165.58% Rydex VT NASDAQ-100 ------------------------------------------------------------------------------------------- December 31, 2008 2,078 $ 2.92280 to $ 9.85794 $ 8,918 0.15% 0.65 - 1.65% -42.87% to -42.29% December 31, 2007 2,687 $ 5.09569 to $17.25647 $ 20,181 0.07% 0.65 - 1.65% 15.87% to 17.05% December 31, 2006 3,717 $ 4.37993 to $14.89301 $ 24,011 0.00% 0.65 - 1.65% 4.03% to 5.09% December 31, 2005 4,874 $ 6.49742 to $14.31564 $ 30,222 0.00% 0.65 - 1.65% -0.55% to 0.46% December 31, 2004 6,736 $ 6.46788 to $14.39508 $ 41,864 0.00% 0.65 - 1.65% 7.54% to 8.63%
A78 Note 7: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ Rydex VT Inverse S&P 500 Strategy ------------------------------------------------------------------------------------------- December 31, 2008 35 $ 8.10781 to $12.19613 $ 414 0.59% 1.00 - 1.65% 36.95% to 37.85% December 31, 2007 56 $ 8.54195 to $ 8.84708 $ 480 4.26% 1.00 - 1.40% -0.59% to -0.18% December 31, 2006 86 $ 5.97071 to $ 8.86347 $ 736 6.26% 1.00 - 1.65% -9.03% to -8.43% December 31, 2005 125 $ 6.56305 to $ 9.67905 $ 1,181 0.00% 1.00 - 1.65% -2.40% to -1.76% December 31, 2004 149 $ 9.62902 to $ 9.85245 $ 1,435 0.00% 1.00 - 1.40% -11.47% to -11.11% AIM V.I. Dynamics Fund ------------------------------------------------------------------------------------------- December 31, 2008 2,560 $ 4.95742 to $10.76542 $ 17,328 0.00% 0.65 - 2.75% -49.51% to -48.42% December 31, 2007 4,321 $ 9.66892 to $20.92249 $ 61,007 0.00% 0.65 - 2.75% 9.08% to 11.45% December 31, 2006 5,239 $ 8.72831 to $18.82001 $ 66,084 0.00% 0.65 - 2.75% 12.93% to 15.36% December 31, 2005 5,600 $10.48172 to $12.55791 $ 60,680 0.00% 0.65 - 2.50% 7.96% to 10.00% December 31, 2004 7,133 $ 9.52867 to $11.63192 $ 70,632 0.00% 0.65 - 2.50% 12.60% to 16.32% AIM V.I. Financial Services Fund ------------------------------------------------------------------------------------------- December 31, 2008 2,370 $ 3.61742 to $ 5.65022 $ 11,756 2.27% 0.65 - 2.60% -60.50% to -59.71% December 31, 2007 3,135 $ 9.11943 to $14.02284 $ 39,355 1.50% 0.65 - 2.75% -24.37% to -22.72% December 31, 2006 4,623 $12.14731 to $18.14659 $ 75,553 1.59% 0.65 - 2.50% 13.54% to 15.69% December 31, 2005 5,702 $11.44169 to $15.68589 $ 81,547 1.50% 0.65 - 2.50% 3.27% to 5.22% December 31, 2004 6,188 $11.07969 to $14.90782 $ 86,730 0.66% 0.65 - 2.50% 7.97% to 10.80% AIM V.I. Global Health Care Fund ------------------------------------------------------------------------------------------- December 31, 2008 3,967 $ 8.60158 to $11.53093 $ 41,085 0.00% 0.65 - 2.60% -30.48% to -29.08% December 31, 2007 6,151 $12.88139 to $16.25993 $ 90,893 0.00% 0.65 - 2.50% 9.04% to 11.12% December 31, 2006 7,589 $11.41050 to $14.63226 $102,317 0.00% 0.65 - 2.50% 2.61% to 4.55% December 31, 2005 8,909 $11.99567 to $13.99520 $116,595 0.00% 0.65 - 2.50% 5.45% to 7.45% December 31, 2004 9,914 $11.37535 to $13.02517 $122,422 0.00% 0.65 - 2.50% 6.87% to 13.75% AIM V.I. Technology Fund ------------------------------------------------------------------------------------------- December 31, 2008 6,278 $ 2.12999 to $ 8.78071 $ 21,443 0.00% 0.65 - 1.90% -45.56% to -37.36% December 31, 2007 8,248 $ 3.88682 to $16.06382 $ 51,563 0.00% 0.65 - 1.90% 5.65% to 7.00% December 31, 2006 10,801 $ 3.65474 to $15.14319 $ 62,386 0.00% 0.65 - 1.90% 8.39% to 9.76% December 31, 2005 13,665 $ 5.45039 to $13.73947 $ 72,366 0.00% 0.65 - 1.90% 0.24% to 1.51% December 31, 2004 18,010 $ 5.36926 to $13.70690 $ 94,451 0.00% 0.65 - 1.90% 2.64% to 3.95% Wells Fargo Advantage VT Asset Allocation Fund ------------------------------------------------------------------------------------------- December 31, 2008 1,905 $ 9.16874 to $19.19763 $ 36,415 2.38% 1.40 - 2.25% -30.71% to -30.11% December 31, 2007 2,721 $13.19876 to $27.46722 $ 73,917 2.17% 1.40 - 2.25% 5.16% to 6.08% December 31, 2006 3,848 $12.51877 to $25.89275 $ 98,746 2.26% 1.40 - 2.25% 9.62% to 10.57% December 31, 2005 5,123 $11.53381 to $23.41668 $119,014 2.03% 1.40 - 2.25% 2.63% to 3.52% December 31, 2004 6,331 $11.23801 to $22.62013 $142,216 2.00% 1.40 - 2.25% 7.81% to 12.38% Wells Fargo Advantage VT Equity Income Fund ------------------------------------------------------------------------------------------- December 31, 2008 1,218 $ 7.83897 to $14.12189 $ 10,691 1.81% 0.65 - 2.50% -38.08% to -36.91% December 31, 2007 2,029 $12.51883 to $22.38205 $ 28,699 1.45% 0.65 - 2.50% 0.25% to 2.16% December 31, 2006 2,822 $11.65173 to $21.90813 $ 38,998 1.58% 0.65 - 2.75% 15.30% to 17.78% December 31, 2005 2,707 $11.92936 to $18.60046 $ 31,523 1.45% 0.65 - 2.50% 2.75% to 4.69% December 31, 2004 2,903 $11.61020 to $17.76678 $ 31,951 1.64% 0.65 - 2.50% 10.36% to 16.10% Wells Fargo Advantage VT C&B Large Cap Value Fund ------------------------------------------------------------------------------------------- December 31, 2008 855 $ 6.85444 to $10.19400 $ 5,921 1.48% 0.65 - 2.25% -36.48% to -35.44% December 31, 2007 1,163 $10.69777 to $15.95050 $ 12,737 1.02% 0.65 - 2.25% -3.41% to -1.82% December 31, 2006 1,592 $10.97931 to $16.41205 $ 17,808 1.45% 0.65 - 2.75% 18.77% to 21.33% December 31, 2005 1,934 $ 9.61029 to $ 9.66390 $ 17,885 0.76% 0.65 - 2.25% 0.79% to 2.44% December 31, 2004 2,343 $ 9.43398 to $ 9.53473 $ 21,281 1.58% 0.65 - 2.25% 8.71% to 10.50% Wells Fargo Advantage VT Large Company Core Fund ------------------------------------------------------------------------------------------- December 31, 2008 665 $ 7.11004 to $11.86034 $ 7,885 1.17% 1.40 - 2.00% -40.69% to -40.33% December 31, 2007 823 $11.98836 to $19.87608 $ 16,323 0.00% 1.40 - 2.00% 0.25% to 0.87% December 31, 2006 1,079 $11.95836 to $19.70500 $ 21,202 0.65% 1.40 - 2.00% 13.34% to 14.03% December 31, 2005 1,406 $10.55130 to $17.28105 $ 24,242 0.50% 1.40 - 2.00% -4.19% to -3.60% December 31, 2004 1,873 $11.01271 to $17.92732 $ 33,512 0.00% 1.40 - 2.00% 6.86% to 10.13%
A79 Note 7: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ------------------ Wells Fargo Advantage VT International Core Fund --------------------------------------------------------------------------------------------- December 31, 2008 154 $ 6.26371 to $10.82731 $ 971 1.97% 1.40 - 2.15% -44.62% to -44.20% December 31, 2007 228 $11.22464 to $19.45215 $ 2,740 0.01% 1.25 - 2.15% 10.22% to 11.24% December 31, 2006 240 $10.10604 to $17.55826 $ 2,666 1.60% 1.25 - 2.15% 18.22% to 19.30% December 31, 2005 289 $ 8.48386 to $14.54433 $ 2,650 1.87% 1.40 - 2.15% 7.32% to 8.14% December 31, 2004 327 $ 7.84507 to $13.55206 $ 2,802 0.22% 1.40 - 2.15% 6.66% to 8.09% Wells Fargo Advantage VT Large Company Growth Fund --------------------------------------------------------------------------------------------- December 31, 2008 542 $ 5.53448 to $ 7.84603 $ 3,063 0.26% 1.40 - 2.00% -40.21% to -39.85% December 31, 2007 892 $ 9.20072 to $13.07668 $ 8,644 0.00% 1.40 - 2.00% 5.45% to 6.10% December 31, 2006 1,164 $ 8.67196 to $12.35658 $ 10,629 0.00% 1.40 - 2.00% 0.31% to 0.92% December 31, 2005 1,456 $ 8.59302 to $10.87742 $ 13,023 0.18% 1.40 - 2.00% 3.59% to 4.23% December 31, 2004 1,767 $ 8.24000 to $10.50024 $ 15,147 0.00% 1.40 - 2.00% 1.75% to 5.00% Wells Fargo Advantage VT Money Market Fund --------------------------------------------------------------------------------------------- December 31, 2008 1,601 $10.48191 to $13.65378 $ 21,704 2.29% 1.40 - 1.65% 0.59% to 0.85% December 31, 2007 1,804 $10.28542 to $13.53923 $ 24,426 4.57% 1.40 - 1.90% 2.67% to 3.20% December 31, 2006 1,927 $10.00952 to $13.11955 $ 25,268 4.25% 1.40 - 2.40% 1.84% to 2.88% December 31, 2005 2,115 $ 9.86463 to $12.75216 $ 26,963 2.47% 1.40 - 