As filed with the Securities and Exchange Commission on April 19, 2011

File No. 333-95637

File No. 811-09799

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM N-4

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

Pre-Effective Amendment No. ¨

Post-Effective Amendment No. 14 x

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

Post-Effective Amendment No. 14 x

THE PRUDENTIAL DISCOVERY PREMIER GROUP VARIABLE CONTRACT
ACCOUNT

(Exact Name of Registrant)

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

(Name of Depositor)

213 Washington Street

Newark, NJ 07102-2992

Depositor’s Telephone Number: (973) 802-6000

Adam Scaramella

Vice President and Corporate Counsel

The Prudential Insurance Company of America

200 Wood Avenue South

Iselin, NJ 08830-2706

Copies to:

Thomas C. Schiaffo

Vice President and Corporate Counsel

280 Trumbull Street

Hartford, Connecticut 06103-3509

It is proposed that this filing will become effective (check appropriate space):

¨ immediately upon filing pursuant to paragraph (b) of Rule 485

x on May 1, 2011 pursuant to paragraph (b) of Rule 485

¨ 60 days after filing pursuant to paragraph (a) of Rule 485

¨ on May 1, 2011 pursuant to paragraph (a) of Rule 485

Title of Securities Being Registered: Interests in Group Variable Annuity Contracts.

PROSPECTUS MAY 1, 2011

DISCOVERY PREMIER

GROUP RETIREMENT ANNUITY

This prospectus describes the Prudential DISCOVERY PREMIER^® Group Variable Annuity Contracts* (the “Contracts”). The Contracts are group variable annuity contracts sold by The Prudential Insurance Company of America to retirement plans qualifying for federal tax benefits under sections 401, 403(b), 403(c), 408 or 457 of the Internal Revenue Code of 1986 as amended (the “Code”) and to non-qualified deferred compensation plans. In this prospectus, The Prudential Insurance Company of America may be referred to as either “Prudential” or as “we” or “us.” We may refer to a participant under a retirement plan as “you.”

As a plan participant, you can allocate contributions made on your behalf in a number of ways. You can allocate contributions to one or more of the 36 Subaccounts and the Guaranteed Interest Account, which are made available to you through your plan. Each Subaccount invests in one of the following portfolios of The Prudential Series Fund (the “Prudential Series Fund”) or other listed portfolios (collectively, the “Funds”):

THE PRUDENTIAL SERIES FUND

Conservative Balanced Portfolio	Government Income Portfolio	Money Market Portfolio
Diversified Bond Portfolio	High Yield Bond Portfolio	Small Capitalization Stock Portfolio
Equity Portfolio	Jennison Portfolio	Stock Index Portfolio
Flexible Managed Portfolio	Jennison 20/20 Focus Portfolio	Value Portfolio
Global Portfolio

AIM VARIABLE INSURANCE FUNDS
(INVESCO VARIABLE INSURANCE FUNDS) Invesco V.I. Core Equity Fund Invesco V.I. Capital Development Fund Invesco V.I. Government Securities Fund Invesco V.I. International Growth Fund   ALLIANCEBERNSTEIN VARIABLE PRODUCTS SERIES FUND, INC. AllianceBernstein VPS Growth and Income Portfolio AllianceBernstein VPS Large Cap Growth Portfolio AllianceBernstein VPS Small Cap Growth Portfolio   AMERICAN CENTURY VARIABLE PORTFOLIOS, INC. VP Income & Growth Fund   CREDIT SUISSE TRUST U.S. Equity Flex I Portfolio   DAVIS VARIABLE ACCOUNT FUND, INC. Davis Value Portfolio   DELAWARE VIP^® TRUST Delaware VIP^® Emerging Market Series THE DREYFUS SOCIALLY RESPONSIBLE GROWTH FUND, INC. The Dreyfus Socially Responsible Growth Fund   FRANKLIN TEMPLETON VARIABLE INSURANCE
PRODUCTS TRUST Franklin Small-Mid Cap Growth Securities Fund Templeton Foreign Securities Fund   JANUS ASPEN SERIES Enterprise Portfolio         Worldwide Portfolio   MFS^® VARIABLE INSURANCE TRUST MFS^® Growth Series        MFS^® Investors Growth Stock Series MFS^® Investors Trust Series        MFS^® Research Bond Series MFS^® Total Return Series   PIMCO VARIABLE INSURANCE TRUST PIMCO Short-Term Portfolio   T. ROWE PRICE EQUITY SERIES, INC. T. Rowe Price Equity Income Portfolio

In this prospectus, we provide information that you should know before you invest. We have filed additional information about the Contracts with the Securities and Exchange Commission (“SEC”) in a Statement of Additional Information (“SAI”), dated May 1, 2011. That SAI is legally a part of this prospectus. If you are a participant in certain types of plans (generally, 403(b) plans), you can get a copy of the SAI free of charge by contacting us at the address or telephone number shown on the cover page. The SEC maintains a Web site (http://www.sec.gov) that contains the SAI, material incorporated by reference, and other information regarding registrants that file electronically with the SEC (File No. 333-95637). The SEC’s mailing address is 100 F Street, N.E., Washington, DC 20549-0102, and its public reference number is (202) 551-8090.

The accompanying prospectuses for the Funds and the related statements of additional information describe the investment objectives and risks of investing in the Funds. We may offer additional Funds and Subaccounts in the future. The contents of the SAI, with respect to the Contracts, appear in the “Other Information” section of this prospectus.

Please read this prospectus and keep it for future reference. It is accompanied by a current prospectus for each of the Funds. Read those prospectuses carefully and retain them for future reference.

As with all variable annuity contracts, the fact that we have filed a registration statement with the SEC does not mean that the SEC has determined that the Contracts are a good investment. Nor has the SEC determined that this prospectus is complete or accurate. It is a criminal offense to state otherwise.

The Prudential Insurance Company of America

Prudential Retirement Service Center

30 Scranton Office Park

Scranton, PA 18507-1789

Telephone (877) 778-2100

PROSPECTUS CONTENTS

	Page
GLOSSARY		1
SUMMARY OF CONTRACT EXPENSES		3
BRIEF DESCRIPTION OF THE CONTRACTS		4
Right to Cancel		5
GENERAL INFORMATION ABOUT PRUDENTIAL, PRUDENTIAL DISCOVERY PREMIER GROUP VARIABLE CONTRACT ACCOUNT AND THE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACTS		6
The Prudential Insurance Company of America		6
Prudential Discovery Premier Group Variable Contract Account		6
The Funds		7
Payments to Prudential		14
Other Fund Information		14
Guaranteed Interest Account		15
THE CONTRACTS		16
The Accumulation Period		16
Allocation of Purchase Payments		17
Asset Allocation Program		17
Transfers		18
Redemption Fees and Abusive Trading Practices		19
Dollar Cost Averaging		20
Auto-Rebalancing		21
Withdrawals		21
Systematic Withdrawal Plan		22
Texas Optional Retirement Plan		23
Death Benefit		24
Discontinuance of Contributions		25
Loan Program		25
Modified Procedures		29
CHARGES, FEES AND DEDUCTIONS		29
Administrative Fee		29
Charge for Assuming Mortality and Expense Risks		29
Expenses Incurred by the Funds		29
Withdrawal Charge		29
Taxes Attributable to Premium		29
Loan Fee		30
Aggregate Nature of Charges		30
REQUESTS, CONSENTS AND NOTICES		30
FEDERAL TAX STATUS		31
Same-Gender Spouse, Civil Union and Domestic Partner Considerations		31
Annuity Qualification		31
Tax-Qualified Retirement Arrangements Using the Contracts		31
Contributions		32
Earnings		32
Distributions or Withdrawals		32
Required Minimum Distribution Rules		32
Special Considerations Regarding Exchanges Involving 403(b) Arrangements		33
Section 403(c) Annuity Arrangements Using the Contracts		33
ERISA Considerations		34
Taxes Payable by Participant		34
Taxes on Withdrawals and Surrender		34
Taxes on Annuity Payments		35
Tax Penalty on Withdrawals and Annuity Payments		35
Taxes Payable by Beneficiaries		35
Required Distributions Upon Death of Participant		35
Entity Owners		36
Withholding		36
Generation-Skipping Transfers		36
Taxes on Prudential		37

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	Page
EFFECTING AN ANNUITY		37
Life Annuity with Payments Certain		37
Annuity Certain		38
Joint and Survivor Annuity with Payments Certain		38
Purchasing the Annuity		38
Spousal Consent Rules for Certain Retirement Plans		38
OTHER INFORMATION		40
Misstatement of Age or Sex		40
Sale of the Contract and Sales Commissions		40
Voting Rights		41
Substitution of Fund Shares		41
Reports to Participants		42
State Regulation		42
Litigation		42
Service Providers		46
Additional Information		46
Statement of Additional Information		46
Accumulation Unit Values		47

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GLOSSARY

Account—See the Prudential Discovery Premier Group Variable Contract Account (the “Discovery Account”) below.

Accumulation Period—The period, prior to the effecting of an annuity, during which the amount credited to a Participant Account may vary with the investment performance of any Subaccount of the Discovery Account.

Annuitant—The person or persons designated by the Participant upon whose life or lives monthly annuity payments are based after an annuity is effected.

Annuity Date—The date that the accumulation period ends and annuity payments begin.

Beneficiary—A person designated by a Participant to receive benefits from funds held under the Contract.

Business Day—A day on which both the New York Stock Exchange and Prudential are open for business. Our business day generally ends at 4:00 p.m. Eastern Time.

Code—The Internal Revenue Code of 1986, as amended.

Contractholder—The employer, association or trust to which Prudential has issued a Contract.

Contracts—The group variable annuity contracts that we describe in this prospectus and offer for use in connection with retirement arrangements that qualify for federal tax benefits under Sections 401, 403(b), 403(c), 408 or 457 of the Code and with non-qualified annuity arrangements.

Contract Value—The dollar amount held under the Contract.

Employer—The sponsor of the retirement plan or non-qualified annuity arrangement.

Funds—The Prudential Series Fund; AIM Variable Insurance Funds (Invesco Variable Insurance Funds); AllianceBernstein Variable Products Series Fund, Inc.; American Century Variable Portfolios, Inc.; Credit Suisse Trust; Davis Variable Account Fund, Inc.; Delaware VIP^® Trust; The Dreyfus Socially Responsible Growth Fund, Inc.; Franklin Templeton Variable Insurance Products Trust; Janus Aspen Series; MFS^® Variable Insurance Trust; PIMCO Variable Insurance Trust; and T. Rowe Price Equity Series, Inc., available under the Contracts.

General Account—The assets of Prudential other than those allocated to the Discovery Account or any other separate account of Prudential.

Good Order—An instruction received by Prudential that is sufficiently complete and clear that Prudential does not need to exercise any discretion to follow such instruction. Good Order includes receipt of confirmation and all necessary information to insure the instruction is permitted under and in compliance with the applicable retirement plan. Instructions that are not in Good Order will be effective on the Business Day that Good Order is determined.

Guaranteed Interest Account—An allocation option under the Contract backed by Prudential’s General Account, or under certain Contracts, a separate account. It is not part of nor dependent upon the investment performance of the Discovery Account. This prospectus does not describe in detail the Guaranteed Interest Account or any separate account funding a guaranteed interest rate option.

Participant—A person who makes contributions, or for whom contributions have been made, and to whom they remain credited under the Contract. “You” means the Participant.

Participant Account—An account established for each Participant to record the amount credited to the Participant under the Contract.

Participant Account Value—The dollar amount held in a Participant Account.

Prudential—The Prudential Insurance Company of America. “We,” “us,” or “our” means Prudential.

Prudential Discovery Premier Group Variable Contract Account—A separate account of Prudential registered under the Investment Company Act of 1940 as a unit investment trust, invested through its Subaccounts in shares of the corresponding Funds also referred to as “Discovery Account”.

Subaccount—A division of the Discovery Account, the assets of which are invested in shares of the corresponding Fund.

Unit and Unit Value—We credit a Participant with Units for each Subaccount in which he invests. The value of these Units may change each Business Day to reflect the investment results of, and deductions of charges from, the Subaccounts, and the expenses of the Funds in which the assets of the Subaccounts are invested. The number of Units credited to a Participant in any Subaccount of the Discovery Account is determined by dividing the amount of the contribution or transfer made on his behalf to that Subaccount by the applicable Unit Value for the Business Day on which the contribution or transfer is

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received at the address shown on the cover of this prospectus or such other address that Prudential has specified. We will reduce the number of Units credited to a Participant under any Subaccount by the number of Units canceled as a result of any transfer or withdrawal by a Participant from that Subaccount.

Valuation Period—The period of time from one determination of the value of the amount invested

in a Subaccount to the next. We make such determinations generally as of 4:00 p.m. Eastern Time on each day during which the New York Stock Exchange and Prudential are open. Currently, the Prudential business unit that receives transaction requests for the Contracts is open each day on which the New York Stock Exchange is open.

Variable Investment Options—The Subaccounts.

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SUMMARY OF CONTRACT EXPENSES

The purpose of this summary is to help you to understand the costs and expenses you will pay for participating in the Discovery Premier Group Retirement Annuity. The following tables describe the maximum fees and expenses that you will pay when buying, owning, and surrendering an interest in the contract. State premium taxes may also be deducted.

For more detailed information, including additional information about current and maximum charges, see the “Charges, Fees and Deductions” section of this prospectus. For more detailed expense information about the underlying mutual funds, please refer to the individual fund prospectuses, which you will find attached at the back of this prospectus.

Participant Transaction Expenses

Withdrawal Charge

Effective October 1, 2009, Prudential has waived the withdrawal charge for all contracts.

Periodic Charges

The next table describes the fees and expenses you will pay periodically during the time that you participate in the contract, not including underlying mutual fund fees and expenses.

Insurance and Administrative Expenses (as a percentage of average participant account value)

Mortality and Expense Risk Charge	0.15%
Maximum Administrative Fee*	0.75%
Total Separate Account Annual Expenses	0.90%

* We may reduce this administrative fee under Contracts as to which, due to economies of scale and other factors, our administrative costs are reduced.

Loan Fees

New Loan Application Fee	$	75.00
Annual Loan Maintenance Fee	$	60.00

Charge for Premium Tax

There is a charge for premium tax imposed on us by certain states/jurisdictions of 0% to 3.5% of contract value.

Total Annual Mutual Fund Operating Expenses (expenses that are deducted from underlying mutual fund assets, including management fees, distribution and/or service (12b-1) fees, and other expenses)

The next item shows the minimum and maximum total operating expenses charged by the underlying mutual funds that you may pay periodically during the time that you participate in the contract. More detail concerning each underlying mutual fund’s fees and expenses is contained in the prospectus for each underlying mutual fund. The minimum and maximum total operating expenses depicted below are based on historical fund expenses for the year ended December 31, 2010. Fund expenses are not fixed or guaranteed by Discovery Premier Group Retirement Annuity, and may vary from year to year.

	Minimum			Maximum
Total Annual Underlying Mutual Fund Operating Expenses		0.38	%		1.66	%

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Expense Example

This example is intended to help you compare the cost of participating in the contract with the cost of investing in other group variable annuity contracts. These costs include participant transaction expenses, contract fees, separate account annual expenses, and underlying mutual fund fees and expenses.

The example assumes that you invest $10,000 in the contract for the time periods indicated. The example also assumes that your investment has a 5% return each year and assumes the maximum fees and expenses of any of the mutual funds, which do not reflect any expense reimbursement or waiver. Although your actual costs may be higher or lower, based on these assumptions, your costs would be as indicated in the tables below:

1 yr		3 yrs		5 yrs		10 yrs
$	259	$	796	$	1,360	$	2,895

Notes for Expense Example

This example does not show past or future expenses. Actual expenses may be higher or lower. Premium taxes are not reflected in the examples. Depending on the state you live in, a charge for premium taxes may apply. Your actual fees will vary based on the amount of your contract and your specific allocation among the investment options.

Financial Statements

The financial statements of Prudential and the Account are included in the Statement of Additional Information (SAI). For a free copy of the SAI, call us at (877) 778-2100, or write to us at Prudential Retirement, 30 Scranton Office Park, Scranton, PA 18507-1789.

A table of accumulation unit values has been included as an Appendix to the prospectus.

BRIEF DESCRIPTION OF THE CONTRACTS

We offer the Contracts to retirement plans qualifying for federal tax benefits under Sections 401, 403(b), 403(c), 408 or 457 of the Internal Revenue Code of 1986, as amended (the “Code”) and to non-qualified deferred compensation plans. The Contracts are group annuity contracts that we typically issue to employers. These employers then make contributions under the Contract on behalf of their employees. A person for whom contributions have been made and to whom they remain credited under a Contract is a “Participant.”

The value of a Participant’s investment depends upon the performance of the selected investment option[s]. Currently, there are 36 variable investment options, each of which is called a Subaccount. Prudential may limit the number of subaccounts an employer may select in order to ensure that Prudential is the owner of the assets in the Subaccounts for tax purposes. We invest the assets of each Subaccount in one of the funds listed in “The Funds” section. You may direct contributions to one or a combination of variable investment options as well as the Guaranteed Interest Account. We set up a separate Participant Account to record your investment choices. You can withdraw amounts held under your Participant Account, in whole or in part, prior to the annuity date. We also provide for a death benefit under the Contract.

Through payroll deduction or similar agreements with the Contractholder, you may make contributions under the Contract if permitted under your retirement arrangement. In addition, you may make contributions in ways other than payroll deduction under certain circumstances if permitted under your retirement arrangement.

We assess charges under the Contracts for administering the Contracts and for assuming mortality and expense risks under the Contracts. We deduct a mortality and expense risk charge equal to an annual rate of 0.15% from the

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assets held in the variable investment options. We also deduct an administrative charge equal to a maximum annual rate of 0.75% from the assets held in the Variable Investment Options. You can find further details about the administrative charge in the “Summary of Contract Expenses” and “Administrative Fee” sections.

A charge against each of the Funds’ assets is also made by the investment adviser for providing investment advisory and management services. You can find further details about charges under the section entitled “Charges, Fees and Deductions.”

Unless restricted by the retirement arrangement under which you are covered, or by a section of the Code, you may withdraw, at any time, all or part of your Participant Account. See the “Withdrawals” section. If you withdraw, you may be taxed under the Code, including, under certain circumstances, a 10% tax penalty on premature withdrawals. See the “Federal Tax Status” section. In addition, you may transfer all or a part of your Participant Account Value among the Subaccounts and the Guaranteed Interest Account without the imposition of tax liability.

As explained below, notices, forms and requests for transactions related to the Contracts may be provided in traditional paper form or by electronic means, including telephone and Internet. Prudential reserves the right to vary the means available, including limiting them to electronic means, from Contract to Contract by Contract terms, related service agreements with the Contractholder, or notice to the Contractholder and Participants. See section “Requests, Consents and Notices” for further information.

You should send all written requests, notices, and transfer requests required or permitted by the Contracts (other than withdrawal requests and death benefit claims), to Prudential at the address shown on the cover of this prospectus. Transaction requests (including death benefit claims) received by Prudential in Good Order on a given Business Day before the established transaction cutoff time (4 p.m. Eastern Time, or such earlier time that the New York Stock Exchange may close) will be effective for that Business Day. Good Order includes receipt of confirmation and all necessary information to insure the instruction is permitted under and in compliance with the applicable retirement plan. Instructions that are not in Good Order will be effective on the Business Day that Good Order is determined.

You may effect permitted telephone transactions by calling us at (877) 778-2100. All permitted Internet transactions may be made through www.prudential.com/online/retirement. You must send all written withdrawal requests or death benefit claims to Prudential by one of the following three means: (1) by U.S. mail to: Prudential, P.O. Box 5410, Scranton, PA 18505-5410; (2) delivery service other than the U.S. mail (e.g., Federal Express, etc.) sent to our office at the following address: Prudential, 30 Scranton Office Park, Scranton, PA 18507-1789; or (3) fax to Prudential, Attention: Client Payments at (866) 439-8602. Under certain Contracts, the Contractholder or a third party acting on their behalf provides record-keeping services that we would otherwise perform. See the “Modified Procedures” section. Prudential may provide other permitted telephone numbers or Internet addresses.

We intend this brief description of the Contracts to provide a broad overview of the more significant features of the Contracts. More detailed information about the Contracts can be found in subsequent sections of this prospectus and in the Contracts themselves. We reserve the right to terminate a Contract if, after a specified period of time after the Contract’s issuance, the number of participants enrolled falls below a specified number.

Right to Cancel

This cancellation privilege may not be available for certain plans and/or for Participants residing in certain states. If you change your mind about owning the Contract, you generally may cancel the Contract within 10 days after receiving it (or up to 30 days, or whatever period is required by applicable law). You can request a refund by returning the Contract either to the representative who sold it to you, or to the Prudential Retirement Service Center at the address shown on the first page of this prospectus. Generally, you will receive a refund equal to your Contract Value (plus the amount of any Contract charges) as of the date you surrendered your Contract, less applicable federal and state income tax withholding (or whatever amount is required by applicable law). However, if total premium paid exceeds your Contract Value, and applicable law requires us to return the greater of premium paid and Contract Value, we will return total premium paid, less any applicable fees and charges. Unless we are returning premiums paid as required by state law, you will bear the investment risk during this period.

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GENERAL INFORMATION ABOUT PRUDENTIAL,

PRUDENTIAL DISCOVERY PREMIER GROUP VARIABLE CONTRACT ACCOUNT AND THE INVESTMENT OPTIONS AVAILABLE UNDER THE CONTRACTS

The Prudential Insurance Company of America

The Prudential Insurance Company of America (“Prudential”) is a New Jersey stock life insurance company that has been doing business since October 13, 1875. Prudential is licensed to sell life insurance and annuities in the District of Columbia, Guam, Puerto Rico, U.S. Virgin Islands, and in all states. Our corporate office is located at 751 Broad Street, Newark, NJ. We have been investing for pension funds since 1928.

Prudential is an indirect, wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”), a New Jersey insurance holding company. Prudential Financial exercises significant influence over the operations and capital structure of Prudential. However, neither Prudential Financial nor any other related company has any legal responsibility to pay amounts that Prudential may owe under the Contract.

Prudential generally is responsible for the administrative and record-keeping functions of the Prudential Discovery Premier Group Variable Contract Account and pays the expenses associated with them. These functions include enrolling Participants, receiving and allocating contributions, maintaining Participant Accounts and preparing and distributing confirmations, statements, and reports. The administrative and record-keeping expenses that we bear include salaries, rent, postage, telephone, travel, legal, actuarial and accounting fees, office equipment, stationery and maintenance of computer and other systems.

We are reimbursed for these administrative and record-keeping expenses by the daily charge against the assets of each Subaccount for administrative expenses.

Prudential Discovery Premier Group Variable Contract Account

Prudential established the Prudential Discovery Premier Group Variable Contract Account (the “Discovery Account”) on November 9, 1999, under New Jersey law as a separate investment account. The Discovery Account meets the definition of a “separate account” under federal securities laws. Prudential is the legal owner of the assets in the Discovery Account, and is obligated to provide all benefits under the Contracts. Prudential will at all times maintain assets in the Discovery Account with a total market value sufficient to support its obligations under the Contracts. Prudential segregates the Discovery Account assets from all of its other assets. Thus, those assets are not chargeable with liabilities arising out of any other business Prudential conducts. The Discovery Account’s assets may include funds contributed by Prudential to commence operation of the Discovery Account, and may include accumulations of the charges Prudential makes against the Discovery Account. From time to time, Prudential will transfer these additional assets to Prudential’s General Account. Before making any such transfer, Prudential will consider any possible adverse impact the transfer might have on the Discovery Account.

Prudential registered the Discovery Account with the U.S. Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940 (“1940 Act”) as a unit investment trust, which is a type of investment company. This registration does not mean that the SEC supervises the management or investment policies or practices of the Discovery Account. For state law purposes, the Discovery Account is treated as a part or division of Prudential. There are currently 36 Subaccounts within the Discovery Account. These Subaccounts invest in the corresponding Funds available under the Contracts. We may establish additional Subaccounts in the future. For Contracts funding retirement plans subject to the fiduciary responsibility provisions of the Employee Retirement Income Security Act of 1974, as amended, such additional Subaccounts will be made available only upon the consent of the plan fiduciary.

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The Funds

The following is a list of each fund, its investment objective and its investment adviser:

The Prudential Series Fund

Share Class: Class I

Conservative Balanced Portfolio    The investment objective is total investment return consistent with a conservatively managed diversified portfolio. The Portfolio invests in a mix of equity and equity-related securities, debt obligations and money market instruments.

Diversified Bond Portfolio    The investment objective is a high level of income over a longer term while providing reasonable safety of capital. The Portfolio normally invests at least 80% of its investable assets (net assets plus any borrowings made for investment purposes) in high-grade debt obligations and high-quality money market investments.

Equity Portfolio    The investment objective is long-term growth of capital. The Portfolio normally invests at least 80% of its investable assets (net assets plus any borrowings made for investment purposes) in common stocks of major established companies, as well as smaller companies.

Flexible Managed Portfolio    The investment objective is a total return consistent with an aggressively managed diversified portfolio. The Portfolio invests in a mix of equity and equity-related securities, debt obligations and money market instruments.

Global Portfolio    The investment objective is long-term growth of capital. The Portfolio invests primarily in common stocks (and their equivalents) of foreign and U.S. companies.

Government Income Portfolio    The investment objective is a high level of income over the long term consistent with the preservation of capital. The Portfolio normally invests at least 80% of its investable assets (net assets plus any borrowings made for investment purposes) in U.S. government securities, including U.S. Treasury securities, debt obligations issued or guaranteed by agencies or instrumentalities established by the U.S. government, and mortgage-related securities issued by U.S. Government instrumentalities.

High Yield Bond Portfolio    The investment objective is a high total return. The Portfolio normally invests at least 80% of its investable assets (net assets plus any borrowings made for investment purposes) in high yield/high risk debt securities, which are often referred to as “junk” bonds.

Jennison Portfolio    The investment objective is to achieve long-term growth of capital. The Portfolio normally invests primarily in equity and equity-related securities of major, established corporations that we believe offer above-average growth prospects.

Jennison 20/20 Focus Portfolio    The investment objective is long-term growth of capital. The Portfolio will invest primarily in approximately 40 (which may temporarily range up to 45) equity and equity-related securities of U.S. companies that are selected by the Portfolio’s two portfolio managers (approximately 20 by each) as having strong capital appreciation potential. One manager will use a “value” approach, which means he or she will attempt to identify strong companies selling at a discount from their perceived true value. The other manager will use a “growth” approach, which means he or she seeks companies that exhibit higher-than average earnings growth.

Money Market Portfolio    The investment objective is maximum current income consistent with the stability of capital and the maintenance of liquidity. The Portfolio invests in high-quality short-term money market instruments issued by the U.S. government or its agencies, as well as both domestic and foreign corporations and banks.

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Small Capitalization Stock Portfolio    The investment objective is to achieve long-term growth of capital. The Portfolio invests primarily in equity securities of publicly traded companies with small market capitalizations. The Portfolio normally invests at least 80% of its investable assets (net assets plus any borrowings made for investment purposes) in all or a representative sample of stocks in the Standard & Poor’s Small Capitalization 600 Stock Index.

Stock Index Portfolio    The investment objective is investment results that generally correspond to the performance of publicly traded common stocks. The Portfolio attempts to duplicate the price and yield of the Standard & Poor’s 500 Composite Stock Price Index (the “S&P 500”) by investing at least 80% of its investable assets in S&P 500 stocks.

Value Portfolio    The investment objective is capital appreciation. The Portfolio normally invests at least 65% of its total assets in equity and equity-related securities. Most of the Portfolio’s investments will be securities of large capitalization companies. The Portfolio invests primarily in equity and equity-related securities that the Portfolio believes are undervalued—those securities that are trading below their underlying asset value, cash generating ability, and overall earnings and earnings growth, and that also have identifiable catalysts which may be able to close the gap between the price and what the Portfolio believes to be the true worth of the company.

Prudential Investments LLC (PI), a wholly owned subsidiary of Prudential Financial, Inc., serves as the overall investment manager for the Fund and its Portfolios.

PI manages the Fund’s portfolios using a “manager-of-managers” structure. Under this structure, PI is authorized to select (with approval of the Fund’s independent trustees) one or more subadvisers to handle the actual day-to-day investment management of each Portfolio. PI monitors each subadviser’s performance through quantitative and qualitative analysis, and periodically reports to the Fund’s board of trustees as to whether each subadviser’s agreement should be renewed, terminated or modified. PI is also responsible for allocating assets among the subadvisers if a Portfolio has more than one subadviser. In those circumstances, the allocation for each subadviser can range from 0% to 100% of a Portfolio’s assets, and PI can change the allocations without board or shareholder approval.

Jennison Associates LLC (“Jennison”), an indirect, wholly-owned subsidiary of Prudential Financial, Inc., serves as subadviser to the following Portfolios of the Fund:

Equity Portfolio

Value Portfolio

Jennison Portfolio

Jennison 20/20 Focus Portfolio

The Global Portfolio is sub advised by four different subadvisers, with each subadviser responsible for managing a portion of the Global Portfolio’s assets. Marsico Capital Management, LLC (“MCM”), LSV Asset Management (“LSV”), William Blair & Company LLC (“William Blair”) and T. Rowe Price Associates, Inc. (“T. Rowe Price”). LSV is a quantitative value equity manager providing active asset management for institutional clients through the application of proprietary models. MCM provides investment management services to other mutual funds and private accounts. William Blair is dedicated to researching, financing and investing in high quality growth companies through four primary divisions: investment banking, sales and trading, asset management and private capital. T. Rowe Price is one of the nation’s leading providers of no-load mutual funds for individual investors and corporate retirement programs.

In addition to the four subadvisers discussed above, Quantitative Management Associates, LLC (“QMA”) provides “Advice Services” to the Global Portfolio. Such services include the provision of investment advice, asset allocation advice and research services, other than day-to-day management of the Portfolio.

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Prudential Investment Management, Inc. (“PIM”), an indirect, wholly-owned subsidiary of Prudential Financial, Inc., serves as subadviser to the following Portfolios of the Fund:

Conservative Balanced Portfolio (portion)

Diversified Bond Portfolio

Flexible Managed Portfolio (portion)

Government Income Portfolio

High Yield Bond Portfolio

Money Market Portfolio

Quantitative Management Associates LLC, a wholly-owned subsidiary of Prudential Investment Management, Inc., serves as subadviser to the following Portfolios of the Fund:

Small Capitalization Stock Portfolio

Stock Index Portfolio

Conservative Balanced Portfolio (portion)

Flexible Managed Portfolio (portion)

AIM Variable Insurance Funds (Invesco Variable Insurance Funds)

Share Class: Series I

Invesco V.I. Core Equity Fund    The Fund’s investment objective is long-term growth of capital. The Fund invests, under normal circumstances, at least 80% of net assets (plus borrowings for investment purposes) in equity securities. In complying with the 80% investment requirement, the Fund may include synthetic instruments that have economic characteristics similar to the Fund’s direct investments that are counted toward the 80% investment requirement.

Invesco V.I. Capital Development Fund (Effective May 2, 2011, the Invesco V.I. Dynamics Fund will merge into the Invesco V.I. Capital Development Fund)    The Fund’s investment objective is long-term growth of capital. The Fund invests primarily in equity securities of mid-capitalization issuers.

Invesco V.I. Government Securities Fund    The Fund’s investment objective is total return, comprised of current income and capital appreciation. The Fund invests under normal circumstances at least 80% of net assets (plus borrowings for investment purposes) in debt securities issued, guaranteed or otherwise backed by the U.S. Government or its agencies and instrumentalities.

Invesco V.I. International Growth Fund    The Fund’s investment objective is long-term growth of capital. The Fund invests primarily in a diversified portfolio of international securities whose issuers are considered by the Fund’s portfolio managers to have strong earnings growth. The Fund invests primarily in equity securities.

Invesco Advisers, Inc. serves as the Fund’s investment adviser, and is located at 1555 Peachtree Street, N.E., Atlanta, Georgia 30309.

AllianceBernstein Variable Products Series Fund, Inc.

Share Class: Class A

AllianceBernstein VPS Growth and Income Portfolio    The portfolio seeks long-term growth of capital.

AllianceBernstein VPS Large Cap Growth Portfolio    The portfolio seeks long-term growth of capital.

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AllianceBernstein VPS Small Cap Growth Portfolio    The portfolio seeks long-term growth of capital.

AllianceBernstein L.P. (“Alliance”) is the investment adviser to each of the above-mentioned funds. Alliance’s principal business address is 1345 Avenue of the Americas, New York, New York 10105.

American Century Variable Portfolios, Inc.

Share Class: Class I

VP Income & Growth Fund    The fund seeks capital growth by investing in common stocks. Income is a secondary objective.

The investment adviser for this fund is American Century Investment Management, Inc. (“ACIM”). ACIM’s principal business address is 4500 Main Street, Kansas City, Missouri 64111.

Credit Suisse Trust

Share Class: Class 1

U.S. Equity Flex I Portfolio    Seeks capital growth by investing in equity securities of U.S. companies, using a “flexible 130/30” strategy whereby the Portfolio generally will hold (i) long positions, either directly or through derivatives, in an amount up to approximately 130% of its net assets and (ii) short positions either directly or through derivatives, in an amount up to approximately 30% of its net assets. These securities will be selected using proprietary quantitative stock selection models rather than the more traditional fundamental analysis approach.

The investment adviser for this portfolio is Credit Suisse Asset Management, LLC (Credit Suisse). Credit Suisse’s principal business address is Eleven Madison Avenue, New York, New York 10010.

Davis Variable Account Fund, Inc.

Share Class: N/A

Davis Value Portfolio    Davis Value Portfolio’s investment objective is long-term growth of capital. Typical investments: Invests primarily in equity securities issued by large companies with market capitalizations of at least $10 billion.

The investment adviser for this fund is Davis Selected Advisers, L.P., 2949 East Elvira Road, Suite 101, Tucson, Arizona 85756.

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Delaware VIP^® Trust

Share Class: Standard

Delaware VIP^® Emerging Market Series    Delaware VIP^® Emerging Markets Series seeks long-term capital appreciation. The Series invests primarily in equity securities of issuers from emerging foreign countries. Under normal circumstances, at least 80% of the Series’ net assets will be investments of emerging market issuers (the 80% policy). The Series’ portfolio manager may invest up to 35% of the Series’ net assets in fixed-income securities issued by companies in emerging countries or by foreign governments, their agents, instrumentalities or political subdivisions. The Series’ portfolio manager may invest in fixed-income securities that are denominated in the currencies of emerging market countries. All of these may be high-yield, high-risk, fixed-income securities (commonly known as “junk bonds”). The portfolio manager may invest more than 25% of the Series’ total assets in the securities of issuers located in the same country. The Series may have portfolio turnover in excess of 100%.

The Series is managed by Delaware Management Company (“DMC”), a series of Delaware Management Business Trust, which is an indirect, wholly owned subsidiary of Delaware Management Holdings, Inc. The Manager makes investment decisions for the Series, manages the Series’ business affairs and provides daily administrative services. Delaware Management Company’s principal business address is 2005 Market Street Philadelphia, Pennsylvania 19103-7094.

DMC is part of Macquarie Group, a global provider of banking, financial, advisory, investment and fund management services. Macquarie Group refers to Macquarie Group Limited and its affiliates and subsidiaries worldwide.

Investments in the Delaware VIP Emerging Markets Series, (the “Series”) are not and will not be deposits with or liabilities of Macquarie Bank Limited ABN 46 008 583 542 and its holding companies, including their subsidiaries or related companies, and are subject to investment risk, including possible delays in repayment and loss of income and capital invested. No Macquarie Group company guarantees or will guarantee the performance of the Series, the repayment of capital from the Series, or any particular rate of return.

The Dreyfus Socially Responsible Growth Fund, Inc.

Share Class: Initial

The Dreyfus Socially Responsible Growth Fund, Inc.    The fund seeks to provide capital growth, with current income as a secondary goal. To pursue its goals, the fund, in the common stocks of companies that, in the opinion of the fund’s management, meet traditional investment standards and conduct their business in a manner that contributes to the enhancement of the quality of life in America. The fund’s investment strategy combines a disciplined investment process that consists of computer modeling techniques, fundamental analysis and risk management with a social investment process. In selecting stocks, the portfolio manager begins by using computer models to identify and rank stocks within an industry or sector, based on several characteristics, including value, growth and financial profile. Next, based on fundamental analysis, the portfolio manager designates the most attractive of the higher ranked securities as potential purchase candidates, drawing on a variety of sources, including company management and internal as well as Wall Street research. The portfolio manager then evaluates each stock to determine whether the company enhances the quality of life in America by considering its record in the areas of protection and improvement of the environment and the proper use of our natural resources, occupational health and safety, consumer protection and product purity and equal employment opportunity. The portfolio manager then further examines the companies determined to be eligible for purchase, by industry or sector, and select investments from those companies the portfolio manager considers to be the most attractive based on financial considerations.

The investment adviser to this fund is The Dreyfus Corporation (“Dreyfus”). Dreyfus’ principal business address is 200 Park Avenue, New York, New York 10166.

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Franklin Templeton Variable Insurance Products Trust

Share Class: Class 1

Franklin Small-Mid Cap Growth Securities Fund    Seeks long-term capital growth. The fund normally invests at least 80% of its net assets in investments of small capitalization and mid capitalization companies.

The investment adviser is Franklin Advisers, Inc., One Franklin Parkway, San Mateo, California 94403.

Templeton Foreign Securities Fund    Seeks long-term capital growth. The fund normally invests at least 80% of its net assets in investments of issuers located outside the U.S., including those in emerging markets.

The investment adviser is Templeton Investment Counsel, LLC, 500 East Broward Blvd., Suite 2100, Fort Lauderdale, Florida 33394.

Janus Aspen Series

Share Class: Institutional

Enterprise Portfolio    Seeks long-term growth of capital. The Portfolio pursues its investment objective by investing primarily in common stocks selected for their growth potential, and normally invests at least 50% of its equity assets in medium-sized companies. Medium-sized companies are those whose market capitalization falls within the range of companies in the Russell Midcap Growth Index. Market capitalization is a commonly used measure of the size and value of a company.

Worldwide Portfolio    Seeks long-term growth of capital in a manner consistent with the preservation of capital. The Portfolio pursues its investment objective by investing primarily in common stocks of companies of any size located throughout the world. The Portfolio normally invests in issuers from several different countries, including the United States. The Portfolio may, under unusual circumstances, invest in a single country. The Portfolio may have significant exposure to emerging markets. The Portfolio may also invest in foreign equity and debt securities.

Effective May 16, 2011, the preceding paragraph will be replaced by the following: Seeks long-term growth of capital. The Portfolio pursues its investment objective by investing primarily in equity securities, which include, but are not limited to, common stocks, preferred stocks, and depositary receipts of companies of any size located throughout the world. The Portfolio normally invests in issuers from several different countries, including the United States. The Portfolio may, under unusual circumstances, invest in a single country. The Portfolio may have significant exposure to emerging markets. The Portfolio may also invest in foreign equity and debt securities.

Janus Capital Management LLC (“Janus Capital”) serves as the investment adviser to each of the above funds. Janus Capital’s principal business address is 151 Detroit Street, Denver, Colorado 80206-4805.

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MFS^® Variable Insurance Trust

Share Class: Initial

MFS^® Growth Series    The fund’s investment objective is to seek capital appreciation. MFS normally invests the fund’s assets primarily in equity securities. MFS focuses on investing the fund’s assets in the stocks of companies it believes to have above average earnings growth potential compared to other companies.

MFS^® Investors Growth Stock Series    The fund’s investment objective is to seek capital appreciation. MFS normally invests at least 80% of the fund’s net assets in equity securities. MFS focuses on investing the fund’s assets in the stocks of companies it believes to have above average earnings growth potential compared to other companies (growth companies). While MFS may invest the fund’s assets in companies of any size, MFS generally focuses on companies with large capitalizations. MFS may invest the fund’s assets in foreign securities.

MFS^® Investors Trust Series    The fund’s investment objective is to seek capital appreciation. MFS normally invests the fund’s assets primarily in equity securities. While MFS may invest the fund’s assets in companies of any size, MFS generally focuses on companies with large capitalizations.

MFS^® Research Bond Series    The fund’s investment objective is to seek total return with an emphasis on current income, but also considering capital appreciation. MFS normally invests at least 80% of the fund’s net assets in debt instruments such as corporate bonds of U.S. and foreign issuers, U.S. Government securities, foreign government securities, and mortgage and asset-backed securities. A team of investment research analysts selects investments for the fund. MFS allocates the fund’s assets to analysts by sectors of the debt market.

MFS^® Total Return Series    The fund’s investment objective is to seek total return. MFS invests the fund’s assets in equity securities and debt instruments. MFS seeks to invest between 40% and 75% of the fund’s assets in equity securities and at least 25% of the fund’s assets in fixed-income senior securities.

The investment adviser for each fund is Massachusetts Financial Services Company ("MFS").

PIMCO Variable Insurance Trust

Share Class: Administrative

PIMCO Short-Term Portfolio    The investment objective is maximum current income, consistent with the preservation of capital and daily liquidity. The Portfolio seeks to achieve its investment objective by investing under normal circumstances at least 65% of its total assets in a diversified portfolio of Fixed Income Instruments of varying maturities, which may be represented by forwards or derivatives such as options, futures, contracts, or swap agreements.

PIMCO serves as investment adviser and the administrator (serving in its capacity as administrator, the “Administrator”) for the Portfolio. Subject to the supervision of the Board of Trustees, PIMCO is responsible for managing the investment activities of the Portfolio and the Portfolio’s business affairs and other administrative matters. PIMCO’s address is 840 Newport Center Drive, Newport Beach, California 92660.

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T. Rowe Price Equity Series, Inc.

Share Class: N/A

T. Rowe Price Equity Income Portfolio    Seeks to provide substantial dividend income as well as long-term growth of capital by investing in the common stocks of established companies.

The investment manager for each portfolio is T. Rowe Price Associates, Inc. (“T. Rowe Price”). T. Rowe Price is wholly owned by T. Rowe Price Group, Inc., a publicly traded financial services holding company.

Further information about the fund portfolios is available in the accompanying prospectus for each fund.

Payments to Prudential

Prudential has entered into agreements with certain Funds and/or the investment adviser or distributor of such Funds. Prudential may provide administrative and support services (which may include recordkeeping, shareholder services, and the mailing of periodic reports) to such Funds pursuant to the terms of these agreements and under which it receives a fee of up to 0.35% annually (as of May 1, 2011) of the average assets allocated to the Fund under the Contracts. These types of payments are sometimes referred to as "revenue sharing" payments. These agreements, including the fees paid and services provided, can vary for each underlying fund that has portfolios which underlie Subaccounts. These payments may be used for a variety of purposes, including payment of expenses that we or our affiliates incur in administering the Contracts. We and our affiliates may profit from these payments. These payments may be derived, in whole or in part, from the assets of the Fund itself and/or the assets of the Fund's investment advisor. In either case, the existence of these payments tends to increase the overall cost of investing in the portfolio. Contractholders, through their indirect investment in the Funds, indirectly bear the costs of these investment advisory fees (see the Funds’ prospectuses for more information). Furthermore, we receive additional compensation on assets invested in Prudential’s proprietary funds because our affiliates receive payments from the funds for investment advisory and/or other services. Therefore, we may receive more revenue with respect to proprietary funds than nonproprietary funds and allocations you make to the proprietary funds benefit us financially.

In addition, the investment adviser, sub-adviser or distributor of the underlying funds may also compensate us by providing reimbursement or paying directly for, among other things, marketing and/or administrative services and/or other services they provide in connection with the Contract. These services may include, but are not limited to: co-sponsoring various meetings and seminars attended by broker/dealer firms’ registered representatives, plan sponsors and Participants, and creating marketing material discussing the Contract and the available options. 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 distributors, and the amounts of such payments may vary between and among each adviser, sub-adviser, and distributor depending on their respective participation.

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 our affiliates within the Prudential Financial group related to the offering of investment options within variable annuities or life insurance offered by different Prudential business units.

Other Fund Information

The investment advisers to the various Funds charge a daily investment management fee as compensation for their services, as more fully described in the prospectus for each Fund.

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We recognize that in the future it may become disadvantageous for both variable life insurance and variable annuity contract separate accounts to invest in the same underlying mutual fund. Although neither Prudential nor the Funds currently foresees any such disadvantage, the Funds’ Boards of Directors intend to monitor events in order to identify any material conflict between variable life insurance and variable annuity contractholders and to determine what action, if any, should be taken in response to a conflict. Material conflicts could result from such things as: (1) changes in state insurance law, (2) changes in federal income tax law, (3) changes in the investment management of any Fund, or (4) differences between voting instructions given by variable life insurance and variable annuity contractholders.

As detailed in the Prudential Series Fund prospectus, although the Series Fund Money Market Portfolio is designed to be a stable investment option, it is possible to lose money in that Portfolio. For example, when prevailing short-term interest rates are very low, the yield on the Money Market Portfolio may be so low that, when separate account and contract charges are deducted, you experience a negative return.

A full description of the Funds appears in the accompanying prospectuses for each Fund and in the related statements of additional information. There is no assurance that the investment objectives will be met.

A Fund may have an investment objective and investment policies closely resembling those of a mutual fund within the same complex that is sold directly to individual investors. Despite such similarities, there can be no assurance that the investment performance of any such Fund will resemble that of its retail fund counterpart.

Under certain Contracts, not all Funds described in this prospectus are available to Participants. Under those Contracts, of the Funds described in this prospectus, your Employer may choose up to 28 Funds that will be available to you. (The limit on the number of Funds does not apply to contracts used with qualified pension and profit sharing plans described in Section 401(a) of the Code.) Once your Employer has made that choice, it cannot substitute other Funds for any Funds that it has already selected. However, if your employer chooses fewer than 28 Funds initially, we will permit it to select additional Funds, so long as the total number of Funds available to Participants does not exceed 28. Prudential reserves the right to change the number of Funds that an Employer may make available to Participants to comport with future amendments of the Code and future rulings or interpretations issued by the Internal Revenue Service.

Guaranteed Interest Account

The Guaranteed Interest Account is a credited interest option available to certain group annuity contracts issued by Prudential. Amounts that you allocate to the Guaranteed Interest Account become part of the General Account of Prudential. Prudential’s General Account consists of all assets of Prudential recognized for statutory accounting purposes other than those specifically allocated to the Discovery Account and other separate accounts of Prudential. Subject to applicable law, Prudential has sole discretion over the investment of the assets of the General Account.

Because of exemptive and exclusionary provisions, Prudential has not registered interests in the General Account (which include interests in the Guaranteed Interest Account) under the Securities Act of 1933. Nor has Prudential registered the General Account as an investment company under the Investment Company Act of 1940. Accordingly, those Acts do not apply to the General Account or any interests therein, and Prudential has been advised that the staff of the SEC has not reviewed the disclosures in the Prospectus relating to the General Account. Disclosures that we make regarding the General Account may, however, be subject to certain generally applicable provisions of the federal securities laws relating to the accuracy and completeness of statements made in prospectuses.

Under certain Contracts, amounts that you allocate to the Guaranteed Interest Account may be held within one or more guaranteed separate accounts. Prudential has not registered interests in such separate account(s) under the Securities Act of 1933 and has not registered the separate accounts as investment companies under the Investment Company Act of 1940.

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THE CONTRACTS

We generally issue the Contracts to Employers whose employees may become Participants. Under an Individual Retirement Account (“IRA”), a Participant’s spouse may also become a Participant. We may issue a Contract to an association that represents employers of employees who become Participants, to an association or union that represents members that become Participants, and to a trustee of a trust with participating employers whose employees become Participants. Even though an Employer, an association or a trustee is the Contractholder, the Contract normally provides that Participants will have the rights and interests under them that are described in this prospectus. When a Contract is used to fund a deferred compensation plan established by a tax-exempt entity under Section 457 of the Code, all rights under the Contract are owned by the Employer to whom, or on whose behalf, the Contract is issued. All amounts that we pay under the Contract are payable to the Employer, and are its exclusive property. For a plan established under Section 457 of the Code, the employee has no rights or interests under the Contract, including any right or interest in any Subaccount of the Discovery Account, except as provided in the Employer’s plan. This may also be true with respect to certain non-qualified annuity arrangements.

Also, a particular plan, even if it is not a deferred compensation plan, may limit a Participant’s exercise of certain rights under a Contract. Participants should check the provisions of their Employer’s plan or any agreements with the Employer to see if there are any such limitations and, if so, what they are.

The Accumulation Period

Contributions; Crediting Units; Enrollment Forms; Deduction for Administrative Expenses.

If permitted under your retirement arrangement, an Employer will make contributions periodically to the Contract pursuant to a payroll deduction or similar agreement between the Participant and his Employer. In addition, you may make contributions in ways other than payroll deduction under certain circumstances.

As a Participant, you designate what portion of the contributions made on your behalf should be invested in the Subaccounts or the Guaranteed Interest Account. The Participant may change this designation usually by notifying us as described under the “Requests, Consents and Notices” section. Under certain Contracts, an entity other than us keeps certain records. Participants under those Contracts must contact the record-keeper. See the “Modified Procedures” section.

We credit the full amount (100%) of each contribution designated for investment in any Subaccount to a Participant Account maintained for the Participant. Except for the initial contribution, the number of Units that we credit to a Participant in a Subaccount is determined by dividing the amount of the contribution made on his behalf to that Subaccount by the Subaccount’s Unit Value determined as of the end of the Valuation Period during which the contribution is received by us in Good Order at the address shown on the cover page of this prospectus or such other address as we may direct.

We will invest the initial contribution made for a Participant in a Subaccount no later than two Business Days after we receive it, if it is preceded or accompanied by satisfactory enrollment information. If the Contractholder submits an initial contribution on behalf of one or more new Participants that is not preceded or accompanied by satisfactory enrollment information, then we will allocate such contribution to the plan’s default fund upon receipt, and also will send a notice to the Contractholder or its agent that requests allocation information for each such Participant. If we do not receive the necessary enrollment information in response to this initial notice, we will deliver up to three additional notices to the Contractholder or its agent at monthly intervals that request such allocation information. After 105 days have passed from the time that Units of the plan’s default fund were purchased on behalf of Participants who failed to provide the necessary enrollment information, we will redeem the relevant Units and pay the proceeds (including earnings) to the Contractholder. Any proceeds that we pay to the Contractholder under this procedure may be considered a prohibited and taxable reversion to the Contractholder under current provisions of the Code. Similarly, proceeds that we return may cause the Contractholder to violate a requirement under the

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Employee Retirement Income Security Act of 1974 (“ERISA”), as amended, to hold all plan assets in trust. The Contractholder may avoid both problems if it arranges to have the proceeds paid into a qualified trust or annuity contract.

A change in the value of a Unit will not affect the number of Units of a particular Subaccount credited to a Participant. However, the dollar value of a Unit will vary from Business Day to Business Day depending upon the investment experience of the Subaccount.

We determine the value of a Participant Account in a Subaccount on any particular day by multiplying the total number of Units credited to the Participant by the Subaccount’s Unit Value on that day.

We set the Unit Value for each Subaccount at $10.00 on the date of commencement of operations of that Subaccount. We determine the Unit Value for any subsequent Business Day as of the end of that day by multiplying the Unit Change Factor for that day by the Unit Value for the preceding Business Day.

We determine the Unit Change Factor for any Business Day by dividing the current day net asset value for Fund shares by the net asset value for shares on the previous Business Day. This factor is then reduced by a daily equivalent of the mortality and expense risk fee and the administrative fee. We determine the value of the assets of a Subaccount by multiplying the number of Fund shares held by that Subaccount by the net asset value of each share, and adding the value of dividends declared by the Fund but not yet paid.

Allocation of Purchase Payments

A Participant determines how the initial contribution will be allocated among the Subaccounts by specifying the desired allocation on the application or enrollment form. A Participant may choose to allocate nothing to a particular Subaccount. Unless a Participant tells us otherwise, we will allocate subsequent contributions in the same proportions as the most recent contribution made by that Participant. A Participant may change the way in which subsequent contributions are allocated by providing us with proper instruction as described under the “Requests, Consents and Notices” section.

Asset Allocation Program

We may make available an asset allocation program to assist you in determining how to allocate purchase payments. If you choose to participate in the program, you may do so by utilizing a form available in the employee enrollment kit. The form will depict various asset allocation models based on age and risk tolerance. You also may participate in the program by providing instructions by telephone or through the Internet, if permitted under your plan. We offer the asset allocation program at no charge to you. You are under no obligation to participate in the program or to invest according to its model allocations. You may ignore, in whole or in part, the model investment allocations provided by the program.

Asset allocation is a sophisticated method of diversification that allocates assets among classes to manage investment risk and enhance returns over the long term. However, asset allocation does not guarantee a profit or protect against a loss. You are not obligated to participate or to invest according to the program’s model allocations. We do not intend to provide any personalized investment advice in connection with these 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. We reserve the right to terminate or change the asset allocation programs at any time.

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Transfers

A Participant may transfer out of an investment option into any combination of other investment options available under the Contract, which are made available through a Participant’s plan. Generally, the transfer request may be in dollars, such as a request to transfer $1,000 from one investment option to another, or may be in terms of a percentage reallocation among investment options. Under certain Contracts, we may require that transfer requests be effected in terms of whole number percentages only, and not by dollar amount. A Participant may make transfers by proper notice to us as described under the “Requests, Consents and Notices” section.

If a Contractholder chooses telephone privileges, each Participant will automatically be enrolled to use the Telephone Transfer System. We have adopted procedures designed to ensure that requests by telephone are genuine. We will not be held liable for following unauthorized telephone instructions we reasonably believe to be genuine. We cannot guarantee that a Participant will be able to get through to complete a telephone transfer during peak periods such as periods of drastic economic or market change.

Unless restricted by the retirement arrangement under which a Participant is covered, when we receive a duly completed written transfer request form or properly authorized telephone transfer request, we will transfer all or a portion of the Participant Account in any of the Subaccounts to another Subaccount or the Guaranteed Interest Account. We may restrict transfers from the Guaranteed Interest Account. There is no minimum transfer amount. As of the Business Day you make the transfer request, we will reduce the Subaccount(s) from which the transfer is made by the number of Units obtained by dividing the amount to be transferred by the Unit Value for the applicable Business Day. If the transfer is made to another Subaccount as of the same day, the number of Units we credit to the Participant in that Subaccount will be increased by means of a similar calculation. We reserve the right to limit the frequency of these transfers. All transfers are subject to the terms and conditions set forth in this prospectus and in the Contract(s) covering a Participant.

We may stipulate different procedures for Contracts under which another entity provides record keeping services. Although there is presently no charge for transfers, we reserve the right to impose such charges in the future.

Certain Contracts may prohibit transfers from the Guaranteed Interest Account into non-equity investment options that are characterized in such Contract as “competing” with Prudential’s General Account options with regard to investment characteristics. If a Contract precludes such transfers, the Contract will further require that amounts transferred from the Guaranteed Interest Account into non-competing investment options, such as a Subaccount investing in a stock Fund, may not for 90 days thereafter be transferred into a “competing” option or back to the Guaranteed Interest Account.

A Contract may include a provision that, upon discontinuance of contributions for all Participants of an Employer covered under a Contract, the Contractholder may request that we make transfer payments from any of the Subaccounts to a designated alternate funding agency. If the Contract is used in connection with certain tax-deferred annuities subject to Section 403(b) of the Code, or with IRAs, we will promptly notify each affected Participant and each beneficiary of a deceased Participant that such a request has been received. Within thirty days of receipt of such notice, each recipient may elect in writing on a form approved by us to have any of his or her Participant Account Value transferred to the alternate funding agency. If he or she does not so elect, his or her investment options will continue in force under the Contract. If he or she does so elect, his or her account will be canceled as of a “transfer date” which is the Business Day specified in the Contractholder’s request or 90 days after we receive the request, whichever is later. The product of Units in the Participant’s Subaccounts immediately prior to cancellation and the appropriate Unit Value on the transfer date will be transferred to the designated alternate funding agency in cash.

Subject to any conditions or limitations regarding transfers contained in the Section 403(b) tax-deferred annuity arrangement under which a Participant is covered, a Participant who does not make an election to transfer his or her Participant Account Value to an Alternate Funding Agency may:

• continue to make transfers of all or part of his interest in his Participant Account among the available investment options offered, and

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• transfer directly all or part of his interest in his Participant Account to a Section 403(b) tax-deferred annuity contract of another insurance company, a mutual fund custodial account under Section 403(b)(7), or a retirement plan or arrangement qualifying for federal tax benefits under Sections 401, 403(b), 408 or 457 of the Code except that a Participant in a Code Section 457 plan established by a tax-exempt organization (other than a governmental unit) may make transfers only to the Section 457 plan of another tax-exempt organization.

Contributions may be discontinued for all Participants under a Contract or for all Participants of an Employer covered under the Contract used in connection with a deferred compensation plan subject to Section 457 of the Code due to certain circumstances, such as a change in any law or regulation, which would have an adverse effect on us in fulfilling the terms of the Contract. If contributions are so discontinued, we may initiate transfer payments from any Subaccount to an alternate funding agency. The transfer would be made as described in the paragraph above.

Transfers that you make among Subaccounts will take effect as of the end of the Valuation Period in which we receive a proper transfer request, in Good Order.

From time to time, we may make an offer to holders of other variable annuities that we or an affiliate issues to exchange their variable annuity contracts for interests in a Contract issued by the Account. We will conduct any such exchange offer in accordance with SEC rules and other applicable law. Current SEC rules pertaining to exchange offers among affiliated variable annuity contracts generally require, with certain exceptions, that no fee be imposed at the time of the exchange. Under this rule, we could charge an administrative fee at the time of the exchange, although we have no present intention of doing so. SEC rules also require us to give an exchanging variable annuity contractholder “credit,” for purposes of calculating any withdrawal charge applicable under the Contract, for the time during which the contractholder held the variable annuity that was exchanged.

Redemption Fees and Abusive Trading Practices

The practice of making frequent transfers among variable investment options in response to short-term fluctuations in markets, sometimes called “market timing” or “excessive trading,” can make it very difficult for a portfolio manager to manage an underlying mutual fund’s investments. Frequent transfers may cause the fund to hold more cash than otherwise necessary, disrupt management strategies, increase transaction costs or affect performance. For these reasons, the Contracts were not designed for persons who make programmed, large or frequent transfers.

We consider “market timing/excessive trading” to be one or more trades into and out of (or out of and into) the same variable investment option within a rolling 30-day period when each exceeds a certain dollar threshold. Automatic or system-driven transactions, such as contributions or loan repayments by payroll deduction, regularly scheduled or periodic distributions, or periodic rebalancing through an automatic rebalancing program do not constitute prohibited excessive trading and will not be subject to this criteria. In addition, certain investments are not subject to the policy, such as stable value funds, money market funds and funds with fixed unit values.

In light of the risks posed by market timing/excessive trading to Participants and other mutual fund investors, we monitor Contract transactions in an effort to identify such trading practices. We reserve the right to limit the number of transfers in any year for all existing or new Participants, and to take the other actions discussed below. We also reserve the right to refuse any transfer request for a Participant or Participants if: (a) we believe that market timing (as we define it) has occurred; or (b) we are informed by an underlying fund that transfers in its shares must be restricted under its policies and procedures concerning excessive trading.

The ability of Prudential to monitor for frequent trading is limited for Contracts under which Prudential does not provide the Participant recordkeeping. In those cases, the Contractholder or a third party administrator maintains the individual Participant records and submits to Prudential only aggregate orders combining the transactions of many Participants. Therefore, Prudential may be unable to monitor investments by individual investors. Under SEC rules, an underlying fund may ask us to identify third party administrators that hold individual Participant records and we are obligated to use our best efforts to identify whether or not the third party administrator is deemed an indirect intermediary.

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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 procedures:

• Warning. Upon identification of activity by a Participant that meets the market-timing criteria, a warning letter will be sent to the Participant. A copy of the warning letter and/or a trading activity report will be provided to the Contractholder.

• Restriction. A second incidence of activity meeting the market timing criteria within a six- month period will trigger a trade restriction. If permitted by the Contractholder’s adoption of Prudential’s Market Timing/Excessive Trading policy, if otherwise required by the policy, or if specifically directed by the Contractholder, Prudential will restrict a Participant from trading through the Internet, phone or facsimile for all investment options available to the Participant. In such case, the Participant will be required to provide written direction via standard (non-overnight) U.S. mail delivery for trades in the Participant Account. The duration of a trade restriction is 3 months, and may be extended incrementally (3 months) if the behavior recurs during the 6-month period immediately following the initial restriction.

• Action by an Underlying Fund. 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 these 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 federal securities regulations, we are required to: (1) enter into a written agreement with each portfolio or its principal underwriter that obligates us to provide to the portfolio promptly upon request certain information about the trading activity of individual contract owners, 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. We reserve the right to impose any such restriction at the fund level, and all Participants under a particular Contract would be impacted. 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 in connection with a transfer out of the variable investment option investing in that portfolio that occurs within a certain number of days following the date of allocation to the variable investment option. 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 Contract Value.

Although our transfer restrictions are designed to prevent excessive transfers, they are not capable of preventing every potential occurrence of excessive transfer activity.

Dollar Cost Averaging

We may make available an administrative feature called Dollar Cost Averaging (“DCA”). This feature allows Participants to transfer amounts out of the Guaranteed Interest Account or one of the Subaccounts and into one or more other Subaccounts. Transfers may be in specific dollar amounts or percentages of the amount in the DCA account at the time of the transfer. A Participant may ask that transfers be made monthly, quarterly, semi-annually or annually. A Participant can add to the DCA account at any time. The dollar cost averaging feature does not assure a profit or protect against a loss.

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Each automatic transfer will take effect in monthly, quarterly, semi-annual or annual intervals as designated by the Participant. If the New York Stock Exchange and Prudential are not open on a transfer date, the transfer will take effect as of the end of the Valuation Period which immediately follows that date. Automatic transfers continue until the amount specified has been transferred, or until the Participant notifies us and we process a change in allocation or cancellation of the feature. We currently impose no charge for this feature. We would impose such a charge only pursuant to an amendment to an administrative services agreement. Such an amendment would have to be agreed to in writing (or its electronic equivalent) by both us and the Contractholder.

Auto-Rebalancing

The Auto-Rebalancing feature allows for the automatic rebalance of Subaccount assets at specified intervals based on percentage allocations chosen by the Participant. For example, suppose a Participant’s initial investment allocation of Subaccounts is split 40% and 60%, respectively. Then, due to investment results, that split changes. A Participant may instruct that those assets be rebalanced to his or her original or different allocation percentages. Auto-Rebalancing can be performed on a one-time basis or periodically, with the frequency generally determined by the Contractholder. Rebalancing will take effect as of the end of the Valuation Period for each applicable interval. If the New York Stock Exchange and Prudential are not open on the rebalancing date, the transfer will take effect as of the end of the Valuation Period which immediately follows that date. We currently impose no charge for this feature. We would impose such a charge only pursuant to an amendment to an administrative services agreement, which would have to be agreed to in writing (or its electronic equivalent) by both us and the Contractholder.

Withdrawals

Under certain circumstances as described in the retirement arrangement under which a Participant is covered, a Participant may withdraw at any time all or part of his Participant Account Value that is attributable to Employer contributions or after-tax Participant contributions, if any.

The Code imposes restrictions on withdrawals from tax-deferred annuities subject to Section 403(b) of the Code. Pursuant to Section 403(b)(11) of the Code, amounts attributable to a Participant’s salary reduction contributions (including the earnings thereon) that are made under a tax deferred annuity after December 31, 1988 can only be withdrawn (redeemed) when the Participant attains age 59 ¹/2, separates from service with his employer, dies, or becomes disabled (within the meaning of Section 72(m)(7) of the Code). However, the Code permits the withdrawal at any time of amounts attributable to tax-deferred annuity salary reduction contributions (excluding the earnings thereon) that are made after December 31, 1988, in the case of a hardship. If the arrangement under which a Participant is covered contains a financial hardship provision, a Participant can make withdrawals in the event of the hardship.

Furthermore, subject to any restrictions upon withdrawals contained in the tax-deferred annuity arrangement under which a Participant is covered, a Participant can withdraw at any time all or part of his Participant Account Value under a predecessor Prudential tax-sheltered annuity contract, as of December 31, 1988. Amounts earned after December 31, 1988 on the December 31, 1988 balance in a Participant Account attributable to salary reduction contributions are, however, subject to the Section 403(b)(11) withdrawal restrictions discussed above.

With respect to retirement arrangements other than tax-deferred annuities subject to Section 403(b) of the Code, a Participant’s right to withdraw at any time all or part of his Participant Account Value may be restricted by the retirement arrangement under which he is covered. For example, Code Section 457 plans typically permit withdrawals only upon attainment of age 70 ¹/2, severance from employment with the employer, or for unforeseeable emergencies.

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We consider withdrawals as having been made first from contributions. This differs from the treatment of withdrawals for federal income taxes as described below, where generally, withdrawals are considered to have been made first from investment income.

We will effect the withdrawal as of the end of the Valuation Period in which a proper withdrawal request is received at Prudential in Good Order. Good Order includes receipt of confirmation and all necessary information to insure the instruction is permitted under and in compliance with the applicable retirement plan. Instructions that are not in Good Order will be effective on the Business Day that Good Order is determined.

Your withdrawal will be allocated proportionally from all investment options, unless you specify, in writing, the investment options from which you would like the withdrawal processed, if your employer’s plan so permits you to specify. You may indicate the withdrawal amount as a dollar amount or as a percentage of the Participant Account Value in the applicable Subaccount(s), if your employer's plan permits.

We will generally pay the amount of any withdrawal within 7 days after receipt of a properly completed withdrawal request, in Good Order. We will pay the amount of any withdrawal requested, less any applicable tax withholding. We may delay payment of any withdrawal allocable to the Subaccount(s) for a longer period if the disposal or valuation of the Discovery Account’s assets is not reasonably practicable because the New York Stock Exchange is closed for other than a regular holiday or weekend, trading is restricted by the SEC, or the SEC declares that an emergency exists. We also may delay any payment in order to obtain information from the employer of a Participant that is reasonably necessary to ensure that the payment is in compliance with the restrictions on withdrawals imposed by Section 403(b) of the Code, if applicable. In such an event, a withdrawal request will not be in Good Order and we will not process it until we obtain such information from the employer. We may deny a request for a hardship withdrawal if your employer has not informed us that it will provide information reasonably necessary to ensure that hardship withdrawals, in general, are in compliance with the restrictions on withdrawals imposed by Section 403(b). An explanation of why an employer may be unwilling to provide this information may be found in the “ERISA Considerations” section.

Systematic Withdrawal Plan

If permitted by the Code and the retirement arrangement under which a Participant is covered, we may offer systematic withdrawals as an administrative privilege. Under a systematic withdrawal arrangement, a Participant may arrange for systematic withdrawals from the Subaccounts and the Guaranteed Interest Account in which he or she invests. A Participant may arrange for systematic withdrawals only if at the time he or she elects to have such an arrangement, the balance in his or her Participant Account is at least $5,000. A Participant who has not reached age 59 ¹/2, however, may not elect a systematic withdrawal arrangement unless he or she has first separated from service with his Employer. In addition, the $5,000 minimum balance does not apply to systematic withdrawals made for the purpose of satisfying required minimum distribution rules.

Federal income tax provisions applicable to the retirement arrangement under which a Participant is covered may significantly affect the availability of systematic withdrawals, how they may be made, and the consequences of making them. Withdrawals by Participants are generally taxable as ordinary income. Participants who have not reached age 59 ¹/2 may incur substantial tax penalties on withdrawals. Withdrawals made after a Participant has attained age 70 ¹/2 and withdrawals by beneficiaries must satisfy certain required minimum distribution rules. See the “Federal Tax Status,” section.

You may arrange systematic withdrawals only pursuant to an election in a form we have approved. Under certain types of retirement arrangements, if a Participant is married, the Participant’s spouse must consent in writing to the election of systematic withdrawals with signatures notarized or witnessed by an authorized plan representative, or equivalent electronic procedure permitted by ERISA and related federal regulations. The election must specify that the systematic withdrawals will be made on a monthly, quarterly, semi-annual, or annual basis.

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We will generally pay the amount of any withdrawal within 7 days after receipt of a properly completed withdrawal request, in Good Order. We will pay the amount of any withdrawal requested, less any applicable tax withholding. We may delay payment of any withdrawal allocable to the Subaccount(s) for a longer period if the disposal or valuation of the Discovery Account’s assets is not reasonably practicable because the New York Stock Exchange is closed for other than a regular holiday or weekend, trading is restricted by the SEC, or the SEC declares that an emergency exists. We also may delay any payment in order to obtain information from the employer of a Participant that is reasonably necessary to ensure that the payment is in compliance with the restrictions on withdrawals imposed by Section 403(b) of the Code, if applicable. In such an event, a withdrawal request will not be in Good Order and we will not process it until we obtain such information from the employer. We may deny a request for a hardship withdrawal if your employer has not informed us that it will provide information reasonably necessary to ensure that hardship withdrawals, in general, are in compliance with the restrictions on withdrawals imposed by Section 403(b). An explanation of why an employer may be unwilling to provide this information may be found in the “ERISA Considerations” section.

Prudential will take your systematic withdrawals proportionally from all the Subaccounts unless your employer has directed Prudential to take such withdrawals first from your investment, if any, in the Guaranteed Interest Account. If your employer has provided such direction, Prudential will take your systematic withdrawals from your investment, if any, in the Guaranteed Interest Account until that amount is exhausted and thereafter pro rata from the Subaccounts. Certain Contracts may specify that systematic withdrawals be deducted in a different manner than that described immediately above.

A Participant may change the frequency, amount or duration of his or her systematic withdrawals by submitting a form to us or our designee. We will provide such a form to a Participant upon request. A Participant may make such a change only once during each calendar year.

A Participant may at any time instruct us to terminate the Participant’s systematic withdrawal arrangement. No systematic withdrawals will be made for a Participant after we have received this instruction. A Participant who chooses to stop making systematic withdrawals may not again make them until the next calendar year and may be subject to federal tax consequences as a result.

If a Participant arranges for systematic withdrawals, that will not affect any of the Participant’s other rights under the Contract, including the right to make withdrawals, and purchase a fixed dollar annuity.

Texas Optional Retirement Program

Special rules apply with respect to Contracts covering persons participating in the Texas Optional Retirement Program (“Texas Program”).

Under the terms of the Texas Program, Texas will contribute an amount somewhat larger than a Participant’s contribution. Texas’ contributions will be credited to the Participant Account. Until the Participant begins his or her second year of participation in the Texas Program, Prudential will have the right to withdraw the value of the Units purchased for this account with Texas’ contributions. If the Participant does not commence his or her second year of Texas Program participation, the value of those Units representing Texas’ contributions will be withdrawn and returned to the State.

A Participant has withdrawal benefits for Contracts issued under the Texas Program only in the event of the Participant’s death, retirement or termination of employment. Participants will not, therefore, be entitled to exercise the right of withdrawal in order to receive in cash the Participant Account Value credited to them under the Contract unless one of the foregoing conditions has been satisfied. A Participant may, however, transfer the value of the Participant’s interest under the Contract to another Prudential contract or contracts of other carriers approved under the Texas Program during the period of the Participant’s Texas Program participation.

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Death Benefit

When we receive due proof of a Participant’s death and a claim and payment election submitted in a form approved by us in Good Order, we will pay to the designated beneficiary a death benefit made up of the balance in the Participant Account. The death benefit will be valued as of the end of the Valuation Period in which proof of death and a claim and payment election forms are received at Prudential in Good Order.

The appropriate address to which a death benefit claim generally should be sent is set out on the cover page of this prospectus. For certain Contracts, a death benefit claim should be sent to a designated record keeper rather than us.

We will pay the death benefit, according to the Participant’s instructions, in:

• one sum as if it were a single withdrawal,

• systematic withdrawals,

• an annuity, or

• a combination of the three.

Any such payment will be subject to the required minimum distribution rules of Code Section 401(a)(9) as described below under “Federal Tax Status.” If the Participant has not so directed, the beneficiary may, within any time limit prescribed by or for the retirement arrangement that covered the Participant, elect:

• to receive a one sum cash payment;

• to have a fixed dollar annuity purchased under the Contract on a specified date, using the same annuity purchase rate basis that would have applied if the Participant Account were being used to purchase an annuity for the Participant;

• to receive regular payments in accordance with the systematic withdrawal plan; or

• a combination of all or any two of the three options above.

Under certain types of retirement arrangements, the Retirement Equity Act of 1984 requires that in the case of a married Participant, a death benefit will be payable to the Participant’s spouse in the form of a “qualified pre-retirement survivor annuity.” A “qualified pre-retirement survivor annuity” is an annuity for the lifetime of the Participant’s spouse in an amount which can be purchased with no less than 50% of the balance in the Participant Account as of the Participant’s date of death. Under the Retirement Equity Act, the spouse of a Participant in a retirement arrangement which is subject to these rules may consent to waive the pre-retirement survivor annuity benefit. Such consent must acknowledge the effect of waiving the coverage, contain the signatures of the Participant and spouse, and must be notarized or witnessed by an authorized plan representative. Unless the spouse of a Participant in a Plan which is subject to these requirements properly consents to the waiver of the benefit, we will pay 50% of the balance in the Participant Account to such spouse even if the designated beneficiary is someone other than the spouse. Under these circumstances, we would pay the remaining 50% to the Participant’s designated beneficiary.

Unless the retirement arrangement that covered the Participant provides otherwise, a beneficiary who elects to have a fixed-dollar annuity may choose from among the available forms of annuity. See the “Effecting an Annuity,” section. The beneficiary may elect to purchase an annuity immediately or at a future date. If an election includes systematic withdrawals, the beneficiary will have the right to terminate such withdrawals and receive the remaining balance in the Participant Account in cash (or effect an annuity with it), or to change the frequency, size or duration of such withdrawals, subject to the required minimum distribution rules. See “Federal Tax Status” section of this prospectus. If the beneficiary fails to make any election within any time limit prescribed by or for the retirement

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arrangement that covered the Participant, within seven days after the expiration of that time limit, we will make a single cash payment to the beneficiary. A specific Contract may provide that an annuity is payable to the beneficiary if the beneficiary fails to make an election.

Until we pay a death benefit that results in reducing to zero the balance in the Participant Account, we will maintain the Participant Account Value in the Subaccounts and the Guaranteed Interest Account that make up the Participant Account for the beneficiary in the same manner as they had been for the Participant, except:

• the beneficiary may make no contributions; and

• the beneficiary may not take a loan.

Discontinuance of Contributions

By notifying us, the Contractholder generally may discontinue contributions on behalf of all Participants under a Contract or for all Participants of an Employer covered under a Contract. Contributions under the Contract will also be discontinued for all Participants covered by a retirement arrangement that is terminated.

On 90 days’ advance notice to the Contractholder, we may elect not to accept any new Participant, or not to accept further contributions for existing Participants.

The fact that contributions on a Participant’s behalf are discontinued does not otherwise affect the Participant’s rights under the Contracts. However, if contributions under a Program are not made for a Participant for a specified period of time (24 months in certain states, 36 months in others) and the total value of his Participant Account is at or below a specified amount ($1,000 in certain states, $2,000 in others), we may, if permitted by the Code, elect to cancel that Participant Account unless prohibited by the retirement arrangement, and pay the Participant the value as of the date of cancellation.

Loan Program

The loans described in this section are generally available to Participants in 401(a) plans, 403(b) programs and 457(b) plans of eligible governmental employers. The ability to borrow, as well as the interest rate and other terms and conditions of the loan may vary from Contract to Contract. Participants interested in borrowing should consult their Contractholder or Prudential.

For plans that are subject to ERISA, it is the responsibility of the plan fiduciary to ensure that the interest rate and other terms and conditions of the loan program comply with all Contract qualification requirements including the ERISA regulations.

The loans described in this section, (which involve the variable investment options), work as follows:

The term “Participant,” for the purposes of the loan program only, means a Participant or Beneficiary who is a “party in interest” to the plan including a Participant whose employment with a Plan Sponsor has ended.

Administration of Loan Program. A Participant loan is available only if the Participant makes a request for such a loan in accordance with the provisions of this loan program. To receive a Participant loan, a Participant must enter into an agreement, including a pledge or assignment of the portion of the Account Value used for security on the loan.

Non-Automated Loans (Loans Requested Via Paper Form)—A Participant may apply for a loan by submitting a duly completed loan application that has been signed by the Participant.

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Automated Loans (Loans Requested Via Telephone or Internet)—If permitted under the Contract, a Participant may apply for a loan by submitting a duly completed loan application, in a form prescribed by Prudential and consistent with the terms of this loan program, by authorized electronic means. The date and time of receipt will be appropriately recorded.

A loan application fee of up to $75.00 will be charged for each new loan, which amount is not refundable. In addition, there is an annual loan maintenance fee of up to $60.00 which amount will be deducted from a Participant’s account. This annualized loan maintenance fee will be pro rated based on the number of full months that the loan is outstanding, and we generally deduct it quarterly. Under certain Contracts, we will deduct the loan maintenance fee annually.

Availability and Processing of Participant Loans. If loans are permitted under the terms of the Contract, loans will be made available to Participants. Prudential may however refuse to make a loan to any Participant who it reasonably believes will not repay the loan. A Participant who has defaulted on a previous loan from the plan and has not repaid such loan (with accrued interest) at the time of any subsequent loan will not be treated as creditworthy until such time as the Participant repays the defaulted loan (with accrued interest).

A Participant may not make, and the plan will not accept, a direct rollover of a loan from the plan of a Participant’s former employer.

We may delay the processing of a loan in order to obtain information from the employer of a Participant that is reasonably necessary to ensure that the loan is in compliance with the restrictions imposed by Section 403(b) of the Code, if applicable. In such an event, a loan request will not be in Good Order and we will not process it until we obtain such information from the employer. We may, however, refuse to make a loan if your employer has not informed us that it is able to provide information reasonably necessary to ensure that loans, in general, are in compliance with the restrictions imposed by Section 403(b). An explanation of why an employer may be unwilling to provide this information may be found in the “ERISA Considerations” section.

Reasonable Rate of Interest. A Participant will be charged a reasonable rate of interest for any loan. The Contract will prescribe a means of establishing a reasonable interest rate. The interest rate on Participant loans will be declared quarterly; however, Prudential reserves the right to change the basis for determining the interest rate prospectively with thirty (30) days notice. The new basis will apply only to loans made after the effective date.

Adequate Security. All Participant loans must be adequately secured. The Participant’s vested Account Value will be used as security for a Participant loan provided the outstanding balance of all Participant loans made to such Participant does not exceed 50% of the Participant’s vested Account Value, determined immediately after the origination of each loan.

Periodic Repayment. A Participant loan must provide for level amortization with payments to be made not less frequently than quarterly. A Participant loan must be repaid within a period not exceeding five (5) years from the date the Participant receives the loan from the plan.

If permitted by the Contract, loan repayments may be made by payroll deduction. Repayment will begin as soon as is administratively practicable following issuance of the loan, but no more than 2 months from the date the loan is issued. Should payroll deductions not be possible, payments will be due directly from the Participant by check or similar payment method. Should a Participant be unable to use payroll repayment, the Contract may authorize regular payment no less frequently than quarterly on a revised schedule of amount and payment dates calculated to repay the loan, with interest in full, in substantially equal payments over the remaining original period of the loan.

Loans may be paid in full at any time without penalty. Any amount paid which is in excess of the scheduled payments then due, but less than the total outstanding balance, must be included with a scheduled payment and not under separate cover. The additional amount will be applied to the principal. Prepayments will not change the amount or timing of subsequent payments due prior to pay-off of the loan, but will simply reduce the total number of payments to be made.

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Unpaid leave of Absence. A Participant with an outstanding Participant loan may suspend loan payments to the plan for up to 12 months for any period during which the Participant is on an unpaid leave of absence. Upon the Participant’s return to employment (or after the end of the 12-month period, if earlier), the Participant’s outstanding loan will be re-amortized over the remaining period of such loan to make up for the missed payments. The re-amortized loan may extend beyond the original loan term so long as the loan is paid in full by the earliest of: (1) the date which is five (5) years from the original date of the loan (or the end of the suspension, if sooner), or (2) the original loan repayment deadline (or the end of the suspension period, if later) plus the length of the suspension period.

Military leave. A Participant with an outstanding Participant loan also may suspend loan payments for any period such Participant is on military leave. Upon the Participant’s return from military leave (or the expiration of five years from the date the Participant began his/her military leave, if earlier), loan payments will recommence under the amortization schedule in effect prior to the Participant’s military leave, without regard to the five-year maximum loan repayment period. Alternatively, the loan may be reamortized to require a different level of loan payment, as long as the amount and frequency of such payments are not less than the amount and frequency under the amortization schedule in effect prior to the Participant’s military leave. Military leave personnel with loans will have further rights as determined by the Soldiers and Sailors Civil Relief Act of 1940 (generally limiting to 6% the annual percentage rate chargeable on loans during periods of military leave).

Loan Limitations. A Participant loan may not be made to the extent such loan (when added to the outstanding balance of all other loans made to the Participant) exceeds the lesser of:

(a) $50,000 (reduced by the excess, if any, of the Participant’s highest outstanding balance of loans from the plan during the one-year period ending on the day before the date on which such loan is made, over the Participant’s outstanding balance of loans from the plan as of the date such loan is made) or

(b) One-half ( ¹/2) of the Participant’s vested Account Value, determined as of the valuation date coinciding with or immediately preceding such loan, adjusted for any contributions or distributions made since such valuation date.

The minimum loan amount is as specified in the Contract, or if not specified, as determined by Prudential and permitted under applicable law. For purposes of this limit, an “outstanding loan” includes a loan for which a “deemed distribution” has occurred, following the borrower’s default and pursuant to applicable law, unless the borrower repays the outstanding balance of the defaulted loan (including accrued interest through the date of repayment).

This maximum is set by federal tax law and applies to all loans from any plans of the Employer, including all annuity contracts offered under such plans. In applying the limitations under this section, all plans maintained by the Employer are aggregated and treated as a single plan. In addition, any assignment or pledge of any portion of the Participant’s interest in the plan and any loan, pledge, or assignment with respect to any insurance contract purchased under the plan will be treated as loan under this section. Since Prudential cannot monitor a Participant’s loan activity relating to other plans offered to the Participant, or loan activity under annuity contracts not issued by Prudential, it is the Participant’s responsibility to do so. Provided that a Participant adheres to these limitations, the loan will not be treated as a taxable distribution. If, however, the Participant defaults on the loan by, for example, failing to make required payments, the defaulted loan amount will be treated as a taxable distribution. In that event, Prudential will send the appropriate tax information to the Participant and the Internal Revenue Service. Only one outstanding loan is allowed per Participant. A Participant may not renegotiate a loan.

Segregated Investment. A Participant loan is treated as a segregated investment on behalf of the individual Participant for whom the loan is made. If the Contract does not specify procedures designating the type of contributions from which the Participant loan will be made, such loan is deemed to be made on a proportionate basis from each type of contribution.

Unless requested otherwise on the Participant’s loan application, a Participant loan will be made equally from all investment funds in which the applicable contributions are held. A Participant or Beneficiary may direct the trustee,

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on his/her loan application, to withdraw the Participant loan amounts from a specific investment fund or funds, if the employer's plan permits. Unless specified otherwise in the Contract, loan repayments will be invested according to the Participant’s investment allocation for current contributions unless otherwise elected by the Participant.

Procedures for Loan Default. If the plan does not receive payment on a loan on a timely basis for whatever reason, regardless of whether the borrower normally makes repayment by salary deduction or direct payment, the loan will be considered in default unless payment is made within a grace period. The grace period will be within 90 days after each due date, but may be extended by determination of Prudential to the date the late payment is actually made for specific causes that are beyond the Participant’s control and are consistently determined and applied on a nondiscriminatory basis. In no event may the grace period extend beyond the end of the calendar quarter following the calendar quarter in which the payment was originally due.

Loans default upon a determination by Prudential, consistently determined and applied on a nondiscriminatory basis, due to the following:

(a) Failure to pay on time (including within any grace period allowed under loan procedures used for the plan);

(b) Death of the Participant;

(c) Failure to pay on time any other or future debts to the plan;

(d) Any statement or representation by the Participant in connection with the loan which is false or incomplete in any material respect;

(e) Failure of the Participant to comply with any of the terms of the promissory note and other loan documentation;

(f) When the Participant becomes insolvent or bankrupt.

If a Participant defaults on a Participant loan, the plan may not offset the Participant’s Account Value until the Participant is otherwise entitled to an immediate distribution of the portion of the Account Value that will be offset and such amount being offset is available as security on the loan. For this purpose, a loan default is treated as an immediate distribution event to the extent the law does not prohibit an actual distribution of the type of contributions which would be offset as a result of the loan default. The Participant may repay the outstanding balance of a defaulted loan (including accrued interest through the date of repayment) at any time.

Pending the offset of a Participant’s Account Value following a defaulted loan, the following rules apply to the amount in default. Post default interest accrual on a defaulted loan applies to loans initiated after December 31, 2001.

(a) Interest continues to accrue on the amount in default until the time of the loan offset or, if earlier, the date the loan repayments are made current or the amount is satisfied with other collateral.

(b) A subsequent offset of the amount in default is not reported as a taxable distribution, except to the extent the taxable portion of the default amount was not previously reported by the plan as a taxable distribution.

The post-default accrued interest included in the loan offset is not reported as a taxable distribution at the time of the offset.

Loan repayments may continue beyond termination of employment.

A Participant may not request a direct rollover of the loan note.

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Modified Procedures

Under certain Contracts, the Contractholder or a third party acting on their behalf provides record keeping services that would otherwise be performed by us. Such Contracts may require procedures somewhat different than those set forth in this prospectus. For example, such Contracts may require that contribution allocation requests, withdrawal requests, and/or transfer requests be directed to the Contract’s record-keeper rather than us. The record-keeper is the Contractholder’s agent, not our agent. Accordingly, transactions will be processed and priced as of the end of the Valuation Period in which we receive appropriate instructions and/or funds from the record-keeper. The Contract will set forth any such different procedures.

CHARGES, FEES AND DEDUCTIONS

Administrative Fee

We impose an administrative fee to compensate for the expenses incurred in administering the Contracts. This includes such things as issuing the Contract, establishing and maintaining records, and providing reports to Contractholders and Participants. We deduct this fee daily from the assets in each of the Subaccounts at a maximum effective annual rate of 0.75%. We may reduce this administrative fee under Contracts as to which, due to economies of scale or other factors, our administrative costs are reduced.

Charge for Assuming Mortality and Expense Risks

We make a deduction daily from the assets of each of the Subaccounts as compensation for assuming the risk that our estimates of longevity and of the expenses we expect to incur over the lengthy periods that the Contract may be in effect will turn out to be incorrect. We assess the charge daily at an annual rate of 0.15% of the assets held in the Subaccounts.

Expenses Incurred by the Funds

Participants indirectly bear the charges and expenses of the Funds. Details about investment management fees and other Fund expenses are available in the accompanying prospectuses for the Funds and the related statements of additional information.

Withdrawal Charge

Effective October 1, 2009, Prudential has waived the withdrawal charge for all contracts.

Taxes Attributable to Premium

There are federal, state and local premium based taxes applicable to your purchase payment. We are responsible for the payment of these taxes and may make a deduction from the value of the contract to pay some or all of these taxes. Some of these taxes are due when the contract is issued, others are due when the annuity payments begin. It is our current practice not to deduct a charge for state premium taxes until annuity payments begin. In the states that impose a premium tax, the current rates range up to 3.5%. It is also our current practice not to deduct a charge for the federal deferred acquisition costs paid by us that are based on premium received. However, we reserve the right to charge the contract owner in the future for any such deferred acquisition costs and any federal, state or local income, excise, business or any other type of tax measured by the amount of premium received by us.

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Loan Fee

A loan application fee of up to $75.00 will be charged for each new loan, which amount is not refundable. In addition, there is an annual loan maintenance fee of up to $60.00 which amount will be deducted from a Participant’s account.

This annualized loan maintenance fee will be pro rated based on the number of full months that the loan is outstanding, and we generally deduct it quarterly. Under certain Contracts, we will deduct the loan maintenance fee annually. For additional information about loans, turn to the “Loan Program” section of this prospectus.

Aggregate Nature of Charges

The charges under the Contracts are designed to cover, in the aggregate, our direct and indirect costs of selling, administering and providing benefits under the Contracts. They are also designed, in the aggregate, to compensate us for the risks of loss we assume pursuant to the Contracts. If, as we expect, the charges that we collect from the Contracts exceed our total costs in connection with the Contracts, we will earn a profit. Otherwise, we will incur a loss. 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 Contract.

REQUESTS, CONSENTS AND NOTICES

The way you provide all or some requests, consents, or notices under a Contract (or related agreement or procedure) may include telephone access to an automated system, telephone access to a staffed call center, or Internet access through www.prudential.com/online/retirement, as well as traditional paper. Prudential reserves the right to vary the means available from Contract to Contract, including limiting them to electronic means, by Contract terms, related service agreements with the Contractholder, or notice to the Contractholder and Participants. If electronic means are authorized, you will automatically be able to use them.

Prudential also will be able to use electronic means to provide notices to you, provided your Contract or other agreement with the Contractholder does not specifically limit these means. Electronic means will only be used, however, when Prudential reasonably believes that you have effective access to the electronic means and that they are allowed by applicable law. Also, you will be able to receive a paper copy of any notice upon request.

For your protection and to prevent unauthorized exchanges, telephone calls and other electronic communications will be recorded and stored, and you will be asked to provide your personal identification number or other identifying information before any request will be processed. Neither Prudential nor our agents will be liable for any loss, liability, or cost which results from acting upon instructions reasonably believed to be authorized by you.

During times of extraordinary economic or market changes, electronic and other instructions may be difficult to implement.

Prudential 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. Nor, due to circumstances beyond our control, can we provide any assurances as to the delivery of transaction instructions submitted to us by regular and/or express mail. Regular and/or express mail (if operational) 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 reserves the right to limit, restrict or terminate telephonic, facsimile, Internet or any other electronic transaction privileges at any time.

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Some states, retirement programs, or Contractholders may not allow these privileges, or allow them only in modified form.

FEDERAL TAX STATUS

The following 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. It is not intended as tax advice. Participants and Contractholders should consult a qualified tax adviser for complete information and advice.

Same-Gender Spouse, Civil Union and Domestic Partner Considerations

This discussion includes a description of certain spousal rights under the Contract and under tax-qualified plans. 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 within the meaning of the tax law upon the death of the first partner under the annuity’s “spousal continuance” provision. Please note, there may be federal tax consequences at the death of the first civil union or same-sex marriage partner. Civil union couples and same-sex marriage spouses should consider that limitation before selecting a spousal benefit under the annuity.

Annuity Qualification

This discussion assumes the Contracts will be treated as annuity contracts for federal income tax purposes. In order to qualify for the tax rules applicable to annuity contracts, the assets underlying the Contracts must be diversified according to certain rules. For further detail on diversification requirements, see Dividends, Distributions and Taxes in the attached prospectus for The Prudential Series Fund. Tax rules also require that Prudential must have sufficient control over the underlying assets to be treated as the owner of the underlying assets for tax purposes. Treasury Department regulations do not provide guidance concerning the extent to which Participants may direct investments in the particular investment options without causing Participants, instead of Prudential, to be considered the owner of the underlying assets. The ownership rights under the Contract are similar to, but different in certain aspects from, those addressed by the Internal Revenue Service in rulings holding that the insurance company was the owner of the assets. For example, Participants have the choice of more funds and the ability to reallocate amounts among available Subaccounts more frequently than in the Ruling. While we believe that Prudential will be treated as the owner of the assets of the Discovery Account, it is possible that the Participants may be considered to own the assets. Because of these uncertainties, Prudential reserves the right to make any changes it deems necessary to assure that the Contracts qualify as annuity contracts for tax purposes including changing the number of Funds that an Employer may make available to Participants. Any such changes will apply uniformly to affected Participants and will be made with such notice to affected Participants as is feasible under the circumstances. For Contracts funding retirement plans subject to the fiduciary responsibility provisions of the Employee Retirement Income Security Act of 1974, as amended, such changes will be made only upon consent of the plan fiduciary.

Tax-Qualified Retirement Arrangements Using the Contracts

The Contracts may be used with qualified pension and profit sharing plans, plans established by self-employed persons (“Keogh plans”), simplified employee pension plans (“SEPs”), Individual retirement plan accounts (“IRAs”), Roth IRAs, and Section 403(b) tax-deferred annuities (“TDAs”). The Contracts may be used with defined contribution annuity plans qualifying for federal tax benefits under Section 403(c) of the Code (“Section 403(c) annuities”). The Contracts may also be used with certain deferred compensation plans of a state or local government or a tax-exempt

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organization (called “Section 457 Plans” after the Internal Revenue Code section that governs their structure). The provisions of the tax law that apply to these retirement arrangements that may be funded by the Contracts are complex, and Participants are advised to consult a qualified tax adviser.

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).

The tax rules for such plans involve, among other things, limitations on contributions and required minimum distribution provisions. Tax-exempt organizations or governmental employers considering the use of the Contracts to fund or otherwise provide deferred compensation to their employees should consult with a qualified tax adviser concerning these specific requirements. Please refer to the discussion of “Entity Owners” further in this section, which may be applicable in certain circumstances.

Contributions

In general, assuming that Participants and employers adhere to the requirements and limitations of tax law applicable to the particular type of plan, contributions made under a qualified retirement arrangement funded by a Contract are deductible (or not includible in income) up to certain amounts each year.

Contributions to a Roth IRA are subject to certain limits, and are not deductible for federal income tax purposes. Contributions to Section 403(c) annuities are not deductible.

Earnings

Under the retirement programs with which the Contracts may be used, federal income tax currently is not imposed upon the investment income and realized gains earned by the Subaccounts in which the contributions have been invested until a distribution or withdrawal is received.

Distributions or Withdrawals

When a distribution or withdrawal is received, either as a lump sum, an annuity, or as regular payments in accordance with a systematic withdrawal arrangement, all or a portion of the distribution or withdrawal is normally taxable as ordinary income. In some cases, the tax on lump sum distributions may be limited by a special income-averaging rule. The effect of federal income taxation depends largely upon the type of retirement plan and a generalized description, beyond that given here, is not particularly useful. Careful review of tax law applicable to the particular type of plan is necessary.

Furthermore, premature distributions or withdrawals may be restricted or subject to a penalty tax. Participants contemplating a withdrawal should consult a qualified tax adviser.

Under a Roth IRA, distributions are generally not taxable for federal income tax purposes if they are made after attainment of age 59  ¹/2 or for certain other reasons and if the individual had a Roth IRA in effect for at least five tax years.

Required Minimum Distribution Rules

In general, distributions from qualified retirement arrangements and Section 457 Plans must begin by the “Required Beginning Date” which is April 1 of the calendar year following the later of (1) the year in which the Participant attains age 70 ¹/2 or (2) the Participant retires. The following exceptions apply:

• For a TDA, only benefits accruing after December 31, 1986 must begin distribution by the Required Beginning Date.

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• For IRAs, (2) above does not apply.

• Roth IRAs are not subject to these pre-death required minimum distribution rules.

Distributions that are made after the Required Beginning Date must generally be made in the form of an annuity for the life of the Participant or the lives of the Participant and his designated beneficiary, or over a period that is not longer than the life expectancy of the Participant or the life expectancies of the Participant and his designated beneficiary.

Distributions to beneficiaries are also subject to required minimum distribution rules. If a Participant dies after the Required Beginning Date, but before his entire interest in his Participant Account has been distributed, and did not designate a beneficiary, his remaining interest must be distributed at least as rapidly as under the method of distribution being used as of the Participant’s date of death. If the Participant dies before distributions have begun (or are treated as having begun) and did not designate a beneficiary, the entire interest in his Participant Account generally must be distributed by December 31 of the calendar year containing the fifth anniversary of the Participant’s death. Alternatively, if there is a designated beneficiary, payment of the entire interest generally must begin no later than December 31 of the calendar year immediately following the year in which the Participant dies and continue for the beneficiary’s life or a period not exceeding the beneficiary’s life expectancy. Special rules apply where the deceased Participant’s spouse is his designated beneficiary. A designated beneficiary may elect to apply the rules for no designated beneficiary, if they would provide a smaller payment requirement.

As of 2007, non-spouse beneficiaries are permitted to roll death benefits to an IRA from a qualified retirement plan, a §457 governmental plan, a §403(b) TDA or an IRA. Such plans are not required to offer non-spouse rollovers but if they do the rollover must be a direct trustee to IRA rollover. For plan years beginning after December 31, 2009, employer plans are required to be amended to permit such rollovers. The IRA receiving the death benefit must be titled and treated as an “inherited IRA”. A non-spouse beneficiary may also roll death benefits to an “inherited Roth IRA”, subject to the income limits for Roth conversions. The Required Minimum Distribution rules regarding non-spouse beneficiaries continue to apply.

An excise tax applies to Participants or beneficiaries who fail to take the required minimum distribution in any calendar year.

The Worker, Retiree and Employer Recovery Act of 2008 suspended required minimum distributions for 2009 for IRAs and certain defined contribution plans. If the 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 of the six year anniversary of the date of death where the death of the owner/participant occurred prior to 2009.

Special Considerations Regarding Exchanges Involving 403(b) Arrangements

Recent IRS regulations may affect the taxation of 403(b) tax deferred annuity contract exchanges. Annuity contract exchanges are a common non-taxable method to exchange one tax deferred annuity contract for another. The IRS has issued regulations that may impose restrictions on your ability to make such an exchange. The regulations are generally effective in 2009. We accept exchanges only if we have entered into an information-sharing agreement or its functional equivalent, with the applicable employer or its agent. We make such exchanges only if your employer confirms that it has entered into an information-sharing agreement or its functional equivalent with the issuer of the other annuity contract. This means that if you request an exchange we will not consider your request to be in Good Order, and will not therefore process the transaction, until we receive confirmation from your employer.