1.65% 0.85% to 1.11% December 31, 2004 2,746 $ 9.78121 to $12.61236 $ 34,621 0.68% 1.40 - 1.65% -0.96% to -0.70% Wells Fargo Advantage VT Small Cap Growth Fund --------------------------------------------------------------------------------------------- December 31, 2008 228 $ 7.39012 to $12.40296 $ 1,700 0.00% 1.40 - 1.90% -42.54% to -42.24% December 31, 2007 337 $12.79553 to $21.52963 $ 4,545 0.00% 1.40 - 1.90% 11.64% to 12.21% December 31, 2006 442 $11.40341 to $19.23621 $ 5,303 0.00% 1.40 - 1.90% 20.43% to 21.04% December 31, 2005 530 $ 9.42126 to $15.80703 $ 5,212 0.00% 1.40 - 1.90% 4.23% to 4.76% December 31, 2004 636 $ 8.99000 to $15.16544 $ 5,946 0.00% 1.40 - 1.90% 11.28% to 12.17% Wells Fargo Advantage VT Total Return Bond Fund --------------------------------------------------------------------------------------------- December 31, 2008 565 $10.78418 to $14.52591 $ 8,185 4.78% 1.40 - 2.25% 0.07% to 0.94% December 31, 2007 726 $10.77628 to $14.39016 $ 10,375 4.59% 1.40 - 2.25% 3.76% to 4.67% December 31, 2006 1,003 $10.38538 to $13.74805 $ 13,714 4.27% 1.40 - 2.25% 1.40% to 2.28% December 31, 2005 1,329 $10.24238 to $13.44215 $ 17,781 3.62% 1.40 - 2.25% -0.44% to 0.43% December 31, 2004 1,600 $10.28716 to $13.38474 $ 21,323 3.44% 1.40 - 2.25% 2.87% to 2.99% AST First Trust Balanced Target Portfolio (available March 20, 2006) --------------------------------------------------------------------------------------------- December 31, 2008 76,075 $ 7.00219 to $ 7.48653 $ 546,916 2.31% 0.65 - 3.00% -36.46% to -26.81% December 31, 2007 102,271 $11.01941 to $11.50219 $1,144,841 0.50% 0.65 - 3.00% 5.28% to 7.85% December 31, 2006 43,588 $10.48756 to $10.66517 $ 459,438 0.00% 0.65 - 2.75% 4.90% to 6.66% AST First Trust Capital Appreciation Target Portfolio (available March 20, 2006) --------------------------------------------------------------------------------------------- December 31, 2008 93,603 $ 6.39444 to $ 6.88895 $ 618,387 1.26% 0.65 - 3.00% -42.49% to -35.86% December 31, 2007 122,279 $11.20422 to $11.69500 $1,390,643 0.30% 0.65 - 3.00% 8.06% to 10.69% December 31, 2006 47,802 $10.38961 to $10.56558 $ 498,977 0.00% 0.65 - 2.75% 3.92% to 5.66% AST Advanced Strategies Portfolio (available March 20, 2006) --------------------------------------------------------------------------------------------- December 31, 2008 91,625 $ 7.32986 to $ 8.15235 $ 717,306 1.95% 0.65 - 3.00% -31.91% to -26.68% December 31, 2007 106,913 $11.19878 to $11.68950 $1,216,236 0.48% 0.65 - 3.00% 6.20% to 8.79% December 31, 2006 50,596 $10.55304 to $10.74480 $ 537,413 0.00% 0.65 - 2.90% 5.56% to 7.45% Columbia High Yield Fund, VS (available May 1, 2006) --------------------------------------------------------------------------------------------- December 31, 2008 31 $ 8.04841 to $ 8.04841 $ 249 10.47% 1.00 - 1.00% -25.53% to -25.53% December 31, 2007 38 $10.80761 to $10.80761 $ 412 4.92% 1.00 - 1.00% 0.82% to 0.82% December 31, 2006 43 $10.71961 to $10.71961 $ 463 2.48% 1.00 - 1.00% 7.01% to 7.01% AST CLS Growth Asset Allocation Portfolio (available November 19, 2007) --------------------------------------------------------------------------------------------- December 31, 2008 8,210 $ 7.04446 to $ 7.41584 $ 59,995 0.09% 0.65 - 3.00% -37.16% to -29.54% December 31, 2007 1,178 $11.49050 to $11.51218 $ 13,543 0.00% 1.25 - 2.75% 14.93% to 15.13% AST CLS Moderate Asset Allocation Portfolio (available November 19, 2007) --------------------------------------------------------------------------------------------- December 31, 2008 16,369 $ 7.04244 to $ 7.60651 $ 116,814 0.06% 0.65 - 3.00% -29.73% to -23.92% December 31, 2007 787 $10.02547 to $10.04880 $ 7,899 0.00% 0.90 - 2.75% 0.28% to 0.50%
A80 Note 7: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ------------------ AST Horizon Growth Asset Allocation Portfolio (available November 19, 2007) --------------------------------------------------------------------------------------------- December 31, 2008 6,598 $ 6.85696 to $ 7.50642 $ 45,696 0.07% 0.65 - 2.85% -32.61% to -24.76% December 31, 2007 484 $10.17498 to $10.20179 $ 4,932 0.00% 0.65 - 2.75% 1.77% to 2.02% AST Horizon Moderate Asset Allocation Portfolio (available November 19, 2007) --------------------------------------------------------------------------------------------- December 31, 2008 10,783 $ 7.48580 to $ 7.94834 $ 81,547 0.04% 0.65 - 2.85% -26.28% to -20.41% December 31, 2007 278 $10.15504 to $10.17230 $ 2,828 0.00% 1.40 - 2.75% 1.57% to 1.73% AST Niemann Capital Growth Asset Allocation Portfolio (available November 19, 2007) --------------------------------------------------------------------------------------------- December 31, 2008 7,244 $ 7.06973 to $ 7.83293 $ 51,718 0.05% 0.65 - 2.85% -29.20% to -21.57% December 31, 2007 502 $ 9.98557 to $10.00448 $ 5,016 0.00% 1.25 - 2.75% -0.12% to 0.06% AST Western Asset Core Plus Bond Portfolio (available November 19, 2007) --------------------------------------------------------------------------------------------- December 31, 2008 14,600 $ 9.18349 to $ 9.40965 $ 135,345 0.20% 0.65 - 2.85% -8.14% to -5.83% December 31, 2007 3,195 $ 9.96574 to $ 9.98760 $ 31,861 0.00% 1.00 - 2.75% -0.32% to -0.12% AST Investment Grade Bond Portfolio (available January 28, 2008) --------------------------------------------------------------------------------------------- December 31, 2008 192,625 $10.68165 to $10.91924 $2,067,379 0.00% 0.65 - 2.25% 6.84% to 9.24% AST Bond Portfolio 2015 (available January 28, 2008) --------------------------------------------------------------------------------------------- December 31, 2008 19,145 $11.22229 to $11.65126 $ 216,007 0.00% 1.00 - 2.60% 12.25% to 16.06% AST Bond Portfolio 2018 (available January 28, 2008) --------------------------------------------------------------------------------------------- December 31, 2008 11,195 $11.95507 to $12.49226 $ 134,558 0.00% 1.00 - 2.60% 19.58% to 24.18% AST Bond Portfolio 2019 (available January 28, 2008) --------------------------------------------------------------------------------------------- December 31, 2008 8,172 $12.02334 to $12.56373 $ 98,717 0.00% 1.00 - 2.60% 20.26% to 24.63% AST Global Real Estate Portfolio (available July 21, 2008) --------------------------------------------------------------------------------------------- December 31, 2008 237 $ 6.08218 to $ 6.14182 $ 1,451 0.00% 0.65 - 2.75% -40.22% to -39.64% AST Parametric Emerging Markets Equity Portfolio (available July 21, 2008) --------------------------------------------------------------------------------------------- December 31, 2008 435 $ 5.54542 to $ 5.59970 $ 2,424 0.00% 0.65 - 2.75% -45.10% to -44.57% AST Focus Four Plus Portfolio (available July 21, 2008) --------------------------------------------------------------------------------------------- December 31, 2008 3,789 $ 7.43144 to $ 7.50763 $ 28,295 0.00% 0.65 - 2.85% -25.67% to -24.92% Franklin Templeton VIP Founding Funds Allocation Fund (available May 1, 2008) --------------------------------------------------------------------------------------------- December 31, 2008 16,970 $ 6.59289 to $ 7.13081 $ 112,595 4.20% 0.65 - 2.85% -34.58% to -28.85% Columbia Asset Allocation Fund, VS --------------------------------------------------------------------------------------------- December 31, 2008 564 $11.71637 to $11.71637 $ 6,605 3.43% 1.00 - 1.00% -29.04% to -29.04% December 31, 2007 719 $16.51140 to $16.51140 $ 11,876 2.80% 1.00 - 1.00% 8.08% to 8.08% December 31, 2006 861 $15.27753 to $15.27753 $ 13,157 2.52% 1.00 - 1.00% 10.67% to 10.67% December 31, 2005 1,095 $13.80419 to $13.80419 $ 15,112 2.77% 1.00 - 1.00% 5.47% to 5.47% December 31, 2004 1,615 $13.08886 to $13.08886 $ 21,141 2.52% 1.00 - 1.00% 8.83% to 8.83% Columbia Federal Securities Fund, VS --------------------------------------------------------------------------------------------- December 31, 2008 148 $12.21621 to $12.21621 $ 1,806 7.10% 1.00 - 1.00% 7.01% to 7.01% December 31, 2007 178 $11.41611 to $11.41611 $ 2,037 6.47% 1.00 - 1.00% 5.12% to 5.12% December 31, 2006 195 $10.86011 to $10.86011 $ 2,116 5.66% 1.00 - 1.00% 2.68% to 2.68% December 31, 2005 325 $10.57645 to $10.57645 $ 3,436 6.05% 1.00 - 1.00% 1.56% to 1.56% December 31, 2004 472 $10.41437 to $10.41437 $ 4,911 5.52% 1.00 - 1.00% 2.86% to 2.86%