Section 403(c) Annuity Arrangements Using the Contracts

Contributions to Section 403(c) annuities are neither deductible nor subject to tax law limitations on their amount. Federal income tax currently is not imposed upon the investment income and realized gains earned by the Subaccounts in which contributions have been invested until a distribution or withdrawal is received. When a

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distribution or withdrawal is received, either as a lump sum, an annuity, or as regular payments in accordance with a systematic withdrawal arrangement, a portion of the distribution or withdrawal is taxable as ordinary income. Section 403(c) annuities are subject to neither the Required Minimum Distribution Rules described above nor to the rules described below as Penalty Taxes on Withdrawals and Annuity Payments and Required Distributions Upon Death of Participant.

ERISA Considerations

Employer involvement and other factors will determine whether a Contract is subject to the Employee Retirement Income Security Act of 1974, as amended (“ERISA”). If applicable, ERISA 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 under the “Charges, Fees and Deductions” section.

Information about sales representatives and commissions may be found under the “Other Information” and “Sale of the Contract and Sales Commissions” sections.

In addition, other relevant information required by the exemptions is contained in the Contract and accompanying documentation. Please consult your tax advisor if you have any additional questions.

The U.S. Department of Labor considers certain types of employer actions under a section 403(b) program to be inconsistent with the program not being subject to ERISA. Among these are employer approval of participant requests for loans and hardship withdrawals both of which reasonably may be necessary to comply with restrictions imposed by Section 403(b) of the Code. If an employer that is a tax exempt entity does not inform us that it will approve participant requests for loans and hardships, such transactions may not be available to participants using funds held under the Contracts. An individual employed by a tax exempt entity should check with his or her employer to determine whether loans and hardship withdrawals are available using funds held under the Contracts.

Taxes Payable by Participant

We believe the Contracts are annuity contracts for tax purposes. Accordingly, as a general rule, Participants should not pay any tax on investment earnings until money is received under the Contracts. Generally, annuity contracts issued by the same company (and affiliates) to a Participant 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.

Taxes on Withdrawals and Surrender

If a Participant makes a withdrawal from the Contract or surrenders it before annuity payments begin, the amount received will be taxed as ordinary income, rather than as return of purchase payments, until all gain has been withdrawn.

If a Participant assigns or pledges all or part of the Contract as collateral for a loan, the part assigned or pledged will be treated as a withdrawal. Also, if a Participant elects the interest payment option, this will be treated, for tax purposes, as a surrender of the Contract.

If a Participant transfers the Contract for less than full consideration, such as by gift, tax will be triggered on the gain in the Contract. This rule does not apply to transfers to a spouse or incident to divorce.

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Taxes on Annuity Payments

A portion of each annuity payment a Participant receives will be treated as a partial return of 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 annuity payment received by a fraction, the numerator of which is the 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 the 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 the purchase payments have been recovered, a tax deduction is allowed for the unrecovered amount.

Tax Penalty on Withdrawals and Annuity Payments

Any taxable amount received under the Contract may be subject to a 10 percent tax penalty. Amounts are not subject to this tax penalty if:

• the amount is paid on or after age 59 ¹/2 or the death of the Participant;

• the amount received is attributable to the Participant becoming disabled;

• the amount paid or received is in the form of level payments not less frequently than annually for life (or a period not exceeding life expectancy); or

• the amount received is paid under an immediate annuity contract (in which annuity payments begin within one year of purchase).

Generally, if the lifetime annuity payment stream is modified (other than as a result of death or disability) before age 59  ¹/2 (or before the end of the five year period beginning with the first payment and ending after age 59 ¹/2), the tax for the year of modification will be increased by the tax penalty that would have been imposed without the exception, plus interest for the deferral. There are three approved methods for calculating the amount of the payments in the payment stream. In Revenue Ruling 2002-62, the IRS has indicated that a taxpayer may make a one-time switch to the “required minimum distribution method” from either of the other two methods without being deemed to have modified the series of payments.

Taxes Payable by Beneficiaries

Generally, the same tax rules apply to amounts received by a beneficiary as those set forth above with respect to a Participant. The election of an annuity payment option instead of a lump sum death benefit may defer taxes. Certain required minimum distribution rules apply upon the death of a Participant, as discussed further below.

Required Distributions Upon Death of Participant

For nonqualified annuity arrangements certain distributions must be made under the Contract upon the death of a Participant. The required distributions depend on whether the Participant dies on or before the start of annuity payments under the Contract or after annuity payments are started under the Contract. For Qualified Plans, see “Required Minimum Distribution Rules” previously discussed in this section.

If the Participant dies on or after the annuity date, and did not designate a beneficiary, the remaining portion of the interest in the Contract must be distributed at least as rapidly under the method of distribution being used as of the date of death. If a Participant dies before the annuity date, the entire interest in the Contract must be distributed within 5 years after the date of death. However, if an annuity payment option is selected by the designated beneficiary and if annuity payments begin within 1 year of the death of the Participant, the value of the Contract may

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be distributed over the beneficiary’s life or a period not exceeding the beneficiary’s life expectancy. The designated beneficiary is the person to whom the ownership of the Contract passes by reason of death, and must be a natural person.

The Worker, Retiree and Employer Recovery Act of 2008 suspended Required Minimum Distributions for 2009 for IRAs and certain defined contribution plans. If the 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 of the six year anniversary of the date of death.

If any portion of the Contract is payable to (or for the benefit of) a Participant’s surviving spouse, such portion of the Contract may be continued with the spouse as the owner.

As of 2007, non-spouse beneficiaries are permitted to roll death benefits to an IRA from a qualified retirement plan, a §457 governmental plan, a §403(b) TDA or an IRA. Such plans are not required to offer non-spouse rollovers, but if they do, the rollover must be a direct trustee to IRA rollover. For plan years beginning after December 31, 2009, employer plans are required to be amended to permit such rollovers. The IRA receiving the death benefit must be titled and treated as an “inherited IRA”. A non-spouse beneficiary may also roll death benefits to an “inherited Roth IRA”, subject to the income limits for Roth conversions. The Required Minimum Distribution rules regarding non-spouse beneficiaries continue to apply.

Entity Owners

When a Contract is held by a non-natural person (for example, a corporation), the Contract generally will not be taxed as an annuity and increases in the value of the Contract will be subject to tax. Exceptions include contracts held by an entity as an agent for a natural person, contracts held under a qualified pension or profit sharing plan, a TDA or individual retirement plan (see discussion above) or contracts that provide for immediate annuities.

Withholding

Taxable amounts distributed from annuity contracts in nonqualified annuity arrangements and annuity payments from qualified plans are subject to tax withholding. Participants may generally elect not to have tax withheld from payments. The rate of withholding on annuity payments will be determined on the basis of the withholding certificate filed with us. Absent these elections, we will withhold the tax amounts required by the applicable tax regulations. Participants may be subject to penalties under the estimated tax payment rules if withholding and estimated tax payments are not sufficient. Participants who fail to provide a social security number or other taxpayer identification number will not be permitted to elect out of withholding.

In addition, certain distributions from qualified plans, which are not directly rolled over or transferred to another eligible qualified plan, are subject to a mandatory 20% withholding for federal income tax. The 20% withholding requirement does not apply to: (1) distributions for the life or life expectancy of the Participant, or joint and last survivor expectancy of the Participant and a designated beneficiary; or (2) distributions for a specified period of 10 years or more; (3) distributions required as minimum distributions; or (4) hardship distribution of salary deferral amounts. Amounts that are received under a Contract used in connection with a Section 457 Plan are treated as wages for federal income tax purposes and are, thus, subject to general withholding requirements.

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 a generation-skipping transfer tax consequence.

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Taxes on Prudential

Although the Account is registered as an investment company, it is not a separate taxpayer for purposes of the Code. The earnings of the Subaccounts invested in the Funds are taxed as part of the operations of Prudential. No charge is being made currently against those Subaccounts for company federal income taxes. Prudential will review the question of a charge to the Subaccounts invested in the Funds for company federal income taxes periodically. Such a charge may be made in future years for any federal income taxes that would be attributable to the Contracts.

In calculating our corporate income tax liability, we derive certain corporate income tax benefits associated with the investment of company assets, including Subaccount 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 dividend received deductions. We do not pass these tax benefits through to holders of the Subaccount 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 paid under the contract. We reserve the right to change these tax practices.

EFFECTING AN ANNUITY

Subject to the restrictions on withdrawals from tax-deferred annuities subject to Section 403(b) of the Code, and subject to the provisions of the retirement arrangement that covers him or her, a Participant may elect at any time to have all or a part of his or her interest in the Participant Account used to purchase a fixed dollar annuity under the Contracts. The Contracts do not provide for annuities that vary with the investment results of any Subaccount. Withdrawals from the Participant Account that are used to purchase a fixed dollar annuity under the Contracts become part of Prudential’s General Account, which supports insurance and annuity obligations.

In electing to have an annuity purchased, the Participant may select from the forms of annuity described below, unless the retirement arrangement covering the Participant provides otherwise. The annuity is purchased on the first day of the month following receipt by us of proper written notice on a form we have approved that the Participant has elected to have an annuity purchased, or on the first day of any subsequent month that the Participant designates. We generally will make the first monthly annuity payment within one month of the date on which the annuity is purchased.

For contracts held in connection with certain types of retirement arrangements, please note that if a Participant is married at the time payments commence, the Participant may be required by federal law to choose an income option that provides at least a 50 percent joint and survivor annuity to the Participant’s spouse, unless the Participant’s spouse waives that right. Similarly, if the Participant is married at the time of the Participant’s death, federal law may require all or a portion of the death benefit to be paid to the Participant’s spouse, even if the Participant designated someone else as the Participant’s beneficiary. For more information, consult the terms of your retirement arrangement. A “qualified joint and survivor annuity” is an annuity for the Participant’s lifetime with at least 50% of the amount payable to the Participant continued after the Participant’s death to his or her spouse, if then living.

Once annuity payments begin, the annuitant cannot surrender his or her annuity benefit and receive a one sum payment.

We make the following forms of annuity available to Participants.

Life Annuity with Payments Certain

This is an immediate annuity payable monthly during the lifetime of the annuitant. We guarantee that if, at the death of the annuitant, payments have been made for less than the period certain (which may be 60, 120, 180, or 240 months, as selected by the annuitant), they will be continued during the remainder of the selected period to his or her beneficiary.

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Annuity Certain

This is an immediate annuity payable monthly for a period certain which may be 60, 120, 180, or 240 months, as selected by the annuitant. If the annuitant dies during the period certain, we will continue payments in the same amount the annuitant was receiving to his or her beneficiary. We make no further payments after the end of the period certain.

Joint and Survivor Annuity with Payments Certain

This is an immediate annuity payable monthly during the lifetime of the annuitant with payments continued after his or her death to the contingent annuitant, if surviving, for the latter’s lifetime. Until the selected number of payments certain have been paid, payments made to the contingent annuitant after the annuitant’s death are the same as those the annuitant was receiving. After the selected number of period certain payments have been made, the payments continued to the contingent annuitant will be a percentage of the monthly amount paid to the annuitant such as 33  ¹/3%, 50%, 66  ²/3, or 100% as selected by the annuitant. The amounts of each payment made to the annuitant will be lower as the percentage he or she selects to be paid to the contingent annuitant is higher. If both the annuitant and the contingent annuitant die during the period certain (which may be 60, 120, 180, or 240 months, as selected by the annuitant), we will continue payments during the remainder of the period certain to the properly designated beneficiary.

We may make other forms of annuity available under the Contracts. The retirement arrangement under which the Participant is covered may restrict the forms of annuity that a Participant may elect.

If the dollar amount of the first monthly annuity payment is less than the minimum amount specified in the Contract, or if the beneficiary is other than a natural person receiving payments in his or her own right, we may elect to pay the commuted value of the unpaid payments certain in one sum.

Purchasing the Annuity

We apply the value of your Participant Account, less any applicable taxes, to the appropriate annuity purchase rate determined in accordance with the schedule in the Contract at the time the annuity is purchased. However, we may determine monthly payments from schedules of annuity purchase rates providing for larger payments than the rates shown in the Contract.

We guarantee the schedule of annuity purchase rates in a Contract for ten years from the date the Contract is issued. If at any time after a Contract has been in effect for ten years, we modify the schedule of annuity purchase rates, the modification is also guaranteed for ten years. A change in the schedule of annuity purchase rates used for an annuity certain with 180 payments or less, as described above, will apply only to amounts added to a Participant Account after the date of change. A change in any other schedule will apply to all amounts in a Participant Account.

Spousal Consent Rules for Certain Retirement Plans

Spousal consent rules may apply to retirement plans intended to satisfy Section 401(a) of the Code and plans subject to ERISA.

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.

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Defined Benefit Plan 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.

IRAs, non-ERISA 403(b) Annuities and 457 Plans—Spousal consent to a distribution is not required. Upon your death, any death benefit will be paid to your designated beneficiary.

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OTHER INFORMATION

Misstatement of Age or Sex

If an annuitant’s stated age or sex (except where unisex rates apply) or both are incorrect, we will change each benefit and the amount of each annuity payment to that which the total contributions would have bought for the correct age and sex. Also, we will adjust for the amount of any overpayments we have already made.

Sale of the Contract and Sales Commissions

Prudential Investment Management Services LLC (“PIMS”), an indirect, wholly-owned subsidiary of Prudential Financial, Inc., is the distributor and principal underwriter of the securities offered through this prospectus. PIMS acts in this same capacity for a number of annuity and life insurance products we and our affiliates offer. PIMS was organized in 1996 under Delaware law, is registered as a broker and dealer under the Securities Exchange Act of 1934, and is a member of the Financial Industry Regulatory Authority (“FINRA”). PIMS’ principal business address is Gateway Center Three, 14^th Floor, Newark, NJ 07102-4077.

PIMS may enter into distribution agreements with broker/dealers who are registered under the Exchange Act and with entities that may offer the Contact but are exempt from registration (firms). Applications for the Contract may be solicited by registered representatives of those firms. Such representatives will also be our appointed insurance agents under state insurance law. In addition, PIMS may offer the Contract directly to potential purchasers.

During 2010, 2009 and 2008, $155,684, $144,112 and $187,328, respectively, were paid to PIMS for its services as principal underwriter. PIMS retained none of the commissions. We pay the broker-dealer whose registered representatives sell the Contract either:

• a commission of up to 2.85% of your purchase payments; or

• a combination of a commission on purchase payments and a “trail” commission-which is a commission determined as a percentage of your Account value that is paid periodically over the life of your Contract.

The individual registered representatives would receive a portion of the compensation, depending on the practice of his or her broker-dealer firm.

We may also provide compensation to the firm for providing ongoing service in relation to the Contract. Commissions and other compensation paid in relation to the Contract do not result in any additional charge to you or to the Separate Account not described in this prospectus. In addition, in an effort to promote the sale of our products (which may include the placement of Prudential, affiliates of Prudential and/or the Contract on a preferred or recommended company or product list and/or access to the firm’s registered representatives), we or our affiliates, including PIMS, 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 to us or our affiliates. These services may include, but are not limited to: educating customers of the firm on the Contract’s features; conducting due diligence or analysis; providing office access, operations and systems support; holding seminars intended to educate registered representatives and make them more knowledgeable about the Contract; providing a dedicated marketing coordinator; providing priority sales desk support; and providing expedited marketing compliance approval to PIMS. A list of firms that PIMS paid pursuant to such arrangements, if any, related to the sale of variable annuities, is provided in the Statement of Additional Information, which is available upon request.

To the extent permitted by FINRA rules and other applicable laws and regulations, PIMS may pay or allow other promotional incentives or payments in the form of cash or non-cash compensation. These arrangements may not be

40

offered to all firms, and the terms of such arrangements may differ between firms. 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 Contract than for selling a different group annuity contract 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 PIMS, and will not result in any additional charge to you not described in this prospectus. Overall compensation paid to firms does not exceed, based on actuarial assumptions, 8% 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 Contract.

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 other Prudential business units.

Voting Rights

As stated above, all of the assets held in the Subaccounts of the Discovery Account are invested in shares of the corresponding Funds. We are the legal owner of those shares. As such, we have the right to vote on any matter voted on at any shareholders meetings of the Funds. However, as required by law, we vote the shares of the Funds at any regular and special shareholders meetings the Funds are required to hold in accordance with voting instructions received from Participants. The Funds may not hold annual shareholders meetings when not required to do so under the laws of the state of their incorporation or the Investment Company Act of 1940. Fund shares for which no timely instructions from Participants are received, and any shares owned directly or indirectly by us, are voted in the same proportion as shares in the respective portfolios for which instructions are received. Should the applicable federal securities laws or regulations, or their current interpretation, change so as to permit us to vote shares of the Funds in our own right, we may elect to do so. For some Plans, the Contractholder (rather than the Participants) will vote.

Generally, Participants may give voting instructions on matters that would be changes in fundamental policies and any matter requiring a vote of the shareholders of the Funds. With respect to approval of the investment advisory agreement or any change in a portfolio’s fundamental investment policy, Participants participating in such portfolios will vote separately on the matter, as required by applicable securities laws.

The number of Fund shares for which a Participant may give instructions is determined by dividing the portion of the value of the Participant Account derived from participation in a Subaccount, by the value of one share in the corresponding portfolio of the applicable Fund. The number of votes for which you may give us instructions is determined as of the record date chosen by the Board of the applicable Fund. We furnish you with proper forms and proxies to enable you to give these instructions. We reserve the right to modify the manner in which the weight to be given to voting instructions is calculated where such a change is necessary to comply with current federal regulations or interpretations of those regulations.

We may, if required by state insurance regulations, disregard voting instructions if such instructions would require shares to be voted so as to cause a change in the sub-classification or investment objectives of one or more of the Funds’ portfolios, or to approve or disapprove an investment advisory contract for a Fund. If we do disregard voting instructions, we will advise of that action and our reasons for such action in the next annual or semi-annual report.

Substitution of Fund Shares

We may substitute one or more of the underlying portfolios held by the Subaccounts. We would not do this without the approval of the Securities and Exchange Commission (SEC) and any necessary state insurance departments. Contractholders and Participants will be given specific notice in advance of any substitution we intend to make. For Contracts funding plans subject to the fiduciary responsibility provisions of the Employee Retirement Income Security Act of 1974, as amended, no substitution will be made without the consent of the plan fiduciary.

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Reports to Participants

We will send Participants, at least annually, reports showing as of a specified date the number of units credited to them in the Subaccounts of the Discovery Account. We also will send Participants in certain plans annual and semi-annual reports for the applicable Funds.

State Regulation

Prudential is subject to regulation by the Department of Banking and Insurance of the State of New Jersey as well as by the insurance departments of all the other states and jurisdictions in which it does business. Prudential must file an annual statement in a form promulgated by the National Association of Insurance Commissioners. This annual statement is reviewed and analyzed by the New Jersey Department, which makes an independent computation of Prudential’s legal reserve liabilities and statutory apportionments under its outstanding contracts. New Jersey law requires a quinquennial examination of Prudential to be made. Examination involves an extensive audit including, but not limited to, an inventory check of assets and sampling techniques to check the performance by Prudential of its contracts. This regulation does not involve any supervision or control over the investment policies of the Subaccounts or over the selection of investments for them, except for verification of the compliance of Prudential’s investment portfolio with New Jersey law.

The laws of New Jersey also contain special provisions which relate to the issuance and regulation of contracts on a variable basis. These laws set forth a number of mandatory provisions which must be included in contracts on a variable basis and prohibit such contracts from containing other specified provisions. The Department may initially disapprove or subsequently withdraw approval of any contract if it contains provisions which are “unjust, unfair, inequitable, ambiguous, misleading, likely to result in misrepresentation or contrary to law.” New Jersey also can withhold or withdraw approval if sales are solicited by communications which involve misleading or inadequate descriptions of the provisions of the contract.

In addition to the annual statement referred to above, Prudential is required to file with New Jersey and other states a separate statement with respect to the operations of all its variable contracts accounts, in a form promulgated by the National Association of Insurance Commissioners.

Litigation

Prudential is subject to legal and regulatory actions in the ordinary course of its businesses, including class action lawsuits. Prudential’s pending legal and regulatory actions include proceedings specific to it and proceedings generally applicable to business practices in the industries in which it operates, including in both cases businesses that have either been divested or placed in wind-down status. In its insurance operations, Prudential is subject to class action lawsuits and individual lawsuits involving a variety of issues, including sales practices, underwriting practices, claims payment and procedures, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, return of premiums or excessive premium charges and breaching fiduciary duties to customers. In its investment-related operations, Prudential is subject to litigation involving commercial disputes with counterparties or partners and class action lawsuits and other litigation alleging, among other things, that Prudential made improper or inadequate disclosures in connection with the sale of assets and annuity and investment products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. Prudential is also subject to litigation arising out of its general business activities, such as its investments, contracts, leases and labor and employment relationships, including claims of discrimination and harassment 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 Prudential and its businesses and products. In addition, Prudential, along with other participants in the businesses in which it engages, may be subject from time to time to investigations, examinations and inquiries, in some cases industry-wide, concerning issues or matters upon which

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

In January 2011, a purported state-wide class action, Garcia v. The Prudential Insurance Company of America was dismissed by the Second Judicial District Court, Washoe County, Nevada. The complaint is brought on behalf of Nevada beneficiaries of life insurance policies sold by Prudential for which, unless the beneficiaries elected another settlement method, death benefits were placed in retained asset accounts that earn interest and are subject to withdrawal in whole or in part at any time by the beneficiaries. The complaint alleges that by failing to disclose material information about the accounts, Prudential wrongfully delayed payment and improperly retained undisclosed profits, and seeks damages, injunctive relief, attorneys’ fees and prejudgment and post-judgment interest. In February 2011, plaintiff appealed the dismissal. As previously reported, in December 2009, an earlier purported nationwide class action raising substantially similar allegations brought by the same plaintiff in the United States District Court for the District of New Jersey, Garcia v. Prudential Insurance Company of America, was dismissed. In December 2010, a purported state-wide class action complaint, Phillips v. Prudential Financial, Inc., was filed in the Circuit Court of the First Judicial Circuit, Williamson County, Illinois. The complaint makes allegations under Illinois law, substantially similar to the Garcia cases, on behalf of a class of Illinois residents whose death benefits were settled by retained assets accounts. In January 2011, the case was removed to the United States District Court for the Southern District of Illinois. In July 2010, a purported nationwide class action that makes allegations similar to those in the Garcia and Phillips actions relating to retained asset accounts of beneficiaries of a group life insurance contract owned by the United States Department of Veterans Affairs (“VA Contract”) that covers the lives of members and veterans of the U.S. armed forces, Lucey et al. v. Prudential Insurance Company of America, was filed in the United States District Court for the District of Massachusetts. The complaint challenges the use of retained asset accounts to settle death benefit claims, asserting violations of federal and state law, breach of contract and fraud and seeking compensatory and treble damages and equitable relief. In October 2010, Prudential filed a motion to dismiss the complaint. In November 2010, a second purported nationwide class action brought on behalf of the same beneficiaries of the VA Contract, Phillips v. Prudential Insurance Company of America and Prudential Financial, Inc., was filed in the United States District Court for the District of New Jersey, and makes substantially the same claims. In November and December 2010, two additional actions brought on behalf of the same putative class, alleging substantially the same claims and the same relief, Garrett v. The Prudential Insurance Company of America and Prudential Financial, Inc. and Witt v. The Prudential Insurance Company of America were filed in the United States District Court for the District of New Jersey. In February 2011, Phillips, Garrett and Witt were transferred to the United States District Court for the Western District of Massachusetts by the Judicial Panel for Multi-District Litigation. In September 2010, Huffman v. The Prudential Insurance Company, a purported nationwide class action brought on behalf of beneficiaries of group life insurance contracts owned by ERISA-governed employee welfare benefit plans was filed in the United States District Court for the Eastern District of Pennsylvania, alleging that using retained asset accounts in employee welfare benefit plans to settle death benefit claims violates ERISA and seeking injunctive relief and disgorgement of profits. Prudential has moved to dismiss the complaint. In July 2010, Prudential, along with other life insurance industry participants, received a formal request for information from the State of New York Attorney General’s Office in connection with its investigation into industry practices relating to the use of retained asset accounts. In August 2010, Prudential received a similar request for information from the State of Connecticut Attorney General’s Office. Prudential is cooperating with these investigations. Prudential has also been contacted by state insurance regulators and other governmental entities, including the U.S. Department of Veterans Affairs and Congressional committees regarding retained asset accounts. These matters may result in additional investigations, information requests, claims, hearings, litigation and adverse publicity.

In June 2009, special bankruptcy counsel for Lehman Brothers Holdings Inc. (“LBHI”), Lehman Brothers Special Financing ("LBSF") and certain of their affiliates made a demand of Prudential Global Funding LLC ("PGF"), a subsidiary of Prudential, for the return of a portion of the $550 million in collateral delivered by LBSF to PGF pursuant to swap agreements and a cross margining and netting agreement between PGF, LBSF and Lehman Brothers Finance S.A. a/k/a Lehman Brothers Finance AG ("Lehman Switzerland"), a Swiss affiliate that is subject to insolvency proceedings in the United States and Switzerland. LBSF claims that PGF wrongfully applied the collateral to Lehman Switzerland’s obligations in violation of the automatic stay in LBSF’s bankruptcy case, which is jointly administered under In re Lehman Brothers Holdings Inc. in the United States Bankruptcy Court in the Southern

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District of New York (the “Lehman Chapter 11 Cases”). In August 2009, PGF filed a declaratory judgment action in the same court against LBSF, Lehman Switzerland and LBHI (as guarantor of LBSF and Lehman Switzerland under the swap agreements) seeking an order that (a) PGF had an effective lien on the collateral that secured the obligations of both LBSF ($197 million) and Lehman Switzerland ($488 million) and properly foreclosed on the collateral leaving PGF with an unsecured $135 million claim against LBSF (and LBHI as guarantor) or, in the alternative, (b) PGF was entitled, under the Bankruptcy Code, to set off amounts owed by Lehman Switzerland against the collateral and the automatic stay was inapplicable. The declaratory judgment action is captioned Prudential Global Funding LLC v. Lehman Brothers Holdings Inc., et al. In addition, PGF filed timely claims against LBSF and LBHI in the Lehman Chapter 11 Cases for any amounts due under the swap agreements, depending on the results of the declaratory judgment action. In October 2009, LBSF and LBHI answered in the declaratory judgment action and asserted counterclaims that PGF breached the swap agreement, seeking a declaratory judgment that PGF had a perfected lien on only $178 million of the collateral that could be applied only to amounts owed by LBSF and no right of set off against Lehman Switzerland's obligations, as well as the return of collateral in the amount of $372 million plus interest and the disallowance of PGF's claims against LBSF and LBHI. LBSF and LBHI also asserted cross-claims against Lehman Switzerland seeking return of the collateral. In December 2009, PGF filed a motion for judgment on the pleadings to resolve the matter in its favor. In February 2010, LBSF and LBHI cross-moved for judgment on the pleadings.

In April 2009, a purported nationwide class action, Schultz v. The Prudential Insurance Company of America, was filed in the United States District Court for the Northern District of Illinois. In January 2010, the court dismissed the complaint without prejudice. In February 2010, plaintiff sought leave to amend the complaint to add another plaintiff and to name the ERISA welfare plans in which they were participants individually and as representatives of a purported defendant class of ERISA welfare plans for which Prudential offset benefits. The proposed amended complaint alleged that Prudential and the welfare plans violated ERISA by offsetting family Social Security benefits against Prudential contract benefits and seeks a declaratory judgment that the offsets are unlawful as they are not “loss of time” benefits and recovery of the amounts by which the challenged offsets reduced the disability payments. In August 2010, the court denied leave to amend as to Prudential and plaintiffs subsequently filed a third amended complaint asserting claims on behalf of a purported nationwide class against a purported defendant class of ERISA welfare plans for which Prudential offset family Social Security benefits. The action, now captioned Schultz v. Aviall, Inc. Long Term Disability Plan, asserts the same ERISA violations. In December 2010, an action alleging substantially similar ERISA violations as in the Schultz action, Koehn v. Fireman's Fund Insurance Company Long Term Disability Plan, was filed in the United States District Court for the Northern District of California. The Koehn complaint, naming only the plan as defendant, asserts that the defendant plan's long term disability benefits are insured by Prudential and that the terms of the plan were violated by offsetting family Social Security benefits against Prudential contract benefits. Prudential is indemnifying the defendant plans in both Schultz and Koehn.

From November 2002 to March 2005, eleven separate complaints were filed against Prudential Financial, Inc. (“PFI”), Prudential and the law firm of Leeds Morelli & Brown in New Jersey state court. The cases were consolidated for pre-trial proceedings in New Jersey Superior Court, Essex County and captioned Lederman v. Prudential Financial, Inc., et al. The complaints allege that an alternative dispute resolution agreement entered into among Prudential, over 350 claimants who are current and former employees, and Leeds Morelli & Brown (the law firm representing the claimants) was illegal and that Prudential conspired with Leeds Morelli & Brown to commit fraud, malpractice, breach of contract, and violate racketeering laws by advancing legal fees to the law firm with the purpose of limiting Prudential’s liability to the claimants. In 2004, the Superior Court sealed these lawsuits and compelled them to arbitration. In May 2006, the Appellate Division reversed the trial court’s decisions, held that the cases were improperly sealed, and should be heard in court rather than arbitrated. In March 2007, the court granted plaintiffs’ motion to amend the complaint to add over 200 additional plaintiffs, and a claim under the New Jersey discrimination law, but denied without prejudice plaintiffs’ motion for a joint trial on liability issues. In June 2007, PFI and Prudential moved to dismiss the complaint. In November 2007, the court granted the motion, in part, and dismissed the commercial bribery and conspiracy to commit malpractice claims, and denied the motion with respect to other claims. In January 2008, plaintiffs filed a demand pursuant to New Jersey law stating that they were seeking damages in the amount of $6.5 billion. In February 2010, the New Jersey Supreme Court assigned the cases for centralized case management to the Superior Court, Bergen County. Prudential participated in a court-ordered mediation that has resulted in a settlement in principle.

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In October 2006, a purported class action lawsuit, Bouder v. Prudential Financial, Inc. and Prudential Insurance Company of America, was filed in the United States District Court for the District of New Jersey, claiming that Prudential failed to pay overtime to insurance agents in violation of federal and Pennsylvania law, and that improper deductions were made from these agents’ wages in violation of state law. The complaint seeks back overtime pay and statutory damages, recovery of improper deductions, interest, and attorneys’ fees. In March 2008, the court conditionally certified a nationwide class on the federal overtime claim. Separately, in March 2008, a purported nationwide class action lawsuit was filed in the United States District Court for the Southern District of California, Wang v. Prudential Financial, Inc. and Prudential Insurance, claiming that Prudential failed to pay its agents overtime and provide other benefits in violation of California and federal law and seeking compensatory and punitive damages in unspecified amounts. In September 2008, Wang was transferred to the United States District Court for the District of New Jersey and consolidated with the Bouder matter. Subsequent amendments to the complaint have resulted in additional allegations involving purported violations of an additional nine states’ overtime and wage payment laws. In February 2010, Prudential moved to decertify the federal overtime class that had been conditionally certified in March 2008, and moved for summary judgment on the federal overtime claims of the named plaintiffs. In July 2010, plaintiffs filed a motion for class certification of the state law claims. In August 2010, the district court granted Prudential’s motion for summary judgment, dismissing the federal overtime claims. The motion for class certification of the state law claims is pending.

In October 2007, Prudential Retirement Insurance and Annuity Co. (“PRIAC”) filed an action in the United States District Court for the Southern District of New York, Prudential Retirement Insurance & Annuity Co. v. State Street Global Advisors, in PRIAC’s fiduciary capacity and on behalf of certain defined benefit and defined contribution plan clients of PRIAC, against an unaffiliated asset manager, State Street Global Advisors (“SSgA”) and SSgA’s affiliate, State Street Bank and Trust Company (“State Street”). This action seeks, among other relief, restitution of certain losses attributable to certain investment funds sold by SSgA as to which PRIAC believes SSgA employed investment strategies and practices that were misrepresented by SSgA and failed to exercise the standard of care of a prudent investment manager. Given the unusual circumstances surrounding the management of these SSgA funds and in order to protect the interests of the affected plans and their participants while PRIAC pursues these remedies, PRIAC implemented a process under which affected plan clients that authorized PRIAC to proceed on their behalf have received payments from funds provided by PRIAC for the losses referred to above. Prudential’s consolidated financial statements, and the results of the Retirement segment included in Prudential’s U.S. Retirement Solutions and Investment Management Division, for the year ended December 31, 2007 include a pre-tax charge of $82 million, reflecting these payments to plan clients and certain related costs. In September 2008, the United States District Court for the Southern District of New York denied the State Street defendants’ motion to dismiss claims for damages and other relief under Section 502(a)(2) of ERISA, but dismissed the claims for equitable relief under Section 502(a)(3) of ERISA. In October 2008, defendants answered the complaint and asserted counterclaims for contribution and indemnification, defamation and violations of Massachusetts’ unfair and deceptive trade practices law. In February 2010, State Street reached a settlement with the SEC over charges that it misled investors about their exposure to subprime investments, resulting in significant investor losses in mid-2007. Under the settlement, State Street paid approximately $313 million in disgorgement, pre-judgment interest, penalty and compensation into a Fair Fund that was distributed to injured investors and consequently, State Street paid PRIAC, for deposit into its separate accounts, approximately $52.5 million. By the terms of the settlement, State Street’s payment to PRIAC does not resolve any claims PRIAC has against State Street or SSgA in connection with the losses in the investment funds SSgA managed, and the penalty component of State Street’s SEC settlement (approximately $8.4 million) cannot be used to offset or reduce compensatory damages in the action against State Street and SSgA. In June 2010, PRIAC moved for partial summary judgment on State Street’s counterclaims. At the same time, State Street moved for summary judgment on PRIAC’s complaint.

Prudential’s litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, their outcomes cannot be predicted. It is possible that results of operations or cash flow of Prudential 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 Prudential’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 its financial position. Management believes, however, that, based on information currently known to it, the

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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 Prudential’s financial position.

Service Providers

We generally conduct our operations through staff employed by us or our affiliates 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 us may change over time. As of December 31, 2010, non-affiliated entities that could be deemed service providers to the separate account funding the Contacts consisted of the following: Broadridge Financial Solutions (proxy tabulation services) located at 60 Research Road, Hingham, MA 02043; Diversified Information Technologies Inc. (mail handling and records management) located at 123 Wyoming Avenue, Scranton, PA 18503; RR Donnelley Receivables Inc. (printing annual reports and prospectuses) located at 111 South Wacker Drive, Chicago, IL 60606-4301; State Street Bank – Kansas City (custodian and accumulation unit value calculations) located at 801 Pennsylvania Avenue, Kansas City, MO 64105; Broadridge (fulfillment vendor for mailing applications, forms, prospectuses, etc.) located at 1981 Marcus Avenue, Lake Success, NY 11042.

Additional Information

Prudential has filed a registration statement with the SEC under the Securities Act of 1933, relating to the offering described in this prospectus. This prospectus does not include all of the information set forth in the registration statement. Certain portions have been omitted pursuant to the rules and regulations of the SEC. You may obtain the omitted information, however, from the SEC’s principal office in Washington, D.C., upon payment of a prescribed fee.

Participants in certain plans may obtain further information, including the Statement of Additional Information, from us without charge. The addresses and telephone numbers are set forth on the cover page of this prospectus.

Statement of Additional Information

The contents of the Statement of Additional Information include:	Page
Definitions		3
Other Contract Provisions		4
Administration		4
Experts		4
Principal Underwriter		4
Payments Made to Promote Sale of Our Products		4
Determination of Accumulation Unit Values		5
Financial Statements of the Prudential Discovery Premier Group Variable Contract Account		A-1
Consolidated Financial Statements of The Prudential Insurance Company of America and its Subsidiaries		B-1

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THE PRUDENTIAL DISCOVERY PREMIER GROUP VARIABLE ANNUITY CONTRACT ACCOUNT

(CONDENSED FINANCIAL INFORMATION)

ACCUMULATION UNIT VALUES: Assumes An Administrative Fee of .60% and Mortality & Expense Charge Fee of .15%

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Conservative Balanced
01/01/2001 to 12/31/2001	$	11.89	$	11.57		—
01/01/2002 to 12/31/2002	$	11.57	$	10.45		2,829
01/01/2003 to 12/31/2003	$	10.45	$	12.32		3,582
01/01/2004 to 12/31/2004	$	12.32	$	13.21		3,840
01/01/2005 to 12/31/2005	$	13.21	$	13.56		4,000
01/01/2006 to 12/31/2006	$	13.56	$	14.86		2,867
01/01/2007 to 12/31/2007	$	14.86	$	15.66		2,590
01/01/2008 to 12/31/2008	$	15.66	$	12.21		1,939
01/01/2009 to 12/31/2009	$	12.21	$	14.55		2,968
01/01/2010 to 12/31/2010	$	14.55	$	16.13		2,131
Prudential Series Fund Diversified Bond
01/01/2001 to 12/31/2001	$	11.74	$	12.47		1,115
01/01/2002 to 12/31/2002	$	12.47	$	13.25		193
01/01/2003 to 12/31/2003	$	13.25	$	14.13		1
01/01/2004 to 12/31/2004	$	14.13	$	14.81		2,341
01/01/2005 to 12/31/2005	$	14.81	$	15.18		2,368
01/01/2006 to 12/31/2006	$	15.18	$	15.82		1,283
01/01/2007 to 12/31/2007	$	15.82	$	16.60		1,855
01/01/2008 to 12/31/2008	$	16.60	$	15.91		2,785
01/01/2009 to 12/31/2009	$	15.91	$	19.02		4,827
01/01/2010 to 12/31/2010	$	19.02	$	20.88		4,927
Prudential Series Fund Equity
01/01/2001 to 12/31/2001	$	12.85	$	11.32		2,086
01/01/2002 to 12/31/2002	$	11.32	$	8.73		2,173
01/01/2003 to 12/31/2003	$	8.73	$	11.41		2,344
01/01/2004 to 12/31/2004	$	11.41	$	12.44		77
01/01/2005 to 12/31/2005	$	12.44	$	13.77		113
01/01/2006 to 12/31/2006	$	13.77	$	15.38		148
01/01/2007 to 12/31/2007	$	15.38	$	16.69		148
01/01/2008 to 12/31/2008	$	16.69	$	10.25		148
01/01/2009 to 12/31/2009	$	10.25	$	14.05		148
01/01/2010 to 12/31/2010	$	14.05	$	15.61		148

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	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Flexible Managed
01/01/2001 to 12/31/2001	$	11.69	$	10.94		—
01/01/2002 to 12/31/2002	$	10.94	$	9.47		3,046
01/01/2003 to 12/31/2003	$	9.47	$	11.64		3,508
01/01/2004 to 12/31/2004	$	11.64	$	12.79		5,074
01/01/2005 to 12/31/2005	$	12.79	$	13.22		5,217
01/01/2006 to 12/31/2006	$	13.22	$	14.72		4,121
01/01/2007 to 12/31/2007	$	14.72	$	15.54		2,241
01/01/2008 to 12/31/2008	$	15.54	$	11.60		1,990
01/01/2009 to 12/31/2009	$	11.60	$	13.81		1,735
01/01/2010 to 12/31/2010	$	13.81	$	15.36		1,376
Prudential Series Fund Global
01/01/2001 to 12/31/2001	$	13.65	$	11.15		1,608
01/01/2002 to 12/31/2002	$	11.15	$	8.29		1,624
01/01/2003 to 12/31/2003	$	8.29	$	11.03		1,624
01/01/2004 to 12/31/2004	$	11.03	$	12.00		1,625
01/01/2005 to 12/31/2005	$	12.00	$	13.82		1,702
01/01/2006 to 12/31/2006	$	13.82	$	16.41		2,686
01/01/2007 to 12/31/2007	$	16.41	$	18.00		3,448
01/01/2008 to 12/31/2008	$	18.00	$	10.20		2,258
01/01/2009 to 12/31/2009	$	10.20	$	13.30		679
01/01/2010 to 12/31/2010	$	13.30	$	14.88		935
Prudential Series Fund Government Income
01/01/2001 to 12/31/2001	$	12.29	$	13.18		—
01/01/2002 to 12/31/2002	$	13.18	$	14.66		15
01/01/2003 to 12/31/2003	$	14.66	$	14.91		4,152
01/01/2004 to 12/31/2004	$	14.91	$	15.26		6,723
01/01/2005 to 12/31/2005	$	15.26	$	15.52		6,415
01/01/2006 to 12/31/2006	$	15.52	$	15.98		6,506
01/01/2007 to 12/31/2007	$	15.98	$	16.77		6,783
01/01/2008 to 12/31/2008	$	16.77	$	17.36		7,048
01/01/2009 to 12/31/2009	$	17.36	$	18.56		8,231
01/01/2010 to 12/31/2010	$	18.56	$	19.71		1,893

48

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund High Yield Bond
01/01/2001 to 12/31/2001	$	9.74	$	9.63		208
01/01/2002 to 12/31/2002	$	9.63	$	9.70		—
01/01/2003 to 12/31/2003	$	9.70	$	12.04		344
01/01/2004 to 12/31/2004	$	12.04	$	13.18		2,582
01/01/2005 to 12/31/2005	$	13.18	$	13.53		1,570
01/01/2006 to 12/31/2006	$	13.53	$	14.80		1,616
01/01/2007 to 12/31/2007	$	14.80	$	15.08		1,245
01/01/2008 to 12/31/2008	$	15.08	$	11.63		710
01/01/2009 to 12/31/2009	$	11.63	$	16.99		1
01/01/2010 to 12/31/2010	$	16.99	$	19.23		1
Prudential Series Fund Jennison
01/01/2001 to 12/31/2001	$	15.92	$	12.92		50,595
01/01/2002 to 12/31/2002	$	12.92	$	8.85		83,178
01/01/2003 to 12/31/2003	$	8.85	$	11.44		94,019
01/01/2004 to 12/31/2004	$	11.44	$	12.45		88,065
01/01/2005 to 12/31/2005	$	12.45	$	14.16		93,318
01/01/2006 to 12/31/2006	$	14.16	$	14.30		89,384
01/01/2007 to 12/31/2007	$	14.30	$	15.90		59,335
01/01/2008 to 12/31/2008	$	15.90	$	9.90		88,976
01/01/2009 to 12/31/2009	$	9.90	$	14.05		92,291
01/01/2010 to 12/31/2010	$	14.05	$	15.62		97,930
Prudential Series Fund Jennison 20/20 Focus
01/01/2001 to 12/31/2001	$	10.23	$	10.05		—
01/01/2002 to 12/31/2002	$	10.05	$	7.75		—
01/01/2003 to 12/31/2003	$	7.75	$	9.95		—
01/01/2004 to 12/31/2004	$	9.95	$	11.45		151
01/01/2005 to 12/31/2005	$	11.45	$	13.82		1,649
01/01/2006 to 12/31/2006	$	13.82	$	15.65		3,648
01/01/2007 to 12/31/2007	$	15.65	$	17.18		26,630
01/01/2008 to 12/31/2008	$	17.18	$	10.38		57,852
01/01/2009 to 12/31/2009	$	10.38	$	16.26		72,198
01/01/2010 to 12/31/2010	$	16.26	$	17.40		71,031

49

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Money Market
01/01/2001 to 12/31/2001	$	11.84	$	12.23		3,104
01/01/2002 to 12/31/2002	$	12.23	$	12.33		21
01/01/2003 to 12/31/2003	$	12.33	$	12.34		991
01/01/2004 to 12/31/2004	$	12.34	$	12.37		1,199
01/01/2005 to 12/31/2005	$	12.37	$	12.63		1,427
01/01/2006 to 12/31/2006	$	12.63	$	13.14		2,943
01/01/2007 to 12/31/2007	$	13.14	$	13.70		10,202
01/01/2008 to 12/31/2008	$	13.70	$	13.96		10,391
01/01/2009 to 12/31/2009	$	13.96	$	13.91		607
01/01/2010 to 12/31/2010	$	13.91	$	13.81		24,940
Prudential Series Fund Small Capitalization Stock
01/01/2001 to 12/31/2001	$	11.09	$	11.61		91
01/01/2002 to 12/31/2002	$	11.61	$	9.80		28,731
01/01/2003 to 12/31/2003	$	9.80	$	13.45		36,118
01/01/2004 to 12/31/2004	$	13.45	$	16.30		47,422
01/01/2005 to 12/31/2005	$	16.30	$	17.35		53,057
01/01/2006 to 12/31/2006	$	17.35	$	19.75		56,528
01/01/2007 to 12/31/2007	$	19.75	$	19.50		42,754
01/01/2008 to 12/31/2008	$	19.50	$	13.35		41,249
01/01/2009 to 12/31/2009	$	13.35	$	16.58		41,902
01/01/2010 to 12/31/2010	$	16.58	$	20.73		46,776
Prudential Series Fund Stock Index
01/01/2001 to 12/31/2001	$	14.47	$	12.64		6,691
01/01/2002 to 12/31/2002	$	12.64	$	9.76		9,346
01/01/2003 to 12/31/2003	$	9.76	$	12.41		11,112
01/01/2004 to 12/31/2004	$	12.41	$	13.61		10,368
01/01/2005 to 12/31/2005	$	13.61	$	14.12		9,034
01/01/2006 to 12/31/2006	$	14.12	$	16.19		11,269
01/01/2007 to 12/31/2007	$	16.19	$	16.89		7,136
01/01/2008 to 12/31/2008	$	16.89	$	10.57		6,563
01/01/2009 to 12/31/2009	$	10.57	$	13.23		5,004
01/01/2010 to 12/31/2010	$	13.23	$	15.05		4,959

50

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Value
01/01/2001 to 12/31/2001	$	11.89	$	11.55		4,580
01/01/2002 to 12/31/2002	$	11.55	$	8.95		28,458
01/01/2003 to 12/31/2003	$	8.95	$	11.37		35,372
01/01/2004 to 12/31/2004	$	11.37	$	13.13		34,856
01/01/2005 to 12/31/2005	$	13.13	$	15.20		33,208
01/01/2006 to 12/31/2006	$	15.20	$	18.10		34,849
01/01/2007 to 12/31/2007	$	18.10	$	18.54		53,758
01/01/2008 to 12/31/2008	$	18.54	$	10.62		83,787
01/01/2009 to 12/31/2009	$	10.62	$	14.96		92,359
01/01/2010 to 12/31/2010	$	14.96	$	16.90		90,504
AllianceBernstein Growth and Income
01/01/2001 to 12/31/2001	$	10.42	$	10.38		4,790
01/01/2002 to 12/31/2002	$	10.38	$	8.03		25,678
01/01/2003 to 12/31/2003	$	8.03	$	10.56		33,986
01/01/2004 to 12/31/2004	$	10.56	$	11.68		45,680
01/01/2005 to 12/31/2005	$	11.68	$	12.16		50,916
01/01/2006 to 12/31/2006	$	12.16	$	14.15		49,286
01/01/2007 to 12/31/2007	$	14.15	$	14.77		31,857
01/01/2008 to 12/31/2008	$	14.77	$	8.71		17,582
01/01/2009 to 12/31/2009	$	8.71	$	10.44		14,777
01/01/2010 to 12/31/2010	$	10.44	$	11.72		12,929
AllianceBernstein Large Cap Growth
01/01/2001 to 12/31/2001	$	8.44	$	6.94		46,969
01/01/2002 to 12/31/2002	$	6.94	$	4.77		121,215
01/01/2003 to 12/31/2003	$	4.77	$	5.86		138,474
01/01/2004 to 12/31/2004	$	5.86	$	6.32		115,511
01/01/2005 to 12/31/2005	$	6.32	$	7.22		109,887
01/01/2006 to 12/31/2006	$	7.22	$	7.14		93,987
01/01/2007 to 12/31/2007	$	7.14	$	8.07		50,639
01/01/2008 to 12/31/2008	$	8.07	$	4.83		20,123
01/01/2009 to 12/31/2009	$	4.83	$	6.59		16,305
01/01/2010 to 12/31/2010	$	6.59	$	7.21		15,725