-------- * These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. This ratio excludes those expenses, such as mortality and expense charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest. A81 Note 7: Financial Highlights (Continued) ** These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded. ***These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. Investment options with a date notation indicate the effective date of that investment option in the Account, the total return is calculated for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 or from the effective date of the subaccount through the end of the reporting period. Product designs within a subaccount with an effective date during a period were excluded from the range of total return for that period. Note 8: Contract Charges/Features Each Annuity funded through the Separate Account is subject to specific fees and charges, some of which are deducted as an asset-based charge by the Separate Account, while others are deducted either annually or at the time that certain transactions are made. Insurance Charge--The Insurance Charge is the combination of the mortality and expense risk charge and the administrative charge deducted by the Separate Account. The Insurance Charge is expressed as an annual charge; however the daily equivalent is deducted on a daily basis from the assets of the Separate Account. The following Insurance Charge levels apply to each Annuity product, as listed.
Insurance Charge Annuity Product Name ---------------- -------------------------------------------------------------------------------------------- 0.65% Choice, Choice 2000, ASAP III, XTra Credit SIX, Stagecoach ASAP III, Stagecoach Xtra Credit SIX, Optimum, Optimum Plus 1.00% AS Impact, Defined Investments Annuity, Galaxy III 1.25% ASAIA, ASVIA 1.40% PSA, ACN, ASAP, ASAP II, Harvester Variable Annuity, ASAP II Premier, Apex, Stagecoach Apex, ASL, Stagecoach Flex, ASL Premier, XTra Credit Stagecoach Extra Credit, Harvester XTra Credit, XTra Credit Premier XTra Credit FOUR, XTra Credit FOUR Premier, AS Protector, Stagecoach Variable Annuity, Stagecoach VA+ 1.65% Apex II, ASL II, ASL II Premier, Stagecoach APEX II, Optimum Four 2.25% ASAIA w/ Guarantee
Distribution Charge--The Distribution Charge is deducted by the Separate Account on four Prudential Annuities annuity contracts. The Distribution Charge is expressed as an annual charge; however the daily equivalent is deducted on a daily basis from the assets of the Separate Account. The charge is deducted for the number of years indicated below and then no longer applies.
Distribution Charge Annuity Product Name Period Deducted ------------------- ---------------------------------------------------------- --------------- 0.60%....... Annuity Years ASAP III, Stagecoach ASAP III, Optimum 1-8 only 1.00%....... Annuity Years XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus 1-10 only
Annual Maintenance Fee--An Annual Maintenance Fee of up to $35 is deducted at the end of each Annuity Year and upon surrender of the Annuity. The Annual Maintenance Fee on certain contracts may be less than $35, may be zero or, under certain circumstances, may be waived based on the Account Value of the Annuity on the anniversary date when the charge is deducted. A82 Note 8: Contract Charges/Features (Continued) Transfer Fees--Transfer Fees are charged at a rate of $10 for each transfer after the 20th in each Annuity Year, as set forth in the respective prospectuses. Contingent Deferred Sales Charges--Contingent Deferred Sales Charges may apply to certain withdrawals from the annuities and upon surrender of the annuity. When applicable, Contingent Deferred Sales Charges will apply for a maximum number of years depending on the type of contract. The maximum number of years may be based on the number of years since each Purchase Payment is applied or from the issue date of the Annuity. Certain annuities do not deduct a Contingent Deferred Sales Charge upon surrender or withdrawal. Please refer to the prospectus for your annuity contract for a complete description of the Contingent Deferred Sales Charge, as well as for any exceptions to the provision that may apply to certain withdrawals during each Annuity Year. Premium Taxes--Some states and municipalities impose premium taxes, which currently range up to 3.5% on Variable Immediate Annuity contracts. Optional Benefit Charges--Prior to November 18, 2002, Prudential Annuities offered certain optional benefits as riders to the various annuity contracts where the annual charge to purchase the rider was deducted from the annuity on an annual basis in arrears. Effective as of November 18, 2002, Prudential Annuities offers riders for optional benefits whose annual charge is deducted on a daily basis from the assets in the Separate Account. The daily charge for the optional benefits is deducted in the same manner as the Insurance Charge and the Distribution Charge (if applicable). Annuity Owners who elect to purchase an optional benefit purchase units of the Separate Account that reflect the Insurance Charge, Distribution Charge (if applicable) and the charge for any optional benefit(s). Annuity owners who elected an optional benefit whose charge is deducted on an annual basis in arrears will continue to have the applicable charge deducted in this manner. Currently, Prudential Annuities offers eight different optional benefits, as follows: Guaranteed Return Option PlusSM (GRO Plus), Guaranteed Minimum Withdrawal Benefit (GMWB), Guaranteed Minimum Income Benefit (GMIB), Lifetime Five Income Benefit (LT5), Highest Anniversary Value Death Benefit (HAV), Enhanced Beneficiary Protection Death Benefit (EBP), Highest Daily Value Death Benefit (HDV) and Combination 5% Roll-Up and HAV Death Benefit (Combo 5%). Currently, the charge for GRO Plus, HAV and EBP is 0.25% per year, respectively, the charge for GMWB is 0.35% per year, the charge for HDV and Combo 5% is 0.50% per year, respectively, the charge for LT5 is 0.60% per year and the charge for GMIB is 0.50% per year of the Protected Income Value. Certain Prudential Annuities annuity contracts may not be eligible to elect all or any optional benefits. For Highest Daily Lifetime Seven, Highest Daily Lifetime Seven with Beneficiary Income Option, Highest Daily Lifetime Seven with Lifetime Income Accelerator, Spousal Highest Daily Lifetime Seven and Spousal Lifetime Seven with Beneficiary Income Option, the fee is a percentage of the Protected Withdrawal Value that is deducted pro rata from the Sub-accounts on a quarterly basis. Note 9: Accumulation Unit Values Accumulation Unit Values (or "AUVs") are calculated for each Sub-account on each Valuation Day. Each Sub-account may have several different AUVs based on each combination of the Insurance Charge, Distribution Charge and each available optional benefit.