51

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
AllianceBernstein Small Cap Growth
01/01/2001 to 12/31/2001	$	10.27	$	8.89		—
01/01/2002 to 12/31/2002	$	8.89	$	6.02		—
01/01/2003 to 12/31/2003	$	6.02	$	8.90		1,158
01/01/2004 to 12/31/2004	$	8.90	$	10.12		42
01/01/2005 to 12/31/2005	$	10.12	$	10.57		1,769
01/01/2006 to 12/31/2006	$	10.57	$	11.61		1,799
01/01/2007 to 12/31/2007	$	11.61	$	13.15		2,071
01/01/2008 to 12/31/2008	$	13.15	$	7.11		3,019
01/01/2009 to 12/31/2009	$	7.11	$	10.00		1,390
01/01/2010 to 12/31/2010	$	10.00	$	13.59		1,485
American Century VP Income & Growth
01/01/2001 to 12/31/2001	$	9.30	$	8.46		8,330
01/01/2002 to 12/31/2002	$	8.46	$	6.77		10,855
01/01/2003 to 12/31/2003	$	6.77	$	8.69		10,900
01/01/2004 to 12/31/2004	$	8.69	$	9.75		8,915
01/01/2005 to 12/31/2005	$	9.75	$	10.12		11,333
01/01/2006 to 12/31/2006	$	10.12	$	11.77		11,402
01/01/2007 to 12/31/2007	$	11.77	$	11.67		11,296
01/01/2008 to 12/31/2008	$	11.67	$	7.58		6,834
01/01/2009 to 12/31/2009	$	7.58	$	8.88		728
01/01/2010 to 12/31/2010	$	8.88	$	10.06		239
Credit Suisse Trust U.S. Equity Flex III
01/01/2001 to 12/31/2001	$	1.23	$	8.49		1,142
01/01/2002 to 12/31/2002	$	8.49	$	5.95		1,388
01/01/2003 to 12/31/2003	$	5.95	$	8.48		2,660
01/01/2004 to 12/31/2004	$	8.48	$	9.52		1,836
01/01/2005 to 12/31/2005	$	9.52	$	10.10		5,789
01/01/2006 to 12/31/2006	$	10.10	$	10.22		8,614
01/01/2007 to 12/31/2007	$	10.22	$	11.33		9,375
01/01/2008 to 12/31/2008	$	11.33	$	6.94		6,797
01/01/2009 to 10/02/2009	$	6.94	$	8.27		—
Credit Suisse Trust U.S. Equity Flex I
10/02/2009* to 12/31/2009	$	8.27	$	8.97		5,624
01/01/2010 to 12/31/2010	$	8.97	$	10.20		5,253

52

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Davis Value
01/01/2001 to 12/31/2001	$	10.17	$	9.04		5,173
01/01/2002 to 12/31/2002	$	9.04	$	7.51		28,426
01/01/2003 to 12/31/2003	$	7.51	$	9.67		31,634
01/01/2004 to 12/31/2004	$	9.67	$	10.78		39,201
01/01/2005 to 12/31/2005	$	10.78	$	11.72		41,933
01/01/2006 to 12/31/2006	$	11.72	$	13.37		43,919
01/01/2007 to 12/31/2007	$	13.37	$	13.89		44,435
01/01/2008 to 12/31/2008	$	13.89	$	8.23		31,680
01/01/2009 to 12/31/2009	$	8.23	$	10.71		30,713
01/01/2010 to 12/31/2010	$	10.71	$	11.99		28,069
DELAWARE VIP Emerging Market Series
01/01/2005 to 12/31/2005		—	$	11.92		9,548
01/01/2006 to 12/31/2006	$	11.92	$	15.04		20,559
01/01/2007 to 12/31/2007	$	15.04	$	20.72		26,605
01/01/2008 to 12/31/2008	$	20.72	$	9.96		24,946
01/01/2009 to 12/31/2009	$	9.96	$	17.62		27,947
01/01/2010 to 12/31/2010	$	17.62	$	20.72		25,360
Dreyfus Socially Responsible Growth
01/01/2001 to 12/31/2001	$	9.09	$	7.01		—
01/01/2002 to 12/31/2002	$	7.01	$	4.94		—
01/01/2003 to 12/31/2003	$	4.94	$	6.19		—
01/01/2004 to 12/31/2004	$	6.19	$	6.52		—
01/01/2005 to 12/31/2005	$	6.52	$	6.71		—
01/01/2006 to 12/31/2006	$	6.71	$	7.26		—
01/01/2007 to 12/31/2007	$	7.26	$	7.77		428
01/01/2008 to 12/31/2008	$	7.77	$	5.06		267
01/01/2009 to 12/31/2009	$	5.06	$	6.71		1,822
01/01/2010 to 12/31/2010	$	6.71	$	7.65		1,428
Franklin Templeton Franklin Small-Mid Cap Growth
01/01/2001 to 12/31/2001	$	9.05	$	7.63		69,106
01/01/2002 to 12/31/2002	$	7.63	$	5.41		137,616
01/01/2003 to 12/31/2003	$	5.41	$	7.39		161,636
01/01/2004 to 12/31/2004	$	7.39	$	8.20		148,143
01/01/2005 to 12/31/2005	$	8.20	$	8.55		152,115
01/01/2006 to 12/31/2006	$	8.55	$	9.25		140,900
01/01/2007 to 12/31/2007	$	9.25	$	10.23		86,341
01/01/2008 to 12/31/2008	$	10.23	$	5.86		44,101
01/01/2009 to 12/31/2009	$	5.86	$	8.37		36,158
01/01/2010 to 12/31/2010	$	8.37	$	10.62		37,235

53

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Franklin Templeton Templeton Foreign Securities
01/01/2001 to 12/31/2001	$	10.19	$	8.52		25
01/01/2002 to 12/31/2002	$	8.52	$	6.90		23
01/01/2003 to 12/31/2003	$	6.90	$	9.08		1,650
01/01/2004 to 12/31/2004	$	9.08	$	10.71		3,783
01/01/2005 to 12/31/2005	$	10.71	$	11.75		9,558
01/01/2006 to 12/31/2006	$	11.75	$	14.19		9,244
01/01/2007 to 12/31/2007	$	14.19	$	16.31		11,393
01/01/2008 to 12/31/2008	$	16.31	$	9.67		8,673
01/01/2009 to 12/31/2009	$	9.67	$	13.19		8,017
01/01/2010 to 12/31/2010	$	13.19	$	14.22		8,629
Invesco V.I. Core Equity formerly, AIM V.I. Core Equity
01/01/2006 to 12/31/2006		—	$	14.42		6,573
01/01/2007 to 12/31/2007	$	14.42	$	15.48		6,491
01/01/2008 to 12/31/2008	$	15.48	$	10.73		3,050
01/01/2009 to 12/31/2009	$	10.73	$	13.66		1,159
01/01/2010 to 12/31/2010	$	13.66	$	14.86		1,203
Invesco V.I. Dynamics formerly, AIM V.I. Dynamics
01/01/2001 to 12/31/2001	$	9.75	$	6.66		23,456
01/01/2002 to 12/31/2002	$	6.66	$	4.50		59,568
01/01/2003 to 12/31/2003	$	4.50	$	6.16		64,022
01/01/2004 to 12/31/2004	$	6.16	$	6.93		57,470
01/01/2005 to 12/31/2005	$	6.93	$	7.61		47,067
01/01/2006 to 12/31/2006	$	7.61	$	8.78		43,826
01/01/2007 to 12/31/2007	$	8.78	$	9.77		32,576
01/01/2008 to 12/31/2008	$	9.77	$	5.04		21,737
01/01/2009 to 12/31/2009	$	5.04	$	7.12		20,615
01/01/2010 to 12/31/2010	$	7.12	$	8.75		22,034
Invesco V.I. Government Securities formerly, AIM V.I. Government Securities
01/01/2001 to 12/31/2001	$	10.77	$	11.38		—
01/01/2002 to 12/31/2002	$	11.38	$	12.88		3,400
01/01/2003 to 12/31/2003	$	12.88	$	12.92		1,045
01/01/2004 to 12/31/2004	$	12.92	$	13.15		1,045
01/01/2005 to 12/31/2005	$	13.15	$	13.27		—
01/01/2006 to 12/31/2006	$	13.27	$	13.64		—
01/01/2007 to 12/31/2007	$	13.64	$	14.40		—
01/01/2008 to 12/31/2008	$	14.40	$	16.05		104
01/01/2009 to 12/31/2009	$	16.05	$	15.93		—
01/01/2010 to 12/31/2010	$	15.93	$	16.66		—

54

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Invesco V.I. International Growth formerly, AIM V.I. International Growth
01/01/2001 to 12/31/2001	$	8.56	$	6.50		—
01/01/2002 to 12/31/2002	$	6.50	$	5.44		—
01/01/2003 to 12/31/2003	$	5.44	$	6.97		405
01/01/2004 to 12/31/2004	$	6.97	$	8.58		6,603
01/01/2005 to 12/31/2005	$	8.58	$	10.04		4,380
01/01/2006 to 12/31/2006	$	10.04	$	12.78		9,929
01/01/2007 to 12/31/2007	$	12.78	$	14.55		36,881
01/01/2008 to 12/31/2008	$	14.55	$	8.61		67,453
01/01/2009 to 12/31/2009	$	8.61	$	11.56		76,182
01/01/2010 to 12/31/2010	$	11.56	$	12.95		75,000
AIM V.I. Premier Equity (Closed in 2006)
01/01/2001 to 12/31/2001	$	14.50	$	12.59		17,544
01/01/2002 to 12/31/2002	$	12.59	$	8.71		19,312
01/01/2003 to 12/31/2003	$	8.71	$	10.82		20,830
01/01/2004 to 12/31/2004	$	10.82	$	11.36		9,110
01/01/2005 to 12/31/2005	$	11.36	$	11.91		8,008
01/01/2006 to 12/31/2006	$	11.91		—		—
Janus Aspen Growth and Income
01/01/2001 to 12/31/2001	$	9.25	$	7.95		28,132
01/01/2002 to 12/31/2002	$	7.95	$	6.19		30,547
01/01/2003 to 12/31/2003	$	6.19	$	7.60		32,034
01/01/2004 to 12/31/2004	$	7.60	$	8.45		24,186
01/01/2005 to 12/31/2005	$	8.45	$	9.42		35,317
01/01/2006 to 12/31/2006	$	9.42	$	10.10		38,681
01/01/2007 to 12/31/2007	$	10.10	$	10.90		91,242
01/01/2008 to 12/31/2008	$	10.90	$	6.37		72,594
01/01/2009 to 12/31/2009	$	6.37	$	8.80		70,595
01/01/2010 to 04/30/2010	$	8.80	$	9.31		—
Janus Aspen Enterprise
01/01/2001 to 12/31/2001	$	7.90	$	4.75		132,619
01/01/2002 to 12/31/2002	$	4.75	$	3.40		81,969
01/01/2003 to 12/31/2003	$	3.40	$	4.56		82,347
01/01/2004 to 12/31/2004	$	4.56	$	5.46		87,828
01/01/2005 to 12/31/2005	$	5.46	$	6.09		77,082
01/01/2006 to 12/31/2006	$	6.09	$	6.86		74,004
01/01/2007 to 12/31/2007	$	6.86	$	8.31		72,452
01/01/2008 to 12/31/2008	$	8.31	$	4.64		96,569
01/01/2009 to 12/31/2009	$	4.64	$	6.67		98,558
01/01/2010 to 12/31/2010	$	6.67	$	8.34		86,905

55

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Janus Aspen Worldwide
01/01/2001 to 12/31/2001	$	8.69	$	6.69		24,461
01/01/2002 to 12/31/2002	$	6.69	$	4.95		32,642
01/01/2003 to 12/31/2003	$	4.95	$	10.56		32,999
01/01/2004 to 12/31/2004	$	10.56	$	6.33		30,732
01/01/2005 to 12/31/2005	$	6.33	$	6.65		23,402
01/01/2006 to 12/31/2006	$	6.65	$	7.81		19,838
01/01/2007 to 12/31/2007	$	7.81	$	8.49		10,445
01/01/2008 to 12/31/2008	$	8.49	$	4.67		9,659
01/01/2009 to 12/31/2009	$	4.67	$	6.38		8,993
01/01/2010 to 12/31/2010	$	6.38	$	7.33		9,791
MFS Growth
01/01/2001 to 12/31/2001	$	18.96	$	12.52		40,331
01/01/2002 to 12/31/2002	$	12.52	$	8.23		42,611
01/01/2003 to 12/31/2003	$	8.23	$	10.64		47,928
01/01/2004 to 12/31/2004	$	10.64	$	11.93		38,842
01/01/2005 to 12/31/2005	$	11.93	$	12.93		41,821
01/01/2006 to 12/31/2006	$	12.93	$	13.84		38,542
01/01/2007 to 12/31/2007	$	13.84	$	16.65		19,508
01/01/2008 to 12/31/2008	$	16.65	$	10.34		13,192
01/01/2009 to 12/31/2009	$	10.34	$	14.13		10,758
01/01/2010 to 12/31/2010	$	14.13	$	16.18		11,321
MFS Investors Growth
01/01/2001 to 12/31/2001	$	9.47	$	7.13		—
01/01/2002 to 12/31/2002	$	7.13	$	5.13		—
01/01/2003 to 12/31/2003	$	5.13	$	6.27		—
01/01/2004 to 12/31/2004	$	6.27	$	6.79		—
01/01/2005 to 12/31/2005	$	6.79	$	7.04		—
01/01/2006 to 12/31/2006	$	7.04	$	7.52		—
01/01/2007 to 12/31/2007	$	7.52	$	8.31		—
01/01/2008 to 12/31/2008	$	8.31	$	5.21		—
01/01/2009 to 12/31/2009	$	5.21	$	7.21		—
01/01/2010 to 12/31/2010	$	7.21	$	8.05		—

56

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
MFS Investors Trust
01/01/2001 to 12/31/2001	$	10.05	$	8.38		—
01/01/2002 to 12/31/2002	$	8.38	$	6.58		6
01/01/2003 to 12/31/2003	$	6.58	$	7.97		1,110
01/01/2004 to 12/31/2004	$	7.97	$	8.81		1,107
01/01/2005 to 12/31/2005	$	8.81	$	9.39		1,107
01/01/2006 to 12/31/2006	$	9.39	$	10.53		1,173
01/01/2007 to 12/31/2007	$	10.53	$	11.53		1,107
01/01/2008 to 12/31/2008	$	11.53	$	7.66		2,008
01/01/2009 to 12/31/2009	$	7.66	$	9.64		2,255
01/01/2010 to 12/31/2010	$	9.64	$	10.63		2,445
MFS Research Bond
01/01/2001 to 12/31/2001	$	10.88	$	11.74		—
01/01/2002 to 12/31/2002	$	11.74	$	12.70		619
01/01/2003 to 12/31/2003	$	12.70	$	13.78		383
01/01/2004 to 12/31/2004	$	13.78	$	14.51		1,726
01/01/2005 to 12/31/2005	$	14.51	$	14.62		2,576
01/01/2006 to 12/31/2006	$	14.62	$	15.09		1,779
01/01/2007 to 12/31/2007	$	15.09	$	15.61		1,940
01/01/2008 to 12/31/2008	$	15.61	$	15.13		1,846
01/01/2009 to 12/31/2009	$	15.13	$	17.44		4,231
01/01/2010 to 12/31/2010	$	17.44	$	18.61		3,096
MFS Total Return
01/01/2001 to 12/31/2001	$	10.00	$	9.94		22
01/01/2002 to 12/31/2002	$	9.94	$	9.36		1,298
01/01/2003 to 12/31/2003	$	9.36	$	10.81		4,284
01/01/2004 to 12/31/2004	$	10.81	$	11.94		11,225
01/01/2005 to 12/31/2005	$	11.94	$	12.19		13,334
01/01/2006 to 12/31/2006	$	12.19	$	13.53		10,244
01/01/2007 to 12/31/2007	$	13.53	$	14.00		7,785
01/01/2008 to 12/31/2008	$	14.00	$	10.82		4,555
01/01/2009 to 12/31/2009	$	10.82	$	12.67		6,530
01/01/2010 to 12/31/2010	$	12.67	$	13.83		5,482
PIMCO PVIT Short Term
01/01/2005 to 12/31/2005		—	$	10.19		—
01/01/2006 to 12/31/2006	$	10.19	$	10.55		1,233
01/01/2007 to 12/31/2007	$	10.55	$	10.94		1,233
01/01/2008 to 12/31/2008	$	10.94	$	10.83		—
01/01/2009 to 12/31/2009	$	10.83	$	11.58		1,558
01/01/2010 to 12/31/2010	$	11.58	$	11.74		190

57

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
T. ROWE PRICE Equity Income
01/01/2005 to 12/31/2005		—	$	16.61		97
01/01/2006 to 12/31/2006	$	16.61	$	19.61		6,952
01/01/2007 to 12/31/2007	$	19.61	$	20.10		8,348
01/01/2008 to 12/31/2008	$	20.10	$	12.74		8,931
01/01/2009 to 12/31/2009	$	12.74	$	15.89		10,569
01/01/2010 to 12/31/2010	$	15.89	$	18.14		5,960

* Date that Portfolio was first offered in this product

58

THE PRUDENTIAL DISCOVERY PREMIER GROUP VARIABLE ANNUITY CONTRACT ACCOUNT

(CONDENSED FINANCIAL INFORMATION)

ACCUMULATION UNIT VALUES: Assumes An Administrative Fee of .50%

and Mortality & Expense Charge Fee of .15%

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Conservative Balanced
01/01/2001 to 12/31/2001	$	11.90	$	11.58		6,930
01/01/2002 to 12/31/2002	$	11.58	$	10.47		10,883
01/01/2003 to 12/31/2003	$	10.47	$	12.36		14,867
01/01/2004 to 12/31/2004	$	12.36	$	13.27		14,920
01/01/2005 to 12/31/2005	$	13.27	$	13.63		17,426
01/01/2006 to 12/31/2006	$	13.63	$	14.96		16,448
01/01/2007 to 12/31/2007	$	14.96	$	15.77		15,380
01/01/2008 to 12/31/2008	$	15.77	$	12.31		15,157
01/01/2009 to 12/31/2009	$	12.31	$	14.68		13,627
01/01/2010 to 12/31/2010	$	14.68	$	16.30		12,208
Prudential Series Fund Diversified Bond
01/01/2001 to 12/31/2001	$	11.74	$	12.48		8,440
01/01/2002 to 12/31/2002	$	12.48	$	13.28		15,054
01/01/2003 to 12/31/2003	$	13.28	$	14.18		18,135
01/01/2004 to 12/31/2004	$	14.18	$	14.87		18,486
01/01/2005 to 12/31/2005	$	14.87	$	15.26		21,486
01/01/2006 to 12/31/2006	$	15.26	$	15.92		22,257
01/01/2007 to 12/31/2007	$	15.92	$	16.72		28,002
01/01/2008 to 12/31/2008	$	16.72	$	16.04		32,935
01/01/2009 to 12/31/2009	$	16.04	$	19.20		35,166
01/01/2010 to 12/31/2010	$	19.20	$	21.10		43,556
Prudential Series Fund Equity
01/01/2001 to 12/31/2001	$	12.85	$	11.34		223
01/01/2002 to 12/31/2002	$	11.34	$	8.75		599
01/01/2003 to 12/31/2003	$	8.75	$	11.44		1,051
01/01/2004 to 12/31/2004	$	11.44	$	12.50		1,184
01/01/2005 to 12/31/2005	$	12.50	$	13.84		1,140
01/01/2006 to 12/31/2006	$	13.84	$	15.48		1,072
01/01/2007 to 12/31/2007	$	15.48	$	16.82		1,754
01/01/2008 to 12/31/2008	$	16.82	$	10.33		1,810
01/01/2009 to 12/31/2009	$	10.33	$	14.18		1,671
01/01/2010 to 12/31/2010	$	14.18	$	15.77		1,702

59

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Flexible Managed
01/01/2001 to 12/31/2001	$	11.69	$	10.95		1,613
01/01/2002 to 12/31/2002	$	10.95	$	9.50		4,557
01/01/2003 to 12/31/2003	$	9.50	$	11.68		4,825
01/01/2004 to 12/31/2004	$	11.68	$	12.85		6,108
01/01/2005 to 12/31/2005	$	12.85	$	13.30		6,118
01/01/2006 to 12/31/2006	$	13.30	$	14.82		6,252
01/01/2007 to 12/31/2007	$	14.82	$	15.66		12,723
01/01/2008 to 12/31/2008	$	15.66	$	11.70		12,162
01/01/2009 to 12/31/2009	$	11.70	$	13.94		9,100
01/01/2010 to 12/31/2010	$	13.94	$	15.52		9,736
Prudential Series Fund Global
01/01/2001 to 12/31/2001	$	13.65	$	11.17		—
01/01/2002 to 12/31/2002	$	11.17	$	8.31		22
01/01/2003 to 12/31/2003	$	8.31	$	11.07		177
01/01/2004 to 12/31/2004	$	11.07	$	12.05		271
01/01/2005 to 12/31/2005	$	12.05	$	13.89		281
01/01/2006 to 12/31/2006	$	13.89	$	16.51		586
01/01/2007 to 12/31/2007	$	16.51	$	18.13		2,036
01/01/2008 to 12/31/2008	$	18.13	$	10.28		2,457
01/01/2009 to 12/31/2009	$	10.28	$	13.42		3,126
01/01/2010 to 12/31/2010	$	13.42	$	15.03		2,925
Prudential Series Fund Government Income
01/01/2001 to 12/31/2001	$	12.29	$	13.20		7,868
01/01/2002 to 12/31/2002	$	13.20	$	14.69		17,732
01/01/2003 to 12/31/2003	$	14.69	$	14.96		18,178
01/01/2004 to 12/31/2004	$	14.96	$	15.32		16,690
01/01/2005 to 12/31/2005	$	15.32	$	15.61		18,020
01/01/2006 to 12/31/2006	$	15.61	$	16.08		18,220
01/01/2007 to 12/31/2007	$	16.08	$	16.89		20,416
01/01/2008 to 12/31/2008	$	16.89	$	17.50		20,397
01/01/2009 to 12/31/2009	$	17.50	$	18.73		20,245
01/01/2010 to 12/31/2010	$	18.73	$	19.91		18,613

60

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund High Yield Bond
01/01/2001 to 12/31/2001	$	9.75	$	9.64		79
01/01/2002 to 12/31/2002	$	9.64	$	9.72		4,613
01/01/2003 to 12/31/2003	$	9.72	$	12.08		14,447
01/01/2004 to 12/31/2004	$	12.08	$	13.23		14,642
01/01/2005 to 12/31/2005	$	13.23	$	13.60		14,413
01/01/2006 to 12/31/2006	$	13.60	$	14.90		16,027
01/01/2007 to 12/31/2007	$	14.90	$	15.19		22,934
01/01/2008 to 12/31/2008	$	15.19	$	11.73		17,203
01/01/2009 to 12/31/2009	$	11.73	$	17.15		19,919
01/01/2010 to 12/31/2010	$	17.15	$	19.43		19,134
Prudential Series Fund Jennison
01/01/2001 to 12/31/2001	$	15.92	$	12.93		13,119
01/01/2002 to 12/31/2002	$	12.93	$	8.87		28,570
01/01/2003 to 12/31/2003	$	8.87	$	11.48		38,514
01/01/2004 to 12/31/2004	$	11.48	$	12.51		42,390
01/01/2005 to 12/31/2005	$	12.51	$	14.23		46,373
01/01/2006 to 12/31/2006	$	14.23	$	14.39		48,219
01/01/2007 to 12/31/2007	$	14.39	$	16.02		42,986
01/01/2008 to 12/31/2008	$	16.02	$	9.98		46,150
01/01/2009 to 12/31/2009	$	9.98	$	14.18		46,661
01/01/2010 to 12/31/2010	$	14.18	$	15.78		59,624
Prudential Series Fund Jennison 20/20 Focus
01/01/2001 to 12/31/2001	$	10.23	$	10.06		69
01/01/2002 to 12/31/2002	$	10.06	$	7.77		1,436
01/01/2003 to 12/31/2003	$	7.77	$	9.99		1,730
01/01/2004 to 12/31/2004	$	9.99	$	11.50		2,065
01/01/2005 to 12/31/2005	$	11.50	$	13.90		2,255
01/01/2006 to 12/31/2006	$	13.90	$	15.76		8,681
01/01/2007 to 12/31/2007	$	15.76	$	17.31		26,989
01/01/2008 to 12/31/2008	$	17.31	$	10.47		35,798
01/01/2009 to 12/31/2009	$	10.47	$	16.41		39,630
01/01/2010 to 12/31/2010	$	16.41	$	17.59		43,814

61

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Money Market
01/01/2001 to 12/31/2001	$	11.84	$	12.25		1,026
01/01/2002 to 12/31/2002	$	12.25	$	12.36		294
01/01/2003 to 12/31/2003	$	12.36	$	12.38		450
01/01/2004 to 12/31/2004	$	12.38	$	12.42		353
01/01/2005 to 12/31/2005	$	12.42	$	12.70		633
01/01/2006 to 12/31/2006	$	12.70	$	13.22		3,232
01/01/2007 to 12/31/2007	$	13.22	$	13.80		4,858
01/01/2008 to 12/31/2008	$	13.80	$	14.07		12,662
01/01/2009 to 12/31/2009	$	14.07	$	14.04		17,314
01/01/2010 to 12/31/2010	$	14.04	$	13.95		65,155
Prudential Series Fund Small Capitalization Stock
01/01/2001 to 12/31/2001	$	11.10	$	11.63		4,442
01/01/2002 to 12/31/2002	$	11.63	$	9.83		25,102
01/01/2003 to 12/31/2003	$	9.83	$	13.50		35,506
01/01/2004 to 12/31/2004	$	13.50	$	16.37		43,273
01/01/2005 to 12/31/2005	$	16.37	$	17.45		45,337
01/01/2006 to 12/31/2006	$	17.45	$	19.88		49,519
01/01/2007 to 12/31/2007	$	19.88	$	19.64		53,497
01/01/2008 to 12/31/2008	$	19.64	$	13.46		48,245
01/01/2009 to 12/31/2009	$	13.46	$	16.74		51,339
01/01/2010 to 12/31/2010	$	16.74	$	20.94		49,888
Prudential Series Fund Stock Index
01/01/2001 to 12/31/2001	$	14.48	$	12.65		6,383
01/01/2002 to 12/31/2002	$	12.65	$	9.78		23,561
01/01/2003 to 12/31/2003	$	9.78	$	12.46		34,080
01/01/2004 to 12/31/2004	$	12.46	$	13.67		44,535
01/01/2005 to 12/31/2005	$	13.67	$	14.20		54,942
01/01/2006 to 12/31/2006	$	14.20	$	16.30		58,546
01/01/2007 to 12/31/2007	$	16.30	$	17.02		56,087
01/01/2008 to 12/31/2008	$	17.02	$	10.66		58,615
01/01/2009 to 12/31/2009	$	10.66	$	13.35		65,288
01/01/2010 to 12/31/2010	$	13.35	$	15.20		61,553

62

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Value
01/01/2001 to 12/31/2001	$	11.89	$	11.57		23,911
01/01/2002 to 12/31/2002	$	11.57	$	8.97		35,140
01/01/2003 to 12/31/2003	$	8.97	$	11.41		41,002
01/01/2004 to 12/31/2004	$	11.41	$	13.19		41,699
01/01/2005 to 12/31/2005	$	13.19	$	15.29		41,050
01/01/2006 to 12/31/2006	$	15.29	$	18.22		47,005
01/01/2007 to 12/31/2007	$	18.22	$	18.68		65,845
01/01/2008 to 12/31/2008	$	18.68	$	10.71		69,919
01/01/2009 to 12/31/2009	$	10.71	$	15.10		76,968
01/01/2010 to 12/31/2010	$	15.10	$	17.08		77,623
AllianceBernstein Growth and Income
01/01/2001 to 12/31/2001	$	10.42	$	10.39		32,671
01/01/2002 to 12/31/2002	$	10.39	$	8.05		75,086
01/01/2003 to 12/31/2003	$	8.05	$	10.60		93,253
01/01/2004 to 12/31/2004	$	10.60	$	11.73		105,742
01/01/2005 to 12/31/2005	$	11.73	$	12.23		102,212
01/01/2006 to 12/31/2006	$	12.23	$	14.25		103,043
01/01/2007 to 12/31/2007	$	14.25	$	14.88		90,542
01/01/2008 to 12/31/2008	$	14.88	$	8.78		82,706
01/01/2009 to 12/31/2009	$	8.78	$	10.54		78,224
01/01/2010 to 12/31/2010	$	10.54	$	11.84		65,441
AllianceBernstein Large Cap Growth
01/01/2001 to 12/31/2001	$	8.45	$	6.95		42,967
01/01/2002 to 12/31/2002	$	6.95	$	4.79		74,399
01/01/2003 to 12/31/2003	$	4.79	$	5.88		87,689
01/01/2004 to 12/31/2004	$	5.88	$	6.35		91,427
01/01/2005 to 12/31/2005	$	6.35	$	7.26		93,987
01/01/2006 to 12/31/2006	$	7.26	$	7.18		96,898
01/01/2007 to 12/31/2007	$	7.18	$	8.13		71,959
01/01/2008 to 12/31/2008	$	8.13	$	4.87		64,024
01/01/2009 to 12/31/2009	$	4.87	$	6.66		54,164
01/01/2010 to 12/31/2010	$	6.66	$	7.28		37,695

63

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
AllianceBernstein Small Cap Growth
01/01/2001 to 12/31/2001	$	10.27	$	8.91		735
01/01/2002 to 12/31/2002	$	8.91	$	6.04		987
01/01/2003 to 12/31/2003	$	6.04	$	8.93		1,261
01/01/2004 to 12/31/2004	$	8.93	$	10.17		1,532
01/01/2005 to 12/31/2005	$	10.17	$	10.63		1,722
01/01/2006 to 12/31/2006	$	10.63	$	11.69		3,180
01/01/2007 to 12/31/2007	$	11.69	$	13.25		2,953
01/01/2008 to 12/31/2008	$	13.25	$	7.17		3,063
01/01/2009 to 12/31/2009	$	7.17	$	10.10		3,189
01/01/2010 to 12/31/2010	$	10.10	$	13.73		3,086
American Century VP Income & Growth
01/01/2001 to 12/31/2001	$	9.31	$	8.47		3,292
01/01/2002 to 12/31/2002	$	8.47	$	6.79		8,089
01/01/2003 to 12/31/2003	$	6.79	$	8.72		16,490
01/01/2004 to 12/31/2004	$	8.72	$	9.79		23,608
01/01/2005 to 12/31/2005	$	9.79	$	10.18		25,384
01/01/2006 to 12/31/2006	$	10.18	$	11.84		27,693
01/01/2007 to 12/31/2007	$	11.84	$	11.76		24,127
01/01/2008 to 12/31/2008	$	11.76	$	7.64		21,442
01/01/2009 to 12/31/2009	$	7.64	$	8.97		24,275
01/01/2010 to 12/31/2010	$	8.97	$	10.17		19,738
Credit Suisse Trust U.S. Equity Flex III
01/01/2001 to 12/31/2001	$	10.23	$	8.50		3
01/01/2002 to 12/31/2002	$	8.50	$	5.97		63
01/01/2003 to 12/31/2003	$	5.97	$	8.51		157
01/01/2004 to 12/31/2004	$	8.51	$	9.56		646
01/01/2005 to 12/31/2005	$	9.56	$	10.16		5,606
01/01/2006 to 12/31/2006	$	10.16	$	10.29		11,928
01/01/2007 to 12/31/2007	$	10.29	$	11.41		12,744
01/01/2008 to 12/31/2008	$	11.41	$	7.00		11,221
01/01/2009 to 10/02/2009	$	7.00	$	8.35		—
Credit Suisse Trust U.S. Equity Flex I
10/02/2009* to 12/31/2009	$	8.35	$	9.06		12,236
01/01/2010 to 12/31/2010	$	9.06	$	10.30		12,188

64

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Davis Value
01/01/2001 to 12/31/2001	$	10.16	$	9.05		2,551
01/01/2002 to 12/31/2002	$	9.05	$	7.53		2,929
01/01/2003 to 12/31/2003	$	7.53	$	9.71		3,648
01/01/2004 to 12/31/2004	$	9.71	$	10.83		4,052
01/01/2005 to 12/31/2005	$	10.83	$	11.78		6,810
01/01/2006 to 12/31/2006	$	11.78	$	13.46		8,965
01/01/2007 to 12/31/2007	$	13.46	$	13.99		10,166
01/01/2008 to 12/31/2008	$	13.99	$	8.30		11,374
01/01/2009 to 12/31/2009	$	8.30	$	10.81		12,571
01/01/2010 to 12/31/2010	$	10.81	$	12.11		6,539
DELAWARE VIP Emerging Market Series
01/01/2005 to 12/31/2005		—	$	11.93		2,746
01/01/2006 to 12/31/2006	$	11.93	$	15.06		9,451
01/01/2007 to 12/31/2007	$	15.06	$	20.78		18,207
01/01/2008 to 12/31/2008	$	20.78	$	10.00		21,076
01/01/2009 to 12/31/2009	$	10.00	$	17.70		25,750
01/01/2010 to 12/31/2010	$	17.70	$	20.84		27,293
Dreyfus Socially Responsible Growth
01/01/2001 to 12/31/2001	$	9.10	$	7.02		566
01/01/2002 to 12/31/2002	$	7.02	$	4.95		23
01/01/2003 to 12/31/2003	$	4.95	$	6.21		42
01/01/2004 to 12/31/2004	$	6.21	$	6.55		94
01/01/2005 to 12/31/2005	$	6.55	$	6.74		337
01/01/2006 to 12/31/2006	$	6.74	$	7.31		553
01/01/2007 to 12/31/2007	$	7.31	$	7.83		815
01/01/2008 to 12/31/2008	$	7.83	$	5.10		312
01/01/2009 to 12/31/2009	$	5.10	$	6.78		479
01/01/2010 to 12/31/2010	$	6.78	$	7.73		564
Franklin Templeton Franklin Small-Mid Cap Growth
01/01/2001 to 12/31/2001	$	9.05	$	7.64		26,547
01/01/2002 to 12/31/2002	$	7.64	$	5.43		63,842
01/01/2003 to 12/31/2003	$	5.43	$	7.42		76,977
01/01/2004 to 12/31/2004	$	7.42	$	8.23		81,465
01/01/2005 to 12/31/2005	$	8.23	$	8.60		73,820
01/01/2006 to 12/31/2006	$	8.60	$	9.31		75,081
01/01/2007 to 12/31/2007	$	9.31	$	10.31		64,787
01/01/2008 to 12/31/2008	$	10.31	$	5.91		59,597
01/01/2009 to 12/31/2009	$	5.91	$	8.45		49,550
01/01/2010 to 12/31/2010	$	8.45	$	10.74		42,934

65

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Franklin Templeton Templeton Foreign Securities
01/01/2001 to 12/31/2001	$	10.20	$	8.54		570
01/01/2002 to 12/31/2002	$	8.54	$	6.92		3,601
01/01/2003 to 12/31/2003	$	6.92	$	9.11		4,644
01/01/2004 to 12/31/2004	$	9.11	$	10.76		7,762
01/01/2005 to 12/31/2005	$	10.76	$	11.81		14,306
01/01/2006 to 12/31/2006	$	11.81	$	14.28		20,639
01/01/2007 to 12/31/2007	$	14.28	$	16.43		17,993
01/01/2008 to 12/31/2008	$	16.43	$	9.76		23,364
01/01/2009 to 12/31/2009	$	9.76	$	13.31		25,877
01/01/2010 to 12/31/2010	$	13.31	$	14.37		23,526
Invesco V.I. Core Equity formerly, AIM V.I. Core Equity
01/01/2006 to 12/31/2006		—	$	15.13		8,964
01/01/2007 to 12/31/2007	$	15.13	$	16.25		10,178
01/01/2008 to 12/31/2008	$	16.25	$	11.28		10,103
01/01/2009 to 12/31/2009	$	11.28	$	14.38		10,158
01/01/2010 to 12/31/2010	$	14.38	$	15.65		8,156
Invesco V.I. Dynamics formerly, AIM V.I. Dynamics
01/01/2001 to 12/31/2001	$	9.75	$	6.67		10,835
01/01/2002 to 12/31/2002	$	6.67	$	4.51		11,563
01/01/2003 to 12/31/2003	$	4.51	$	6.18		14,222
01/01/2004 to 12/31/2004	$	6.18	$	6.96		17,991
01/01/2005 to 12/31/2005	$	6.96	$	7.66		16,679
01/01/2006 to 12/31/2006	$	7.66	$	8.83		18,026
01/01/2007 to 12/31/2007	$	8.83	$	9.85		16,713
01/01/2008 to 12/31/2008	$	9.85	$	5.08		14,440
01/01/2009 to 12/31/2009	$	5.08	$	7.19		13,818
01/01/2010 to 12/31/2010	$	7.19	$	8.84		11,902
Invesco V.I. Government Securities formerly, AIM V.I. Government Securities
01/01/2001 to 12/31/2001	$	10.77	$	11.39		13
01/01/2002 to 12/31/2002	$	11.39	$	12.91		1,114
01/01/2003 to 12/31/2003	$	12.91	$	12.97		2,280
01/01/2004 to 12/31/2004	$	12.97	$	13.21		2,351
01/01/2005 to 12/31/2005	$	13.21	$	13.35		2,696
01/01/2006 to 12/31/2006	$	13.35	$	13.73		4,180
01/01/2007 to 12/31/2007	$	13.73	$	14.51		3,692
01/01/2008 to 12/31/2008	$	14.51	$	16.19		11,839
01/01/2009 to 12/31/2009	$	16.19	$	16.08		10,653
01/01/2010 to 12/31/2010	$	16.08	$	16.84		5,225

66

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Invesco V.I. International Growth formerly, AIM V.I. International Growth
01/01/2001 to 12/31/2001	$	8.57	$	6.51		1
01/01/2002 to 12/31/2002	$	6.51	$	5.45		2,316
01/01/2003 to 12/31/2003	$	5.45	$	6.99		3,023
01/01/2004 to 12/31/2004	$	6.99	$	8.62		6,056
01/01/2005 to 12/31/2005	$	8.62	$	10.10		7,023
01/01/2006 to 12/31/2006	$	10.10	$	12.86		10,227
01/01/2007 to 12/31/2007	$	12.86	$	14.66		38,335
01/01/2008 to 12/31/2008	$	14.66	$	8.68		42,240
01/01/2009 to 12/31/2009	$	8.68	$	11.67		47,741
01/01/2010 to 12/31/2010	$	11.67	$	13.08		49,160
AIM V.I. Premier Equity (Closed in 2006)
01/01/2001 to 12/31/2001	$	14.51	$	12.60		5,125
01/01/2002 to 12/31/2002	$	12.60	$	8.73		6,756
01/01/2003 to 12/31/2003	$	8.73	$	10.85		8,321
01/01/2004 to 12/31/2004	$	10.85	$	11.40		9,060
01/01/2005 to 12/31/2005	$	11.40	$	11.97		10,319
01/01/2006 to 12/31/2006	$	11.97		—		—
Janus Aspen Growth and Income
01/01/2001 to 12/31/2001	$	9.25	$	7.96		3,170
01/01/2002 to 12/31/2002	$	7.96	$	6.21		17,827
01/01/2003 to 12/31/2003	$	6.21	$	7.63		22,361
01/01/2004 to 12/31/2004	$	7.63	$	8.48		29,463
01/01/2005 to 12/31/2005	$	8.48	$	9.47		31,036
01/01/2006 to 12/31/2006	$	9.47	$	10.17		43,276
01/01/2007 to 12/31/2007	$	10.17	$	10.98		94,650
01/01/2008 to 12/31/2008	$	10.98	$	6.42		92,224
01/01/2009 to 12/31/2009	$	6.42	$	8.88		101,584
01/01/2010 to 04/30/2010	$	8.88	$	9.41		—
Janus Aspen Enterprise
01/01/2001 to 12/31/2001	$	7.91	$	4.76		47,541
01/01/2002 to 12/31/2002	$	4.76	$	3.41		66,880
01/01/2003 to 12/31/2003	$	3.41	$	4.57		84,337
01/01/2004 to 12/31/2004	$	4.57	$	5.48		89,994
01/01/2005 to 12/31/2005	$	5.48	$	6.12		80,687
01/01/2006 to 12/31/2006	$	6.12	$	6.91		85,580
01/01/2007 to 12/31/2007	$	6.91	$	8.38		81,869
01/01/2008 to 12/31/2008	$	8.38	$	4.68		81,803
01/01/2009 to 12/31/2009	$	4.68	$	6.74		83,026
01/01/2010 to 12/31/2010	$	6.74	$	8.43		67,965

67

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Janus Aspen Worldwide
01/01/2001 to 12/31/2001	$	8.70	$	6.70		4,136
01/01/2002 to 12/31/2002	$	6.70	$	4.96		8,621
01/01/2003 to 12/31/2003	$	4.96	$	6.11		10,141
01/01/2004 to 12/31/2004	$	6.11	$	6.36		10,384
01/01/2005 to 12/31/2005	$	6.36	$	6.69		12,217
01/01/2006 to 12/31/2006	$	6.69	$	7.86		14,158
01/01/2007 to 12/31/2007	$	7.86	$	8.56		13,570
01/01/2008 to 12/31/2008	$	8.56	$	4.71		12,693
01/01/2009 to 12/31/2009	$	4.71	$	6.44		10,356
01/01/2010 to 12/31/2010	$	6.44	$	7.41		8,186
MFS Growth
01/01/2001 to 12/31/2001	$	18.97	$	12.54		7,108
01/01/2002 to 12/31/2002	$	12.54	$	8.25		11,484
01/01/2003 to 12/31/2003	$	8.25	$	10.67		13,639
01/01/2004 to 12/31/2004	$	10.67	$	11.98		15,257
01/01/2005 to 12/31/2005	$	11.98	$	13.00		14,226
01/01/2006 to 12/31/2006	$	13.00	$	13.93		15,307
01/01/2007 to 12/31/2007	$	13.93	$	16.77		7,107
01/01/2008 to 12/31/2008	$	16.77	$	10.43		6,355
01/01/2009 to 12/31/2009	$	10.43	$	14.26		6,935
01/01/2010 to 12/31/2010	$	14.26	$	16.35		6,453
MFS Investors Growth
01/01/2001 to 12/31/2001	$	9.48	$	7.15		1,043
01/01/2002 to 12/31/2002	$	7.15	$	5.14		1,329
01/01/2003 to 12/31/2003	$	5.14	$	6.29		1,767
01/01/2004 to 12/31/2004	$	6.29	$	6.82		3,500
01/01/2005 to 12/31/2005	$	6.82	$	7.08		3,668
01/01/2006 to 12/31/2006	$	7.08	$	7.57		4,102
01/01/2007 to 12/31/2007	$	7.57	$	8.37		3,418
01/01/2008 to 12/31/2008	$	8.37	$	5.25		3,373
01/01/2009 to 12/31/2009	$	5.25	$	7.28		3,355
01/01/2010 to 12/31/2010	$	7.28	$	8.14		2,998

68

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
MFS Investors Trust
01/01/2001 to 12/31/2001	$	10.06	$	8.40		302
01/01/2002 to 12/31/2002	$	8.40	$	6.59		813
01/01/2003 to 12/31/2003	$	6.59	$	8.00		1,310
01/01/2004 to 12/31/2004	$	8.00	$	8.85		1,693
01/01/2005 to 12/31/2005	$	8.85	$	9.44		2,050
01/01/2006 to 12/31/2006	$	9.44	$	10.60		2,408
01/01/2007 to 12/31/2007	$	10.60	$	11.61		2,718
01/01/2008 to 12/31/2008	$	11.61	$	7.72		2,695
01/01/2009 to 12/31/2009	$	7.72	$	9.74		2,625
01/01/2010 to 12/31/2010	$	9.74	$	10.75		2,741
MFS Research Bond
01/01/2001 to 12/31/2001	$	10.89	$	11.76		1,448
01/01/2002 to 12/31/2002	$	11.76	$	12.73		3,731
01/01/2003 to 12/31/2003	$	12.73	$	13.83		7,291
01/01/2004 to 12/31/2004	$	13.83	$	14.57		6,921
01/01/2005 to 12/31/2005	$	14.57	$	14.70		9,031
01/01/2006 to 12/31/2006	$	14.70	$	15.19		11,000
01/01/2007 to 12/31/2007	$	15.19	$	15.73		12,989
01/01/2008 to 12/31/2008	$	15.73	$	15.26		11,252
01/01/2009 to 12/31/2009	$	15.26	$	17.61		10,949
01/01/2010 to 12/31/2010	$	17.61	$	18.80		10,197
MFS Total Return
01/01/2001 to 12/31/2001	$	10.00	$	9.96		829
01/01/2002 to 12/31/2002	$	9.96	$	9.38		10,474
01/01/2003 to 12/31/2003	$	9.38	$	10.85		16,432
01/01/2004 to 12/31/2004	$	10.85	$	11.99		22,437
01/01/2005 to 12/31/2005	$	11.99	$	12.25		25,174
01/01/2006 to 12/31/2006	$	12.25	$	13.62		28,825
01/01/2007 to 12/31/2007	$	13.62	$	14.10		26,277
01/01/2008 to 12/31/2008	$	14.10	$	10.91		29,061
01/01/2009 to 12/31/2009	$	10.91	$	12.80		29,292
01/01/2010 to 12/31/2010	$	12.80	$	13.98		25,468
PIMCO PVIT Short Term
01/01/2005 to 12/31/2005		—	$	10.20		—
01/01/2006 to 12/31/2006	$	10.20	$	10.57		396
01/01/2007 to 12/31/2007	$	10.57	$	10.97		749
01/01/2008 to 12/31/2008	$	10.97	$	10.87		7,607
01/01/2009 to 12/31/2009	$	10.87	$	11.64		7,725
01/01/2010 to 12/31/2010	$	11.64	$	11.81		8,133

69

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
T. ROWE PRICE Equity Income
01/01/2005 to 12/31/2005		—	$	17.37		9,527
01/01/2006 to 12/31/2006	$	17.37	$	20.53		13,356
01/01/2007 to 12/31/2007	$	20.53	$	21.06		11,239
01/01/2008 to 12/31/2008	$	21.06	$	13.37		7,802
01/01/2009 to 12/31/2009	$	13.37	$	16.68		9,441
01/01/2010 to 12/31/2010	$	16.68	$	19.06		8,061

* Date that Portfolio was first offered in this product

70

THE PRUDENTIAL DISCOVERY PREMIER GROUP VARIABLE ANNUITY CONTRACT ACCOUNT

(CONDENSED FINANCIAL INFORMATION)

ACCUMULATION UNIT VALUES: Assumes An Administrative Fee of .35% and Mortality & Expense Charge Fee of .15%

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Conservative Balanced
01/01/2001 to 12/31/2001	$	11.91	$	11.61		25,550
01/01/2002 to 12/31/2002	$	11.61	$	10.51		33,263
01/01/2003 to 12/31/2003	$	10.51	$	12.43		37,409
01/01/2004 to 12/31/2004	$	12.43	$	13.36		45,661
01/01/2005 to 12/31/2005	$	13.36	$	13.75		44,783
01/01/2006 to 12/31/2006	$	13.75	$	15.11		40,908
01/01/2007 to 12/31/2007	$	15.11	$	15.95		41,632
01/01/2008 to 12/31/2008	$	15.95	$	12.47		49,451
01/01/2009 to 12/31/2009	$	12.47	$	14.90		52,664
01/01/2010 to 12/31/2010	$	14.90	$	16.56		57,716
Prudential Series Fund Diversified Bond
01/01/2001 to 12/31/2001	$	11.76	$	12.51		29,304
01/01/2002 to 12/31/2002	$	12.51	$	13.33		31,545
01/01/2003 to 12/31/2003	$	13.33	$	14.26		36,212
01/01/2004 to 12/31/2004	$	14.26	$	14.98		40,660
01/01/2005 to 12/31/2005	$	14.98	$	15.39		53,979
01/01/2006 to 12/31/2006	$	15.39	$	16.08		56,322
01/01/2007 to 12/31/2007	$	16.08	$	16.91		63,387
01/01/2008 to 12/31/2008	$	16.91	$	16.25		68,603
01/01/2009 to 12/31/2009	$	16.25	$	19.48		75,774
01/01/2010 to 12/31/2010	$	19.48	$	21.43		92,219
Prudential Series Fund Equity
01/01/2001 to 12/31/2001	$	12.86	$	11.37		153,304
01/01/2002 to 12/31/2002	$	11.37	$	8.78		164,340
01/01/2003 to 12/31/2003	$	8.78	$	11.51		183,979
01/01/2004 to 12/31/2004	$	11.51	$	12.59		202,433
01/01/2005 to 12/31/2005	$	12.59	$	13.96		204,088
01/01/2006 to 12/31/2006	$	13.96	$	15.64		209,833
01/01/2007 to 12/31/2007	$	15.64	$	17.01		215,408
01/01/2008 to 12/31/2008	$	17.01	$	10.47		218,186
01/01/2009 to 12/31/2009	$	10.47	$	14.39		228,738
01/01/2010 to 12/31/2010	$	14.39	$	16.02		234,862