Asset-Based Charge Level Description of When Applicable ------------ ------------------------------------------------------------------------------------------- 0.65% Choice, Choice 2000 - No Optional Benefits. This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 2 Sub-accounts).
A83 Note 9: Accumulation Unit Values (Continued)
Asset-Based Charge Level Description of When Applicable ------------ ------------------------------------------------------------------------------------------------ 0.90% Choice, Choice 2000 - One 0.25% Optional Benefit. 1.00% AS Impact, Defined Investments Annuity, Galaxy III - No Optional Benefits. Choice 2000 - with GMWB, Advisors Choice Select 2000 with HD GRO, Advisors Choice Select 2000 with GRO Plus 2008 This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 3 Sub-accounts). 1.15% Choice - Two 0.25% Optional Benefits. Choice 2000 - One 0.50% Optional Benefit; or Two 0.25% Optional Benefits. 1.25% ASAP III, Stagecoach ASAP III, Optimum - No Optional Benefits. AS Impact, Defined Investments Annuity, Galaxy III - One 0.25% Optional Benefit. Choice 2000 - with LT5; or with GMWB and either HAV or EBP. ASAIA, ASVIA, Advisors Choice Select 2000 with HD GRO and HAV, Advisors Choice Select 2000 with GRO Plus 2008 and HAV This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 7 Sub-accounts). 1.40% PSA, ACN, ASAP, ASAP II, Harvester Variable Annuity, ASAP II Premier, Apex, Stagecoach Apex, ASL, Stagecoach Flex, ASL Premier, XTra Credit, Stagecoach Extra Credit, Harvester XTra Credit, XTra Credit Premier, XTra Credit FOUR, XTra Credit FOUR Premier, AS Protector, Stagecoach Variable Annuity, Stagecoach VA+ - No Optional Benefits. Choice - Three 0.25% Optional Benefits. Choice 2000 - with Combo 5% and GRO Plus; or with Three 0.25% Optional Benefits. This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 1 Sub-accounts). 1.50% ASAP III, Stagecoach ASAP III, Optimum - One 0.25% Optional Benefit. AS Impact, Defined Investments Annuity - Two 0.25% Optional Benefits. Choice 2000 - with GMWB, HAV, and EBP; or with GMWB and either Combo 5% or HDV; or with LT5 and either HAV or EBP, AS Cornerstone with HD GRO, AS Cornerstone with GRO Plus 2008, Advisors Choice Select 2000 with HD GRO and GMDB Annual Step Up or 5% Roll Up Advisors Choice Select 2000 with GRO Plus 2008 and GMDB Annual Step Up or 5% Roll Up 1.60% ASAP III, Stagecoach ASAP III, Optimum - with GMWB, AS Advisors Plan III with HD GRO AS Advisors Plan III with GRO Plus 2008 1.65% Apex II, ASL II, ASL II Premier, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus - No Optional Benefits. ACN, ASAP, ASAP II, Harvester Variable Annuity, ASAP II Premier, Apex, Stagecoach Apex, ASL, Stagecoach Flex, ASL Premier, XTra Credit, Stagecoach Extra Credit, Harvester XTra Credit, XTra Credit Premier, XTra Credit FOUR, XTra Credit FOUR Premier, AS Protector, Stagecoach Variable Annuity, Stagecoach VA+ - One 0.25% Optional Benefit. This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 9 Sub-accounts). 1.75% ASAP III, Stagecoach ASAP III, Optimum - One 0.50% Optional Benefit; or Two 0.25% Optional Benefits. Defined Investments Annuity - Three 0.25% Optional Benefits. Choice 2000 - with LT5, HAV and EBP; or with GMWB, HDV and EBP; or with LT5 and either Combo 5% or HDV, AS Cornerstone with HD GRO and HAV, AS Cornerstone with GRO Plus 2008 and HAV, Advisors Choice Select 2000 with HD GRO and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up, Advisors Choice Select 2000 with GRO Plus 2008 and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up 1.85% ASAP III, Stagecoach ASAP III, Optimum - with LT5; or with GMWB and either HAV or EBP. AS Advisors Plan III with HD GRO and HAV, AS Advisors Plan III with GRO Plus 2008 and HAV 1.90% ASL II, ASL II Premier, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus - One 0.25% Optional Benefit. ASAP II, Apex, Stagecoach Apex, ASL, Stagecoach Flex, XTra Credit, Stagecoach Extra Credit, XTra Credit FOUR, Stagecoach VA+, Stagecoach Variable Annuity - Two 0.25% Optional Benefits. 2.00% ASAP III, Stagecoach ASAP III, Optimum - with Combo 5% and GRO Plus; or with Three 0.25% Optional Benefits. ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus - with GMWB. Choice 2000 - with LT5, HDV and EBP. AS LifeVest II with HD GRO, AS LifeVest II with GRO Plus 2008, AS XTra Credit Six with HD GRO
A84 Note 9: Accumulation Unit Values (Continued)
Asset-Based Charge Level Description of When Applicable ------------ ------------------------------------------------------------------------------------------------ AS Xtra Credit Six with GRO Plus 2008, AS Apex II with HD GRO, AS Apex II with GRO Plus 2008 AS Cornerstone with HD GRO and Enhanced Beneficiary Protection and HAV, AS Cornerstone with GRO Plus 2008 and Enhanced Beneficiary Protection and HAV AS Cornerstone with HD GRO and GMDB Annual Step Up or 5% Roll Up AS Cornerstone with HD GRO and Enhanced Beneficiary Protection and HAV 2.10% ASAP III, Stagecoach ASAP III, Optimum - with GMWB, HAV and EBP; or with GMWB and either Combo 5% or HDV; or with LT5 and either HAV or EBP. AS Advisors Plan III with HD GRO and GMDB Annual Step Up or 5% Roll Up AS Advisors Plan III with HD GRO and HAV and Enhanced Beneficiary Protection AS Advisors Plan III with GRO Plus 2008 and GMDB Annual Step Up or 5% Roll Up AS Advisors Plan III with GRO Plus 2008 and HAV and Enhanced Beneficiary Protection AS XTra Credit Eight with HD GRO, AS XTra Credit Eight with GRO Plus 2008 2.15% ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus - One 0.50% Optional Benefit; or Two 0.25% Optional Benefits. ASAP II, Apex, Stagecoach Apex, ASL, Stagecoach Flex, XTra Credit, Stagecoach Extra Credit, XTra Credit FOUR, Stagecoach VA+, Stagecoach Variable Annuity - Three 0.25% Optional Benefits. 2.25% ASAP II - with HAV, EBP and GMWB. ASL II, ASL II Premier, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus - with LT5; or with GMWB and either HAV or EBP. ASAIA w/ Guarantee*, AS Cornerstone with HD GRO and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up, AS Cornerstone with GRO Plus 2008 and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up, AS LifeVest II with HD GRO and HAV, AS LifeVest II with GRO Plus 2008 and HAV, AS XTra Credit Six with HD GRO and HAV AS XTra Credit Six with GRO Plus 2008 and HAV, AS Apex II with HD GRO and HAV, AS Apex II with GRO Plus 2008 and HAV * This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 8 Sub-accounts). 2.35% ASAP III, Stagecoach ASAP III, Optimum - with GMWB, HDV and EBP; or with LT5, HAV and EBP; or with LT5 and either Combo 5% or HDV. AS Advisors Plan III with HD GRO , GMDB Annual Step Up or 5% Roll Up and Enhanced Beneficiary Protection, AS Advisors Plan III with GRO Plus 2008 and GMDB Annual Step Up or 5% Roll Up and Enhanced Beneficiary Protection, AS XTra Credit Eight with HD GRO and HAV, AS XTra Credit Eight with GRO Plus 2008 and HAV 2.40% ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus - with Combo 5% and GRO Plus; or with Three 0.25% Optional Benefits. 2.50% ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus - with GMWB, HAV and EBP; or with GMWB and either Combo 5% or HDV; or with LT5 and either HAV or EBP, AS LifeVest II with HD GRO and GMDB Annual Step Up or 5% Roll Up AS LifeVest II with GRO Plus 2008 and GMDB Annual Step Up or 5% Roll Up AS LifeVest II with HD GRO and Enhanced Beneficiary Protection and HAV AS LifeVest II with GRO Plus 2008 and Enhanced Beneficiary Protection and HAV AS XTra Credit Six with HD GRO and GMDB Annual Step Up or 5% Roll Up AS XTra Credit Six with GRO Plus 2008 and GMDB Annual Step Up or 5% Roll Up AS XTra Credit Six with HD GRO and Enhanced Beneficiary Protection and HAV AS XTra Credit Six with GRO Plus 2008 and Enhanced Beneficiary Protection and HAV AS Apex II with HD GRO and GMDB Annual Step Up or 5% Roll Up AS Apex II with GRO Plus 2008 and GMDB Annual Step Up or 5% Roll Up AS Apex II with HD GRO and Enhanced Beneficiary Protection and HAV AS Apex II with GRO Plus 2008 and Enhanced Beneficiary Protection and HAV 2.60% ASAP III, Stagecoach ASAP III, Optimum - with LT5, HDV and EBP. AS XTra Credit Eight with HD GRO and GMDB Annual Step Up or 5% Roll Up AS XTra Credit Eight with GRO Plus 2008 and GMDB Annual Step Up or 5% Roll Up AS XTra Credit Eight with HD GRO and Enhanced Beneficiary Protection and HAV AS XTra Credit Eight with GRO Plus 2008 and Enhanced Beneficiary Protection and HAV 2.65% AS Apex II, Advanced Series LifeVest II, Stagecoach APEX II, Stagecoach Xtra Credit Six,