71

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Flexible Managed
01/01/2001 to 12/31/2001	$	11.70	$	10.98		61,397
01/01/2002 to 12/31/2002	$	10.98	$	9.53		65,727
01/01/2003 to 12/31/2003	$	9.53	$	11.74		74,797
01/01/2004 to 12/31/2004	$	11.74	$	12.94		83,549
01/01/2005 to 12/31/2005	$	12.94	$	13.41		84,965
01/01/2006 to 12/31/2006	$	13.41	$	14.97		83,930
01/01/2007 to 12/31/2007	$	14.97	$	15.84		85,781
01/01/2008 to 12/31/2008	$	15.84	$	11.85		74,949
01/01/2009 to 12/31/2009	$	11.85	$	14.14		75,398
01/01/2010 to 12/31/2010	$	14.14	$	15.76		76,546
Prudential Series Fund Global
01/01/2001 to 12/31/2001	$	13.66	$	11.20		26,133
01/01/2002 to 12/31/2002	$	11.20	$	8.34		29,975
01/01/2003 to 12/31/2003	$	8.34	$	11.13		34,971
01/01/2004 to 12/31/2004	$	11.13	$	12.13		40,416
01/01/2005 to 12/31/2005	$	12.13	$	14.01		39,976
01/01/2006 to 12/31/2006	$	14.01	$	16.68		40,445
01/01/2007 to 12/31/2007	$	16.68	$	18.34		38,032
01/01/2008 to 12/31/2008	$	18.34	$	10.41		38,758
01/01/2009 to 12/31/2009	$	10.41	$	13.61		42,084
01/01/2010 to 12/31/2010	$	13.61	$	15.27		43,709
Prudential Series Fund Government Income
01/01/2001 to 12/31/2001	$	12.30	$	13.23		17,056
01/01/2002 to 12/31/2002	$	13.23	$	14.75		31,244
01/01/2003 to 12/31/2003	$	14.75	$	15.04		34,774
01/01/2004 to 12/31/2004	$	15.04	$	15.43		37,626
01/01/2005 to 12/31/2005	$	15.43	$	15.74		40,411
01/01/2006 to 12/31/2006	$	15.74	$	16.25		38,050
01/01/2007 to 12/31/2007	$	16.25	$	17.09		38,551
01/01/2008 to 12/31/2008	$	17.09	$	17.73		45,918
01/01/2009 to 12/31/2009	$	17.73	$	19.00		52,316
01/01/2010 to 12/31/2010	$	19.00	$	20.23		55,857

72

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund High Yield Bond
01/01/2001 to 12/31/2001	$	9.76	$	9.66		—
01/01/2002 to 12/31/2002	$	9.66	$	9.76		4,147
01/01/2003 to 12/31/2003	$	9.76	$	12.14		4,216
01/01/2004 to 12/31/2004	$	12.14	$	13.33		4,103
01/01/2005 to 12/31/2005	$	13.33	$	13.71		1,234
01/01/2006 to 12/31/2006	$	13.71	$	15.04		—
01/01/2007 to 12/31/2007	$	15.04	$	15.36		—
01/01/2008 to 12/31/2008	$	15.36	$	11.88		—
01/01/2009 to 12/31/2009	$	11.88	$	17.40		—
01/01/2010 to 12/31/2010	$	17.40	$	19.74		—
Prudential Series Fund Jennison
01/01/2001 to 12/31/2001	$	15.94	$	12.96		131,755
01/01/2002 to 12/31/2002	$	12.96	$	8.91		171,328
01/01/2003 to 12/31/2003	$	8.91	$	11.54		191,546
01/01/2004 to 12/31/2004	$	11.54	$	12.59		212,127
01/01/2005 to 12/31/2005	$	12.59	$	14.35		232,271
01/01/2006 to 12/31/2006	$	14.35	$	14.54		40,091
01/01/2007 to 12/31/2007	$	14.54	$	16.20		43,356
01/01/2008 to 12/31/2008	$	16.20	$	10.11		42,253
01/01/2009 to 12/31/2009	$	10.11	$	14.39		19,262
01/01/2010 to 12/31/2010	$	14.39	$	16.03		14,675
Prudential Series Fund Jennison 20/20 Focus
01/01/2001 to 12/31/2001	$	10.24	$	10.09		—
01/01/2002 to 12/31/2002	$	10.09	$	7.80		—
01/01/2003 to 12/31/2003	$	7.80	$	10.04		—
01/01/2004 to 12/31/2004	$	10.04	$	11.58		—
01/01/2005 to 12/31/2005	$	11.58	$	14.01		417
01/01/2006 to 12/31/2006	$	14.01	$	15.91		—
01/01/2007 to 12/31/2007	$	15.91	$	17.51		—
01/01/2008 to 12/31/2008	$	17.51	$	10.60		—
01/01/2009 to 12/31/2009	$	10.60	$	16.65		—
01/01/2010 to 12/31/2010	$	16.65	$	17.87		—

73

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Money Market
01/01/2001 to 12/31/2001	$	11.86	$	12.28		27
01/01/2002 to 12/31/2002	$	12.28	$	12.40		1,665
01/01/2003 to 12/31/2003	$	12.40	$	12.45		10,006
01/01/2004 to 12/31/2004	$	12.45	$	12.51		10,992
01/01/2005 to 12/31/2005	$	12.51	$	12.81		7,405
01/01/2006 to 12/31/2006	$	12.81	$	13.35		—
01/01/2007 to 12/31/2007	$	13.35	$	13.96		—
01/01/2008 to 12/31/2008	$	13.96	$	14.25		—
01/01/2009 to 12/31/2009	$	14.25	$	14.24		—
01/01/2010 to 12/31/2010	$	14.24	$	14.17		—
Prudential Series Fund Small Capitalization Stock
01/01/2001 to 12/31/2001	$	11.11	$	11.66		8,830
01/01/2002 to 12/31/2002	$	11.66	$	9.87		72,601
01/01/2003 to 12/31/2003	$	9.87	$	13.58		87,327
01/01/2004 to 12/31/2004	$	13.58	$	16.48		99,461
01/01/2005 to 12/31/2005	$	16.48	$	17.59		114,320
01/01/2006 to 12/31/2006	$	17.59	$	20.07		—
01/01/2007 to 12/31/2007	$	20.07	$	19.87		—
01/01/2008 to 12/31/2008	$	19.87	$	13.63		—
01/01/2009 to 12/31/2009	$	13.63	$	16.98		—
01/01/2010 to 12/31/2010	$	16.98	$	21.28		—
Prudential Series Fund Stock Index
01/01/2001 to 12/31/2001	$	14.49	$	12.68		171,491
01/01/2002 to 12/31/2002	$	12.68	$	9.82		200,721
01/01/2003 to 12/31/2003	$	9.82	$	12.52		236,032
01/01/2004 to 12/31/2004	$	12.52	$	13.76		258,813
01/01/2005 to 12/31/2005	$	13.76	$	14.32		260,848
01/01/2006 to 12/31/2006	$	14.32	$	16.46		274,389
01/01/2007 to 12/31/2007	$	16.46	$	17.21		289,404
01/01/2008 to 12/31/2008	$	17.21	$	10.80		260,197
01/01/2009 to 12/31/2009	$	10.80	$	13.55		278,002
01/01/2010 to 12/31/2010	$	13.55	$	15.45		297,004

74

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Prudential Series Fund Value
01/01/2001 to 12/31/2001	$	11.90	$	11.60		33,895
01/01/2002 to 12/31/2002	$	11.60	$	9.01		46,210
01/01/2003 to 12/31/2003	$	9.01	$	11.48		46,460
01/01/2004 to 12/31/2004	$	11.48	$	13.28		49,580
01/01/2005 to 12/31/2005	$	13.28	$	15.42		45,616
01/01/2006 to 12/31/2006	$	15.42	$	18.40		—
01/01/2007 to 12/31/2007	$	18.40	$	18.89		—
01/01/2008 to 12/31/2008	$	18.89	$	10.85		—
01/01/2009 to 12/31/2009	$	10.85	$	15.32		—
01/01/2010 to 12/31/2010	$	15.32	$	17.36		—
AllianceBernstein Growth and Income
01/01/2001 to 12/31/2001	$	10.43	$	10.42		73,326
01/01/2002 to 12/31/2002	$	10.42	$	8.08		109,599
01/01/2003 to 12/31/2003	$	8.08	$	10.65		116,322
01/01/2004 to 12/31/2004	$	10.65	$	11.81		131,561
01/01/2005 to 12/31/2005	$	11.81	$	12.33		134,369
01/01/2006 to 12/31/2006	$	12.33	$	14.39		—
01/01/2007 to 12/31/2007	$	14.39	$	15.05		—
01/01/2008 to 12/31/2008	$	15.05	$	8.89		—
01/01/2009 to 12/31/2009	$	8.89	$	10.69		—
01/01/2010 to 12/31/2010	$	10.69	$	12.03		—
AllianceBernstein Large Cap Growth
01/01/2001 to 12/31/2001	$	8.45	$	6.96		269,447
01/01/2002 to 12/31/2002	$	6.96	$	4.81		338,637
01/01/2003 to 12/31/2003	$	4.81	$	5.91		367,535
01/01/2004 to 12/31/2004	$	5.91	$	6.39		382,357
01/01/2005 to 12/31/2005	$	6.39	$	7.32		375,201
01/01/2006 to 12/31/2006	$	7.32	$	7.25		—
01/01/2007 to 12/31/2007	$	7.25	$	8.22		—
01/01/2008 to 12/31/2008	$	8.22	$	4.94		—
01/01/2009 to 12/31/2009	$	4.94	$	6.75		—
01/01/2010 to 12/31/2010	$	6.75	$	7.40		—

75

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
AllianceBernstein Small Cap Growth
01/01/2001 to 12/31/2001	$	10.28	$	8.93		—
01/01/2002 to 12/31/2002	$	8.93	$	6.06		—
01/01/2003 to 12/31/2003	$	6.06	$	8.98		165
01/01/2004 to 12/31/2004	$	8.98	$	10.24		165
01/01/2005 to 12/31/2005	$	10.24	$	10.72		165
01/01/2006 to 12/31/2006	$	10.72	$	11.81		—
01/01/2007 to 12/31/2007	$	11.81	$	13.40		—
01/01/2008 to 12/31/2008	$	13.40	$	7.26		—
01/01/2009 to 12/31/2009	$	7.26	$	10.24		—
01/01/2010 to 12/31/2010	$	10.24	$	13.95		—
American Century VP Income & Growth
01/01/2001 to 12/31/2001	$	9.31	$	8.49		11,639
01/01/2002 to 12/31/2002	$	8.49	$	6.81		12,876
01/01/2003 to 12/31/2003	$	6.81	$	8.77		13,509
01/01/2004 to 12/31/2004	$	8.77	$	9.86		13,878
01/01/2005 to 12/31/2005	$	9.86	$	10.27		14,643
01/01/2006 to 12/31/2006	$	10.27	$	11.96		—
01/01/2007 to 12/31/2007	$	11.96	$	11.89		—
01/01/2008 to 12/31/2008	$	11.89	$	7.74		—
01/01/2009 to 12/31/2009	$	7.74	$	9.10		—
01/01/2010 to 12/31/2010	$	9.10	$	10.33		—
Credit Suisse Trust U.S. Equity Flex III
01/01/2001 to 12/31/2001	$	10.24	$	8.52		2,363
01/01/2002 to 12/31/2002	$	8.52	$	5.99		3,509
01/01/2003 to 12/31/2003	$	5.99	$	8.55		8,768
01/01/2004 to 12/31/2004	$	8.55	$	9.63		28,994
01/01/2005 to 12/31/2005	$	9.63	$	10.25		28,523
01/01/2006 to 12/31/2006	$	10.25	$	10.39		17,024
01/01/2007 to 12/31/2007	$	10.39	$	11.54		18,761
01/01/2008 to 12/31/2008	$	11.54	$	7.09		20,846
01/01/2009 to 10/02/2009	$	7.09	$	8.46		—
Credit Suisse Trust U.S. Equity Flex I
10/02/2009* to 12/31/2009	$	8.46	$	9.19		27,060
01/01/2010 to 12/31/2010	$	9.19	$	10.47		27,360

76

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Davis Value
01/01/2001 to 12/31/2001	$	10.17	$	9.07		5,475
01/01/2002 to 12/31/2002	$	9.07	$	7.56		17,909
01/01/2003 to 12/31/2003	$	7.56	$	9.76		14,519
01/01/2004 to 12/31/2004	$	9.76	$	10.91		21,037
01/01/2005 to 12/31/2005	$	10.91	$	11.88		27,505
01/01/2006 to 12/31/2006	$	11.88	$	13.59		—
01/01/2007 to 12/31/2007	$	13.59	$	14.15		—
01/01/2008 to 12/31/2008	$	14.15	$	8.40		—
01/01/2009 to 12/31/2009	$	8.40	$	10.97		—
01/01/2010 to 12/31/2010	$	10.97	$	12.31		—
DELAWARE VIP Emerging Market Series
01/01/2005 to 12/31/2005		—	$	11.94		50,470
01/01/2006 to 12/31/2006	$	11.94	$	15.11		55,901
01/01/2007 to 12/31/2007	$	15.11	$	20.87		85,436
01/01/2008 to 12/31/2008	$	20.87	$	10.06		95,200
01/01/2009 to 12/31/2009	$	10.06	$	17.83		112,788
01/01/2010 to 12/31/2010	$	17.83	$	21.02		121,511
Dreyfus Socially Responsible Growth
01/01/2001 to 12/31/2001	$	9.11	$	7.04		—
01/01/2002 to 12/31/2002	$	7.04	$	4.97		—
01/01/2003 to 12/31/2003	$	4.97	$	6.24		—
01/01/2004 to 12/31/2004	$	6.24	$	6.60		—
01/01/2005 to 12/31/2005	$	6.60	$	6.80		—
01/01/2006 to 12/31/2006	$	6.80	$	7.38		—
01/01/2007 to 12/31/2007	$	7.38	$	7.92		—
01/01/2008 to 12/31/2008	$	7.92	$	5.17		—
01/01/2009 to 12/31/2009	$	5.17	$	6.88		—
01/01/2010 to 12/31/2010	$	6.88	$	7.86		—
Franklin Templeton Franklin Small-Mid Cap Growth
01/01/2001 to 12/31/2001	$	9.06	$	7.66		188,643
01/01/2002 to 12/31/2002	$	7.66	$	5.45		291,543
01/01/2003 to 12/31/2003	$	5.45	$	7.46		335,718
01/01/2004 to 12/31/2004	$	7.46	$	8.29		374,187
01/01/2005 to 12/31/2005	$	8.29	$	8.67		381,829
01/01/2006 to 12/31/2006	$	8.67	$	9.40		58,442
01/01/2007 to 12/31/2007	$	9.40	$	10.43		66,172
01/01/2008 to 12/31/2008	$	10.43	$	5.98		63,581
01/01/2009 to 12/31/2009	$	5.98	$	8.57		61,926
01/01/2010 to 12/31/2010	$	8.57	$	10.91		96,439

77

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Franklin Templeton Templeton Foreign Securities
01/01/2001 to 12/31/2001	$	10.20	$	8.56		176
01/01/2002 to 12/31/2002	$	8.56	$	6.95		7,592
01/01/2003 to 12/31/2003	$	6.95	$	9.16		14,945
01/01/2004 to 12/31/2004	$	9.16	$	10.84		18,056
01/01/2005 to 12/31/2005	$	10.84	$	11.91		22,905
01/01/2006 to 12/31/2006	$	11.91	$	14.42		22,095
01/01/2007 to 12/31/2007	$	14.42	$	16.62		26,423
01/01/2008 to 12/31/2008	$	16.62	$	9.88		24,742
01/01/2009 to 12/31/2009	$	9.88	$	13.51		27,059
01/01/2010 to 12/31/2010	$	13.51	$	14.60		31,229
Invesco V.I. Core Equity formerly, AIM V.I. Core Equity
01/01/2006 to 12/31/2006		—	$	15.15		—
01/01/2007 to 12/31/2007	$	15.15	$	16.30		—
01/01/2008 to 12/31/2008	$	16.30	$	11.33		—
01/01/2009 to 12/31/2009	$	11.33	$	14.46		—
01/01/2010 to 12/31/2010	$	14.46	$	15.76		—
Invesco V.I. Dynamics formerly, AIM V.I. Dynamics
01/01/2001 to 12/31/2001	$	9.76	$	6.69		29,671
01/01/2002 to 12/31/2002	$	6.69	$	4.53		39,232
01/01/2003 to 12/31/2003	$	4.53	$	6.21		44,743
01/01/2004 to 12/31/2004	$	6.21	$	7.01		50,538
01/01/2005 to 12/31/2005	$	7.01	$	7.72		46,401
01/01/2006 to 12/31/2006	$	7.72	$	8.92		—
01/01/2007 to 12/31/2007	$	8.92	$	9.96		—
01/01/2008 to 12/31/2008	$	9.96	$	5.14		—
01/01/2009 to 12/31/2009	$	5.14	$	7.29		—
01/01/2010 to 12/31/2010	$	7.29	$	8.98		—
Invesco V.I. Government Securities formerly, AIM V.I. Government Securities
01/01/2001 to 12/31/2001	$	10.78	$	11.42		—
01/01/2002 to 12/31/2002	$	11.42	$	12.96		1,393
01/01/2003 to 12/31/2003	$	12.96	$	13.04		2
01/01/2004 to 12/31/2004	$	13.04	$	13.31		2
01/01/2005 to 12/31/2005	$	13.31	$	13.46		2
01/01/2006 to 12/31/2006	$	13.46	$	13.87		—
01/01/2007 to 12/31/2007	$	13.87	$	14.67		—
01/01/2008 to 12/31/2008	$	14.67	$	16.40		—
01/01/2009 to 12/31/2009	$	16.40	$	16.31		—
01/01/2010 to 12/31/2010	$	16.31	$	17.11		—

78

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Invesco V.I. International Growth formerly, AIM V.I. International Growth
01/01/2001 to 12/31/2001	$	8.58	$	6.52		—
01/01/2002 to 12/31/2002	$	6.52	$	5.48		—
01/01/2003 to 12/31/2003	$	5.48	$	7.03		—
01/01/2004 to 12/31/2004	$	7.03	$	8.68		—
01/01/2005 to 12/31/2005	$	8.68	$	10.18		10,389
01/01/2006 to 12/31/2006	$	10.18	$	12.99		—
01/01/2007 to 12/31/2007	$	12.99	$	14.83		—
01/01/2008 to 12/31/2008	$	14.83	$	8.80		—
01/01/2009 to 12/31/2009	$	8.80	$	11.84		—
01/01/2010 to 12/31/2010	$	11.84	$	13.29		—
AIM V.I. Premier Equity (Closed in 2006)
01/01/2001 to 12/31/2001	$	14.52	$	12.64		65,942
01/01/2002 to 12/31/2002	$	12.64	$	8.77		71,257
01/01/2003 to 12/31/2003	$	8.77	$	10.91		79,504
01/01/2004 to 12/31/2004	$	10.91	$	11.48		75,739
01/01/2005 to 12/31/2005	$	11.48	$	12.07		77,798
01/01/2006 to 12/31/2006	$	12.07		—		—
Janus Aspen Growth and Income
01/01/2001 to 12/31/2001	$	9.26	$	7.98		18,416
01/01/2002 to 12/31/2002	$	7.98	$	6.23		23,298
01/01/2003 to 12/31/2003	$	6.23	$	7.67		31,631
01/01/2004 to 12/31/2004	$	7.67	$	8.54		36,613
01/01/2005 to 12/31/2005	$	8.54	$	9.55		61,348
01/01/2006 to 12/31/2006	$	9.55	$	10.27		66,401
01/01/2007 to 12/31/2007	$	10.27	$	11.11		60,731
01/01/2008 to 12/31/2008	$	11.11	$	6.50		67,862
01/01/2009 to 12/31/2009	$	6.50	$	9.01		77,960
01/01/2010 to 04/30/2010	$	9.01	$	9.55		—
Janus Aspen Enterprise
01/01/2001 to 12/31/2001	$	7.91	$	4.77		263,979
01/01/2002 to 12/31/2002	$	4.77	$	3.42		126,289
01/01/2003 to 12/31/2003	$	3.42	$	4.60		138,588
01/01/2004 to 12/31/2004	$	4.60	$	5.52		139,644
01/01/2005 to 12/31/2005	$	5.52	$	6.17		146,568
01/01/2006 to 12/31/2006	$	6.17	$	6.98		58,554
01/01/2007 to 12/31/2007	$	6.98	$	8.47		68,241
01/01/2008 to 12/31/2008	$	8.47	$	4.74		80,654
01/01/2009 to 12/31/2009	$	4.74	$	6.84		84,100
01/01/2010 to 12/31/2010	$	6.84	$	8.56		92,262

79

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
Janus Aspen Worldwide
01/01/2001 to 12/31/2001	$	8.70	$	6.72		73,719
01/01/2002 to 12/31/2002	$	6.72	$	4.98		91,291
01/01/2003 to 12/31/2003	$	4.98	$	6.14		102,919
01/01/2004 to 12/31/2004	$	6.14	$	6.41		110,206
01/01/2005 to 12/31/2005	$	6.41	$	6.74		114,729
01/01/2006 to 12/31/2006	$	6.74	$	7.94		45,455
01/01/2007 to 12/31/2007	$	7.94	$	8.66		45,641
01/01/2008 to 12/31/2008	$	8.66	$	4.77		40,085
01/01/2009 to 12/31/2009	$	4.77	$	6.53		46,907
01/01/2010 to 12/31/2010	$	6.53	$	7.53		45,273
MFS Growth
01/01/2001 to 12/31/2001	$	18.99	$	12.57		522
01/01/2002 to 12/31/2002	$	12.57	$	8.28		6,307
01/01/2003 to 12/31/2003	$	8.28	$	10.73		8,345
01/01/2004 to 12/31/2004	$	10.73	$	12.06		10,303
01/01/2005 to 12/31/2005	$	12.06	$	13.11		7,409
01/01/2006 to 12/31/2006	$	13.11	$	14.07		—
01/01/2007 to 12/31/2007	$	14.07	$	16.96		—
01/01/2008 to 12/31/2008	$	16.96	$	10.56		—
01/01/2009 to 12/31/2009	$	10.56	$	14.47		—
01/01/2010 to 12/31/2010	$	14.47	$	16.61		—
MFS Investors Growth
01/01/2001 to 12/31/2001	$	9.49	$	7.16		5,333
01/01/2002 to 12/31/2002	$	7.16	$	5.16		12,096
01/01/2003 to 12/31/2003	$	5.16	$	6.32		15,637
01/01/2004 to 12/31/2004	$	6.32	$	6.87		16,400
01/01/2005 to 12/31/2005	$	6.87	$	7.14		22,468
01/01/2006 to 12/31/2006	$	7.14	$	7.64		20,996
01/01/2007 to 12/31/2007	$	7.64	$	8.47		27,548
01/01/2008 to 12/31/2008	$	8.47	$	5.32		27,157
01/01/2009 to 12/31/2009	$	5.32	$	7.39		31,518
01/01/2010 to 12/31/2010	$	7.39	$	8.27		39,071

80

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
MFS Investors Trust
01/01/2001 to 12/31/2001	$	10.07	$	8.42		—
01/01/2002 to 12/31/2002	$	8.42	$	6.62		—
01/01/2003 to 12/31/2003	$	6.62	$	8.05		106
01/01/2004 to 12/31/2004	$	8.05	$	8.91		109
01/01/2005 to 12/31/2005	$	8.91	$	9.52		212
01/01/2006 to 12/31/2006	$	9.52	$	10.70		—
01/01/2007 to 12/31/2007	$	10.70	$	11.75		—
01/01/2008 to 12/31/2008	$	11.75	$	7.82		—
01/01/2009 to 12/31/2009	$	7.82	$	9.88		—
01/01/2010 to 12/31/2010	$	9.88	$	10.92		—
MFS Research Bond
01/01/2001 to 12/31/2001	$	10.90	$	11.79		—
01/01/2002 to 12/31/2002	$	11.79	$	12.78		—
01/01/2003 to 12/31/2003	$	12.78	$	13.90		—
01/01/2004 to 12/31/2004	$	13.90	$	14.67		—
01/01/2005 to 12/31/2005	$	14.67	$	14.82		—
01/01/2006 to 12/31/2006	$	14.82	$	15.34		—
01/01/2007 to 12/31/2007	$	15.34	$	15.91		—
01/01/2008 to 12/31/2008	$	15.91	$	15.46		—
01/01/2009 to 12/31/2009	$	15.46	$	17.86		—
01/01/2010 to 12/31/2010	$	17.86	$	19.10		—
MFS Total Return
01/01/2001 to 12/31/2001	$	10.01	$	9.98		6,760
01/01/2002 to 12/31/2002	$	9.98	$	9.42		9,551
01/01/2003 to 12/31/2003	$	9.42	$	10.90		6,744
01/01/2004 to 12/31/2004	$	10.90	$	12.08		5,917
01/01/2005 to 12/31/2005	$	12.08	$	12.36		8,769
01/01/2006 to 12/31/2006	$	12.36	$	13.76		—
01/01/2007 to 12/31/2007	$	13.76	$	14.27		—
01/01/2008 to 12/31/2008	$	14.27	$	11.05		—
01/01/2009 to 12/31/2009	$	11.05	$	12.98		—
01/01/2010 to 12/31/2010	$	12.98	$	14.20		—
PIMCO PVIT Short Term
01/01/2005 to 12/31/2005		—	$	10.21		2,156
01/01/2006 to 12/31/2006	$	10.21	$	10.60		2,432
01/01/2007 to 12/31/2007	$	10.60	$	11.02		3,697
01/01/2008 to 12/31/2008	$	11.02	$	10.93		8,757
01/01/2009 to 12/31/2009	$	10.93	$	11.72		26,096
01/01/2010 to 12/31/2010	$	11.72	$	11.91		23,980

81

	ACCUMULATION UNIT VALUE AT BEGINNING OF PERIOD (ROUNDED)		ACCUMULATION UNIT VALUE AT END OF PERIOD (ROUNDED)		NUMBER OF ACCUMULATION UNITS OUTSTANDING AT END OF PERIOD
T. ROWE PRICE Equity Income
01/01/2005 to 12/31/2005		—	$	17.38		9,417
01/01/2006 to 12/31/2006	$	17.38	$	20.58		—
01/01/2007 to 12/31/2007	$	20.58	$	21.14		30,520
01/01/2008 to 12/31/2008	$	21.14	$	13.44		36,797
01/01/2009 to 12/31/2009	$	13.44	$	16.80		36,153
01/01/2010 to 12/31/2010	$	16.80	$	19.22		41,564

* Date that Portfolio was first offered in this product

82

  PRUDENTIAL RETIREMENT 30 Scranton Office Park Scranton, PA 18507-1789 Presorted Bound Printed
Matter
U.S. Postage
PAID
Prudential

DISCOVERY PREMIER

GROUP RETIREMENT ANNUITY

DISCOVERY PREMIER^® is a registered service mark of The Prudential Insurance Company of America.

Discovery Premier Group Retirement Annuity is a variable annuity issued by The Prudential Insurance Company of America, Newark, NJ. It is offered through these affiliated Prudential subsidiaries; Pruco Securities, LLC and Prudential Investment Management Services LLC.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

751 Broad Street

Newark, NJ 07102-3777

DP.PU.003

Ed. 05/2011

STATEMENT OF ADDITIONAL INFORMATION MAY 1, 2011

DISCOVERY PREMIER

GROUP RETIREMENT ANNUITY

DISCOVERY PREMIER

GROUP VARIABLE ANNUITY CONTRACTS

ISSUED THROUGH

PRUDENTIAL DISCOVERY PREMIER GROUP

VARIABLE CONTRACT ACCOUNT

The Prudential Insurance Company of America (“Prudential”) offers the DISCOVERY PREMIER^® Group Variable Annuity Contracts for use in connection with retirement arrangements that qualify for federal tax benefits under Sections 401, 403(b), 403(c), 408 and 457 of the Internal Revenue Code of 1986 (the “Code”) and with non-qualified deferred compensation plans. Prudential is a subsidiary of Prudential Financial, Inc., a New Jersey insurance holding company. Contributions to the Contract made on behalf of a Participant may be invested in one or more of the 36 Subaccounts of the Prudential Discovery Premier Group Variable Contract Account as well as the Guaranteed Interest Account. Each Subaccount is invested in a corresponding portfolio of The Prudential Series Fund; AIM Variable Insurance Funds (Invesco Variable Insurance Funds); AllianceBernstein Variable Products Series Fund, Inc; American Century Variable Portfolios, Inc.; Credit Suisse Trust; Davis Variable Account Fund, Inc.; Delaware VIP^® Trust; The Dreyfus Socially Responsible Growth Fund, Inc.; Franklin Templeton Variable Insurance Products Trust; Janus Aspen Series; MFS^® Variable Insurance Trust; PIMCO Variable Insurance Trust; and T. Rowe Price Equity Series, Inc.

This Statement of Additional Information is not a prospectus and should be read in conjunction with the prospectus, dated May 1, 2011. Certain portions of that prospectus are incorporated by reference into this Statement of Additional Information. You may obtain a prospectus free of charge by calling (877) 778-2100.

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

Prudential Retirement Service Center

30 Scranton Office Park

Scranton, PA 18507-1789

Telephone: (877) 778-2100

TABLE OF CONTENTS

	Page
DEFINITIONS	3
OTHER CONTRACT PROVISIONS Assignment	4
ADMINISTRATION	4
EXPERTS	4
PRINCIPAL UNDERWRITER	4
PAYMENTS MADE TO PROMOTE SALE OF OUR PRODUCTS	4
DETERMINATION OF ACCUMULATION UNIT VALUES	5
FINANCIAL STATEMENTS OF THE PRUDENTIAL DISCOVERY PREMIER GROUP VARIABLE CONTRACT ACCOUNT	A-1
CONSOLIDATED FINANCIAL STATEMENTS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND ITS SUBSIDIARIES	B-1

2

DEFINITIONS

CONTRACTS – The group variable annuity contracts described in the Prospectus and offered for use in connection with retirement arrangements that qualify for federal tax benefits under Sections 401, 403(b), 403(c), 408 or 457 of the Internal Revenue Code and with non-qualified annuity arrangements.

FUNDS – The Prudential Series Fund; AIM Variable Insurance Funds (Invesco Variable Insurance Funds); AllianceBernstein Variable Products Series Fund, Inc.; American Century Variable Portfolios, Inc.; Credit Suisse Trust; Davis Variable Account Fund, Inc.; Delaware VIP^® Trust; The Dreyfus Socially Responsible Growth Fund, Inc.; Franklin Templeton Variable Insurance Products Trust; Janus Aspen Series; MFS^® Variable Insurance Trust; PIMCO Variable Insurance Trust; and T. Rowe Price Equity Series, Inc., available under the Contracts.

PARTICIPANT – A person who makes contributions, or for whom contributions have been made, and to whom they remain credited under the Contract. “You” means the Participant.

PARTICIPANT ACCOUNT – An account established for each Participant to record the amount credited to the Participant under the Contract.

PARTICIPANT ACCOUNT VALUE – The dollar amount held in a Participant Account.

PRUDENTIAL – The Prudential Insurance Company of America. “We,” “us,” or “our” means Prudential.

PRUDENTIAL DISCOVERY PREMIER GROUP VARIABLE CONTRACT ACCOUNT – A separate account of Prudential registered under the Investment Company Act of 1940 as a unit investment trust (the “Discovery Account”), invested through its Subaccounts in shares of the corresponding Funds.

SUBACCOUNT – A division of the Discovery Account, the assets of which are invested in shares of the corresponding Funds.

We set out other defined terms in the Prospectus.

3

OTHER CONTRACT PROVISIONS

Assignment

Unless contrary to applicable law, the right to any payment under the Contract is neither assignable nor subject to the claim of any creditor.

ADMINISTRATION

The assets of each Subaccount of the Discovery Account are invested in a corresponding Fund. The prospectus and the statement of additional information of each Fund describe the investment management and administration of that Fund.

We are generally responsible for the administrative and recordkeeping functions of the Discovery Account and pay the expenses associated with them. These functions include enrolling Participants, receiving and allocating contributions, maintaining Participant Accounts, preparing and distributing confirmations, statements, and reports. The administrative and recordkeeping expenses borne by us include salaries, rent, postage, telephone, travel, legal, actuarial and accounting fees, office equipment, stationery and maintenance of computer and other systems.

We are reimbursed for these administrative and recordkeeping expenses by the daily charge against the assets of each Subaccount for administrative expenses. That daily charge is equal to a maximum effective annual rate of 0.75% of the net assets in each Subaccount.

EXPERTS

The consolidated financial statements of The Prudential Insurance Company of America and its subsidiaries as of December 31, 2010 and 2009 and for each of the three years in the period ended December 31, 2010 and the financial statements of The Prudential Discovery Premier Group Variable Contract Account as of December 31, 2010 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.

PRINCIPAL UNDERWRITER

Prudential Investment Management Services LLC (“PIMS”), an indirect, wholly-owned subsidiary of Prudential Financial, Inc. offers the Contract on a continuous basis through corporate office and regional home office associated persons in those states in which contracts may be lawfully sold. It may also offer the Contracts through licensed insurance brokers and agents, or through appropriately registered affiliates of Prudential, provided clearances to do so are obtained in any jurisdiction where such clearances may be necessary.

During 2010, 2009 and 2008, $155,684, $144,112 and $187,328, respectively, were paid to PIMS for its services as principal underwriter with respect to the Contracts. PIMS retained none of those commissions.

As discussed in the prospectus, PIMS pays commissions to broker/dealers that sell the Contract according to one or more schedules, and also may pay non-cash compensation. In addition, PIMS may pay trail commissions to registered representatives who maintain an ongoing relationship with a contract owner. Typically, a trail commission is compensation that is paid periodically to a representative, the amount of which is linked to the value of the Contract and the amount of time that the Contract has been in effect.

PAYMENTS MADE TO PROMOTE SALE OF OUR PRODUCTS

In an effort to promote the sale of our products (which may include the placement of Prudential and/or the Contract on a preferred or recommended company or product list and/or access to the firm’s registered representatives), we or PIMS 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. To the extent permitted by the FINRA rules and other applicable laws and regulations, PIMS 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 PIMS 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 the total amount held in al Prudential products that were sold through the firm (or its affiliated broker-dealers).

4

• 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 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 May 1, 2011) received payment of more than $10,000 under one more of these types of arrangements during the last calendar year or that have received or are expected to receive such payment during the current calendar year. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Contract.

Name of Firm(s): TBS Agency

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 subaccount will be determined by multiplying the value of a Unit of that subaccount for the preceding business day by the net investment factor for that subaccount for the current business day. The net investment factor for any business day is determined by dividing the value of the assets of the subaccount for that day by the value of the assets of the subaccount for the preceding business day (ignoring, for this purpose, changes resulting from new purchase payments and withdrawals), and adjusting the result for the daily equivalent of the annual charge for all insurance and administrative expenses. The value of the assets of a subaccount is determined by multiplying the number of shares of The Prudential Series Fund (the “Series Fund”) or other fund held by that subaccount by the net asset value of each share and adding the value of dividends declared, on the ex-date, by the Series Fund or other fund but not yet paid.

FINANCIAL STATEMENTS

The consolidated financial statements for Prudential and subsidiaries included herein should be distinguished from the financial statements of the Account, and should be considered only as bearing upon the ability of Prudential to meet its obligations under the Contracts. Also included herein are certain financial statements of the Account.

5

FINANCIAL STATEMENTS OF THE

PRUDENTIAL DISCOVERY PREMIER GROUP

VARIABLE CONTRACT ACCOUNT

STATEMENT OF NET ASSETS

December 31, 2010

	SUBACCOUNTS
	Prudential Money Market Portfolio			Prudential Diversified Bond Portfolio			Prudential Equity Portfolio			Prudential Flexible Managed Portfolio			Prudential Conservative Balanced Portfolio
ASSETS
Investment in the portfolios, at value	$	1,253,311		$	2,998,323		$	3,792,297		$	1,378,919		$	1,189,344
(Payable to)/Receivable from The Prudential Insurance Company of America		(25	)		(79	)		(155	)		(57	)		(39	)
Net Assets	$	1,253,286		$	2,998,244		$	3,792,142		$	1,378,862		$	1,189,305
NET ASSETS, representing:
Accumulation units	$	1,253,286		$	2,998,244		$	3,792,142		$	1,378,862		$	1,189,305
	$	1,253,286		$	2,998,244		$	3,792,142		$	1,378,862		$	1,189,305
Units outstanding		90,096			140,702			236,712			87,659			72,055
Portfolio shares held		125,331			256,926			153,224			88,223			74,520
Portfolio net asset value per share	$	10.00		$	11.67		$	24.75		$	15.63		$	15.96
Investment in portfolio shares, at cost	$	1,253,308		$	2,898,415		$	3,351,600		$	1,248,894		$	1,087,658
STATEMENT OF OPERATIONS For the period ended December 31, 2010
	SUBACCOUNTS
	Prudential Money Market Portfolio			Prudential Diversified Bond Portfolio			Prudential Equity Portfolio			Prudential Flexible Managed Portfolio			Prudential Conservative Balanced Portfolio
INVESTMENT INCOME
Dividend income	$	279		$	110,963		$	26,249		$	28,355		$	26,222
EXPENSES
Charges for administration, mortality and expense risk		6,273			15,280			17,803			6,963			6,173
NET INVESTMENT INCOME (LOSS)		(5,994	)		95,683			8,446			21,392			20,049
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received		0			31,799			0			0			0
Realized gain (loss) on shares redeemed		0			(1,055	)		432			294			(190	)
Net change in unrealized gain (loss) on investments		0			14,556			211,943			92,939			25,451
NET GAIN (LOSS) ON INVESTMENTS		0			45,300			212,375			93,233			25,261
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	(5,994	)	$	140,983		$	220,821		$	114,625		$	45,310

The accompanying notes are an integral part of these financial statements.

A1

SUBACCOUNTS (Continued)
Prudential High Yield Bond Portfolio			Prudential Stock Index Portfolio			Prudential Value Portfolio			Prudential Global Portfolio			Prudential Government Income Portfolio			Prudential Small Capitalization Stock Portfolio			Prudential Jennison Portfolio			Prudential Jennison 20/20 Focus Portfolio
$	371,795		$	5,598,817		$	2,855,829		$	725,490		$	1,537,932		$	2,014,542		$	2,705,289		$	2,006,868
	(9	)		(292	)		100			(31	)		46			(170	)		(120	)		(231	)
$	371,786		$	5,598,525		$	2,855,929		$	725,459		$	1,537,978		$	2,014,372		$	2,705,169		$	2,006,637
$	371,786		$	5,598,525		$	2,855,929		$	725,459		$	1,537,978		$	2,014,372		$	2,705,169		$	2,006,637
$	371,786		$	5,598,525		$	2,855,929		$	725,459		$	1,537,978		$	2,014,372		$	2,705,169		$	2,006,637
	19,135			363,516			168,128			47,568			76,363			96,664			172,230			114,845
	73,477			178,477			167,596			39,237			127,841			116,650			116,307			129,059
$	5.06		$	31.37		$	17.04		$	18.49		$	12.03		$	17.27		$	23.26		$	15.55
$	355,670		$	4,933,903		$	2,578,972		$	654,656		$	1,538,483		$	1,480,857		$	2,375,834		$	1,621,935
SUBACCOUNTS (Continued)
Prudential High Yield Bond Portfolio			Prudential Stock Index Portfolio			Prudential Value Portfolio			Prudential Global Portfolio			Prudential Government Income Portfolio			Prudential Small Capitalization Stock Portfolio			Prudential Jennison Portfolio			Prudential Jennison 20/20 Focus Portfolio
$	29,066		$	85,657		$	22,085		$	10,299		$	45,990		$	13,212		$	11,090		$	0
	2,421			27,402			18,070			3,537			9,691			11,335			17,370			12,904
	26,645			58,255			4,015			6,762			36,299			1,877			(6,280	)		(12,904	)
	0			0			0			0			38,514			0			0			0
	570			(7,332	)		(239,327	)		(1,622	)		1,383			(6,105	)		(22,962	)		(57,226	)
	(5,352	)		480,506			568,241			(29,000	)		(50,125	)		390,127			(284,358	)		201,253
	(4,782	)		473,174			328,914			(30,622	)		(10,228	)		384,022			(307,320	)		144,027
$	21,863		$	531,429		$	332,929		$	(23,860	)	$	26,071		$	385,899		$	(313,600	)	$	131,123

The accompanying notes are an integral part of these financial statements.

A2

FINANCIAL STATEMENTS OF THE

PRUDENTIAL DISCOVERY PREMIER GROUP

VARIABLE CONTRACT ACCOUNT

STATEMENT OF NET ASSETS

December 31, 2010

	SUBACCOUNTS
	Invesco V.I. Government Securities Fund			Invesco V.I. International Growth Fund			AllianceBernstein Growth & Income Portfolio			AllianceBernstein VPS Large Cap Growth Portfolio – Class A			AllianceBernstein Small Cap Growth Portfolio
ASSETS
Investment in the portfolios, at value	$	88,025		$	1,614,147		$	926,246		$	387,917		$	62,526
(Payable to)/Receivable from The Prudential Insurance Company of America		(25	)		89			254			(44	)		29
Net Assets	$	88,000		$	1,614,236		$	926,500		$	387,873		$	62,555
NET ASSETS, representing:
Accumulation units	$	88,000		$	1,614,236		$	926,500		$	387,873		$	62,555
	$	88,000		$	1,614,236		$	926,500		$	387,873		$	62,555
Units outstanding		5,225			124,160			78,370			53,420			4,571
Portfolio shares held		7,335			56,262			53,883			13,959			3,822
Portfolio net asset value per share	$	12.00		$	28.69		$	17.19		$	27.79		$	16.36
Investment in portfolio shares, at cost	$	87,575		$	1,396,837		$	855,047		$	242,237		$	35,221
STATEMENT OF OPERATIONS For the period ended December 31, 2010
	SUBACCOUNTS
	Invesco V.I. Government Securities Fund			Invesco V.I. International Growth Fund			AllianceBernstein Growth & Income Portfolio			AllianceBernstein VPS Large Cap Growth Portfolio – Class A			AllianceBernstein Small Cap Growth Portfolio
INVESTMENT INCOME
Dividend income	$	4,598		$	34,175		$	0		$	2,166		$	0
EXPENSES
Charges for administration, mortality and expense risk		649			10,156			5,904			2,685			352
NET INVESTMENT INCOME (LOSS)		3,949			24,019			(5,904	)		(519	)		(352	)
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received		0			0			0			0			0
Realized gain (loss) on shares redeemed		(2,727	)		(40,254	)		(55,901	)		27,463			941
Net change in unrealized gain (loss) on investments		4,118			192,406			163,684			2,324			16,274
NET GAIN (LOSS) ON INVESTMENTS		1,391			152,152			107,783			29,787			17,215
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	5,340		$	176,171		$	101,879		$	29,268		$	16,863

The accompanying notes are an integral part of these financial statements.

A3

SUBACCOUNTS (Continued)
American Century VP Income & Growth Fund			Davis Value Portfolio		Dreyfus Socially Responsible Growth Fund			Franklin Small-Mid Cap Growth Securities Fund			Franklin Templeton Foreign Securities Fund			Invesco V.I. Dynamics Fund			Janus Aspen Enterprise Portfolio – Service Shares			Janus Aspen Growth & Income Portfolio
$	203,074		$	415,634	$	15,303		$	1,908,117		$	916,805		$	298,027		$	2,086,485		$	0
	65			3		(20	)		330			189			28			475			0
$	203,139		$	415,637	$	15,283		$	1,908,447		$	916,994		$	298,055		$	2,086,960		$	0
$	203,139		$	415,637	$	15,283		$	1,908,447		$	916,994		$	298,055		$	2,086,960		$	0
$	203,139		$	415,637	$	15,283		$	1,908,447		$	916,994		$	298,055		$	2,086,960		$	0
	19,978			34,607		1,992			176,607			63,384			33,936			247,133			0
	33,566			34,723		512			85,913			63,054			16,905			53,886			0
$	6.05		$	11.97	$	29.90		$	22.21		$	14.54		$	17.63		$	38.72		$	0.00
$	163,939		$	301,111	$	9,718		$	1,180,225		$	753,200		$	146,826		$	1,024,698		$	0
SUBACCOUNTS (Continued)
American Century VP Income & Growth Fund			Davis Value Portfolio		Dreyfus Socially Responsible Growth Fund			Franklin Small-Mid Cap Growth Securities Fund			Franklin Templeton Foreign Securities Fund			Invesco V.I. Dynamics Fund			Janus Aspen Enterprise Portfolio – Service Shares			Janus Aspen Growth & Income Portfolio
$	3,017		$	5,214	$	139		$	0		$	17,626		$	0		$	1,191		$	16,753
	1,311			3,103		110			9,081			4,833			1,877			11,265			4,584
	1,706			2,111		29			(9,081	)		12,793			(1,877	)		(10,074	)		12,169
	0			0		0			0			0			0			0			0
	(4,218	)		6,907		442			(12,974	)		(15,359	)		2,889			26,553			254,802
	26,925			30,095		1,670			390,158			63,980			55,579			408,441			(141,918	)
	22,707			37,002		2,112			377,184			48,621			58,468			434,994			112,884
$	24,413		$	39,113	$	2,141		$	368,103		$	61,414		$	56,591		$	424,920		$	125,053

The accompanying notes are an integral part of these financial statements.

A4

FINANCIAL STATEMENTS OF THE

PRUDENTIAL DISCOVERY PREMIER GROUP

VARIABLE CONTRACT ACCOUNT

STATEMENT OF NET ASSETS

December 31, 2010

	SUBACCOUNTS
	Janus Aspen Worldwide Growth Portfolio		MFS VIT Growth Series – Initial Class			MFS VIT Research Bond Series – Initial Class			MFS VIT Investors Growth Stock Series			MFS VIT Investors Trust Series
ASSETS
Investment in the portfolios, at value	$	473,114	$	288,646		$	249,343		$	347,300		$	55,430
(Payable to)/Receivable from The Prudential Insurance Company of America		120		(20	)		(23	)		65			24
Net Assets	$	473,234	$	288,626		$	249,320		$	347,365		$	55,454
NET ASSETS, representing:
Accumulation units	$	473,234	$	288,626		$	249,320		$	347,365		$	55,454
	$	473,234	$	288,626		$	249,320		$	347,365		$	55,454
Units outstanding		63,250		17,774			13,293			42,068			5,186
Portfolio shares held		15,702		11,691			19,695			31,544			2,766
Portfolio net asset value per share	$	30.13	$	24.69		$	12.66		$	11.01		$	20.04
Investment in portfolio shares, at cost	$	348,808	$	246,154		$	219,927		$	272,362		$	44,370
STATEMENT OF OPERATIONS For the period ended December 31, 2010
	SUBACCOUNTS
	Janus Aspen Worldwide Growth Portfolio		MFS VIT Growth Series – Initial Class			MFS VIT Research Bond Series – Initial Class			MFS VIT Investors Growth Stock Series			MFS VIT Investors Trust Series
INVESTMENT INCOME
Dividend income	$	2,546	$	306		$	7,667		$	1,316		$	573
EXPENSES
Charges for administration, mortality and expense risk		2,424		1,978			1,705			1,480			369
NET INVESTMENT INCOME (LOSS)		122		(1,672	)		5,962			(164	)		204
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received		0		0			792			0			0
Realized gain (loss) on shares redeemed		5,948		1,569			3,809			(1,229	)		(375	)
Net change in unrealized gain (loss) on investments		58,776		(39,027	)		6,801			38,138			7,049
NET GAIN (LOSS) ON INVESTMENTS		64,724		(37,458	)		11,402			36,909			6,674
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	64,846	$	(39,130	)	$	17,364		$	36,745		$	6,878

The accompanying notes are an integral part of these financial statements.

A5

SUBACCOUNTS (Continued)
MFS VIT Total Return Series			T. Rowe Price Equity Income Portfolio			PIMCO Variable Insurance Trust Short- Term Portfolio			Delaware VIP Emerging Markets Series			Invesco V.I. Core Equity Fund			Credit Suisse Trust U.S. Equity Flex I Portfolio
$	431,709		$	1,060,901		$	383,886		$	3,647,635		$	145,546		$	465,424
	38			(70	)		(1	)		798			(13	)		79
$	431,747		$	1,060,831		$	383,885		$	3,648,433		$	145,533		$	465,503
$	431,747		$	1,060,831		$	383,885		$	3,648,433		$	145,533		$	465,503
$	431,747		$	1,060,831		$	383,885		$	3,648,433		$	145,533		$	465,503
	30,950			55,585			32,304			174,164			9,358			44,801
	23,074			53,258			37,710			164,382			5,385			32,661
$	18.71		$	19.92		$	10.18		$	22.19		$	27.03		$	14.25
$	382,564		$	937,726		$	373,023		$	2,693,765		$	134,188		$	369,000
SUBACCOUNTS (Continued)
MFS VIT Total Return Series			T. Rowe Price Equity Income Portfolio			PIMCO Variable Insurance Trust Short- Term Portfolio			Delaware VIP Emerging Markets Series			Invesco V.I. Core Equity Fund			Credit Suisse Trust U.S. Equity Flex I Portfolio
$	12,930		$	18,274		$	3,482		$	22,661		$	1,360		$	629
	2,976			5,574			2,229			16,621			1,054			2,323
	9,954			12,700			1,253			6,040			306			(1,694	)
	0			0			583			0			0			0
	(8,842	)		(3,207	)		341			(41,748	)		(146	)		3,706
	36,579			79,667			4,360			556,011			(9,389	)		47,129
	27,737			76,460			5,284			514,263			(9,535	)		50,835
$	37,691		$	89,160		$	6,537		$	520,303		$	(9,229	)	$	49,141

The accompanying notes are an integral part of these financial statements.