A85 Note 9: Accumulation Unit Values (Continued)
Asset-Based Charge Level Description of When Applicable ------------ ------------------------------------------------------------------------------------------------ AS Xtra Credit Six. 2.75% ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus - with GMWB, HDV and EBP; or with LT5, HAV and EBP; or with LT5 and either Combo 5% or HDV. AS LifeVest II with HD GRO and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up AS LifeVest II with GRO Plus 2008 and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up AS XTra Credit Six with HD GRO and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up AS XTra Credit Six with GRO Plus 2008 and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up AS Apex II with HD GRO and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up AS Apex II with GRO Plus 2008 and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up 2.85% AS Xtra Credit 8 with LifeTime Five and HDV AS Xtra Credit 8 with LifeTime Five and GMDB Annual Step Up or 5% Roll Up AS Xtra Credit 8 with Highest Daily LifeTime Five and GMDB Annual Step Up or 5% Roll Up AS XTra Credit Eight with HD GRO and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up AS XTra Credit Eight with GRO Plus 2008 and Enhanced Beneficiary Protection and GMDB Annual Step Up or 5% Roll Up 3.00% ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus - with LT5, HDV and EBP.
Note 10:Other Receivable from Prudential Annuities Life Assurance Corporation--Represents realized gains on sale of the portfolio shares in 2005 and subsequent changes in the value of those shares sold through the reporting period. Payable to former unitholders--Represents the amounts due to unitholders that withdrew or transferred out of the subaccounts prior to 2005, along with a corresponding charge to net transfers between other subaccounts of fixed rate option. Contract owner net payments--represent contract owner contributions under the Variable Annuity Policies reduced by applicable deductions, charges, and state premium taxes. Annuity payments--represent periodic payments distributed under the terms of the policy. Surrenders, withdrawals, and death benefits--are payments to contract owners and beneficiaries made under the terms of the Variable Annuity Policies, and amounts that contract owners have requested to be withdrawn or paid to them. Net transfers between other subaccounts or fixed rate options--are amounts that contract owners have directed to be moved among subaccounts, including permitted transfers to and from the Guaranteed Interest Account and Market Value Adjustment. Restatement Evergreen VA Diversified Income Builder Fund--The financial statements of the Evergreen VA Diversified Income Builder Fund (the "Fund") for the year ended December 31, 2007 were restated in the 2008 annual report. Everest Investment Management Company, the investment advisor of the Fund, has agreed to make certain reimbursement payments to shareholders, such as the Separate Account, who transacted in the Fund shares at inaccurate prices during the period of August 1, 2007 through June 9, 2008. There were no reimbursements made or receivables recorded by the separate account during or as of December 31, 2008. A86 Report of Independent Registered Public Accounting Firm To the Contract Owners of Prudential Annuities Life Assurance Corporation Variable Account B and the Board of Directors of Prudential Annuities Life Assurance Corporation In our opinion, the accompanying statements of net assets and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of the subaccounts listed in Note 1 of the Prudential Annuities Life Assurance Corporation Variable Account B at December 31, 2008, and the results of each of their operations and the changes in each of their net assets for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of the Prudential Annuities Life Assurance Corporation. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of fund shares at December 31, 2008 with the transfer agents of the investee mutual funds, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York April 9, 2009 A87 PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits: (a) (1) Financial Statements of the Sub-accounts of Prudential Annuities Life Assurance Corporation Variable Account B (Registrant) consisting of the Statement of Net Assets as of December 31, 2008; the Statement of Operations for the period ended December 31, 2008; the Statement of Changes in New Assets for the periods ended December 31, 2008 and December 31, 2007, and Notes relating thereto appear in the Statement of Additional Information. (Part B of the Registration Statement). (2) Financial Statements of Prudential Annuities Life Assurance Corporation (Depositor) consisting of the Statements of Financial Position as of December 31, 2008 and 2007; and the related Statements of Operations, Changes in Stockholder's Equity and Cash Flows for the years ended December 31, 2008, 2007 and 2006; and the Notes to the Financial Statements appear in the Statement of Additional Information (Part B of the Registration Statement). (b) Exhibits are attached as indicated (all previously filed exhibits, as noted below, are incorporated herein by reference). (1) Copy of the resolution of the board of directors of Depositor authorizing the establishment of the Registrant for Separate Account B filed via EDGAR with Post-Effective Amendment No. 6 to Registration Statement No. 33-87010, filed March 2, 1998. (2) Not applicable. Prudential Annuities Life Assurance Corporation maintains custody of all assets. (3) (a) Revised Principal Underwriting Agreement between Prudential Annuities Life Assurance Corporation and Prudential Annuities Distributors, Inc, filed via EDGAR with Post-Effective Amendment No. 26 to Registration Statement No. 333-96577, filed April 21, 2006. (b) Form of Revised Dealer Agreement (PALAC has comparable selling agreements with approximately 900 broker-dealer firms and financial institutions), filed via EDGAR with Post-Effective Amendment No. 26 to Registration Statement No. 333-96577, filed April 17, 2008. (c) Form of Selling Agreement (PALAC has comparable selling agreements with approximately 900 broker-dealer firms and financial institutions) filed via EDGAR with Post-Effective Amendment No. 26 to Registration Statement No. 333-96577 filed April 17, 2008. (4) (a) Contract # ASXT165/crt(09/01)-01 et al for XTra Credit Eight (representative of contract forms used in each state). Schedule Page #XT8/crt (6/08)-4 (b) Copy of Highest Period Value Death Benefit Endorsement filed via EDGAR with Pre-Effective Amendment No. 1 to Registration Statement No. 333-96577, filed October 4, 2002. (c) Copy of Percentage of Growth Death Benefit Endorsement filed via EDGAR with Pre-Effective Amendment No. 1 to Registration Statement No. 333-96577, filed October 4, 2002. (d) Pruco Reinsurance Ltd for Lifetime Five Withdrawal Benefit filed via EDGAR with post-Effective Amendment No.14 to Registration Statement No. 333-96577 filed April 21, 2006. (e) Pruco Reinsurance Ltd. for Spousal Lifetime Five Optional Living Benefit filed via EDGAR with post-Effective Amendment No.14 to Registration Statement No. 333-96577 filed April 21, 2006. (f) Copy of Guaranteed Minimum Withdrawal Benefit filed via EDGAR with Post-Effective Amendment No. 2 to Registration Statement No. 333-96577, filed August 6, 2003. (g) Copy of Rider for Combination 5% Roll-up and Highest Anniversary Value Death Benefit filed via EDGAR with Post-Effective Amendment No. 5 to Registration Statement No. 333-96577, filed April 20, 2004. (h) Copy of Rider for Lifetime Five Income Benefit filed via EDGAR with Post-Effective Amendment No. 7 to Registration Statement No. 333-96577, filed November 16, 2004. (i) Copy of Rider for Highest Daily Value Benefit filed via EDGAR with Post-Effective Amendment No. 7 to Registration Statement No. 333-96577, filed November 16, 2004. (j) Copy of Rider for Spousal Lifetime Five Income Benefit filed via EDGAR with Post-Effective Amendment No. 10 to Registration Statement No. 333-96577, filed November 16, 2005. (k) Copy of Rider for Highest Daily Lifetime Five Income Benefit filed via EDGAR with Post-Effective Amendment No. 16 to Registration Statement No, 333-71654, filed October 6, 2006. (l) Copy of Form of rider for Guaranteed Return Option Plus 2008 filed via EDGAR with Post-Effective Amendment No. 25 to Registration Statement No. 333-96577, filed December 18, 2007. (m) Copy of Form of rider for Highest Daily Guaranteed Return Option filed via EDGAR with Post-Effective Amendment No. 25 to Registration Statement No. 333-96577, filed December 18, 2007. (n) Copy of rider for Highest Daily Lifetime Seven filed via EDGAR with Post-Effective Amendment No. 25 to Registration Statement No. 333-96577, filed December 18, 2007. (o) Copy of rider for Highest Daily Lifetime Seven with Beneficiary Income Option filed via EDGAR with Post-Effective Amendment No. 27 to Registration Statement No. 333-96577, filed May 1, 2008. (p) Copy of rider for Spousal Highest Daily Lifetime Seven with Beneficiary Income Option, filed via EDGAR with Post - Effective Amendment No. 27 to Registration Statement No. 333-96577, filed May 1, 2008. (q) Copy of rider for Highest Daily Lifetime Seven with Lifetime Income Accelerator, filed via EDGAR with Post-Effective Amendment No. 27 to Registration Statement No. 333-96577, filed May 1, 2008. (r) Copy of Schedule Page for Highest Daily Lifetime Seven with Lifetime Income Accelerator, filed via EDGAR with Pre-Effective Amendment No. 1 to Registration Statement No. 333-150220, filed June 4, 2008. (s) Copy of Schedule Page for Highest Daily Lifetime Seven with Beneficiary Income Option, filed via EDGAR with Pre-Effective Amendment No. 3 to Registration Statement No. 333-150220, filed June 13, 2008. (t) Highest Daily Lifetime 7 Plus Benefit Rider (RID-HD7 (2/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (u) Highest Daily Lifetime 7 Plus Schedule Supplement (SCH-HD7(2/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (v) Highest Daily Lifetime Seven Benefit Schedule Supplement (SCH-HD7(1/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (w) Highest Daily Lifetime 7 Plus with Beneficiary Income Option Benefit Rider (RID-HD7-DB(2/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (x) Highest Daily Lifetime 7 Plus with Beneficiary Income Option Schedule Supplement (SCH-HD7-DB(2/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (y) Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator Benefit Rider (RID-HD7-LIA(2/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (z) Highest Daily Lifetime 7 Plus with Lifetime Income Accelerator Schedule Supplement (SCH-HD7-LIA(2/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (aa) Highest Daily Lifetime Seven with Beneficiary Income option Schedule supplement (SCH-HD7-DB(1/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (ab) Highest Daily Lifetime Seven with Lifetime Income Accelerator Schedule supplement (SCH-HD7-LIA(1/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (ac) Schedule supplement Highest Daily Lifetime Five Benefit (SCH-HDLT5(1/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (ad) Beneficiary Annuity Endorsement (END-BENE(2/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (ae) Beneficiary IRA Endorsement (END-IRABEN(2/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (af) Beneficiary Roth IRA Endorsement (END-ROTHBEN(2/09)) filed via EDGAR with Post-Effective Amendment No. 37 to Registration Statement No. 333-96577, filed January 28, 2009. (5) Application #ASVAA(3/06) for XTra Credit Eight (representative of contract applications used in each state) (6) (a) Copy of the amended certificate of incorporation of Prudential Annuities Life Assurance Corporation filed via EDGAR with Registration Statement No. 33-44202, filed March 14, 2008. (b) Copy of the amended and restated By-Laws of Prudential Annuities Life Assurance Corporation filed via EDGAR with Registration Statement No. 33-44202, filed March 14, 2008. (7) Forms of Annuity Reinsurance Agreements between Depositor and: (a) Pruco Reinsurance Ltd. for GRO benefit filed via EDGAR with Post-Effective Amendment No. 9 to Registration Statement No. 333-96577, filed April 18, 2005. (b) The Prudential Insurance Company of America for GMWB filed via EDGAR with Post-Effective Amendment No. 9 to Registration Statement No. 333-96577, filed April 18, 2005. (c) The Prudential Insurance Company of America for Lifetime Five Withdrawal Benefit filed via EDGAR with post-Effective Amendment No. 14 to Registration Statement No. 333-96577 filed April 21, 2006. (d) Pruco Reinsurance Ltd for Lifetime Five Withdrawal Benefit filed via EDGAR with post-Effective Amendment No. 14 to Registration Statement No. 333-96577 filed April 21, 2006. (e) Pruco Reinsurance Ltd. for Spousal Lifetime Five Optional Living Benefit filed via EDGAR with post-Effective Amendment No. 14 to Registration Statement No. 333-96577 filed April 21, 2006. (f) Pruco Reinsurance Ltd. for Highest Daily Lifetime Five Optional Living Benefit filed via EDGAR with Post-Effective Amendment No. 20 to this Registration Statement No. 333-96577, filed April 20, 2007. (g) Pruco Reinsurance Ltd. for Highest Daily GRO incorporated by reference to filing via EDGAR with Pre-Effective Amendment No. 1 to Registration Statement No. 333-148265, filed May 2, 2008. (h) Pruco Reinsurance Ltd. for Highest Daily Lifetime Seven Income Benefit and, Spousal Highest Daily Lifetime Seven Income Benefit incorporated by reference to filing via EDGAR with Pre-Effective Amendment No. 1 to Registration Statement No. 333-148265, filed May 2, 2008. (8) Forms of Agreements between Depositor and: (a) Advanced Series Trust filed via EDGAR with Post-Effective Amendment No. 4 to Registration Statement No. 33-87010, filed February 25, 1997. (b) First Defined Portfolio Fund LLC filed via EDGAR with Post-Effective Amendment No. 7 to Registration Statement No. 33-86866, filed April 26, 2000. (c) Evergreen Variable Annuity Trust filed via EDGAR with Post-Effective Amendment No. 9 to this Registration Statement No. 33-87010, filed April 26, 2000. (d) INVESCO Variable Investment Funds, Inc. filed via EDGAR with Post-Effective Amendment No. 9 to this Registration Statement No. 33-87010, filed April 26, 2000. (e) ProFunds VP filed via EDGAR with Post-Effective Amendment No. 9 to this Registration Statement No. 33-87010, filed April 26, 2000. (f) Wells Fargo Variable Trust filed via EDGAR with Initial Registration to this Registration Statement No. 333-49478, filed November 7, 2000. (g) Prudential Series Fund, Inc. filed via EDGAR with Post-Effective Amendment No. 15 to Registration Statement No. 33-87010, filed April 26, 2001. (h) Revised Nationwide Variable Investment Trust filed via EDGAR with Post-Effective Amendment No. 20 to this Registration Statement No. 333-96577, filed April 20, 2007. (i) A I M Variable Insurance Funds filed via EDGAR with Post-Effective Amendment No. 9 to Registration Statement No. 333-96577, filed April 18, 2005. (j) ProFunds VP Amendment No. 2 filed via EDGAR with Post-Effective Amendment No. 20 to Registration Statement No. 333-96577, filed April 20, 2007. 2 (k) Sample Rule 22c-2 Agreement via EDGAR with Post-Effective Amendment No. 20 to Registration Statement No. 333-96577, filed April 20, 2007. (l) Form of Notice re change of Depositor name to Prudential Annuities Life Assurance Corporation via EDGAR with Post-Effective Amendment No. 26 to Registration Statement No. 333-96577, filed April 17, 2008. (m) Franklin Templeton Variable Insurance Products Trust filed via EDGAR to Post-Effective Amendment No. 26 to Registration Statement No. 333-96577, filed April 17, 2008. (9) Opinion and Consent of Counsel filed via EDGAR with Pre-Effective No.1 to Registration Statement 333-150220, filed June 4, 2008. (10) Written Consent of Independent Registered Public Accounting Firm, FILED HEREWITH. (11) Not applicable. (12) Not applicable. (13) Calculation of Performance Information for Advertisement of Performance filed via EDGAR with Post-Effective Amendment No. 2 to Registration Statement No. 333-96577, filed August 6, 2003. (14) Financial Data Schedule--Not applicable. 