A6

FINANCIAL STATEMENTS OF

THE PRUDENTIAL DISCOVERY PREMIER GROUP

VARIABLE CONTRACT ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2010 and 2009

	SUBACCOUNTS
	Prudential Money Market Portfolio						Prudential Diversified Bond Portfolio						Prudential Equity Portfolio
	01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009
OPERATIONS
Net investment income (loss)	$	(5,994	)	$	(647	)	$	95,683		$	71,286		$	8,446		$	19,506
Capital gains distributions received		0			0			31,799			32,215			0			0
Realized gain (loss) on shares redeemed		0			0			(1,055	)		(3,081	)		432			(198,748	)
Net change in unrealized gain (loss) on investments		0			0			14,556			228,976			211,943			1,061,010
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		(5,994	)		(647	)		140,983			329,396			220,821			881,768
CONTRACT OWNER TRANSACTIONS
Contract owner net payments		0			468,164			704,212			1,657,055			213,923			1,280,245
Loan Repayments		0			0			0			0			0			0
Withdrawal and other charges		(876,978	)		(539,245	)		(90,267	)		(1,430,230	)		40,199			(1,148,613	)
Loans		0			0			0			0			0			0
Net transfers between other subaccounts		1,884,794			0			0			0			0			0
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		1,007,816			(71,081	)		613,945			226,825			254,122			131,632
TOTAL INCREASE (DECREASE) IN NET ASSETS		1,001,822			(71,728	)		754,928			556,221			474,943			1,013,400
NET ASSETS
Beginning of period		251,464			323,192			2,243,316			1,687,095			3,317,199			2,303,799
End of period	$	1,253,286		$	251,464		$	2,998,244		$	2,243,316		$	3,792,142		$	3,317,199
Beginning units		17,921			23,053			115,769			104,323			230,557			220,144
Units issued		126,203			24,952			33,877			33,045			14,952			18,669
Units redeemed		(54,028	)		(30,084	)		(8,944	)		(21,599	)		(8,797	)		(8,256	)
Ending units		90,096			17,921			140,702			115,769			236,712			230,557

The accompanying notes are an integral part of these financial statements.

A7

SUBACCOUNTS (Continued)
Prudential Flexible Managed Portfolio						Prudential Conservative Balanced Portfolio						Prudential High Yield Bond Portfolio						Prudential Stock Index Portfolio
01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009
$	21,392		$	31,606		$	20,049		$	26,317		$	26,645		$	22,949		$	58,255		$	78,550
	0			0			0			0			0			0			0			0
	294			(105,308	)		(190	)		(17,979	)		570			(15,276	)		(7,332	)		(339,526	)
	92,939			281,539			25,451			157,875			(5,352	)		89,867			480,506			1,215,579
	114,625			207,837			45,310			166,213			21,863			97,540			531,429			954,603
	88,509			427,672			115,679			176,598			101,002			112,819			491,009			2,395,060
	0			0			0			0			0			0			0			0
	(41,256	)		(471,830	)		585			(142,289	)		(92,645	)		(78,792	)		(128,575	)		(2,149,634	)
	0			0			0			0			0			0			0			0
	0			0			0			0			0			0			0			0
	47,253			(44,158	)		116,264			34,309			8,357			34,027			362,434			245,426
	161,878			163,679			161,574			200,522			30,220			131,567			893,863			1,200,029
	1,216,984			1,053,305			1,027,731			827,209			341,566			209,999			4,704,662			3,504,633
$	1,378,862		$	1,216,984		$	1,189,305		$	1,027,731		$	371,786		$	341,566		$	5,598,525		$	4,704,662
	86,233			89,101			69,259			66,547			19,921			17,913			348,293			325,375
	6,765			7,542			8,367			9,965			5,425			5,436			36,357			46,968
	(5,339	)		(10,410	)		(5,571	)		(7,253	)		(6,211	)		(3,428	)		(21,134	)		(24,050	)
	87,659			86,233			72,055			69,259			19,135			19,921			363,516			348,293

The accompanying notes are an integral part of these financial statements.

A8

FINANCIAL STATEMENTS OF

THE PRUDENTIAL DISCOVERY PREMIER GROUP

VARIABLE CONTRACT ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2010 and 2009

	SUBACCOUNTS
	Prudential Value Portfolio						Prudential Global Portfolio						Prudential Government Income Portfolio
	01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009
OPERATIONS
Net investment income (loss)	$	4,015		$	26,918		$	6,762		$	10,319		$	36,299		$	34,466
Capital gains distributions received		0			0			0			0			38,514			5,517
Realized gain (loss) on shares redeemed		(239,327	)		(163,816	)		(1,622	)		(16,432	)		1,383			10,333
Net change in unrealized gain (loss) on investments		568,241			860,834			(29,000	)		148,903			(50,125	)		51,260
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		332,929			723,936			(23,860	)		142,790			26,071			101,576
CONTRACT OWNER TRANSACTIONS
Contract owner net payments		488,131			342,441			71,408			182,084			217,597			742,923
Loan Repayments		0			0			0			0			3,410			782
Withdrawal and other charges		(508,855	)		(161,070	)		53,982			(152,845	)		(235,286	)		(608,915	)
Loans		0			0			0			0			0			(3,790	)
Net transfers between other subaccounts		0			0			0			0			0			0
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		(20,724	)		181,371			125,390			29,239			(14,279	)		131,000
TOTAL INCREASE (DECREASE) IN NET ASSETS		312,205			905,307			101,530			172,029			11,792			232,576
NET ASSETS
Beginning of period		2,543,724			1,638,417			623,929			451,900			1,526,186			1,293,610
End of period	$	2,855,929		$	2,543,724		$	725,459		$	623,929		$	1,537,978		$	1,526,186
Beginning units		169,327			153,706			45,889			43,473			80,792			73,364
Units issued		32,098			28,960			5,198			4,625			12,072			19,914
Units redeemed		(33,297	)		(13,339	)		(3,519	)		(2,209	)		(16,501	)		(12,486	)
Ending units		168,128			169,327			47,568			45,889			76,363			80,792

The accompanying notes are an integral part of these financial statements.

A9

SUBACCOUNTS (Continued)
Prudential Small Capitalization Stock Portfolio						Prudential Jennison Portfolio						Prudential Jennison 20/20 Focus Portfolio						Invesco V.I. Government Securities Fund
01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009
$	1,877		$	14,397		$	(6,280	)	$	(5,104	)	$	(12,904	)	$	(3,214	)	$	3,949		$	7,086
	0			126,086			0			0			0			0			0			6,008
	(6,105	)		(79,431	)		(22,962	)		45,730			(57,226	)		(79,806	)		(2,727	)		732
	390,127			255,878			(284,358	)		725,487			201,253			719,123			4,118			(14,743	)
	385,899			316,930			(313,600	)		766,113			131,123			636,103			5,340			(917	)
	339,339			269,305			766,368			971,452			508,849			437,542			29,339			49,785
	0			0			0			0			0			0			0			0
	(265,089	)		(231,869	)		16,405			(1,270,224	)		(457,648	)		(224,473	)		(117,987	)		(70,875	)
	0			0			0			0			0			0			0			0
	0			0			0			0			0			0			0			0
	74,250			37,436			782,773			(298,772	)		51,201			213,069			(88,648	)		(21,090	)
	460,149			354,366			469,173			467,341			182,324			849,172			(83,308	)		(22,007	)
	1,554,223			1,199,857			2,235,996			1,768,655			1,824,313			975,141			171,308			193,315
$	2,014,372		$	1,554,223		$	2,705,169		$	2,235,996		$	2,006,637		$	1,824,313		$	88,000		$	171,308
	93,241			89,494			158,214			177,380			111,827			93,650			10,653			11,943
	18,712			20,454			54,347			24,724			32,666			34,269			1,756			3,108
	(15,289	)		(16,707	)		(40,331	)		(43,890	)		(29,648	)		(16,092	)		(7,184	)		(4,398	)
	96,664			93,241			172,230			158,214			114,845			111,827			5,225			10,653

The accompanying notes are an integral part of these financial statements.

A10

FINANCIAL STATEMENTS OF

THE PRUDENTIAL DISCOVERY PREMIER GROUP

VARIABLE CONTRACT ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2010 and 2009

	SUBACCOUNTS
	Invesco V.I. International Growth Fund						AllianceBernstein Growth & Income Portfolio						AllianceBernstein VPS Large Cap Growth Portfolio – Class A
	01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009
OPERATIONS
Net investment income (loss)	$	24,019		$	10,530		$	(5,904	)	$	31,691		$	(519	)	$	(2,088	)
Capital gains distributions received		0			0			0			0			0			0
Realized gain (loss) on shares redeemed		(40,254	)		(39,196	)		(55,901	)		(84,673	)		27,463			4,884
Net change in unrealized gain (loss) on investments		192,406			402,980			163,684			223,054			2,324			127,430
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		176,171			374,314			101,879			170,072			29,268			130,226
CONTRACT OWNER TRANSACTIONS
Contract owner net payments		202,622			232,361			72,857			101,305			29,431			27,893
Loan Repayments		0			0			0			0			0			0
Withdrawal and other charges		(202,061	)		(116,753	)		(226,944	)		(171,891	)		(138,982	)		(99,203	)
Loans		0			0			0			0			0			0
Net transfers between other subaccounts		0			0			0			0			0			0
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		561			115,608			(154,087	)		(70,586	)		(109,551	)		(71,310	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		176,732			489,922			(52,208	)		99,486			(80,283	)		58,916
NET ASSETS
Beginning of period		1,437,504			947,582			978,708			879,222			468,156			409,240
End of period	$	1,614,236		$	1,437,504		$	926,500		$	978,708		$	387,873		$	468,156
Beginning units		123,922			109,692			93,000			100,288			70,469			84,148
Units issued		18,128			25,564			6,778			12,182			4,525			5,263
Units redeemed		(17,890	)		(11,334	)		(21,408	)		(19,470	)		(21,574	)		(18,942	)
Ending units		124,160			123,922			78,370			93,000			53,420			70,469

The accompanying notes are an integral part of these financial statements.

A11

SUBACCOUNTS (Continued)
AllianceBernstein Small Cap Growth Portfolio						American Century VP Income & Growth Fund						Davis Value Portfolio						Dreyfus Socially Responsible Growth Fund
01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009
$	(352	)	$	(343	)	$	1,706		$	9,240		$	2,111		$	881		$	29		$	43
	0			0			0			0			0			0			0			0
	941			(3,742	)		(4,218	)		(20,887	)		6,907			(8,411	)		442			(353	)
	16,274			23,609			26,925			47,310			30,095			111,481			1,670			4,596
	16,863			19,524			24,413			35,663			39,113			103,951			2,141			4,286
	7,143			(4,591	)		21,829			47,451			67,739			52,488			0			9,237
	0			0			0			0			0			0			0			0
	(7,550	)		(12,254	)		(67,244	)		(74,637	)		(156,016	)		(46,625	)		(2,337	)		(989	)
	0			0			0			0			0			0			0			0
	0			0			0			0			0			0			0			0
	(407	)		(16,845	)		(45,415	)		(27,186	)		(88,277	)		5,863			(2,337	)		8,248
	16,456			2,679			(21,002	)		8,477			(49,164	)		109,814			(196	)		12,534
	46,099			43,420			224,141			215,664			464,801			354,987			15,479			2,945
$	62,555		$	46,099		$	203,139		$	224,141		$	415,637		$	464,801		$	15,283		$	15,479
	4,579			6,082			25,002			28,276			43,284			43,054			2,301			581
	616			1,399			3,623			6,535			6,549			7,096			272			1,914
	(624	)		(2,902	)		(8,647	)		(9,809	)		(15,226	)		(6,866	)		(581	)		(194	)
	4,571			4,579			19,978			25,002			34,607			43,284			1,992			2,301

The accompanying notes are an integral part of these financial statements.

A12

FINANCIAL STATEMENTS OF

THE PRUDENTIAL DISCOVERY PREMIER GROUP

VARIABLE CONTRACT ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2010 and 2009

	SUBACCOUNTS
	Franklin Small-Mid Cap Growth Securities Fund						Franklin Templeton Foreign Securities Fund						Invesco V.I. Dynamics Fund
	01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009
OPERATIONS
Net investment income (loss)	$	(9,081	)	$	(6,354	)	$	12,793		$	18,163		$	(1,877	)	$	(1,395	)
Capital gains distributions received		0			0			0			24,477			0			0
Realized gain (loss) on shares redeemed		(12,974	)		(24,735	)		(15,359	)		(66,579	)		2,889			(339	)
Net change in unrealized gain (loss) on investments		390,158			405,895			63,980			222,655			55,579			73,225
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		368,103			374,806			61,414			198,716			56,591			71,491
CONTRACT OWNER TRANSACTIONS
Contract owner net payments		501,344			205,747			145,000			177,735			33,163			17,356
Loan Repayments		0			0			0			0			0			0
Withdrawal and other charges		(212,608	)		(319,534	)		(105,071	)		(117,185	)		(37,792	)		(25,563	)
Loans		0			0			0			0			0			0
Net transfers between other subaccounts		0			0			0			0			0			0
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		288,736			(113,787	)		39,929			60,550			(4,629	)		(8,207	)
TOTAL INCREASE (DECREASE) IN NET ASSETS		656,839			261,019			101,343			259,266			51,962			63,284
NET ASSETS
Beginning of period		1,251,608			990,589			815,651			556,385			246,093			182,809
End of period	$	1,908,447		$	1,251,608		$	916,994		$	815,651		$	298,055		$	246,093
Beginning units		147,633			167,279			60,952			56,779			34,433			36,176
Units issued		52,819			31,930			10,951			16,056			4,363			3,455
Units redeemed		(23,845	)		(51,576	)		(8,519	)		(11,883	)		(4,860	)		(5,198	)
Ending units		176,607			147,633			63,384			60,952			33,936			34,433

* Date subaccount became unavailable for investment.

The accompanying notes are an integral part of these financial statements.

A13

SUBACCOUNTS (Continued)
Janus Aspen Enterprise Portfolio – Service Shares						Janus Aspen Growth & Income Portfolio						Janus Aspen Worldwide Growth Portfolio						MFS VIT Growth Series – Initial Class
01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 04/30/2010*			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009
$	(10,074	)	$	(9,015	)	$	12,169		$	3,462		$	122		$	3,165		$	(1,672	)	$	(1,419	)
	0			0			0			0			0			0			0			0
	26,553			(102,933	)		254,802			(91,437	)		5,948			(7,052	)		1,569			(516	)
	408,441			649,605			(141,918	)		678,252			58,776			118,263			(39,027	)		70,728
	424,920			537,657			125,053			590,277			64,846			114,376			(39,130	)		68,793
	299,180			312,888			126,135			326,522			123,303			65,733			28,838			47,022
	0			0			0			0			0			0			0			0
	(429,299	)		(272,487	)		(592,699	)		(186,014	)		(145,284	)		(45,612	)		47,980			(67,575	)
	0			0			0			0			0			0			0			0
	0			0			(1,884,794	)		0			0			0			0			0
	(130,119	)		40,401			(2,351,358	)		140,508			(21,981	)		20,121			76,818			(20,553	)
	294,801			578,058			(2,226,305	)		730,785			42,865			134,497			37,688			48,240
	1,792,159			1,214,101			2,226,305			1,495,520			430,369			295,872			250,938			202,698
$	2,086,960		$	1,792,159		$	0		$	2,226,305		$	473,234		$	430,369		$	288,626		$	250,938
	265,683			259,027			250,139			232,680			66,257			62,436			17,693			19,547
	42,370			57,291			14,366			44,261			18,562			12,309			1,974			1,887
	(60,920	)		(50,635	)		(264,505	)		(26,802	)		(21,569	)		(8,488	)		(1,893	)		(3,741	)
	247,133			265,683			0			250,139			63,250			66,257			17,774			17,693

The accompanying notes are an integral part of these financial statements.

A14

FINANCIAL STATEMENTS OF

THE PRUDENTIAL DISCOVERY PREMIER

VARIABLE CONTRACT ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2010 and 2009

	SUBACCOUNTS
	MFS VIT Research Bond Series – Initial Class						MFS VIT Investors Growth Stock Series						MFS VIT Investors Trust Series
	01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009
OPERATIONS
Net investment income (loss)	$	5,962		$	8,107		$	(164	)	$	365		$	204		$	384
Capital gains distributions received		792			0			0			0			0			0
Realized gain (loss) on shares redeemed		3,809			(102	)		(1,229	)		(4,550	)		(375	)		(1,179	)
Net change in unrealized gain (loss) on investments		6,801			26,576			38,138			70,486			7,049			10,454
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		17,364			34,581			36,745			66,301			6,878			9,659
CONTRACT OWNER TRANSACTIONS
Contract owner net payments		49,314			66,896			65,776			37,107			17,495			3,417
Loan Repayments		0			0			0			0			0			0
Withdrawal and other charges		(83,967	)		(34,481	)		(12,390	)		(8,349	)		(16,228	)		(1,953	)
Loans		0			0			0			0			0			0
Net transfers between other subaccounts		0			0			0			0			0			0
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		(34,653	)		32,415			53,386			28,758			1,267			1,464
TOTAL INCREASE (DECREASE) IN NET ASSETS		(17,289	)		66,996			90,131			95,059			8,145			11,123
NET ASSETS
Beginning of period		266,609			199,613			257,234			162,175			47,309			36,186
End of period	$	249,320		$	266,609		$	347,365		$	257,234		$	55,454		$	47,309
Beginning units		15,180			13,098			34,874			30,530			4,880			4,703
Units issued		2,713			4,103			8,804			5,811			1,835			427
Units redeemed		(4,600	)		(2,021	)		(1,610	)		(1,467	)		(1,529	)		(250	)
Ending units		13,293			15,180			42,068			34,874			5,186			4,880

* Date subaccount was no longer available for investment.

The accompanying notes are an integral part of these financial statements.

A15

SUBACCOUNTS (Continued)
MFS VIT Total Return Series						T. Rowe Price Equity Income Portfolio						PIMCO Variable Insurance Trust Short-Term Portfolio						Delaware VIP Emerging Markets Series
01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009
$	9,954		$	11,574		$	12,700		$	7,120		$	1,253		$	4,509		$	6,040		$	11,919
	0			0			0			0			583			3,744			0			73,183
	(8,842	)		(12,795	)		(3,207	)		(49,441	)		341			(390	)		(41,748	)		(139,671	)
	36,579			68,068			79,667			190,992			4,360			11,965			556,011			1,243,106
	37,691			66,847			89,160			148,671			6,537			19,828			520,303			1,188,537
	83,018			78,163			141,433			635,586			55,681			239,377			570,120			631,731
	0			0			0			0			0			0			0			0
	(146,540	)		(53,839	)		(102,447	)		(564,287	)		(92,214	)		(23,698	)		(400,984	)		(278,395	)
	0			0			0			0			0			0			0			0
	0			0			0			0			0			0			0			0
	(63,522	)		24,324			38,986			71,299			(36,533	)		215,679			169,136			353,336
	(25,831	)		91,171			128,146			219,970			(29,996	)		235,507			689,439			1,541,873
	457,578			366,407			932,685			712,715			413,881			178,374			2,958,994			1,417,121
$	431,747		$	457,578		$	1,060,831		$	932,685		$	383,885		$	413,881		$	3,648,433		$	2,958,994
	35,822			33,617			56,162			53,531			35,379			16,363			166,486			141,223
	6,418			6,813			8,195			16,364			4,716			21,102			30,880			48,155
	(11,290	)		(4,608	)		(8,772	)		(13,733	)		(7,791	)		(2,086	)		(23,202	)		(22,892	)
	30,950			35,822			55,585			56,162			32,304			35,379			174,164			166,486

The accompanying notes are an integral part of these financial statements.

A16

FINANCIAL STATEMENTS OF

THE PRUDENTIAL DISCOVERY PREMIER GROUP

VARIABLE CONTRACT ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2010 and 2009

	SUBACCOUNTS
	Invesco V.I. Core Equity Fund						Credit Suisse Trust U.S. Equity Flex I Portfolio
	01/01/2010 to 12/31/2010			01/01/2009 to 12/31/2009			01/01/2010 to 12/31/2010			10/02/2009** to 12/31/2009
OPERATIONS
Net investment income (loss)	$	306		$	1,234		$	(1,694	)	$	(167	)
Capital gains distributions received		0			0			0			0
Realized gain (loss) on shares redeemed		(146	)		(4,016	)		3,706			(91	)
Net change in unrealized gain (loss) on investments		(9,389	)		36,552			47,129			44,490
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		(9,229	)		33,770			49,141			44,232
CONTRACT OWNER TRANSACTIONS
Contract owner net payments		9,155			13,785			65,994			19,586
Loan Repayments		0			0			0			0
Withdrawal and other charges		(16,319	)		(32,342	)		(59,662	)		(3,026	)
Loans		0			0			0			0
Net transfers between other subaccounts		0			0			0			349,238
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		(7,164	)		(18,557	)		6,332			365,798
TOTAL INCREASE (DECREASE) IN NET ASSETS		(16,393	)		15,213			55,473			410,030
NET ASSETS
Beginning of period		161,926			146,713			410,030			0
End of period	$	145,533		$	161,926		$	465,503		$	410,030
Beginning units		11,318			13,153			44,922			0
Units issued		637			670			7,142			45,290
Units redeemed		(2,597	)		(2,505	)		(7,263	)		(368	)
Ending units		9,358			11,318			44,801			44,922

** Date subaccount became available for investment.

The accompanying notes are an integral part of these financial statements.

A17

NOTES TO FINANCIAL STATEMENTS OF THE

PRUDENTIAL DISCOVERY PREMIER GROUP

VARIABLE CONTRACT ACCOUNT

December 31, 2010

Note 1: General

The Prudential Discovery Premier Group Variable Contract Account (the “Discovery Account”) was established on November 9, 1999 by the Prudential Insurance Company of America (“Prudential”), which is a wholly-owned subsidiary of Prudential Financial, Inc. (“PFI”), and commenced operations in June 2000 under the laws of the State of New Jersey. Under applicable insurance law, the assets and liabilities of the Account are clearly identified and distinguished from Prudential’s other assets and liabilities. The portion of the Account’s assets applicable to the variable annuity contracts is not chargeable with liabilities arising out of any other business Prudential may conduct. Proceeds from the purchase of the Discovery Premier Group Annuity Contracts (“Contracts”) are invested in the Discovery Account. The Discovery Account is registered with the Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940 as a unit investment trust, which is a type of investment company.

The Discovery Account is used in connection with the contracts sold to retirement plans that qualify for federal tax benefits under Sections 401, 403(b), 408 or 457 of the Internal Revenue Code of 1986 (the “Code”), as amended, and to annuity arrangements qualifying for federal tax benefits under section 403(c) of the Code. The Contracts are group annuity contracts and generally are issued to employers (“contractholders”) who make contributions under them on behalf of their employees. A person for whom contributions have been made and to whom they remain credited under a Contract is a “Participant.”

The Discovery Account is comprised of thirty-seven Subaccounts. The assets of each Subaccount are invested in either a corresponding portfolio of The Prudential Series Fund (the “Series Fund”) or one of the non-Prudential administered funds (collectively, the “portfolios”) as follows:

The Prudential Series Fund

Money Market Portfolio

Diversified Bond Portfolio

Government Income Portfolio

Conservative Balanced Portfolio

Flexible Managed Portfolio

High Yield Bond Portfolio

Stock Index Portfolio

Value Portfolio

Equity Portfolio

Jennison Portfolio

Global Portfolio

Jennison 20/20 Focus Portfolio

Small Capitalization Stock Portfolio

Invesco Variable Insurance

Government Securities Fund International Growth Fund

Dynamics Fund

Core Equity Fund

AllianceBernstein Variable

Products Series Fund

VPS Large Cap Growth Portfolio – Class A

Growth & Income Portfolio

Small Cap Growth Portfolio

American Century Variable

Portfolios

Income & Growth Fund

Davis Variable Account Fund

Value Portfolio

Dreyfus

Socially Responsible Growth Fund

Franklin Templeton Variable

Insurance Product Trust (VIP)

Small-Mid Cap Growth Securities Fund

Foreign Securities Fund

Janus Aspen Series

Enterprise Portfolio – Service Shares

Growth & Income Portfolio

Worldwide Growth Portfolio

MFS Variable Insurance Trust

Research Bond Series – Initial Class

Growth Series – Initial Class

Investors Growth Stock Series

Investors Trust Series

Total Return Series

Credit Suisse Trust

U.S Equity Flex I Portfolio

T. Rowe Price

Equity Income Portfolio

PIMCO Variable Insurance Trust

Short-Term Portfolio

Delaware VIP

Emerging Markets Series

A18

Note 1: General (Continued)

The following table sets forth the dates on which mergers took place in the Account along with relevant information pertaining to each merger. The transfers from the old subaccounts to the new subaccounts are reflected in the Statement of Changes in Net Assets for the year ended December 31, 2010 as net transfers between subaccounts. The transfers occurred as follows:

April 30, 2010	Removed Portfolio		Surviving Portfolio
	Janus Aspen Growth & Income Portfolio		Prudential Money Market Portfolio
Shares		112,057		211,709
Net Asset Value	$	16.82	$	10.00
Net assets before merger	$	1,884,794	$	232,291
Net assets after merger	$	0	$	2,117,085

All contractual obligations arising under contracts participating in the Discovery Account are general corporate obligations of Prudential, although Participants’ payments from the Account will depend upon the investment experience of the Account.

The Series Fund is a diversified open-end management investment company, and is managed by an affiliate 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 underlying portfolios of mutual funds. Additional information on these portfolios of mutual funds is available upon request to the appropriate companies.

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 January 2010, the FASB issued updated guidance that requires new fair value disclosures about significant transfers between Level 1 and 2 measurement categories and separate presentation of purchases, sales, issuances, and settlements within the roll forward of Level 3 activity. Also, this updated fair value guidance clarifies the disclosure requirements about level of disaggregation and valuation techniques and inputs. This new guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of Level 3 activity, which are effective for interim and annual reporting periods beginning after December 15, 2010. The Account adopted this guidance effective January 1, 2010. The required disclosures are provided in Note 3.

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.

Note 3: Fair Value

The guidance defines fair value 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

A19

Note 3: Fair Value (Continued)

measurement date. The authoritative guidance around fair value established 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 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 quoted 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—Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset, either directly or indirectly, for substantially the full term of the asset through corroboration with observable market data.

Level 3—Fair value is based on 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.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis, as of December 31, 2010. All funds have been classified as level 1 with the exception of proprietary funds, consisting of all PruSeries funds, and any non-proprietary funds not available for public investment, as listed below.

	As of December 31, 2010
	Level 1		Level 2		Level 3		Total
Proprietary Funds (PruSeries)	$	0	$	28,428,758	$	0	$	28,428,758
Invesco V.I. International Growth Fund	$	0	$	1,614,147	$	0	$	1,614,147
Invesco V.I. Government Securities Fund	$	0	$	88,025	$	0	$	88,025
Janus Aspen Worldwide Growth Portfolio	$	0	$	473,114	$	0	$	473,114
Davis Value Portfolio	$	0	$	415,634	$	0	$	415,634
Janus Aspen Enterprise Portfolio – Service Shares	$	0	$	2,086,485	$	0	$	2,086,485
Invesco V.I. Dynamics Fund	$	0	$	298,027	$	0	$	298,027
Invesco V.I. Core Equity Fund	$	0	$	145,546	$	0	$	145,546
AllianceBernstein Growth & Income Portfolio	$	0	$	926,246	$	0	$	926,246
AllianceBernstein VPS Large Cap Growth Portfolio – Class A	$	0	$	387,917	$	0	$	387,917
AllianceBernstein Small Cap Growth Portfolio	$	0	$	62,526	$	0	$	62,526
Dreyfus Socially Responsible Growth Fund	$	0	$	15,303	$	0	$	15,303
Franklin Templeton Foreign Securities Fund	$	0	$	916,805	$	0	$	916,805

During the twelve months ended December 31, 2010, there were no material transfers between Level 1 and Level 2.

As there are no Level 3 assets for either period, a presentation of the reconciliation of Level 3 assets is not required at this time.

Note 4: Taxes

The Discovery Account 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 the 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.

A20

Note 5: Purchases and Sales of Investments

The aggregate costs of purchases and proceeds from sales of investments, excluding distributions received and invested, in the portfolios for the year ended December 31, 2010 were as follows:

	Purchases		Sales
Prudential Money Market Portfolio	$	1,723,756	$	(722,188	)
Prudential Diversified Bond Portfolio	$	675,936	$	(77,192	)
Prudential Equity Portfolio	$	236,474	$	0
Prudential Flexible Managed Portfolio	$	83,279	$	(42,934	)
Prudential Conservative Balanced Portfolio	$	112,440	$	(2,309	)
Prudential High Yield Bond Portfolio	$	89,135	$	(83,190	)
Prudential Stock Index Portfolio	$	458,622	$	(123,298	)
Prudential Value Portfolio	$	453,686	$	(492,508	)
Prudential Global Portfolio	$	121,883	$	0
Prudential Government Income Portfolio	$	212,262	$	(236,278	)
Prudential Small Capitalization Stock Portfolio	$	318,698	$	(255,720	)
Prudential Jennison Portfolio	$	765,524	$	0
Prudential Jennison 20/20 Focus Portfolio	$	470,292	$	(432,046	)
Invesco V.I. Government Securities Fund	$	28,832	$	(118,124	)
Invesco V.I. International Growth Fund	$	180,406	$	(190,004	)
AllianceBernstein Growth & Income Portfolio	$	58,114	$	(218,151	)
AllianceBernstein VPS Large Cap Growth Portfolio – Class A	$	26,544	$	(138,789	)
AllianceBernstein Small Cap Growth Portfolio	$	6,870	$	(7,644	)
American Century VP Income & Growth Fund	$	19,805	$	(66,543	)
Davis Value Portfolio	$	62,214	$	(153,601	)
Dreyfus Socially Responsible Growth Fund	$	1,833	$	(4,272	)
Franklin Small-Mid Cap Growth Securities Fund	$	468,943	$	(189,339	)
Franklin Templeton Foreign Securities Fund	$	135,717	$	(100,626	)
Invesco V.I. Dynamics Fund	$	30,486	$	(37,005	)
Janus Aspen Enterprise Portfolio – Service Shares	$	244,134	$	(385,624	)
Janus Aspen Growth & Income Portfolio	$	108,452	$	(2,464,252	)
Janus Aspen Worldwide Growth Portfolio	$	121,970	$	(146,396	)
MFS VIT Growth Series – Initial Class	$	74,861	$	0
MFS VIT Research Bond Series – Initial Class	$	47,520	$	(83,872	)
MFS VIT Investors Growth Stock Series	$	65,518	$	(13,621	)
MFS VIT Investors Trust Series	$	17,292	$	(16,411	)
MFS VIT Total Return Series	$	80,192	$	(146,701	)
T. Rowe Price Equity Income Portfolio	$	126,702	$	(93,219	)
PIMCO Variable Insurance Trust Short-Term Portfolio	$	54,539	$	(93,324	)
Delaware VIP Emerging Markets Series	$	519,454	$	(367,033	)
Invesco V.I. Core Equity Fund	$	8,386	$	(16,590	)
Credit Suisse Trust U.S. Equity Flex I Portfolio	$	62,554	$	(58,533	)

Note 6: Related Party Transactions

PFI and its affiliates perform various services on behalf of the mutual fund companies that administer the Series Funds in which the Account invests and may receive fees for the services performed. These services include, among other things, investment management, subadvisory, shareholder communications, preparation, postage, fund transfer agency and various other record keeping, administrative, and customer service functions.

The Series Fund has management agreements with Prudential Investment LLC (“PI”) an indirect, wholly-owned subsidiaries of PFI. Pursuant to this agreement, PI has responsibility for all investment advisory services and supervise the subadvisors’ performance of such services. PI has 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 Series Fund has a distribution agreement with Prudential Investment Management Services LLC (“PIMS”), an indirect, wholly-owned subsidiary of PFI, which acts as the

A21

Note 6: Related Party Transactions (Continued)

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.

PI has agreed to reimburse certain portfolios of the Series Fund the portion of the management fee for that Portfolio equal to the amount that the aggregate annual ordinary operating expenses (excluding interest, taxes, brokerage commissions, and acquired fund expenses, as applicable) exceeds various agreed upon percentages of the portfolio’s average daily net assets.

Prudential Mutual Fund Services LLC (“PMFS”), an affiliate of the PI and an indirect, wholly-owned subsidiary of PFI, serves as the Series Fund’s transfer agent.

Note 7: Financial Highlights

The Contracts have unique combinations of features and fees that are charged against the assets in each subaccount. Differences in the fee structure result in a variety of unit values, expense ratios and total returns.

The following table was developed by determining which products offered by Prudential have the lowest and highest expense ratio. Only contract designs within the Account 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 as contract holders may not have selected all available options.

	At year ended									For year ended
	Units (000s)		Unit Value Lowest — Highest					Net Assets (000s)		Investment Income Ratio*		Expense Ratio** Lowest — Highest				Total Return*** Lowest — Highest
		Prudential Money Market Portfolio
December 31, 2010		90	$	13.81	to	$	13.95	$	1,253		0.03%		0.65%	to	0.75%		-0.71%	to	-0.61%
December 31, 2009		18	$	13.91	to	$	14.04	$	251		0.43%		0.65%	to	0.75%		-0.36%	to	-0.26%
December 31, 2008		23	$	13.96	to	$	14.07	$	323		2.57%		0.65%	to	0.75%		1.88%	to	1.98%
December 31, 2007		15	$	13.70	to	$	13.80	$	207		4.92%		0.50%	to	0.75%		4.30%	to	4.40%
December 31, 2006		6	$	13.14	to	$	13.22	$	81		4.60%		0.50%	to	0.75%		4.00%	to	4.08%
		Prudential Diversified Bond Portfolio
December 31, 2010		141	$	20.88	to	$	21.43	$	2,998		4.28%		0.50%	to	0.75%		9.75%	to	10.02%
December 31, 2009		116	$	19.02	to	$	19.48	$	2,243		4.42%		0.50%	to	0.75%		19.61%	to	19.91%
December 31, 2008		104	$	15.91	to	$	16.25	$	1,687		4.67%		0.50%	to	0.75%		-4.18%	to	-3.94%
December 31, 2007		93	$	16.60	to	$	16.91	$	1,571		5.16%		0.50%	to	0.75%		4.93%	to	5.17%
December 31, 2006		80	$	15.82	to	$	16.08	$	1,280		4.99%		0.50%	to	0.75%		4.20%	to	4.47%
		Prudential Equity Portfolio
December 31, 2010		237	$	15.61	to	$	16.02	$	3,792		0.78%		0.50%	to	0.75%		11.07%	to	11.35%
December 31, 2009		231	$	14.05	to	$	14.39	$	3,317		1.23%		0.50%	to	0.75%		37.14%	to	37.48%
December 31, 2008		220	$	10.25	to	$	10.47	$	2,304		1.07%		0.50%	to	0.75%		-38.62%	to	-38.47%
December 31, 2007		217	$	16.69	to	$	17.01	$	3,697		0.67%		0.50%	to	0.75%		8.49%	to	8.79%
December 31, 2006		211	$	15.38	to	$	15.64	$	3,300		0.68%		0.50%	to	0.75%		11.71%	to	12.04%
		Prudential Flexible Managed Portfolio
December 31, 2010		88	$	15.36	to	$	15.76	$	1,379		2.24%		0.50%	to	0.75%		11.20%	to	11.48%
December 31, 2009		86	$	13.81	to	$	14.14	$	1,217		3.37%		0.50%	to	0.75%		19.06%	to	19.35%
December 31, 2008		89	$	11.60	to	$	11.85	$	1,053		2.58%		0.50%	to	0.75%		-25.38%	to	-25.20%
December 31, 2007		101	$	15.54	to	$	15.84	$	1,593		2.04%		0.50%	to	0.75%		5.54%	to	5.84%
December 31, 2006		94	$	14.72	to	$	14.97	$	1,409		1.59%		0.50%	to	0.75%		11.31%	to	11.65%
		Prudential Conservative Balanced Portfolio
December 31, 2010		72	$	16.13	to	$	16.56	$	1,189		2.41%		0.50%	to	0.75%		10.91%	to	11.19%
December 31, 2009		69	$	14.55	to	$	14.90	$	1,028		3.46%		0.50%	to	0.75%		19.11%	to	19.41%
December 31, 2008		67	$	12.21	to	$	12.47	$	827		3.05%		0.50%	to	0.75%		-21.99%	to	-21.80%
December 31, 2007		60	$	15.66	to	$	15.95	$	947		2.80%		0.50%	to	0.75%		5.37%	to	5.59%
December 31, 2006		60	$	14.86	to	$	15.11	$	907		2.24%		0.50%	to	0.75%		9.59%	to	9.91%

A22

Note 7: Financial Highlights (Continued)

	At year ended									For year ended
	Units (000s)		Unit Value Lowest — Highest					Net Assets (000s)		Investment Income Ratio*		Expense Ratio** Lowest — Highest				Total Return*** Lowest — Highest
		Prudential High Yield Bond Portfolio
December 31, 2010		19	$	19.23	to	$	19.43	$	372		8.36%		0.65%	to	0.75%		13.20%	to	13.31%
December 31, 2009		20	$	16.99	to	$	17.15	$	342		9.16%		0.65%	to	0.75%		46.07%	to	46.21%
December 31, 2008		18	$	11.63	to	$	11.73	$	210		7.35%		0.65%	to	0.75%		-22.86%	to	-22.78%
December 31, 2007		24	$	15.08	to	$	15.19	$	367		6.45%		0.50%	to	0.75%		1.88%	to	1.98%
December 31, 2006		18	$	14.80	to	$	14.90	$	263		7.65%		0.50%	to	0.75%		9.42%	to	9.57%
		Prudential Stock Index Portfolio
December 31, 2010		364	$	15.05	to	$	15.45	$	5,599		1.74%		0.50%	to	0.75%		13.73%	to	14.02%
December 31, 2009		348	$	13.23	to	$	13.55	$	4,705		2.56%		0.50%	to	0.75%		25.13%	to	25.44%
December 31, 2008		325	$	10.57	to	$	10.80	$	3,505		1.92%		0.50%	to	0.75%		-37.41%	to	-37.25%
December 31, 2007		353	$	16.89	to	$	17.21	$	6,057		1.29%		0.50%	to	0.75%		4.30%	to	4.56%
December 31, 2006		344	$	16.19	to	$	16.46	$	5,653		1.31%		0.50%	to	0.75%		14.65%	to	14.97%
		Prudential Value Portfolio
December 31, 2010		168	$	16.90	to	$	17.08	$	2,856		0.85%		0.65%	to	0.75%		13.01%	to	13.13%
December 31, 2009		169	$	14.96	to	$	15.10	$	2,544		2.02%		0.65%	to	0.75%		40.87%	to	41.01%
December 31, 2008		154	$	10.62	to	$	10.71	$	1,638		1.86%		0.65%	to	0.75%		-42.72%	to	-42.67%
December 31, 2007		120	$	18.54	to		18,68	$	2,226		1.63%		0.50%	to	0.75%		2.44%	to	2.54%
December 31, 2006		82	$	18.10	to	$	18.22	$	1,487		1.10%		0.50%	to	0.75%		19.05%	to	19.18%
		Prudential Global Portfolio
December 31, 2010		48	$	14.88	to	$	15.27	$	725		1.58%		0.50%	to	0.75%		11.91%	to	12.18%
December 31, 2009		46	$	13.30	to	$	13.61	$	624		2.54%		0.50%	to	0.75%		30.41%	to	30.74%
December 31, 2008		43	$	10.20	to	$	10.41	$	452		1.42%		0.50%	to	0.75%		-43.35%	to	-43.20%
December 31, 2007		44	$	18.00	to	$	18.34	$	796		0.72%		0.50%	to	0.75%		9.69%	to	9.96%
December 31, 2006		44	$	16.41	to	$	16.68	$	728		0.23%		0.50%	to	0.75%		18.75%	to	19.06%
		Prudential Government Income Portfolio
December 31, 2010		76	$	19.71	to	$	20.23	$	1,538		2.86%		0.50%	to	0.75%		6.19%	to	6.46%
December 31, 2009		81	$	18.56	to	$	19.00	$	1,526		2.90%		0.50%	to	0.75%		6.91%	to	7.17%
December 31, 2008		73	$	17.36	to	$	17.73	$	1,294		4.31%		0.50%	to	0.75%		3.53%	to	3.78%
December 31, 2007		66	$	16.77	to	$	17.09	$	1,117		4.42%		0.50%	to	0.75%		4.92%	to	5.20%
December 31, 2006		63	$	15.98	to	$	16.25	$	1,015		4.99%		0.50%	to	0.75%		2.94%	to	3.25%
		Prudential Small Capitalization Stock Portfolio
December 31, 2010		97	$	20.73	to	$	20.94	$	2,014		0.80%		0.65%	to	0.75%		24.99%	to	25.12%
December 31, 2009		93	$	16.58	to	$	16.74	$	1,554		1.81%		0.65%	to	0.75%		24.25%	to	24.37%
December 31, 2008		89	$	13.35	to	$	13.46	$	1,200		1.13%		0.65%	to	0.75%		-31.55%	to	-31.48%
December 31, 2007		96	$	19.50	to	$	19.64	$	1,885		0.61%		0.50%	to	0.75%		-1.25%	to	-1.19%
December 31, 2006		106	$	19.75	to	$	19.88	$	2,101		0.36%		0.50%	to	0.75%		13.83%	to	13.95%
		Prudential Jennison Portfolio
December 31, 2010		172	$	15.62	to	$	16.03	$	2,705		0.46%		0.50%	to	0.75%		11.12%	to	11.39%
December 31, 2009		158	$	14.05	to	$	14.39	$	2,236		0.43%		0.50%	to	0.75%		41.96%	to	42.32%
December 31, 2008		177	$	9.90	to	$	10.11	$	1,769		0.25%		0.50%	to	0.75%		-37.75%	to	-37.59%
December 31, 2007		146	$	15.90	to	$	16.20	$	2,334		0.01%		0.50%	to	0.75%		11.16%	to	11.43%
December 31, 2006		178	$	14.30	to	$	14.54	$	2,555		0.17%		0.50%	to	0.75%		1.00%	to	1.30%
		Prudential Jennison 20/20 Focus Portfolio
December 31, 2010		115	$	17.40	to	$	17.59	$	2,007		0.00%		0.65%	to	0.75%		7.04%	to	7.14%
December 31, 2009		112	$	16.26	to	$	16.41	$	1,824		0.47%		0.65%	to	0.75%		56.65%	to	56.81%
December 31, 2008		94	$	10.38	to	$	10.47	$	975		0.57%		0.65%	to	0.75%		-39.60%	to	-39.54%
December 31, 2007		54	$	17.18	to	$	17.31	$	925		0.82%		0.50%	to	0.75%		9.74%	to	9.85%
December 31, 2006		12	$	15.65	to	$	15.76	$	194		0.38%		0.65%	to	0.75%		13.24%	to	13.41%
		Invesco V.I. Government Securities Fund
December 31, 2010		5	$	16.84	to	$	16.84	$	88		4.56%		0.65%	to	0.65%		4.72%	to	4.72%
December 31, 2009		11	$	15.93	to	$	16.08	$	171		4.28%		0.65%	to	0.75%		-0.76%	to	-0.66%
December 31, 2008		12	$	16.05	to	$	16.19	$	193		5.75%		0.65%	to	0.75%		11.46%	to	11.58%
December 31, 2007		4	$	14.51	to	$	14.67	$	54		4.07%		0.50%	to	0.75%		5.67%	to	5.79%
December 31, 2006		4	$	13.73	to	$	13.73	$	57		3.24%		0.50%	to	0.75%		2.87%	to	2.87%

A23

Note 7: Financial Highlights (Continued)

	At year ended									For year ended
	Units (000s)		Unit Value Lowest — Highest					Net Assets (000s)		Investment Income Ratio*		Expense Ratio** Lowest — Highest				Total Return*** Lowest — Highest
		Invesco V.I. International Growth Fund
December 31, 2010		124	$	12.95	to	$	13.08	$	1,614		2.35%		0.65%	to	0.75%		12.02%	to	12.14%
December 31, 2009		124	$	11.56	to	$	11.67	$	1,438		1.60%		0.65%	to	0.75%		34.23%	to	34.36%
December 31, 2008		110	$	8.61	to	$	8.68	$	948		0.67%		0.65%	to	0.75%		-40.82%	to	-40.77%
December 31, 2007		75	$	14.55	to	$	14.66	$	1,099		0.55%		0.50%	to	0.75%		13.87%	to	13.98%
December 31, 2006		20	$	12.78	to	$	12.86	$	258		1.33%		0.65%	to	0.75%		27.30%	to	27.39%
		AllianceBernstein Growth & Income Portfolio
December 31, 2010		78	$	11.72	to	$	11.84	$	927		0.00%		0.65%	to	0.75%		12.25%	to	12.36%
December 31, 2009		93	$	10.44	to	$	10.54	$	979		4.19%		0.65%	to	0.75%		19.92%	to	20.04%
December 31, 2008		100	$	8.71	to	$	8.78	$	879		2.17%		0.65%	to	0.75%		-41.05%	to	-40.99%
December 31, 2007		122	$	14.77	to	$	14.88	$	1,818		1.40%		0.50%	to	0.75%		4.36%	to	4.45%
December 31, 2006		152	$	14.15	to	$	14.25	$	2,165		1.59%		0.50%	to	0.75%		16.39%	to	16.56%
		AllianceBernstein VPS Large Cap Growth Portfolio — Class A
December 31, 2010		53	$	7.21	to	$	7.28	$	388		0.54%		0.65%	to	0.75%		9.28%	to	9.39%
December 31, 2009		70	$	6.59	to	$	6.66	$	468		0.16%		0.65%	to	0.75%		36.49%	to	36.62%
December 31, 2008		84	$	4.83	to	$	4.87	$	409		0.00%		0.65%	to	0.75%		-40.11%	to	-40.05%
December 31, 2007		123	$	8.07	to	$	8.13	$	993		0.00%		0.50%	to	0.75%		13.10%	to	13.20%
December 31, 2006		191	$	7.14	to	$	7.18	$	1,367		0.00%		0.50%	to	0.75%		-1.12%	to	-1.12%
		AllianceBernstein Small Cap Growth Portfolio
December 31, 2010		5	$	13.59	to	$	13.73	$	63		0.00%		0.65%	to	0.75%		35.89%	to	36.02%
December 31, 2009		5	$	10.00	to	$	10.10	$	46		0.00%		0.65%	to	0.75%		40.69%	to	40.84%
December 31, 2008		6	$	7.11	to	$	7.17	$	43		0.00%		0.65%	to	0.75%		-45.95%	to	-45.89%
December 31, 2007		5	$	13.15	to	$	13.25	$	66		0.00%		0.50%	to	0.75%		13.23%	to	13.34%
December 31, 2006		5	$	11.61	to	$	11.69	$	58		0.00%		0.50%	to	0.75%		9.83%	to	9.97%
		American Century VP Income & Growth Fund
December 31, 2010		20	$	10.06	to	$	10.17	$	203		1.48%		0.65%	to	0.75%		13.30%	to	13.41%
December 31, 2009		25	$	8.88	to	$	8.97	$	224		5.11%		0.65%	to	0.75%		17.21%	to	17.33%
December 31, 2008		28	$	7.58	to	$	7.64	$	216		2.09%		0.65%	to	0.75%		-35.07%	to	-35.01%
December 31, 2007		35	$	11.67	to	$	11.76	$	416		1.87%		0.50%	to	0.75%		-0.82%	to	-0.71%
December 31, 2006		39	$	11.77	to	$	11.84	$	462		1.80%		0.50%	to	0.75%		16.25%	to	16.29%
		Davis Value Portfolio
December 31, 2010		35	$	11.99	to	$	12.11	$	416		1.20%		0.65%	to	0.75%		11.93%	to	12.04%
December 31, 2009		43	$	10.71	to	$	10.81	$	465		0.94%		0.65%	to	0.75%		30.17%	to	30.30%
December 31, 2008		43	$	8.23	to	$	8.30	$	355		0.92%		0.65%	to	0.75%		-40.77%	to	-40.71%
December 31, 2007		55	$	13.89	to	$	13.99	$	759		1.12%		0.50%	to	0.75%		3.87%	to	3.94%
December 31, 2006		53	$	13.37	to	$	13.46	$	708		0.57%		0.50%	to	0.75%		14.12%	to	14.25%
		Dreyfus Socially Responsible Growth Fund
December 31, 2010		2	$	7.65	to	$	7.73	$	15		0.87%		0.65%	to	0.75%		13.97%	to	14.08%
December 31, 2009		2	$	6.71	to	$	6.78	$	15		1.05%		0.65%	to	0.75%		32.76%	to	32.89%
December 31, 2008		1	$	5.06	to	$	5.10	$	3		0.91%		0.65%	to	0.75%		-34.92%	to	-34.85%
December 31, 2007		1	$	7.77	to	$	7.83	$	10		0.35%		0.50%	to	0.75%		7.10%	to	7.10%
December 31, 2006		0	$	7.31	to	$	7.31	$	4		0.00%		0.65%	to	0.65%		8.39%	to	8.39%
		Franklin Small-Mid Cap Growth Securities Fund
December 31, 2010		177	$	10.62	to	$	10.91	$	1,908		0.00%		0.50%	to	0.75%		26.99%	to	27.30%
December 31, 2009		148	$	8.37	to	$	8.57	$	1,252		0.00%		0.50%	to	0.75%		42.87%	to	43.23%
December 31, 2008		167	$	5.86	to	$	5.98	$	991		0.00%		0.50%	to	0.75%		-42.77%	to	-42.63%
December 31, 2007		217	$	10.23	to	$	10.43	$	2,241		0.00%		0.50%	to	0.75%		10.65%	to	10.98%
December 31, 2006		274	$	9.25	to	$	9.40	$	2,551		0.00%		0.50%	to	0.75%		8.20%	to	8.44%
		Franklin Templeton Foreign Securities Fund
December 31, 2010		63	$	14.22	to	$	14.60	$	917		2.13%		0.50%	to	0.75%		7.87%	to	8.14%
December 31, 2009		61	$	13.19	to	$	13.51	$	816		3.44%		0.50%	to	0.75%		36.31%	to	36.65%
December 31, 2008		57	$	9.67	to	$	9.88	$	556		2.82%		0.50%	to	0.75%		-40.68%	to	-40.53%
December 31, 2007		56	$	16.31	to	$	16.62	$	921		2.07%		0.50%	to	0.75%		14.94%	to	15.22%
December 31, 2006		52	$	14.19	to	$	14.42	$	745		1.45%		0.50%	to	0.75%		20.79%	to	21.05%

A24

Note 7: Financial Highlights (Continued)

	At year ended									For year ended
	Units (000s)		Unit Value Lowest —Highest					Net Assets (000s)		Investment Income Ratio*		Expense Ratio** Lowest — Highest				Total Return*** Lowest — Highest
		Invesco V.I. Dynamics Fund
December 31, 2010		34	$	8.75	to	$	8.84	$	298		0.00%		0.65%	to	0.75%		22.90%	to	23.03%
December 31, 2009		34	$	7.12	to	$	7.19	$	246		0.00%		0.65%	to	0.75%		41.38%	to	41.52%
December 31, 2008		36	$	5.04	to	$	5.08	$	183		0.00%		0.65%	to	0.75%		-48.47%	to	-48.41%
December 31, 2007		49	$	9.77	to	$	9.85	$	483		0.00%		0.50%	to	0.75%		11.33%	to	11.51%
December 31, 2006		62	$	8.78	to	$	8.83	$	544		0.00%		0.50%	to	0.75%		15.31%	to	15.32%
		Janus Aspen Enterprise Portfolio — Service Shares
December 31, 2010		247	$	8.34	to	$	8.56	$	2,087		0.07%		0.50%	to	0.75%		24.91%	to	25.22%
December 31, 2009		266	$	6.67	to	$	6.84	$	1,792		0.00%		0.50%	to	0.75%		43.74%	to	44.10%
December 31, 2008		259	$	4.64	to	$	4.74	$	1,214		0.27%		0.50%	to	0.75%		-44.14%	to	-44.00%
December 31, 2007		223	$	8.31	to	$	8.47	$	1,866		0.22%		0.50%	to	0.75%		21.09%	to	21.42%
December 31, 2006		218	$	6.86	to	$	6.98	$	1,507		0.00%		0.50%	to	0.75%		12.73%	to	13.11%
		Janus Aspen Growth & Income Portfolio (Expired April 30, 2010)
December 31, 2010		0	$	0	to	$	0	$	0		0.79%		0.50%	to	0.75%		5.85%	to	5.94%
December 31, 2009		250	$	8.80	to	$	9.01	$	2,226		0.82%		0.50%	to	0.75%		38.24%	to	38.58%
December 31, 2008		233	$	6.37	to	$	6.50	$	1,496		1.01%		0.50%	to	0.75%		-41.61%	to	-41.47%
December 31, 2007		247	$	10.90	to	$	11.11	$	2,709		2.22%		0.50%	to	0.75%		7.93%	to	8.22%
December 31, 2006		148	$	10.10	to	$	10.27	$	1,512		1.78%		0.50%	to	0.75%		7.26%	to	7.56%
		Janus Aspen Worldwide Growth Portfolio
December 31, 2010		63	$	7.33	to	$	7.53	$	473		0.58%		0.50%	to	0.75%		14.97%	to	15.26%
December 31, 2009		66	$	6.38	to	$	6.53	$	430		1.45%		0.50%	to	0.75%		36.67%	to	37.01%
December 31, 2008		62	$	4.67	to	$	4.77	$	296		1.25%		0.50%	to	0.75%		-45.07%	to	-44.94%
December 31, 2007		70	$	8.49	to	$	8.66	$	600		0.75%		0.50%	to	0.75%		8.75%	to	9.13%
December 31, 2006		79	$	7.81	to	$	7.94	$	627		0.00%		0.50%	to	0.75%		17.37%	to	17.76%
		MFS VIT Growth Series — Initial Class
December 31, 2010		18	$	16.18	to	$	16.35	$	289		0.12%		0.65%	to	0.75%		14.48%	to	14.59%
December 31, 2009		18	$	14.13	to	$	14.26	$	251		0.06%		0.65%	to	0.75%		36.64%	to	36.78%
December 31, 2008		20	$	10.34	to	$	10.43	$	203		0.00%		0.65%	to	0.75%		-37.88%	to	-37.82%
December 31, 2007		27	$	16.65	to	$	16.77	$	444		-0.20%		0.50%	to	0.75%		20.28%	to	20.39%
December 31, 2006		54	$	13.84	to	$	13.93	$	747		0.00%		0.50%	to	0.75%		7.07%	to	7.19%
		MFS VIT Research Bond Series — Initial Class
December 31, 2010		13	$	18.61	to	$	18.80	$	249		3.02%		0.65%	to	0.75%		6.67%	to	6.77%
December 31, 2009		15	$	17.44	to	$	17.61	$	267		4.02%		0.65%	to	0.75%		15.29%	to	15.40%
December 31, 2008		13	$	15.13	to	$	15.26	$	200		3.11%		0.65%	to	0.75%		-3.09%	to	-2.99%
December 31, 2007		15	$	15.61	to	$	15.73	$	235		3.06%		0.50%	to	0.75%		3.42%	to	3.54%
December 31, 2006		13	$	15.09	to	$	15.19	$	194		0.00%		0.65%	to	0.75%		3.25%	to	3.36%
		MFS VIT Investors Growth Stock Series
December 31, 2010		42	$	8.14	to	$	8.27	$	347		0.45%		0.50%	to	0.65%		11.75%	to	11.92%
December 31, 2009		35	$	7.28	to	$	7.39	$	257		0.69%		0.50%	to	0.65%		38.65%	to	38.86%
December 31, 2008		31	$	5.25	to	$	5.32	$	162		0.59%		0.50%	to	0.65%		-37.28%	to	-37.19%
December 31, 2007		31	$	8.37	to	$	8.47	$	262		0.34%		0.50%	to	0.75%		10.60%	to	10.82%
December 31, 2006		25	$	7.57	to	$	7.64	$	192		0.00%		0.50%	to	0.65%		6.91%	to	7.00%
		MFS VIT Investors Trust Series
December 31, 2010		5	$	10.63	to	$	10.75	$	55		1.07%		0.65%	to	0.75%		10.27%	to	10.38%
December 31, 2009		5	$	9.64	to	$	9.74	$	47		1.66%		0.65%	to	0.75%		25.95%	to	26.08%
December 31, 2008		5	$	7.66	to	$	7.72	$	36		0.96%		0.65%	to	0.75%		-33.58%	to	-33.51%
December 31, 2007		4	$	11.53	to	$	11.61	$	44		0.81%		0.50%	to	0.75%		9.51%	to	9.55%
December 31, 2006		4	$	10.53	to	$	10.60	$	38		0.48%		0.50%	to	0.75%		12.17%	to	12.29%
		MFS VIT Total Return Series
December 31, 2010		31	$	13.83	to	$	13.98	$	432		2.87%		0.65%	to	0.75%		9.11%	to	9.22%
December 31, 2009		36	$	12.67	to	$	12.80	$	458		3.50%		0.65%	to	0.75%		17.15%	to	17.26%
December 31, 2008		34	$	10.82	to	$	10.91	$	367		3.32%		0.65%	to	0.75%		-22.71%	to	-22.63%
December 31, 2007		34	$	14.00	to	$	14.10	$	480		2.50%		0.50%	to	0.75%		3.45%	to	3.51%
December 31, 2006		39	$	13.53	to	$	13.62	$	531		2.43%		0.50%	to	0.75%		11.04%	to	11.16%

A25

Note 7: Financial Highlights (Continued)

	At year ended									For year ended
	Units (000s)		Unit Value Lowest —Highest					Net Assets (000s)		Investment Income Ratio*		Expense Ratio** Lowest — Highest				Total Return*** Lowest — Highest
		T. Rowe Price Equity Income Portfolio
December 31, 2010		56	$	18.14	to	$	19.22	$	1,061		1.92%		0.50%	to	0.75%		14.17%	to	14.45%
December 31, 2009		56	$	15.89	to	$	16.80	$	933		1.58%		0.50%	to	0.75%		24.66%	to	24.97%
December 31, 2008		54	$	12.74	to	$	13.44	$	713		1.93%		0.50%	to	0.75%		-36.58%	to	-36.43%
December 31, 2007		50	$	19.50	to	$	21.14	$	1,045		1.34%		0.50%	to	0.75%		2.51%	to	2.60%
December 31, 2006		45	$	19.61	to	$	20.53	$	410		1.21%		0.50%	to	0.75%		18.10%	to	18.22%
		PIMCO Variable Insurance Trust Short-Term Portfolio
December 31, 2010		32	$	11.74	to	$	11.91	$	384		0.84%		0.50%	to	0.75%		1.35%	to	1.60%
December 31, 2009		35	$	11.58	to	$	11.72	$	414		1.90%		0.50%	to	0.75%		7.10%	to	7.26%
December 31, 2008		16	$	10.87	to	$	10.93	$	178		3.56%		0.50%	to	0.65%		-0.96%	to	-0.81%
December 31, 2007		6	$	10.94	to	$	11.02	$	62		4.68%		0.50%	to	0.75%		3.70%	to	3.98%
December 31, 2006		4	$	10.55	to	$	10.60	$	43		4.38%		0.50%	to	0.75%		0.00%	to	3.77%
		Delaware VIP Emerging Markets Series
December 31, 2010		174	$	20.72	to	$	21.02	$	3,648		0.76%		0.50%	to	0.75%		17.61%	to	17.90%
December 31, 2009		166	$	17.62	to	$	17.83	$	2,959		1.13%		0.50%	to	0.75%		76.78%	to	77.22%
December 31, 2008		141	$	9.96	to	$	10.06	$	1,417		1.59%		0.50%	to	0.75%		-51.92%	to	-51.80%
December 31, 2007		130	$	20.72	to	$	20.87	$	2,713		1.40%		0.50%	to	0.75%		37.80%	to	38.16%
December 31, 2006		86	$	15.04	to	$	15.11	$	1,296		1.17%		0.50%	to	0.75%		26.20%	to	26.52%
		Invesco V.I. Core Equity Fund (available April 28, 2006)
December 31, 2010		9	$	14.86	to	$	15.65	$	146		0.91%		0.65%	to	0.75%		8.74%	to	8.85%
December 31, 2009		11	$	13.66	to	$	14.38	$	162		1.88%		0.65%	to	0.75%		27.34%	to	27.46%
December 31, 2008		13	$	10.73	to	$	11.28	$	147		2.56%		0.65%	to	0.75%		-30.66%	to	-30.59%
December 31, 2007		17	$	16.25	to	$	20.72	$	266		1.01%		0.50%	to	0.75%		7.34%	to	7.39%
December 31, 2006		16	$	14.42	to	$	15.13	$	230		0.01%		0.50%	to	0.75%		8.88%	to	8.95%
		Credit Suisse Trust U.S. Equity Flex I Portfolio (available October 2, 2009)
December 31, 2010		45	$	10.20	to	$	10.47	$	466		0.15%		0.50%	to	0.75%		13.61%	to	13.89%
December 31, 2009		45	$	8.41	to	$	8.60	$	410		0.00%		0.50%	to	0.75%		6.76%	to	6.82%

* These amounts represent the dividends, excluding distributions of capital gains, received by the subaccount from the underlying mutual fund, net of management fees assessed by the fund manager, divided by the average net assets. These ratios exclude those expenses, such as mortality, expense and, administration charges, that result in direct reductions in the unit values. The recognition of investment income by the subaccount is affected by the timing of the declaration of dividends by the underlying fund in which the subaccounts invest.

** These ratios represent the annualized contract expenses of the separate account, consisting primarily of mortality and expense charges, for each period indicated. These 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. Product designs within a subaccount with an effective date during a period were excluded from the range of total return for that period. Contract owners may experience different total returns based on their investment options. Investment options with a date notation indicate the effective date of that investment option in the Account. Total returns for periods less than one year are not annualized. The total return is calculated for each of the five years in the period ended December 31, 2010 or from the effective date of the subaccount through the end of the reporting period.

A26

Note 7: Financial Highlights (Continued)

Charges and Expenses

Prudential assesses a daily charge for administrative expenses, based on a percentage of the average assets in each Subaccount of the Discovery Premier Account, as agreed upon under each Contract. Additionally, there is a 0.15% daily charge assessed for the assumption of mortality and expense risks, which is also based on the average assets in each Subaccount of the Discovery Premier Account. While a total maximum administrative fee and mortality and expense risk charge of 0.90% could be charged under the Contracts, the total rates currently charged by Prudential for these expenses range between 0.50% to 0.75%, which is assessed through a reduction in unit values.

Withdrawal Charge

A withdrawal charge is imposed upon the withdrawal of certain purchase payments to compensate Prudential for sales and other marketing expenses. The maximum withdrawal charge is 5% on contributions withdrawn during the first year of participation. The withdrawal charge declines by 1% in each subsequent year until it is 0% after the fifth year. No withdrawal charge is imposed upon contributions withdrawn for any reason after five years of participation in a program. In addition, no withdrawal charge is imposed upon contributions withdrawn to purchase an annuity under a Contract, to provide a death benefit, pursuant to a systematic withdrawal plan, to provide a minimum distribution payment on contributions received from a roll-over, or in cases of financial hardship or disability retirement as determined pursuant to provisions of the employer’s retirement arrangement. Further, for all plans other than IRAs, no withdrawal charge is imposed upon contributions withdrawn due to resignation or retirement by the Participant or termination of the Participant by the Contractholder. This charge is assessed through the redemption of units. Prudential has waived withdrawal charges effective October 1, 2009.

Note 8: Other

Contract owner net payments—represent contract owner contributions under the Policies reduced by applicable deductions, charges, and state premium taxes.

Withdrawals and other charges—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—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.

(Payable to)/Receivable from The Prudential Insurance Company of America—At times, Prudential may owe an amount to or expect to receive an amount from the Account primarily related to processing contract holder payments, surrenders, withdrawals and death benefits. This amount is reflected in the Account’s Statement of Net Assets as either a receivable from or payable to Prudential. The receivable or payable does not have an effect on the contract holder’s account or the related unit value.

Note 9: Participant Loans

The minimum loan amount is as specified in the Contract, or if not specified, as determined by Prudential. The maximum loan amount is the lesser of (a) $50,000, reduced by the highest outstanding balance of loans during the one year period immediately preceding the date of the loan or (b) 50% of the value of the Participant’s vested interest under a Contract. In the loan application, the Contractholder (or in certain cases, the Participant) designates the Subaccount(s) from which the loan amount is deducted. To repay the loan, the

A27

Note 9: Participant Loans (Continued)

Participant makes periodic payments of interest plus a portion of the principal. Those payments are invested in the Subaccounts chosen by the Participant. The Participant may specify the Subaccounts from which he may borrow and into which repayments may be invested. If the Participant does not specify the Subaccounts from which the loan amount is deducted, the loan amount will be deducted pro rata from the participant account value in subaccounts.

The maximum loan amount referred to above is imposed by federal tax law. That limit, however, applies to all loans from any qualified plan of the employer. Since Prudential cannot monitor a Participant’s loan activity relating to other plans offered to Participants, it is the Participant’s responsibility to do so. Provided that a Participant adheres to these limitations, the loan will not be treated as a taxable distribution. If, however, the Participant defaults on the loan by, for example, failing to make required payments, the defaulted loan amount (as described in loan disclosure information provided to a borrowing Participant) will be treated as a taxable distribution and Prudential will send the appropriate tax information to the participant and the Internal Revenue Service.

Prudential charges a loan application fee of up to $75, which is deducted from the Participant Account at the time the loan is initiated. Prudential also charges up to $60 per year as a loan maintenance fee for record keeping and other administrative services provided in connection with the loan. This charge is guaranteed not to increase during the term of any loan. The annualized loan maintenance charge will be prorated based on the number of full months that the loan is outstanding and is generally deducted quarterly.

A28

Report of Independent Registered Public Accounting Firm

To the Contract Owners of

The Prudential Discovery Premier Group Variable Contract Account

and the Board of Directors of

The Prudential Insurance Company of America

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 each of the subaccounts listed in Note 1 of The Prudential Discovery Premier Group Variable Contract Account at December 31, 2010, 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 Insurance Company of America. 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 owned at December 31, 2010 by correspondence with the transfer agents of the investee mutual funds, provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

New York, New York

April 13, 2011

A29

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

Consolidated Statements of Financial Position

December 31, 2010 and 2009 (in millions, except share amounts)

	2010		2009
ASSETS
Fixed maturities, available for sale, at fair value (amortized cost: 2010-$111,314; 2009- $105,356)	$	116,558	$	106,208
Trading account assets supporting insurance liabilities, at fair value		16,037		14,639
Other trading account assets, at fair value		5,177		2,865
Equity securities, available for sale, at fair value (cost: 2010-$4,243; 2009-$3,996)		5,432		4,856
Commercial mortgage and other loans		26,647		26,289
Policy loans		8,036		7,907
Other long-term investments		3,485		3,257
Short-term investments and other		3,221		4,785
Total investments		184,593		170,806
Cash and cash equivalents		3,329		7,139
Accrued investment income		1,615		1,586
Deferred policy acquisition costs		8,267		7,314
Other assets		12,623		11,510
Due from parent and affiliates		4,333		5,841
Separate account assets		159,204		132,476
Total Assets	$	373,964	$	336,672
LIABILITIES AND EQUITY
LIABILITIES
Future policy benefits	$	78,821	$	77,097
Policyholders’ account balances		73,256		71,654
Policyholders’ dividends		3,297		1,033
Securities sold under agreements to repurchase		5,885		5,735
Cash collateral for loaned securities		1,929		2,802
Income taxes		3,170		1,354
Short-term debt		1,488		2,931
Long-term debt		8,454		6,929
Other liabilities		10,397		9,680
Due to parent and affiliates		6,781		4,332
Separate account liabilities		159,204		132,476
Total liabilities		352,682		316,023
COMMITMENTS AND CONTINGENT LIABILITIES (See Note 22)
EQUITY
Common Stock ($5.00 par value; 500,000 shares authorized; issued and outstanding at December 31, 2010 and 2009, respectively)		2		2
Additional paid-in capital		18,275		18,372
Accumulated other comprehensive income (loss)		1,244		(447	)
Retained earnings		1,738		2,700
Total Prudential Insurance Company of America’s equity		21,259		20,627
Noncontrolling interests		23		22
Total equity		21,282		20,649
TOTAL LIABILITIES AND EQUITY	$	373,964	$	336,672

See Notes to Consolidated Financial Statements

B-1

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

Consolidated Statements of Operations

Years Ended December 31, 2010, 2009 and 2008 (in millions)

	2010			2009			2008
REVENUES
Premiums	$	10,229		$	9,633		$	9,473
Policy charges and fee income		2,197			2,090			2,180
Net investment income		8,690			8,593			9,250
Other income		1,775			2,661			(113	)
Realized investment gains (losses), net:
Other-than-temporary impairments on fixed maturity securities		(2,655	)		(3,337	)		(2,060	)
Other-than-temporary impairments on fixed maturity securities transferred to Other Comprehensive Income		2,261			2,004			—
Other realized investment gains (losses), net		1,657			(1,262	)		580
Total realized investment gains (losses), net		1,263			(2,595	)		(1,480	)
Total revenues		24,154			20,382			19,310
BENEFITS AND EXPENSES
Policyholders’ benefits		11,918			11,047			11,573
Interest credited to policyholders’ account balances		3,314			3,648			2,203
Dividends to policyholders’		2,101			1,257			2,151
Amortization of deferred policy acquisition costs		475			483			654
General and administrative expenses		3,527			3,513			3,521
Total benefits and expenses		21,335			19,948			20,102
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES AND EQUITY IN EARNINGS OF OPERATING JOINT VENTURES		2,819			434			(792	)
Income taxes:
Current		(294	)		209			(284	)
Deferred		1,128			(600	)		(53	)
Total income tax expense (benefit)		834			(391	)		(337	)
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EQUITY IN EARNINGS OF OPERATING JOINT VENTURES		1,985			825			(455	)
Equity in earnings of operating joint ventures, net of taxes		46			1,487			(218	)
INCOME (LOSS) FROM CONTINUING OPERATIONS		2,031			2,312			(673	)
Income from discontinued operations, net of taxes		8			—			5
NET INCOME (LOSS)		2,039			2,312			(668	)
Less: Income attributable to noncontrolling interests		1			1			2
NET INCOME (LOSS) ATTRIBUTABLE TO PRUDENTIAL INSURANCE COMPANY OF AMERICA	$	2,038		$	2,311		$	(670	)

See Notes to Consolidated Financial Statements

B-2

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

Consolidated Statements of Equity

Years Ended December 31, 2010, 2009 and 2008 (in millions)

	Common Stock		Additional Paid-in Capital			Retained Earnings (Deficit)			Accumulated Other Comprehensive Income (Loss)			Total Prudential Insurance Company of America Equity			Noncontrolling Interests			Total Equity
Balance, December 31, 2007	$	2	$	15,914		$	1,980		$	174		$	18,070		$	20		$	18,090
Dividends to parent		—		—			(1,523	)		—			(1,523	)		—			(1,523	)
Capital contribution from parent		—		785			—			—			785			—			785
Consolidations/deconsolidations of noncontrolling interests		—		—			—			—			—			(1	)		(1	)
Deferred tax asset contributed to parent		—		(9	)		—			—			(9	)		—			(9	)
Assets purchased/transferred from affiliates		—		81			—			(145	)		(64	)		—			(64	)
Long-term stock-based compensation program		—		7			—			—			7			—			7
Impact on Company’s investment in Wachovia Securities due to addition of
A.G. Edwards business, net of tax (1)		—		1,041			—			—			1,041			—			1,041
Cummulative effect of changes in accounting principles, net of taxes		—		—			27			—			27			—			27
Comprehensive income:
Net income		—		—			(670	)		—			(670	)		2			(668	)
Other comprehensive income, net of tax:
Change in foreign currency translation adjustments										(24	)		(24	)		—			(24	)
Change in net unrealized investment gains (losses)										(5,888	)		(5,888	)		—			(5,888	)
Change in pension and postretirement unrecognized net periodic benefit cost										(707	)		(707	)		—			(707	)
Other comprehensive income													(6,619	)		—			(6,619	)
Total comprehensive income													(7,289	)		2			(7,287	)
Balance, December 31, 2008		2		17,819			(186	)		(6,590	)		11,045			21			11,066
Capital contribution from parent		—		415			—			—			415			—			415
Assets purchased/transferred from affiliates		—		256			—			—			256			—			256
Long-term stock-based compensation program		—		(9	)		—			—			(9	)		—			(9	)
Impact on Company’s investment in Wachovia Securities due to addition of
A.G. Edwards business, net of tax (1)		—		(109	)		—			—			(109	)		—			(109	)
Impact of adoption of guidance for other-than-temporary impairments of debt securities, net of taxes		—		—			575			(575	)		—			—			—
Comprehensive loss:
Net income (loss)		—		—			2,311			—			2,311			1			2,312
Other comprehensive income (loss), net of tax:
Change in foreign currency translation adjustments										6			6			—			6
Change in net unrealized investment gains										7,332			7,332			—			7,332
Change in pension and postretirement unrecognized net periodic benefit cost										(620	)		(620	)		—			(620	)
Other comprehensive loss													6,718			—			6,718

See Notes to Consolidated Financial Statements

B-3

Total comprehensive income (loss)													9,029			1		9,030
Balance, December 31, 2009		2		18,372			2,700			(447	)		20,627			22		20,649
Dividends to parent		—		—			(3,000	)		—			(3,000	)		—		(3,000	)
Assets purchased/transferred from affiliates		—		(96	)		—			—			(96	)		—		(96	)
Long-term stock-based compensation program		—		(1	)		—			—			(1	)		—		(1	)
Comprehensive income:
Net income		—		—			2,038			—			2,038			1		2,039
Other comprehensive income, net of tax:
Change in foreign currency translation adjustments										2			2			—		2
Change in net unrealized investment gains										1,361			1,361			—		1,361
Change in pension and postretirement unrecognized net periodic benefit cost										328			328			—		328
Other comprehensive income													1,691			—		1,691
Total comprehensive income													3,729			1		3,730
Balance, December 31, 2010	$	2	$	18,275		$	1,738		$	1,244		$	21,259		$	23	$	21,282

(1) See Note 7

See Notes to Consolidated Financial Statements

B-4

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

Consolidated Statements of Cash Flows

Years Ended December 31, 2010, 2009 and 2008 (in millions)

	2010			2009			2008
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)	$	2,039		$	2,312		$	(668	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Realized investment (gains) losses, net		(1,263	)		2,595			1,480
Policy charges and fee income		(729	)		(824	)		(761	)
Interest credited to policyholders’ account balances		3,314			3,648			2,203
Depreciation and amortization		(264	)		(53	)		620
(Gains) losses on trading account assets supporting insurance liabilities, net		(468	)		(1,533	)		1,364
Gain on sale of joint venture in Wachovia Securities		—			(2,247	)		—
Change in:
Deferred policy acquisition costs		(1,103	)		(569	)		(259	)
Future policy benefits and other insurance liabilities		1,790			(218	)		2,430
Other trading account assets		(1,369	)		(407	)		(2,837	)
Income taxes		(188	)		(90	)		(779	)
Other, net		(192	)		523			3,209
Cash flows from operating activities		1,567			3,137			6,002
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the sale/maturity/prepayment of:
Fixed maturities, available for sale		21,002			26,552			60,931
Equity securities, available for sale		1,676			765			2,500
Trading account assets supporting insurance liabilities and other trading account assets		37,880			37,183			26,391
Commercial mortgage and other loans		3,794			3,321			2,594
Policy loans		897			968			1,345
Other long-term investments		622			295			1,134
Short-term investments		12,685			14,604			17,949
Payments for the purchase/origination of:
Fixed maturities, available for sale		(26,662	)		(24,194	)		(55,223	)
Equity securities, available for sale		(1,587	)		(827	)		(2,594	)
Trading account assets supporting insurance liabilities and other trading account assets		(38,796	)		(37,522	)		(27,176	)
Commercial mortgage and other loans		(4,090	)		(2,336	)		(4,770	)
Policy loans		(660	)		(778	)		(968	)
Other long-term investments		(636	)		(399	)		(904	)
Short-term investments		(11,589	)		(15,449	)		(17,854	)
Proceeds from sale of joint venture in Wachovia Securities		—			4,500			—
Due to/from parent and affiliates		1,401			(982	)		(344	)
Other, net		62			(461	)		(561	)
Cash flows from (used in) investing activities		(4,001	)		5,240			2,450
CASH FLOWS FROM FINANCING ACTIVITIES
Policyholders’ account deposits		15,542			16,883			19,251
Policyholders’ account withdrawals		(16,478	)		(19,052	)		(18,020	)
Net change in securities sold under agreements to repurchase and cash collateral for loaned securities		(724	)		(2,257	)		(5,944	)
Net change in financing arrangements (maturities 90 days or less)		491			(3,327	)		(3,410	)
Proceeds from the issuance of debt (maturities longer than 90 days)		2,343			1,929			7,534
Repayments of debt (maturities longer than 90 days)		(2,702	)		(3,259	)		(3,636	)
Excess tax benefits from share-based payment arrangements		4			2			9
Capital contribution from parent		—			—			594
Dividends to parent		—			—			(1,523	)
Other, net		176			(289	)		(54	)
Cash flows used in financing activities		(1,348	)		(9,370	)		(5,199	)
Effect of foreign exchange rate changes on cash balances		(28	)		9			—
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(3,810	)		(984	)		3,253
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR		7,139			8,123			4,870
CASH AND CASH EQUIVALENTS, END OF YEAR	$	3,329		$	7,139		$	8,123
SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes paid/(received)	$	(56	)	$	492		$	379
Interest paid	$	313		$	388		$	631
NON-CASH TRANSACTIONS DURING THE YEAR
Impact on Company’s investment in Wachovia Securities due to addition of A.G. Edwards business, net of tax	$	—		$	(109	)	$	1,041

See Notes to Consolidated Financial Statements

B-5

1. BUSINESS AND BASIS OF PRESENTATION

The Prudential Insurance Company of America (“Prudential Insurance”), together with its subsidiaries (collectively, the “Company”), is a wholly owned subsidiary of Prudential Holdings, LLC (“Prudential Holdings”), which is a wholly owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”). The Company has organized its operations into the Closed Block Business and the Financial Services Businesses. The Closed Block Business consists principally of the Closed Block (see Note 12); assets held outside the Closed Block that Prudential Insurance needs to hold to meet capital requirements related to the Closed Block policies and invested assets held outside the Closed Block that represent the difference between the Closed Block Assets and Closed Block Liabilities and the interest maintenance reserve (collectively, “Surplus and Related Assets”); deferred policy acquisition costs related to Closed Block policies; and certain other related assets and liabilities. Its Financial Services Businesses consist primarily of

non-participating individual life insurance, annuities, group insurance, retirement-related services and global commodities sales and trading. The Company also held an equity method investment in the retail securities brokerage joint venture Wachovia Securities Financial Holdings, LLC (“Wachovia Securities”), which was sold on December 31, 2009. See Note 7 for more details on this transaction.

Demutualization and Destacking

On December 18, 2001 (the “date of demutualization”), the Company converted from a mutual life insurance company to a stock life insurance company and became a direct, wholly owned subsidiary of Prudential Holdings, which became a direct, wholly owned subsidiary of Prudential Financial.

Concurrent with the demutualization, the Company completed a corporate reorganization (the “destacking”) whereby various subsidiaries (and certain related assets and liabilities) of the Company were dividended so that they became wholly owned subsidiaries of Prudential Financial rather than of the Company.

Basis of Presentation

The Consolidated Financial Statements include the accounts of Prudential Insurance, entities over which the Company exercises control, including majority-owned subsidiaries and minority-owned entities such as limited partnerships in which the Company is the general partner, and variable interest entities in which the Company is considered the primary beneficiary. See Note 7 for more information on the Company’s consolidated variable interest entities. The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Intercompany balances and transactions have been eliminated. The Company has evaluated subsequent events through March 31, 2011, the date these financial statements were issued.

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 and related amortization; valuation of business acquired and its amortization; amortization of sales inducements; measurement of goodwill and any related impairment; valuation of investments including derivatives and the recognition of other-than-temporary impairments; future policy benefits including guarantees; pension and other postretirement benefits; 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.

Reclassificafions

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

B-6

2. SIGNFICANT ACCOUNTING POLICIES AND PRONOUNCEMENTS

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 real estate; 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. See Note 19 for additional information regarding the determination of fair value. The amortized cost of fixed maturities is adjusted for amortization of premiums and accretion of discounts to maturity. Interest income, as well as the related amortization of premium and accretion of discount, is included in “Net investment income” under the effective yield method. For mortgage-backed and asset-backed securities, the effective yield is based on estimated cash flows, including prepayment assumptions based on data from widely accepted third-party data sources or internal estimates. In addition to prepayment assumptions, cash flow estimates vary based on assumptions regarding the underlying collateral, including default rates and changes in value. These assumptions can significantly impact income recognition and the amount of other-than- temporary impairments recognized in earnings and other comprehensive income. For high credit quality mortgage-backed and asset-backed securities (those rated AA or above), cash flows are provided quarterly, and the amortized cost and effective yield of the security are adjusted as necessary to reflect historical prepayment experience and changes in estimated future prepayments. The adjustments to amortized cost are recorded as a charge or credit to net investment income in accordance with the retrospective method. For asset-backed and mortgage-backed securities rated below AA, the effective yield is adjusted prospectively for any changes in estimated cash flows. See the discussion below on realized investment gains and losses for a description of the accounting for impairments, as well as the impact of the Company’s adoption on January 1, 2009 of new authoritative guidance for the recognition and presentation of other-than-temporary impairments for debt securities. Unrealized gains and losses on fixed maturities classified as “available for sale,” net of tax, and the effect on deferred policy acquisition costs, valuation of business acquired, deferred sales inducements, future policy benefits and policyholders’ dividends that would result from the realization of unrealized gains and losses, are included in “Accumulated other comprehensive income (loss).”

“Trading account assets supporting insurance liabilities, at fair value” includes invested assets that support certain products which are experience rated, meaning that the investment results associated with these products are expected to ultimately accrue to contractholders. Realized and unrealized gains and losses for these investments are reported “Other income.” Interest and dividend income from these investments is reported “Net investment income.”

“Other trading account assets, at fair value” consist primarily of investments and certain derivatives, including those used by the Company in its capacity as a broker-dealer and derivative hedging positions used in a non-broker or non-dealer capacity primarily to hedge the risks related to certain products. These instruments are carried at fair value. Realized and unrealized gains and losses on these investments and on derivatives used by the Company in its capacity as a broker-dealer are reported “Other income.” Interest and dividend income from these investments is reported in “Net investment income.”

Equity securities available for sale are comprised of common stock, mutual fund shares, non-redeemable preferred stock, and perpetual 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, deferred sales inducements, future policy benefits and policyholders’ dividends that would result from the realization of unrealized gains and losses, are included “Accumulated other comprehensive income (loss).” The cost of equity securities is written down to fair value when a decline in value is considered to be other-than-temporary. See the discussion below on realized investment gains and losses for a description of the accounting for impairments. Dividends from these investments are recognized “Net investment income” when declared.

Commercial mortgage and other loans consist of commercial mortgage loans, agricultural loans, loans backed by residential properties, as well as certain other collateralized and uncollateralized loans. Commercial mortgage loans are broken down by class which is based on property type (industrial properties, retail, office, multi-family/apartment, hospitality, and other).

Commercial mortgage and other loans originated and held for investment are generally carried at unpaid principal balance, net of an allowance for losses. Commercial mortgage and other loans acquired, including those related to the acquisition of a business, are recorded at fair value when purchased, reflecting any premiums or discounts to unpaid principal balances.

B-7

Interest income, as well as prepayment fees and the amortization of the related premiums or discounts, related to commercial mortgage and other loans, are included in “Net investment income.”

Impaired loans include those loans for which it is probable that amounts due according to the contractual terms of the loan agreement will not all be collected. The Company defines “past due” as principal or interest not collected at least 30 days past the scheduled contractual due date. Interest received on impaired loans, including loans that were previously modified in a troubled debt restructuring, is either applied against the principal or reported as net investment income, based on the Company’s assessment as to the collectability of the principal. See Note 4 for additional information about the Company’s past due loans.

The Company discontinues accruing interest on impaired loans after the loans become 90 days delinquent as to principal or interest payments, or earlier when the Company has doubts about collectability. When a loan is deemed to be impaired, any accrued but uncollectible interest on the impaired loan and other loans backed by the same collateral, if any, is charged to interest income in the period the loan is deemed to be impaired. 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 Company reviews the performance and credit quality of the commercial mortgage and other loan portfolio on an ongoing basis. Loans are placed on watch list status based on a predefined set of criteria and are assigned one of three categories. Loans are placed on “early warning” status in cases where, based on the Company’s analysis of the loan’s collateral, the financial situation of the borrower or tenants or other market factors, it is believed a loss of principal or interest could occur. Loans are classified as “closely monitored” when it is determined that there is a collateral deficiency or other credit events that may lead to a potential loss of principal or interest. Loans “not in good standing” are those loans where the Company has concluded that there is a high probability of loss of principal, such as when the loan is delinquent or in the process of foreclosure. As described below, in determining our allowance for losses, the Company evaluates each loan on the watch list to determine if it is probable that amounts due according to the contractual terms of the loan agreement will not be collected.

Loan-to-value and debt service coverage ratios are measures commonly used to assess the quality of commercial mortgage loans. The loan-to-value ratio compares the amount of the loan to the fair value of the underlying property collateralizing the loan, and is commonly expressed as a percentage. Loan-to-value ratios greater than 100% indicate that the loan amount exceeds the collateral value. A smaller loan-to-value ratio indicates a greater excess of collateral value over the loan amount. The debt service coverage ratio compares a property’s net operating income to its debt service payments. Debt service coverage ratios less than 1.0 times indicate that property operations do not generate enough income to cover the loan’s current debt payments. A larger debt service coverage ratio indicates a greater excess of net operating income over the debt service payments. The values utilized in calculating these ratios are developed as part of the Company’s periodic review of the commercial mortgage loan and agricultural loan portfolio, which includes an internal appraisal of the underlying collateral value. The Company’s periodic review also includes a quality re-rating process, whereby the internal quality rating originally assigned at underwriting is updated based on current loan, property and market information using a proprietary quality rating system. The loan -to-value ratio is the most significant of several inputs used to establish the internal credit rating of a loan which in turn drives the allowance for losses. Other key factors considered in determining the internal credit rating include debt service coverage ratios, amortization, loan term, estimated market value growth rate and volatility for the property type and region. See Note 4 for additional information related to the loan-to-value ratios and debt service coverage ratios related to the Company’s commercial mortgage and agricultural loan portfolios.

Loans backed by residential properties, other collateralized loans, and uncollateralized loans are also reviewed periodically. Each loan is assigned an internal or external credit rating. Internal credit ratings take into consideration various factors including financial ratios and qualitative assessments based on non-financial information. In cases where there are personal or third party guarantors, the credit quality of the guarantor is also reviewed. These factors are used in developing the allowance for losses. Based on the diversity of the loans in these categories and their immateriality, the Company has not disclosed the credit quality indicators related to these loans in Note 4.

For those loans not reported at fair value, the allowance for losses includes a loan specific reserve for each impaired loan that has a specifically identified loss and a portfolio reserve for probable incurred but not specifically identified losses. For impaired commercial mortgage and other loans the allowances for losses are determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or based upon the fair value of the collateral if the loan is collateral dependent. The portfolio reserves for probable incurred but not specifically identified losses in the commercial mortgage and agricultural loan portfolio segments considers the current credit composition of the portfolio based on an internal quality rating, (as

B-8

described above). The portfolio reserves are determined using past loan experience, including historical credit migration, default probability and loss severity factors by property type. Historical credit migration, default and loss severity factors are updated each quarter based on the Company’s actual loan experience, and are considered together with other relevant qualitative factors in making the final portfolio reserve calculations.

The allowance for losses on commercial mortgage and other loans can increase or decrease from period to period based on the factors noted above. “Realized investment gains (losses), net” includes changes in the allowance for losses. “Realized investment gains (losses), net” also includes gains and losses on sales, certain restructurings, and foreclosures.

When a commercial mortgage or other loan is deemed to be uncollectible, any specific valuation allowance associated with the loan is reversed and a direct write down to the carrying amount of the loan is made. The carrying amount of the loan is not adjusted for subsequent recoveries in value.

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. Policy loans are fully collateralized by the cash surrender value of the associated insurance policies.

Securities repurchase and resale agreements and securities loaned transactions are used to earn spread income, to borrow funds, or to facilitate trading activity. Securities repurchase and resale agreements are generally short-term in nature, and therefore, the carrying amounts of these instruments approximate fair value. As part of securities repurchase agreements or securities loaned transactions, the Company transfers either corporate debt securities, or U.S. government and government agency securities and receives cash as collateral. As part of securities resale agreements, the Company transfers cash as collateral and receives U.S. government securities. For securities repurchase agreements and securities loaned transactions used to earn spread income, the cash received is typically invested in cash equivalents, short-term investments or fixed maturities.

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

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 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 partnerships accounted for using the equity method or the 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. The Company consolidates joint ventures and limited partnerships in certain other instances where it is deemed to exercise control, or is considered the primary beneficiary of a variable interest entity. The

B-9

Company’s net income from consolidated joint ventures and limited partnerships is included in the respective revenue and expense line items depending on the activity of the consolidated entity.

The Company’s wholly-owned investment real estate consists of real estate which the Company has the intent to hold for the production of income as well as real estate held for sale. Real estate which the Company has the intent to hold for the production of income is carried at depreciated cost less any writedowns to fair value for impairment losses and is reviewed for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. Real estate held for sale is carried at the lower of depreciated cost or fair value less estimated selling costs and is not further depreciated once classified as such. An impairment loss is recognized when the carrying value of the investment real estate exceeds the estimated undiscounted future cash flows (excluding interest charges) from the investment. At that time, the carrying value of the investment real estate is written down to fair value. Decreases in the carrying value of investment real estate held for the production of income due to other-than-temporary impairments are recorded in “Realized investment gains (losses), net.” Depreciation on real estate held for the production of income is computed using the straight-line method over the estimated lives of the properties, and is included in “Net investment income.” In the period a real estate investment is deemed held for sale and meets all of the discontinued operation criteria, the Company reports all related net investment income and any resulting investment gains and losses as discontinued operations for all periods presented.

Short-term investments primarily consist of highly liquid debt instruments with a maturity of greater than three months and less than twelve months when purchased, other than those debt instruments meeting this definition that are included in “Trading account assets supporting insurance liabilities, at fair value.” These investments are generally carried at fair value and include certain money market investments, short-term debt securities issued by government sponsored entities and other highly liquid debt instruments. Short-term investments held in the Company’s broker-dealer operations are marked-to-market through “Other income.”

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 net other-than-temporary impairments recognized in earnings. Realized investment gains and losses are also generated from prepayment premiums received on private fixed maturity securities, recoveries of principal on previously impaired securities, allowance for losses on commercial mortgage and other loans, and fair value changes on embedded derivatives and free-standing derivatives that do not qualify for hedge accounting treatment, except those derivatives used in the Company’s capacity as a broker or dealer.

The Company’s available-for-sale 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, currency or interest-rate related, including general credit spread widening); and (3) the financial condition of and near-term prospects of the issuer. With regard to available-for-sale equity securities, the Company also considers the ability and intent to hold the investment for a period of time to allow for a recovery of value. When it is determined that a decline in value of an equity security is other-than-temporary, the carrying value of the equity security is reduced to its fair value, with a corresponding charge to earnings.

In addition, in April 2009, the Financial Accounting Standards Board (“FASB”) revised the authoritative guidance for the recognition and presentation of other-than-temporary impairments for debt securities. The Company early adopted this guidance on January 1, 2009. Prior to the adoption of this guidance the Company was required to record an other-than-temporary impairment for a debt security unless it could assert that it had both the intent and ability to hold the security for a period of time sufficient to allow for a recovery in its fair value to its amortized cost basis. The revised guidance indicates that an other-than-temporary impairment must be recognized in earnings for a debt security in an unrealized loss position when an entity either (a) has the intent to sell the debt security or (b) more likely than not will be required to sell the debt security before its anticipated recovery. For all debt securities in unrealized loss positions that do not meet either of these two criteria, the guidance requires that the Company analyze its ability to recover the amortized cost by comparing the net present value of projected future cash flows with the amortized cost of the security. The net present value is calculated by discounting the Company’s best estimate of projected future cash flows at the effective interest rate implicit in the debt security prior to impairment. The Company may use the estimated fair value of collateral as a proxy for the net present value if it believes that the security is dependent on the liquidation of collateral for recovery of its investment. If the net present value is less than the amortized cost of the investment, an other-than-temporary impairment is recognized.

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Under the authoritative guidance for the recognition and presentation of other-than-temporary impairments, when an other-than-temporary impairment of a debt security has occurred, the amount of the other-than-temporary impairment recognized in earnings depends on whether the Company intends to sell the security or more likely than not will be required to sell the security before recovery of its amortized cost basis. If the debt security meets either of these two criteria, the other-than-temporary impairment recognized in earnings is equal to the entire difference between the security’s amortized cost basis and its fair value at the impairment measurement date. For other-than-temporary impairments of debt securities that do not meet these two criteria, the net amount recognized in earnings is equal to the difference between the amortized cost of the debt security and its net present value calculated as described above. Any difference between the fair value and the net present value of the debt security at the impairment measurement date is recorded in “Other comprehensive income (loss).” Unrealized gains or losses on securities for which an other-than-temporary impairment has been recognized in earnings is tracked as a separate component of “Accumulated other comprehensive income (loss).” Prior to the adoption of this guidance in 2009, an other-than-temporary impairment recognized in earnings for debt securities was equal to the total difference between amortized cost and fair value at the time of impairment.

For debt securities, the split between the amount of an other-than-temporary impairment recognized in other comprehensive income and the net amount recognized in earnings is driven principally by assumptions regarding the amount and timing of projected cash flows. For mortgage-backed and asset-backed securities, cash flow estimates consider the payment terms of the underlying assets backing a particular security, including prepayment assumptions, and are based on data from widely accepted third-party data sources or internal estimates. In addition to prepayment assumptions, cash flow estimates include assumptions regarding the underlying collateral including default rates and recoveries, which vary based on the asset type and geographic location, as well as the vintage year of the security. For structured securities, the payment priority within the tranche structure is also considered. For all other debt securities, cash flow estimates are driven by assumptions regarding probability of default and estimates regarding timing and amount of recoveries associated with a default. The Company has developed these estimates using information based on its historical experience as well as using market observable data, such as industry analyst reports and forecasts, sector credit ratings and other data relevant to the collectability of a security, such as the general payment terms of the security and the security’s position within the capital structure of the issuer.

The new cost basis of an impaired security is 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. For debt securities, the discount (or reduced premium) based on the new cost basis may be accreted into net investment income in future periods, including increases in cash flow on a prospective basis.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks, certain money market investments and other debt instruments with maturities of three months or less when purchased, other than cash equivalents that are included “Trading account assets supporting insurance liabilities, at fair value.”

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 deferred policy acquisition costs (“DAC”) include commissions, costs of policy issuance and underwriting, and variable field office expenses that are incurred in producing new business. 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 balance does not exceed the present value of anticipated gross profits, anticipated gross margins, or premiums less benefits and maintenance expenses, as applicable. 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 “Accumulated other comprehensive income (loss).”

For traditional participating life insurance included in the Closed Block, DAC is amortized over the expected life of the contracts (up to 45 years) in proportion to gross margins based on historical and anticipated future experience, which is evaluated regularly. The effect of changes in estimated gross margins on unamortized deferred acquisition costs is reflected in “General and administrative expenses” in the period such estimated gross margins are revised. Policy acquisition costs related to interest-sensitive and variable life products and fixed and variable deferred annuity products are deferred and amortized over the expected

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life of the contracts (periods ranging from 25 to 99 years) in proportion to gross profits arising principally from investment results, mortality and expense margins, and surrender charges, based on historical and anticipated future experience, which is updated periodically. The 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. In addition to the gross profit components previously mentioned, we also include the impact of the embedded derivatives associated with certain optional living benefit features of the Company’s variable annuity contracts and related hedging activities in actual gross profits used as the basis for calculating current period amortization. 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. DAC related to non-participating traditional individual life insurance is amortized in proportion to gross premiums.

For group annuity contracts, acquisition expenses are deferred and amortized over the expected life of the contracts in proportion to gross profits. For group corporate-, bank- and trust-owned life insurance contracts, acquisition costs are deferred and amortized in proportion to lives insured. For group and individual long-term care contracts, acquisition expenses are deferred and amortized in proportion to gross premiums. For single premium immediate annuities with life contingencies, and single premium group annuities and single premium structured settlements with life contingencies, all acquisition costs are charged to expense immediately because generally all premiums are received at the inception of the contract. For funding agreement notes contracts, single premium structured settlement contracts without life contingencies, and single premium immediate annuities without life contingencies, acquisition expenses are deferred and amortized over the expected life of the contracts using the interest method. For other group life and disability insurance contracts and guaranteed investment contracts, acquisition costs are expensed as incurred.