99.1) (a) Powers of Attorney for James J. Avery, Director, Helen M. Galt, Director, Bernard J. Jacob, Director, Kenneth Y. Tanji, Director, filed via Edgar to Registration Statement No. 333-150220, filed April 11, 2008. (b) Power of Attorney for Stephen Pelletier, filed via EDGAR with Post-Effective Amendment No. 5 to Registration Statement No. 333-150220 filed October 31, 2008. Item 25. Directors and Officers of the Depositor (engaged directly or indirectly in Registrant's variable annuity business): As of the date this Post-Effective Amendment was filed, the Directors and Officers of the Depositor are: Name and Principal Business Address Position and Offices with Depositor ----------------------------------- ----------------------------------- June Amori Vice President One Corporate Drive, Shelton, Connecticut 06484-6208 James J. Avery, Jr. Director 213 Washington Street Newark, New Jersey 07102-2992 Robert E. Causey Vice President 2 Gateway Center Newark, New Jersey 07102-5005 3 Name and Principal Business Address Position and Offices with Depositor ----------------------------------- ----------------------------------- Lisa V. Chow Vice President 751 Broad Street Newark, New Jersey 07102-3714 Timothy S. Cronin Senior Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Donald M. Desiderato Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Thomas J. Diemer Vice President 2 Gateway Center Newark, New Jersey 07102-5005 John Doscher Vice President and Chief Compliance 751 Broad Street Officer Newark, New Jersey 07102-3714 Rebecca Dunne Vice President 751 Broad Street Newark, New Jersey 07102-3714 Joseph D. Emanuel Senior Vice President, Chief Legal One Corporate Drive Officer and Corporate Secretary Shelton, Connecticut 06484-6208 Bruce Ferris Executive Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Noreen Fierro Vice President and Anti-Money 751 Broad Street Laundering Officer Newark, New Jersey 07102-3714 Helen M. Galt Director 213 Washington Street Newark, New Jersey 07102-2992 George M. Gannon Senior Vice President 751 Broad Street Newark, New Jersey 07102-3714 Brian Giantonio Vice President, Corporate Counsel One Corporate Drive Shelton, Connecticut 06484-6208 John Gies Vice President One Corporate Drive Shelton, Connecticut 06484-6208 4 Name and Principal Business Address Position and Offices with Depositor ----------------------------------- ----------------------------------- Jacob Herschler Senior Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Gary A. Hogard Vice President 2101 Welsh Road Dresher, Pennsylvania 19025 Suzanne Hurel Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Bernard J. Jacob Director and Treasurer 213 Washington Street Newark, New Jersey 07102-2917 Daniel O. Kane Senior Vice President, Chief Actuary 213 Washington Street Newark, New Jersey 07102-2992 Patricia Kelley Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Helayne F. Klier Vice President 2101 Welsh Road Dresher, Pennsylvania 19025 Joseph LaTorre Vice President 2101 Welsh Road Dresher, Pennsylvania 19025 Lesley B. Mann Vice President 213 Washington Street Newark, New Jersey 07102-2992 Steven P. Marenakos Senior Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Robert O'Donnell Senior Vice President One Corporate Drive, Shelton, Connecticut 06484-6208 Stephen Pelletier President, Chief Executive One Corporate Drive Officer and Director Shelton, Connecticut 06484-6208 5 Name and Principal Business Address Position and Offices with Depositor ----------------------------------- ----------------------------------- Steven L. Putterman Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Polly Rae Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Yvonne Rocco Senior Vice President 213 Washington Street Newark, New Jersey 07102-2992 Mark Sieb Vice President 213 Washington Street Newark, New Jersey 07102-2992 Rick C. Singmaster Executive Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Charles C. Sprague Vice President, Corporate Counsel 751 Broad Street Newark, New Jersey 07102-3714 Karen M. Stier Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Karen Stockla Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Kimberly Supersano Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Kenneth Tanji Director, Executive Vice President and 213 Washington Street Chief Financial Officer Newark, New Jersey 07102-2992 Eva M. Vitale Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant: The Registrant separate account may be deemed to be under common control(or where indicated, identical to) the following separate accounts that are sponsored either by the depositor or an insurer that is an affiliate of the depositor: The Prudential Discovery Premier Group Variable Contract Account, The Prudential Variable Appreciable Account, The Prudential Individual Variable Contract Account, The Prudential Variable Contract Account GI-2, The Prudential Qualified Individual Variable Contract Account, The Prudential Variable Contract Account-24, The Prudential Discovery Select Group Variable Annuity Contract Account (separate accounts of Prudential); the Pruco Life Flexible Premium Variable Annuity Account; the Pruco Life PRUvider Variable Appreciable Account; the Pruco Life Variable Universal Account, the Pruco Life Variable Insurance Account, the Pruco Life Variable Appreciable Account, the Pruco Life Single Premium Variable Life Account, the Pruco Life Single Premium Variable Annuity Account (separate accounts of Pruco Life Insurance Company ("Pruco Life"); the Pruco Life of New Jersey Flexible Premium Variable Annuity Account; the Pruco Life of New Jersey Variable Insurance Account, the Pruco Life of New Jersey Variable Appreciable Account, the Pruco Life of New Jersey Single Premium Variable Life Account, and the Pruco Life of New Jersey Single Premium Variable Annuity Account (separate accounts of Pruco Life Insurance Company of New Jersey ("Pruco Life of New Jersey"). Pruco Life, a life insurance company organized under the laws of Arizona, is a direct wholly-owned subsidiary of The Prudential Insurance Company of America and an indirect wholly-owned subsidiary of Prudential Financial, Inc. Pruco Life of New Jersey, a life insurance company organized under the laws of New Jersey, is a direct wholly-owned subsidiary of Pruco Life, and an indirect wholly-owned subsidiary of Prudential Financial, Inc. The subsidiaries of Prudential Financial Inc. ("PFI") are listed under Exhibit 21.1 of the Annual Report on Form 10-K of PFI (Registration No. 001-16707), filed on February 27, 2009, the text of which is hereby incorporated by reference. In addition to those subsidiaries, Prudential holds all of the voting securities of Prudential's Gibraltar Fund, Inc., a Maryland corporation, in three of its separate accounts. Prudential's Gibraltar Fund, Inc. is registered as an open-end, diversified, management investment company under the Investment Company Act of 1940 (the "Act"). The separate accounts listed above are registered as unit investment trusts under the Act. Registrant may also be deemed to be under common control with The Prudential Variable Contract Account-2, The Prudential Variable Contract Account-10, and The Prudential Variable Account Contract Account-11, (separate accounts of The Prudential Insurance Company of America which are registered as open-end, diversified management investment companies). 6 Item 27. Number of Contract Owners: As of February 28, 2009 there were 8,594 owners of contracts. Item 28. Indemnification: Under Section 33-320a of the Connecticut General Statutes, the Depositor must indemnify a director or officer against judgments, fines, penalties, amounts paid in settlement and reasonable expenses including attorneys' fees, for actions brought or threatened to be brought against him in his capacity as a director or officer when certain disinterested parties determine that he acted in good faith and in a manner he reasonably believed to be in the best interests of the Depositor. In any criminal action or proceeding, it also must be determined that the director or officer had no reason to believe his conduct was unlawful. The director or officer must also be indemnified when he is successful on the merits in the defense of a proceeding or in circumstances where a court determines that he is fairly and reasonable entitled to be indemnified, and the court approves the amount. In shareholder derivative suits, the director or officer must be finally adjudged not to have breached this duty to the Depositor or a court must determine that he is fairly and reasonably entitled to be indemnified and must approve the amount. In a claim based upon the director's or officer's purchase or sale of the Registrants' securities, the director or officer may obtain indemnification only if a court determines that, in view of all the circumstances, he is fairly and reasonably entitled to be indemnified and then for such amount as the court shall determine. The By-Laws of Prudential Annuities Life Assurance Corporation ("PALAC") also provide directors and officers with rights of indemnification, consistent with Connecticut Law. The foregoing statements are subject to the provisions of Section 33-320a. Directors and officers of PALAC and PAD can also be indemnified pursuant to indemnity agreements between each director and officer and Prudential Annuities, Inc., a corporation organized under the laws of the state of Delaware. The provisions of the indemnity agreement are governed by Section 45 of the General Corporation Law of the State of Delaware. The directors and officers of PALAC and PAD are covered under a directors and officers liability insurance policy. Such policy will reimburse PALAC or PAD, as applicable, for any payments that it shall make to directors and officers pursuant to law and, subject to certain exclusions contained in the policy, will pay any other costs, charges and expenses, settlements and judgments arising from any proceeding involving any director or officer of PALAC or PAD, as applicable, in his or her past or present capacity as such. Registrant hereby undertakes as follows: Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, unless in the opinion of Registrant's counsel the matter has been settled by controlling precedent, Registrant will submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 29. Principal Underwriters: (a) Prudential Annuities Distributors, Inc. ("PAD"), a subsidiary of Prudential Annuities, Inc., serves as distributor and principal underwriter for flexible premium deferred annuities, single premium deferred annuities, modified single premium variable life insurance policies and flexible premium variable life insurance policies issued by Prudential Annuities Life Assurance Corporation. PAD also serves as distributor and principal underwriter for Advanced Series Trust and Strategic Partners Mutual Funds, Inc. (b)Directors and officers of PAD As of the date this Post-Effective Amendment was filed, the Directors and Officers of PAD are:
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ------------------------------ --------------------- Timothy S. Cronin Senior Vice President None 1 Corporate Drive Shelton, Connecticut 06484 Joseph P. Decresce Vice President, Secretary and None 1 Corporate Drive Chief Legal Officer Shelton, Connecticut 06484
7
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- -------------------------------- --------------------- John T. Doscher Senior Vice President and Chief None 751 Broad Street Compliance Officer Newark, New Jersey 07102-3714 Bruce Ferris Executive Vice President and None One Corporate Drive Director Shelton, Connecticut 06484 George M. Gannon President, Chief Executive None 2101 Welsh Road Officer, Director and Chief Dresher, Pennsylvania 19025-5001 Operations Officer Jacob M. Herschler Senior Vice President and None One Corporate Drive Director Shelton, Connecticut 06484 Margaret R. Horn Chief Financial Officer None 213 Washington Street Newark, New Jersey 07102-2917 Steven P. Marenakos Senior Vice President and None One Corporate Drive Director Shelton, Connecticut 06484 Robert F. O'Donnell Senior Vice President and None One Corporate Drive Director Shelton, Connecticut 06484 Yvonne Rocco Senior Vice President None 213 Washington Street Newark, New Jersey 07102-2992 Rick C. Singmaster Director None One Corporate Drive Shelton, Connecticut 06484 Kenneth Y. Tanji Director None 213 Washington Street Newark, New Jersey 07102-2917
(c) Commissions received by PAD during last fiscal year with respect to annuities issued through the registrant Separate Account B.
Net Underwriting Discounts Compensation on Brokerage and Name of Principal Underwriter Commissions Redemption Commissions Compensation ----------------------------- ------------ ---------- ----------- ------------ Prudential Annuities Distributors, Inc....... $465,847,053 $-0- $-0- $-0-
Item 30. Location of Accounts and Records: Accounts and records are maintained by PALAC at its principal office in Shelton, Connecticut, and its office in Fort Washington, Pennsylvania. Item 31. Management Services: None Item 32. Undertakings: (a) Registrant hereby undertakes to file a post-effective amendment to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old so long as payments under the annuity contracts may be accepted and allocated to the Sub-accounts of Separate Account B. (b) Registrant hereby undertakes to include either (1) as part of any enrollment form or application to purchase a contract offered by the prospectus, a space that an applicant or enrollee can check to request a Statement of Additional Information, or (2) a post card or similar written communication affixed to or included in the prospectus that the applicant can remove to send for a Statement of Additional Information. 8 (c) Registrant hereby undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this form promptly upon written or oral request. (d) Prudential Annuities Life Assurance Corporation ("Depositor") hereby represents that the fees and charges deducted under the contracts described in this Registration Statement are in the aggregate reasonable in relation to the services rendered, the expenses incurred and the risks assumed by Prudential Annuities Life Assurance Corporation. (e) With respect to the restrictions on withdrawals for Texas Optional Retirement Programs and Section 403(b) plans, we are relying upon: 1) a no-action letter dated November 28, 1988 from the staff of the Securities and Exchange Commission to the American Council of Life Insurance with respect to annuities issued under Section 403(b) of the code, the requirements of which have been complied with by us; and 2) Rule 6c-7 under the 1940 Act with respect to annuities made available through the Texas Optional Retirement Program, the requirements of which have been complied with by us. 9 SIGNATURES Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets the requirements of Securities Act Rule 485(b) for effectiveness of the Registration Statement and has duly caused this post-effective amendment to be signed on its behalf in the City of Shelton and the State of Connecticut on this 17th day of April 2009. PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B Registrant By: Prudential Annuities Life Assurance Corporation /s/ C. Christopher Sprague ------------------------------- C. Christopher Sprague, Vice President, Corporate Counsel PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION Depositor /s/ C. Christopher Sprague ------------------------------- C. Christopher Sprague, Vice President, Corporate Counsel As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated.
Signature Title Date --------- ----- ---- (Principal Executive Officer) Stephen Pelletier* Chief Executive Officer and President April 17, 2009 ----------------- Stephen Pelletier (Principal Financial Officer and Principal Accounting Officer) Kenneth Y. Tanji* Executive Vice President and Chief Financial Officer ----------------- Kenneth Y. Tanji (Board of Directors) James Avery* ----------------- James Avery Stephen Pelletier* ----------------- Stephen Pelletier Kenneth Y. Tanji* ----------------- Kenneth Y. Tanji Helen Galt* ----------------- Helen Galt Bernard J. Jacob* ----------------- Bernard J. Jacob
By:/s/ C. Christopher Sprague ------------------------------- C. Christopher Sprague * Executed by C. Christopher Sprague on behalf of those indicated pursuant to Power of Attorney 10 EXHIBITS No. 10 Written Consent of Independent Registered Public Accounting Firm FILED HEREWITH.