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. If policyholders surrender traditional life insurance policies in exchange for life insurance policies that do not have fixed and guaranteed terms, the Company immediately charges to expense the remaining unamortized DAC on the surrendered policies. For other 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.

Separate Account Assets and Liabilities

Separate account assets are reported at fair value and represent segregated funds that are invested for certain policyholders, pension funds and other customers. The assets consist primarily of equity securities, fixed maturities, real estate related investments, real estate mortgage loans, short-term investments and derivative instruments. The assets of each account are legally segregated and are generally not subject to claims that arise out of any other business of the Company. Investment risks associated with market value changes are borne by the customers, except to the extent of minimum guarantees made by the Company with respect to certain accounts. Separate account liabilities primarily represent the contractholder’s account balance in separate account assets and to a lesser extent borrowings of the separate account. See Note 11 for additional information regarding separate account arrangements with contractual guarantees. The investment income and realized investment gains or losses from separate account assets generally accrue to the policyholders and are not included in the Company’s results of operations. Mortality, policy administration and surrender charges assessed against the accounts are included “Policy charges and fee income.” Asset management fees charged to the accounts are included in “Other income.” Seed money that the Company invests in separate accounts is reported in the appropriate general account asset line. Investment income and realized investment gains or losses from seed money invested in separate accounts accrues to the Company and is included in the Company’s results of operations.

Other Assets and Other Liabilities

Other assets consist primarily of prepaid pension benefit costs, certain restricted assets, broker-dealer related receivables, trade receivables, valuation of business acquired, goodwill, deferred sales inducements, the Company’s investments in operating joint ventures, which include the Company’s indirect investment in China Pacific Insurance (Group) Co., Ltd. (“China Pacific Group”) and prior to its sale on December 31, 2009 included the Company’s investment in Wachovia Securities Financial Holdings, LLC (“Wachovia Securities”), property and equipment, and reinsurance recoverables. Other liabilities consist primarily

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of trade payables, broker-dealer related payables, pension and other employee benefit liabilities, derivative liabilities, and reinsurance payables.

Property and equipment are carried at cost less accumulated depreciation. Depreciation is determined using the straight-line method over the estimated useful lives of the related assets, which generally range from 3 to 40 years.

As a result of certain acquisitions and the application of purchase accounting, the Company reports a financial asset representing the valuation of business acquired (“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 includes an explicit adjustment to reflect the cost of capital invested in the business. 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 balance does not exceed the present value of anticipated gross profits. The Company has established a VOBA asset primarily for its deferred annuity, defined contribution and defined benefit businesses. For acquired annuity contracts, 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. In addition, future cash flows with respect to acquired annuity business include the impact of future cash flows expected from the guaranteed minimum death and living benefit provisions, including the performance of hedging programs for embedded derivatives. For acquired defined contribution and defined benefits businesses, contract balances are projected using assumptions for add-on deposits, participant withdrawals, contract surrenders, and investment returns. Gross profits are then determined based on investment spreads and the excess of fees and other charges over the costs to administer the contracts. The Company amortizes VOBA over the effective life of the acquired contracts “General and administrative expenses.” For acquired annuity contracts, VOBA is amortized in proportion to estimated gross profits arising from the contracts and anticipated future experience, which is evaluated regularly. For acquired defined contribution and defined benefit businesses, the majority of VOBA is amortized in proportion to estimated gross profits arising principally from investment spreads and fees in excess of actual expense based upon historical and estimated future experience, which is updated periodically. The remainder of VOBA is amortized based on estimated gross revenues, fees, or the change in policyholders’ account balances, as applicable. The effect of changes in estimated gross profits on unamortized VOBA is reflected in the period such estimates of expected future profits are revised. See Note 8 for additional information regarding VOBA.

As a result of certain acquisitions, the Company recognizes an asset for goodwill representing the excess of cost over the net fair value of the assets acquired and liabilities assumed. Goodwill is assigned to reporting units at the date the goodwill is initially recorded. Once goodwill has been assigned to reporting units, it no longer retains its association with a particular acquisition, and all of the activities within the reporting unit, whether acquired or organically grown, are available to support the value of the goodwill.

The Company tests goodwill for impairment annually as of December 31. The Company’s reporting units are the Financial Services Businesses and the Closed Block Business. The goodwill impairment analysis is a two-step test that is performed at the reporting unit level. The first step, used to identify potential impairment, involves comparing each reporting unit’s fair value to its carrying value including goodwill. If the fair value of a reporting unit exceeds its carrying value, the applicable goodwill is considered not to be impaired. If the carrying value exceeds fair value, there is an indication of a potential impairment and the second step of the test is performed to measure the amount of impairment.

The second step involves calculating an implied fair value of goodwill for each reporting unit for which the first step indicated impairment. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination, which is the excess of the fair value of the reporting unit, as determined in the first step, over the aggregate fair values of the individual assets, liabilities and identifiable intangibles as if the reporting unit was being acquired in a business combination. If the implied fair value of goodwill in the “pro forma” business combination accounting as described above exceeds the goodwill assigned to a reporting unit, there is no impairment. If the goodwill assigned to a reporting unit exceeds the implied fair value of the goodwill, an impairment charge is recorded in “General and administrative expenses” for the excess. An impairment loss recognized cannot exceed the amount of goodwill assigned to a reporting unit, and the loss establishes a new basis in the goodwill. Subsequent reversal of goodwill impairment losses is not permitted. Management is required to make significant estimates in determining the fair value of a reporting unit including, but not limited to: projected earnings, comparative market multiples, and the risk rate at which future net cash flows are discounted.

See Note 9 for additional information regarding goodwill.

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The Company offers various types of sales inducements to policyholders related to fixed and variable deferred annuity contracts. The Company defers sales inducements and amortizes them over the anticipated life of the policy using the same methodology and assumptions used to amortize deferred policy acquisition costs. 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.” See Note 11 for additional information regarding sales inducements.

The majority of the Company’s reinsurance recoverables and payables are receivables and corresponding payables associated with the reinsurance arrangements used to effect the Company’s acquisition of the retirement businesses of CIGNA. The remaining amounts relate to other reinsurance arrangements entered into by the Company. For each of its reinsurance contracts, the Company determines if the contract provides indemnification against loss or liability relating to insurance risk in accordance with applicable accounting standards. The Company reviews all contractual features, particularly those that may limit the amount of insurance risk to which the reinsurer is subject or features that delay the timely reimbursement of claims. See Note 13 for additional information about the Company’s reinsurance arrangements.

Investments in operating joint ventures are generally accounted for under the equity method. 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. The Company held an investment in Wachovia Securities which was sold on December 31, 2009. See Note 7 for additional information on investments in operating joint ventures.

Future Policy Benefits

The Company’s liability for future policy benefits is primarily comprised of the present value of estimated future payments to or on behalf of policyholders, where the timing and amount of payment depends on policyholder mortality or morbidity, less the present value of future net premiums. For individual traditional participating life insurance products, the mortality and interest rate assumptions applied are those used to calculate the policies’ guaranteed cash surrender values. For life insurance, other than individual traditional participating life insurance, and annuity and disability products, expected mortality and morbidity is generally based on the Company’s historical experience or standard industry tables including a provision for the risk of adverse deviation. Interest rate assumptions are based on factors such as market conditions and expected investment returns. Although mortality and morbidity and interest rate assumptions are “locked-in” upon the issuance of new insurance or annuity business with fixed and guaranteed terms, significant changes in experience or assumptions may require the Company to provide for expected future losses on a product by establishing premium deficiency reserves. Premium deficiency reserves, if required, are determined based on assumptions at the time the premium deficiency reserve is established and do not include a provision for the risk of adverse deviation. See Note 10 for additional information regarding future policy benefits.

The Company’s liability for future policy benefits also includes a liability for unpaid claims and claim adjustment expenses. The Company does not establish claim liabilities until a loss has occurred. However, unpaid claims and claim adjustment expenses includes estimates of claims that the Company believes have been incurred but have not yet been reported as of the balance sheet date. The Company’s liability for future policy benefits also includes net liabilities for guarantee benefits related to certain nontraditional long-duration life and annuity contracts, which are discussed more fully in Note 11, and certain unearned revenues.

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. See Note 10 for additional information regarding policyholders’ account balances.

Policyholders’ Dividends

The Company’s liability for policyholders’ dividends includes its dividends payable to policyholders and its policyholder dividend obligation associated with the participating policies included in the Closed Block. The dividends payable for participating policies included in the Closed Block are determined at the end of each year for the following year by the Board of Directors of Prudential Insurance based on its statutory results, capital position, ratings, and the emerging experience of the Closed Block. The policyholder dividend obligation represents amounts to be paid to Closed Block policyholders as an additional policyholder

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dividend unless otherwise offset by future Closed Block performance that is less favorable than originally expected, the components of which are discussed more fully in Note 12.

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.

Insurance Revenue and Expense Recognition

Premiums from individual life products, other than interest-sensitive life contracts, and health insurance and long-term care products are recognized when due. When premiums are due over a significantly shorter period than the period over which benefits are provided, any gross premium in excess of the net premium (i.e., the portion of the gross premium required to provide for all expected future benefits and expenses) is deferred and recognized into revenue in a constant relationship to insurance in force. Benefits are recorded as an expense when they are incurred. A liability for future policy benefits is recorded when premiums are recognized using the net level premium method.

Premiums from non-participating group annuities with life contingencies, single premium structured settlements with life contingencies and single premium immediate annuities with life contingencies are recognized when due. When premiums are due over a significantly shorter period than the period over which benefits are provided, any gross premium in excess of the net premium is deferred and recognized into revenue in a constant relationship to the amount of expected future benefit payments. Benefits are recorded as an expense when they are incurred. A liability for future policy benefits is recorded when premiums are recognized using the net premium method.

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 11. The Company also provides contracts with certain living benefits which are considered embedded derivatives. These contracts are discussed in further detail in Note 11.

Amounts received as payment for interest-sensitive group and individual life contracts, deferred fixed annuities, structured settlements and other contracts without life contingencies, and participating group annuities are reported as deposits to “Policyholders’ account balances.” Revenues from these contracts are reflected in “Policy charges and fee income” consisting primarily of fees assessed during the period against the policyholders’ account balances for mortality charges, policy administration charges and surrender charges. In addition to fees, the Company earns investment income from the investment of policyholders’ deposits in the Company’s general account portfolio. Fees assessed that represent compensation to the Company for services to be provided in future periods and certain other fees are deferred and amortized into revenue over the life of the related contracts in proportion to estimated gross profits. Benefits and expenses for these products include claims in excess of related account balances, expenses of contract administration, interest credited to policyholders’ account balances and amortization of DAC.

For group life, other than interest-sensitive group life contracts, and disability insurance, premiums are recognized over the period to which the premiums relate in proportion to the amount of insurance protection provided. Claim and claim adjustment expenses are recognized when incurred.

Premiums, benefits and expenses are stated net of reinsurance ceded to other companies, except for amounts associated with certain modified coinsurance contracts which are reflected in the Company’s financial statements based on the application of the deposit method of accounting. 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.

Other Income

“Other income” includes asset management fees and securities and commodities commission revenues, which are recognized in the period in which the services are performed, interest earned on affiliated notes receivable, realized and unrealized gains and losses from investments classified as “trading” such as “Trading account assets supporting insurance liabilities” and “Other trading account assets,” and short-term investments that are marked-to-market through other income.

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Foreign Currency

Assets and liabilities of foreign operations and subsidiaries reported in currencies other than U.S. dollars are translated at the exchange rate in effect at the end of the period. Revenues, benefits and other expenses are translated at the average rate prevailing during the period. The effects of translating the statements of operations and financial position of non-U.S. entities with functional currencies other than the U.S. dollar are included, net of related qualifying hedge gains and losses and income taxes, in “Accumulated other comprehensive income (loss).” Gains and losses from foreign currency transactions are reported in either “Accumulated other comprehensive income (loss)” or current earnings in “Other income” depending on the nature of the related foreign currency denominated asset or liability.

Derivative Financial Instruments

Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices, values of securities or commodities, credit spreads, market volatility, expected returns, and liquidity. Values can also be affected by changes in estimates and assumptions, including those related to counterparty behavior and non-performance risk used in valuation models. Derivative financial instruments generally used by the Company include swaps, futures, forwards and options 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.

Derivatives are used in a non-dealer or non-broker capacity in insurance and treasury operations, to manage the interest rate and currency characteristics of assets or liabilities and to mitigate the risk of a diminution, upon translation to U.S. dollars, of net investments in foreign operations resulting from unfavorable changes in currency exchange rates. Additionally, derivatives may be used to seek to reduce exposure to interest rate, credit, foreign currency and equity risks associated with assets held or expected to be purchased or sold, and liabilities incurred or expected to be incurred. As discussed in detail below and in Note 21, all realized and unrealized changes in fair value of non-dealer or non-broker related derivatives, with the exception of the effective portion of cash flow hedges and effective hedges of net investments in foreign operations, are recorded in current earnings. Cash flows from these derivatives are reported in the operating, investing, or financing activities sections in the Consolidated Statements of Cash Flows.

Derivatives are also used in a derivative dealer or broker capacity in the Company’s global commodities group to meet the needs of clients by structuring transactions that allow clients to manage their exposure to interest rates, foreign exchange rates, indices or prices of securities and commodities. Realized and unrealized changes in fair value of derivatives used in these dealer related operations are included in “Other income” in the periods in which the changes occur. Cash flows from such derivatives are reported in the operating activities section of the Consolidated Statements of Cash Flows.

Derivatives are recorded either as assets, within “Other trading account assets, at fair value” or “Other long-term investments,” or as liabilities, within “Other liabilities,” except for embedded derivatives which are recorded 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.

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 of 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 that does not qualify for hedge accounting.

To qualify for hedge accounting treatment, a derivative must be highly effective in mitigating the designated risk of the hedged item. Effectiveness of the hedge is formally assessed at inception and throughout the life of the hedging relationship. Even if a derivative qualifies for hedge accounting treatment, there may be an element of ineffectiveness of the hedge. Under such circumstances, the ineffective portion is recorded “Realized investment gains (losses), net.”

The Company formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives designated as fair value, cash flow, or foreign currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. Hedges of a net investment in a foreign operation are linked to the specific foreign operation.

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When a derivative is designated as a fair value hedge and is determined to be highly effective, changes in its fair value, along with changes in the fair value of the hedged asset or liability (including losses or gains on firm commitments), are reported on a net basis in the income statement, generally in “Realized investment gains (losses), net.” When swaps are used in hedge accounting relationships, periodic settlements are recorded in the same income statement line as the related settlements of the hedged items.

When a derivative is designated as a cash flow hedge and is determined to be highly effective, changes in its fair value are recorded in “Accumulated other comprehensive income (loss)” until earnings are affected by the variability of cash flows being hedged (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). At that time, the related portion of deferred gains or losses on the derivative instrument is reclassified and reported in the income statement line item associated with the hedged item.

When a derivative is designated as a foreign currency hedge and is determined to be highly effective, changes in its fair value are recorded either in current period earnings if the hedge transaction is a fair value hedge (e.g., a hedge of a recognized foreign currency asset or liability) or in “Accumulated other comprehensive income (loss)” if the hedge transaction is a cash flow hedge (e.g., a foreign currency denominated forecasted transaction). When a derivative is used as a hedge of a net investment in a foreign operation, its change in fair value, to the extent effective as a hedge, is recorded in the cumulative translation adjustment account within “Accumulated other comprehensive income (loss).”

If it is determined that a derivative no longer qualifies as an effective fair value or cash flow hedge or management removes the hedge designation, the derivative will continue to be carried on the balance sheet at its fair value, with changes in fair value recognized currently in “Realized investment gains (losses), net.” The asset or liability under a fair value hedge will no longer be adjusted for changes in fair value and the existing basis adjustment is amortized to the income statement line associated with the asset or liability. The component of “Accumulated other comprehensive income (loss)” related to discontinued cash flow hedges is amortized to the income statement line associated with the hedged cash flows consistent with the earnings impact of the original hedged cash flows.

When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, or because it is probable that the forecasted transaction will not occur by the end of the specified time period, the derivative will continue to be carried on the balance sheet at its fair value, with changes in fair value recognized currently in “Realized investment gains (losses), net.” Any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the balance sheet and recognized currently in “Realized investment gains (losses), net.” Gains and losses that were in “Accumulated other comprehensive income (loss)” pursuant to the hedge of a forecasted transaction are recognized immediately in “Realized investment gains (losses), net.”

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

The Company is a party to financial instruments that 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 “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”.

Short-Term and Long-Term Debt

Liabilities for short-term and long-term debt are primarily carried at an amount equal to unpaid principal balance, net of unamortized discount or premium. Original-issue discount or premium and debt-issue costs are recognized as a component of interest expense over the period the debt is expected to be outstanding, using the interest method of amortization. Short-term debt is debt coming due in the next twelve months, including that portion of debt otherwise classified as long-term. The short-term debt

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caption may exclude short-term items the Company intends to refinance on a long-term basis in the near term. See Note 14 for additional information regarding short-term and long-term debt.

Income Taxes

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

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

The Company’s liability for income taxes includes the liability for unrecognized tax benefits and interest and penalties which relate to tax years still subject to review by the Internal Revenue Service (“IRS”) or other taxing jurisdictions. Audit periods remain open for review until the statute of limitations has passed. Generally, for tax years which produce net operating losses, capital losses or tax credit carryforwards (“tax attributes”), the statute of limitations does not close, to the extent of these tax attributes, until the expiration of the statute of limitations for the tax year in which they are fully utilized. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the liability for income taxes. The Company classifies all interest and penalties related to tax uncertainties as income tax expense. See Note 18 for additional information regarding income taxes.

Adoption of New Accounting Pronouncements

In July 2010, the FASB issued updated guidance that requires enhanced disclosures related to the allowance for credit losses and the credit quality of a company’s financing receivable portfolio. The disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010. The Company adopted this guidance effective December 31, 2010. The required disclosures are included above and in Note 4. The disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning after December 15, 2010. The Company will provide these required disclosures in the interim reporting period ending March 31, 2011. In January 2011, the FASB deferred the disclosures required by this guidance related to troubled debt restructurings. The disclosures will be effective, and the Company will provide these disclosures, concurrent with the effective date of proposed guidance for determining what constitutes a troubled debt restructuring.

In March 2010, the FASB issued updated guidance that amends and clarifies the accounting for credit derivatives embedded in interests in securitized financial assets. This new guidance eliminates the scope exception for embedded credit derivatives (except for those that are created solely by subordination) and provides new guidance on how the evaluation of embedded credit derivatives is to be performed. This new guidance is effective for the first interim reporting period beginning after June 15, 2010. The Company’s adoption of this guidance effective with the interim reporting period ending September 30, 2010 did not have a material effect on the Company’s consolidated financial position, results of operations, and financial statement disclosures.

In January 2010, the FASB issued updated guidance that requires new fair value disclosures about significant transfers between Level 1 and 2 measurement categories and separate presentation of purchases, sales, issuances, and settlements within the roll forward of Level 3 activity. Also, this updated fair value guidance clarifies the disclosure requirements about level of disaggregation and valuation techniques and inputs. This new guidance is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of Level 3 activity, which are effective for interim and annual reporting periods beginning after December 15, 2010. The Company adopted the effective portions of this guidance on January 1, 2010. The required disclosures are provided in Note 19. The Company will provide the required disclosures about purchases, sales, issuances, and settlements in the roll forward of Level 3 activity in the interim reporting period ending March 31, 2011.

In June 2009, the FASB issued authoritative guidance which changes the analysis required to determine whether or not an entity is a variable interest entity (“VIE”). In addition, the guidance changes the determination of the primary beneficiary of a VIE from a quantitative to a qualitative model. Under the new qualitative model, the primary beneficiary must have both the ability to

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direct the activities of the VIE and the obligation to absorb either losses or gains that could be significant to the VIE. This guidance also changes when reassessment is needed, as well as requires enhanced disclosures, including the effects of a company’s involvement with a VIE on its financial statements. This guidance is effective for interim and annual reporting periods beginning after November 15, 2009. In February 2010, the FASB issued updated guidance which defers, except for disclosure requirements, the impact of this guidance for entities that (1) possess the attributes of an investment company, (2) do not require the reporting entity to fund losses, and (3) are not financing vehicles or entities that were formerly classified as qualified special purpose entities (“QSPE’s”). The Company’s adoption of this guidance effective January 1, 2010 did not have a material effect on the Company’s consolidated financial position and results of operations. The disclosures required by this revised guidance are provided in Note 5.

In June 2009, the FASB issued authoritative guidance which changes the accounting for transfers of financial assets, and is effective for transfers of financial assets occurring in interim and annual reporting periods beginning after November 15, 2009. It removes the concept of a QSPE from the guidance for transfers of financial assets and removes the exception from applying the guidance for consolidation of variable interest entities to qualifying special-purpose entities. It changes the criteria for achieving sale accounting when transferring a financial asset and changes the initial recognition of retained beneficial interests. The guidance also defines “participating interest” to establish specific conditions for reporting a transfer of a portion of a financial asset as a sale. The Company’s adoption of this guidance effective January 1, 2010 did not have a material effect on the Company’s consolidated financial position, results of operations, and financial statement disclosures.

In January 2010, the FASB issued updated guidance that clarifies existing guidance on accounting and reporting by an entity that experiences a decrease in ownership of a subsidiary that is a business. The updated guidance states that a decrease in ownership applies to a subsidiary or group of assets that is a business, but does not apply to a sale of in-substance real estate even if it involves a business, such as an ownership interest in a partnership whose only asset is operating real estate. This guidance also affects accounting and reporting by an entity that exchanges a group of assets that constitutes a business for an equity interest in another entity. The updated guidance also expands disclosures about fair value measurements relating to retained investments in a deconsolidated subsidiary or a preexisting interest held by an acquirer in a business combination. The updated guidance is effective in the first interim or annual reporting period ending on or after December 15, 2009, and is applied on a retrospective basis to the first period that the Company adopted the existing guidance, which was as of January 1, 2009. The Company’s adoption of this updated guidance effective December 31, 2009 did not have a material effect on the Company’s consolidated financial position, results of operations, or financial statement disclosures.

In September 2009, the FASB issued updated guidance for the fair value measurement of investments in certain entities that calculate net asset value per share including certain alternative investment funds. This guidance allows companies to determine the fair value of such investments using net asset value (“NAV”) if the fair value of the investment is not readily determinable and the investee entity issues financial statements in accordance with measurement principles for investment companies. Use of this practical expedient is prohibited if it is probable the investment will be sold at something other than NAV. This guidance also requires new disclosures for each major category of alternative investments. This guidance does not apply to the Company’s investments in joint ventures and limited partnerships that are generally accounted for under the equity method or cost method. It is effective for the first annual or interim reporting period ending after December 15, 2009. The Company’s adoption of this guidance effective December 31, 2009 did not have a material effect on the Company’s consolidated financial position, results of operations, or financial statement disclosures.

In August 2009, the FASB issued updated guidance for the fair value measurement of liabilities. This guidance provides clarification on how to measure fair value in circumstances in which a quoted price in an active market for the identical liability is not available. This guidance also clarifies that restrictions preventing the transfer of a liability should not be considered as a separate input or adjustment in the measurement of fair value. The Company adopted this guidance effective with the annual reporting period ended December 31, 2009, and the adoption did not have a material impact on the Company’s consolidated financial position, results of operations, and financial statement disclosures.

In June 2009, the FASB issued authoritative guidance for the FASB’s Accounting Standards Codification^TM as the source of authoritative U.S. GAAP. The Codification is not intended to change U.S. GAAP but is a new structure which organizes accounting pronouncements by accounting topic. This guidance is effective for financial statements issued for interim and annual periods ending after September 15, 2009. The Company’s adoption of this guidance effective with the reporting period ending December 31, 2009 impacts the way the Company references U.S. GAAP standards in the financial statements.

In May 2009, the FASB issued authoritative guidance for subsequent events, which addresses the accounting for and disclosure of subsequent events not addressed in other applicable GAAP, including disclosure of the date through which

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subsequent events have been evaluated. This guidance is effective for interim or annual periods ending after June 15, 2009. The Company’s adoption of this guidance effective with the period ending December 31, 2009 did not have a material effect on the Company’s consolidated financial position or results of operations. The required disclosure of the date through which subsequent events have been evaluated is provided in Note 1.

In April 2009, the FASB revised the authoritative guidance for the recognition and presentation of other-than-temporary impairments. This new guidance amends the other-than-temporary impairment guidance for debt securities and expands the presentation and disclosure requirements of other-than-temporary impairments on debt and equity securities in the financial statements. This guidance also requires that the required annual disclosures for debt and equity securities be made for interim reporting periods. This guidance does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company early adopted this guidance effective January 1, 2009, which resulted in a net after-tax increase to retained earnings and decrease to accumulated other comprehensive income (loss) of $575 million. The disclosures required by this new guidance are provided in Note 4. See “Investments and Investment-Related Liabilities” above for more information.

In April 2009, the FASB revised the authoritative guidance for fair value measurements and disclosures to provide guidance on (1) estimating the fair value of an asset or liability if there was a significant decrease in the volume and level of trading activity for these assets or liabilities, and (2) identifying transactions that are not orderly. Further, this new guidance requires additional disclosures about fair value measurements in interim and annual periods. This guidance is effective for interim and annual reporting periods ending after June 15, 2009, and shall be applied prospectively. Early adoption is permitted for periods ending after March 15, 2009. The Company’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Company’s consolidated financial position or results of operations. The disclosures required by this revised guidance are provided in Note 19.

In April 2009, the FASB revised the authoritative guidance for the accounting for business combinations. This new guidance requires an asset acquired or liability assumed in a business combination that arises from a contingency to be recognized at fair value at the acquisition date, if the acquisition date fair value of that asset or liability can be determined during the measurement period. If the acquisition date fair value of an asset acquired or liability assumed in a business combination that arises from a contingency cannot be determined during the measurement period, the asset or liability shall be recognized at the acquisition date using the authoritative guidance related to accounting for contingencies. This new guidance also amends disclosure requirements. This guidance is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after January 1, 2009. The Company’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Company’s consolidated financial position or results of operations.

In December 2008, the FASB revised the authoritative guidance for employers’ disclosures about postretirement benefit plan assets. This new guidance requires additional disclosures about the components of plan assets, investment strategies for plan assets, significant concentrations of risk within plan assets, and requires disclosures regarding the fair value measurement of plan assets. This guidance is effective for fiscal years ending after December 15, 2009. The Company adopted this guidance effective December 31, 2009. The required disclosures are provided in Note 17.

In September 2008, the FASB Emerging Issues Task Force (“EITF”) reached consensus on an issuer’s accounting for liabilities measured at fair value with a third-party credit enhancement. This consensus concluded that (a) the issuer of a liability (including debt) with a third-party credit enhancement that is inseparable from the liability, shall not include the effect of the credit enhancement in the fair value measurement of the liability; (b) the issuer shall disclose the existence of any third-party credit enhancement on such liabilities, and (c) in the period of adoption the issuer shall disclose the valuation techniques used to measure the fair value of such liabilities and disclose any changes from valuation techniques used in prior periods. The Company’s adoption of this guidance on a prospective basis effective January 1, 2009 did not have a material effect on the Company’s consolidated financial position or results of operations.

In April 2008, the FASB revised the authoritative guidance for the determination of the useful life of intangible assets. This new guidance 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. This guidance 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

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all intangible assets recognized as of, and after, the effective date. The Company’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Company’s consolidated financial position or results of operations.

In March 2008, the FASB issued authoritative guidance for derivative instruments and hedging activities which 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, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. The Company’s adoption of this guidance effective January 1,2009 did not have a material effect on the Company’s consolidated financial position or results of operations. The required disclosures are provided in Note 21.

In February 2008, the FASB revised the authoritative guidance for the accounting for transfers of financial assets and repurchase financing transactions. The new guidance provides recognition and derecognition guidance for a repurchase financing transaction, which is a repurchase agreement that relates to a previously transferred financial asset between the same counterparties, that is entered into contemporaneously with or in contemplation of, the initial transfer. The guidance is effective for fiscal years beginning after November 15, 2008. The Company’s adoption of this guidance on a prospective basis effective January 1, 2009 did not have a material effect on the Company’s consolidated financial position and results of operations.

In February 2008, the FASB revised the authoritative guidance which delays the effective date related to fair value measurements and disclosures for 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), to fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. The Company’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Company’s consolidated financial position or results of operations.

In December 2007, the FASB issued authoritative guidance for business combinations which addresses the accounting for business acquisitions, is effective for fiscal years beginning on or after December 15, 2008, with early adoption prohibited, and generally applies to business acquisitions completed after December 31, 2008. Among other things, the new guidance requires that all acquisition-related costs be expensed as incurred, and that all restructuring costs related to acquired operations be expensed as incurred. This new guidance also addresses the current and subsequent accounting for assets and liabilities arising from contingencies acquired or assumed and, for acquisitions both prior and subsequent to December 31, 2008, requires the acquirer to recognize changes in the amount of its deferred tax benefits that are recognizable because of a business combination either in income from continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. The Company’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Company’s consolidated financial position or results of operations, but may have an effect on the accounting for future business combinations.

In December 2007, the FASB issued authoritative guidance for noncontrolling interests in consolidated financial statements. This guidance changes the accounting for minority interests, which are recharacterized as noncontrolling interests and classified by the parent company as a component of equity. Upon adoption, this guidance requires retroactive adoption of the presentation and disclosure requirements for existing noncontrolling interests and prospective adoption for all other requirements. The Company’s adoption of this guidance effective January 1, 2009 did not have a material effect on the Company’s consolidated financial position or results of operations, but did affect financial statement presentation and disclosure. Noncontrolling interests, previously reported as a liability, are now required to be reported as a separate component of equity on the statement of financial position. In addition, income attributable to the noncontrolling interests, which was previously reported as an expense in general and administrative expenses and reflected within income from continuing operations is now reported as a separate amount below net income.

In September 2006, the FASB issued authoritative guidance for employers’ accounting for defined benefit pension and other postretirement plans, which amended previous guidance. This revised guidance requires an employer on a prospective basis to recognize the overfunded or underfunded status of its defined benefit pension and postretirement plans as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through other comprehensive income. The Company adopted this guidance, along with the required disclosures, on December 31, 2006. The revised guidance also requires an employer on a prospective basis to measure the funded status of its plans as of its fiscal year-end. This requirement is effective for fiscal years ending after December 15, 2008. The Company adopted this guidance on December 31, 2008 and the impact of changing from a September 30 measurement date to a December 31 measurement date was a net after-tax increase to retained earnings of $27 million.

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Future Adoption of New Accounting Pronouncements

In December 2010, the FASB issued authoritative guidance that modifies the first step of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units, an entity is required to perform the second step of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any adverse qualitative factors indicating that an impairment may exist. The qualitative factors are consistent with existing authoritative guidance, which requires that goodwill of a reporting unit be tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This new guidance is effective for public entities for fiscal years, and interim periods within those years, beginning after December 15, 2010. The Company’s adoption of this guidance effective January 1, 2011 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and financial statement disclosures.

In October 2010, the FASB issued authoritative guidance to address diversity in practice regarding the interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral. Under the new guidance acquisition costs are to include only those costs that are directly related to the acquisition or renewal of insurance contracts by applying a model similar to the accounting for loan origination costs. An entity may defer incremental direct costs of contract acquisition that are incurred in transactions with independent third parties or employees as well as the portion of employee compensation and other costs directly related to underwriting, policy issuance and processing, medical inspection, and contract selling for successfully negotiated contracts. Additionally, an entity may capitalize as a deferred acquisition cost only those advertising costs meeting the capitalization criteria for direct-response advertising. This change is effective for fiscal years beginning after December 15, 2011 and interim periods within those years. Early adoption as of the beginning of a fiscal year is permitted. The guidance is to be applied prospectively upon the date of adoption, with retrospective application permitted, but not required. The Company will adopt this guidance effective January 1, 2012. The Company is currently assessing the impact of the guidance on the Company’s consolidated financial position, results of operations, and financial statement disclosures.

In April 2010, the FASB issued authoritative guidance clarifying that an insurance entity should not consider any separate account interests in an investment held for the benefit of policyholders to be the insurer’s interests, and should not combine those interests with its general account interest in the same investment when assessing the investment for consolidation, unless the separate account interests are held for a related party policyholder, whereby consolidation of such interests must be considered under applicable variable interest guidance. This guidance is effective for interim and annual reporting periods beginning after December 15, 2010 and retrospectively to all prior periods upon the date of adoption, with early adoption permitted. The Company’s adoption of this guidance effective January 1, 2011 is not expected to have a material effect on the Company’s consolidated financial position, results of operations, and financial statement disclosures.

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3. ACQUISITIONS AND DISPOSITIONS

Sale of investment in Wachovia Securities

On December 31, 2009 the Company completed the sale of its minority joint venture interest in Wachovia Securities. See Note 7 for more details on this transaction.

Discontinued Operations

Income (loss) from discontinued businesses, including charges upon disposition, for the years ended December 31, are as follows:

	2010			2009			2008
				(in millions)
Real estate investments sold or held for sale(1)	$	12		$	1		$	2
International securities operations(2)		(1	)		(1	)		(1	)
Healthcare operations(3)		1			—			2
Income from discontinued operations before income taxes		12			—			3
Income tax benefit		4			—			(2	)
Income from discontinued operations, net of taxes	$	8		$	—		$	5

The Company’s Consolidated Statements of Financial Position include total assets and total liabilities related to discontinued businesses of $15 million and $3 million, respectively, at December 31, 2010 and $18 million and $5 million, respectively, at December 31, 2009.

(1) Reflects the income or loss from discontinued real estate investments, primarily related to gains recognized on the sale of real estate properties.

(2) International securities operations include the European retail transaction-oriented stockbrokerage and related activities of Prudential Securities Group, Inc.

(3) The sale of the Company’s healthcare business to Aetna was completed in 1999. The loss the Company previously recorded upon the disposal of its healthcare business was reduced in each of the years ended December 31, 2010 and 2008. The reductions were primarily the result of favorable resolution of certain legal, regulatory and contractual matters.

Charges recorded in connection with the disposals of businesses include estimates that are subject to subsequent adjustment.

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4. INVESTMENTS

Fixed Maturities and Equity Securities

The following tables provide information relating to fixed maturities and equity securities (excluding investments classified as trading) at December 31:

	2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-than- temporary impairments in AOCI (3)
					(in millions)
Fixed maturities, available for sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	9,467	$	639	$	264	$	9,842	$	—
Obligations of U.S. states and their political subdivisions		1,792		32		47		1,777		—
Foreign government bonds		1,846		351		9		2,188		1
Corporate securities		69,547		5,581		625		74,503		(30	)
Asset-backed securities(1)		11,359		157		1,542		9,974		(1,305	)
Commercial mortgage-backed securities		10,525		607		19		11,113		—
Residential mortgage-backed securities(2)		6,778		400		17		7,161		(13	)
Total fixed maturities, available for sale	$	111,314	$	7,767	$	2,523	$	116,558	$	(1,347	)
Equity securities, available for sale	$	4,243	$	1,240	$	51	$	5,432

(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.

(3) Represents the amount of other-than-temporary impairment losses in “Accumulated other comprehensive income (loss),” or “AOCI,” which were not included in earnings. Amount excludes $540 million of net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

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	2009
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-than- temporary impairments in AOCI(3)
					(in millions)
Fixed maturities, available for sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	6,635	$	383	$	300	$	6,718	$	—
Obligations of U.S. states and their political subdivisions		1,304		22		42		1,284		—
Foreign government bonds		1,896		279		11		2,164		1
Corporate securities		65,739		3,622		1,217		68,144		(43	)
Asset-backed securities(1)		11,353		117		2,327		9,143		(1,581	)
Commercial mortgage-backed securities		9,926		178		151		9,953		—
Residential mortgage-backed securities(2)		8,503		358		59		8,802		(11	)
Total fixed maturities, available for sale	$	105,356	$	4,959	$	4,107	$	106,208	$	(1,634	)
Equity securities, available for sale	$	3,996	$	940	$	80	$	4,856

(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.

(3) Represents the amount of other-than-temporary impairment losses in “Accumulated other comprehensive income (loss),” or “AOCI,” which were not included in earnings. Amount excludes $482 million of net unrealized gains on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.

The amortized cost and fair value of fixed maturities by contractual maturities at December 31, 2010, are as follows:

	Available for Sale
	Amortized Cost		Fair Value
	(in millions)
Due in one year or less	$	4,201	$	4,262
Due after one year through five years		22,057		23,387
Due after five years through ten years		24,450		26,542
Due after ten years		31,944		34,119
Asset-backed securities		11,359		9,974
Commercial mortgage-backed securities		10,525		11,113
Residential mortgage-backed securities		6,778		7,161
Total	$	111,314	$	116,558

Actual maturities may differ from contractual maturities because issuers may 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.

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The following table depicts the sources of fixed maturity proceeds and related investment gains (losses), as well as losses on impairments of both fixed maturities and equity securities:

	2010			2009			2008
	(in millions)
Fixed maturities, available for sale
Proceeds from sales	$	7,807		$	12,133		$	51,029
Proceeds from maturities/repayments		13,216			14,295			9,753
Gross investment gains from sales, prepayments, and maturities		580			510			715
Gross investment losses from sales and maturities		(51	)		(303	)		(524	)
Fixed maturity and equity security impairments
Net writedowns for other-than-temporary impairment losses on fixed maturities recognized in earnings (1)	$	(394	)	$	(1,333	)	$	(2,060	)
Writedowns for impairments on equity securities		(40	)		(724	)		(717	)

(1) Excludes the portion of other-than-temporary impairments recorded in “Other comprehensive income (loss),” representing any difference between the fair value of the impaired debt security and the net present value of its projected future cash flows at the time of impairment.

As discussed in Note 2, a portion of certain other-than-temporary impairment (“OTTI”) losses on fixed maturity securities are recognized “Other comprehensive income (loss)” (“OCI”). For these securities the net amount recognized in earnings (“credit loss impairments”) represents the difference between the amortized cost of the security and the net present value of its projected future cash flows discounted at the effective interest rate implicit in the debt security prior to impairment. Any remaining difference between the fair value and amortized cost is recognized in OCI. The following table sets forth the amount of pre-tax credit loss impairments on fixed maturity securities held by the Company as of the dates indicated, for which a portion of the OTTI loss was recognized in OCI, and the corresponding changes in such amounts.

Credit losses recognized in earnings on fixed maturity securities held by the Company for which a portion of the OTTI loss was recognized in OCI

	Year Ended December 31,
	2010			2009
	(in millions)
Balance, beginning of period	$	1,520		$	—
Credit losses remaining in retained earnings related to adoption of new authoritative guidance on January 1, 2009		—			580
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(280	)		(240	)
Credit loss impairments previously recognized on securities impaired to fair value during the period(1)		(329	)		(7	)
Credit loss impairment recognized in the current period on securities not previously impaired		17			570
Additional credit loss impairments recognized in the current period on securities previously impaired		190			623
Increases due to the passage of time on previously recorded credit losses		88			35
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		(52	)		(41	)
Balance, end of period	$	1,154		$	1,520

(1) Represents circumstances where the Company determined in the current period that it intends to sell the security or it is more likely than not that it will be required to sell the security before recovery of the security’s amortized cost.

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Trading Account Assets Supporting Insurance Liabilities

The following table sets forth the composition of “Trading account assets supporting insurance liabilities” at December 31:

	2010				2009
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Short-term investments and cash equivalents	$	697	$	697	$	725	$	725
Fixed maturities:
Corporate securities		9,472		10,006		9,117		9,418
Commercial mortgage-backed securities		2,352		2,407		1,899		1,893
Residential mortgage-backed securities(1)		1,350		1,363		1,434		1,432
Asset-backed securities(2)		1,158		1,030		1,022		857
Foreign government bonds		97		101		104		106
U.S. government authorities and agencies and obligations of U.S. states		366		360		91		87
Total fixed maturities		14,795		15,267		13,667		13,793
Equity securities		90		73		164		121
Total trading account assets supporting insurance liabilities	$	15,582	$	16,037	$	14,556	$	14,639

(1) Includes publicly traded agency pass-through securities and collateralized mortgage obligations.

(2) Includes credit tranched securities collateralized by sub-prime mortgages, auto loans, credit cards, education loans and other asset types.

The net change in unrealized gains (losses) from trading account assets supporting insurance liabilities still held at period end, recorded with “Other income” was $372 million, $1,564 million and $(1,362) million during the years ended December 31, 2010, 2009 and 2008, respectively.

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Other Trading Account Assets

The following table sets forth the composition of the “Other trading account assets” at December 31:

	2010				2009
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
	(in millions)
Fixed Maturities:
Asset-backed securities		168		175		178		183
Corporate securities		151		164		152		169
Commercial mortgage-backed securities		50		52		50		52
U.S. government authorities and agencies and obligations of U.S. states		200		202		67		71
Total fixed maturities		569		593		447		475
Equity securities		209		226		209		215
Subtotal	$	778	$	819	$	656	$	690
Derivative instruments				4,358				2,175
Total other trading account assets	$	778	$	5,177	$	656	$	2,865

The net change in unrealized gains (losses) from other trading account assets, excluding derivative instruments, still held at period end, recorded within “Other income” was $7 million, $78 million and $(48) million during the years ended December 31, 2010, 2009 and 2008, respectively.

B-28

Commercial Mortgage and Other Loans

The Company’s commercial mortgage and other loans are comprised as follows at December 31:

	2010						2009
	Amount (in  millions)			% of Total			Amount (in  millions)			% of Total
Commercial and Agricultural mortgage loans by property type:
Office buildings	$	5,259			19.6	%	$	5,641			21.2	%
Retail stores		5,900			22.0			5,536			20.8
Apartments/Multi-Family		4,071			15.1			4,043			15.2
Industrial buildings		6,079			22.6			5,824			21.8
Hospitality		1,511			5.6			1,567			5.9
Other		2,235			8.3			2,267			8.5
Total commercial mortgage loans		25,055			93.2			24,878			93.4
Agricultural property loans		1,837			6.8			1,759			6.6
Total commercial mortgage and agricultural loans		26,892			100.0	%		26,637			100.0	%
Valuation allowance		(374	)					(478	)
Total net commercial mortgage and agricultural loans		26,518						26,159
Other loans
Uncollateralized loans		121						121
Residential property loans		8						10
Other collateralized loans		—						—
Total other loans		129						131
Valuation allowance		—						(1	)
Total net other loans		129						130
Total commercial mortgage and other loans	$	26,647					$	26,289

The commercial mortgage and agricultural property loans are geographically dispersed throughout the United States, Canada and Asia with the largest concentrations in California (25%), New York (11%) and Texas (7%) at December 31, 2010.

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

	2010			2009			2008
	(in millions)
Allowance for losses, beginning of year	$	479		$	168		$	84
Addition to / (release of) allowance for losses		(105	)		411			84
Charge-offs, net of recoveries		—			(100	)		—
Change in foreign exchange		—			—			—
Allowance for losses, end of year	$	374		$	479		$	168

B-29

The following table sets forth the allowance for credit losses and the recorded investment in commercial mortgage and other loans as of December 31, 2010:

	Commercial Mortgage Loans		Agricultural Property Loans		Residential Property Loans		Other Collateralized Loans		Uncollateralized Loans		Total
	(in millions)
Allowance for Credit Losses:
Ending Balance: individually evaluated for impairment	$	141	$	—	$	—	$	—	$	—	$	141
Ending Balance: collectively evaluated for impairment		225		8		—		—		—		233
Ending Balance: loans acquired with deteriorated credit quality		—		—		—		—		—		—
Total Ending Balance	$	366	$	8	$	—	$	—	$	—	$	374
Recorded Investment:(1)
Ending balance gross of reserves: individually evaluated for impairment	$	845	$	31	$	—	$	—	$	—	$	876
Ending balance gross of reserves: collectively evaluated for impairment		24,210		1,806		8		—		121		26,145
Ending balance gross of reserves: loans acquired with deteriorated credit quality		—		—		—		—		—		—
Total Ending Balance, gross of reserves	$	25,055	$	1,837	$	8	$	—	$	121	$	27,021

(1) Recorded investment reflects the balance sheet carrying value gross of related allowance.

B-30

Impaired loans include those loans for which it is probable that amounts due according to the contractual terms of the loan agreement will not all be collected. Impaired commercial mortgage and other loans identified in management’s specific review of probable loan losses and the related allowance for losses at December 31, 2010 are as follows:

Impaired Commercial Mortgage and Other Loans

	Year Ended December 31, 2010
	Recorded Investment (1)		Unpaid Principal Balance		Related Allowance
	(in millions)
With no related allowance recorded:
Commercial mortgage loans:
Industrial	$	—	$	—	$	—
Retail		—		—		—
Office		—		—		—
Apartments/Multi-Family		—		—		—
Hospitality		64		64		—
Other		—		—		—
Total commercial mortgage loans	$	64	$	64	$	—
Agricultural property loans	$	1	$	1	$	—
Residential property loans		—		—		—
Other collateralized loans		—		—		—
Uncollateralized loans		—		—		—
With an allowance recorded:
Commercial mortgage loans:
Industrial	$	18	$	18	$	18
Retail		102		102		16
Office		28		28		7
Apartments/Multi-Family		47		47		6
Hospitality		194		194		76
Other		60		60		18
Total commercial mortgage loans	$	449	$	449	$	141
Agricultural property loans	$	—	$	—	$	—
Residential property loans		—		—		—
Other collateralized loans		—		—		—
Uncollateralized loans		—		—		—
Total:
Commercial mortgage loans	$	513	$	513	$	141
Agricultural property loans		1		1		—
Residential property loans		—		—		—
Other collateralized loans		—		—		—
Uncollateralized loans		—		—		—

(1) Recorded investment reflects the balance sheet carrying value gross of related allowance.

B-31

Non-performing loans include those loans for which it is probable that amounts due according to the contractual terms of the loan agreement will not all be collected. Non-performing commercial mortgage and other loans identified in management’s specific review of probable loan losses and the related allowance for losses at December 31, are as follows:

	2009
Non-performing commercial mortgage and other loans with allowance for losses	$	568
Non-performing commercial mortgage and other loans with no allowance for losses		—
Allowance for losses, end of year		(151	)
Net carrying value of non-performing commercial mortgage and other loans	$	417

Impaired commercial mortgage and other loans with no allowance for losses are loans in which the fair value of the collateral or the net present value of the loans’ expected future cash flows equals or exceeds the recorded investment. The average recorded investment in impaired loans before allowance for losses was $271 million for 2010. Net investment income recognized on these loans totaled $20 million for the year ended December 31, 2010. See Note 2 for information regarding the Company’s accounting policies for commercial mortgage and other loans.

Non-performing commercial mortgage and other loans with no allowance for losses are loans in which the fair value of the collateral or the net present value of the loans’ expected future cash flows equals or exceeds the recorded investment. The average recorded investment in non-performing loans before allowance for losses was $460 million for 2009. Net investment income recognized on these loans totaled $24 million for 2009. See Note 2 for information regarding the Company’s accounting policies for commercial mortgage and other loans.

B-32

The following tables set forth the credit quality indicators as of December 31, 2010, based upon the recorded investment gross of allowance for credit losses.

Commercial Mortgage Loans - Industrial Buildings

	Debt Service Coverage Ratio
	Greater than 2.0X		1.8X to 2.0X		1.5X to <1.8X		1.2X to <1.5X		1.0X to <1.2X		Less than 1.0X		Grand Total
					(in millions)
Loan-to-Value Ratio
0%-49.99%	$	616	$	307	$	184	$	190	$	15	$	23	$	1,335
50%-59.99%		304		59		145		178		45		49		780
60%-69.99%		355		89		485		366		180		113		1,588
70%-79.99%		71		76		528		504		193		200		1,572
80%-89.99%		—		—		17		136		88		255		496
90%-100%		—		—		—		—		46		131		177
Greater than 100%		16		—		—		7		—		108		131
Total Industrial	$	1,362	$	531	$	1,359	$	1,381	$	567	$	879	$	6,079
Commercial Mortgage Loans - Retail
	Debt Service Coverage Ratio
	Greater than 2.0X		1.8X to 2.0X		1.5X to <1.8X		1.2X to <1.5X		1.0X to <1.2X		Less than 1.0X		Grand Total
					(in millions)
Loan-to-Value Ratio
0%-49.99%	$	604	$	328	$	390	$	87	$	28	$	4	$	1,441
50%-59.99%		551		158		387		52		153		1		1,302
60%-69.99%		316		382		436		326		37		4		1,501
70%-79.99%		65		47		388		552		131		—		1,183
80%-89.99%		—		—		65		93		83		—		241
90%-100%		—		—		—		9		29		21		59
Greater than 100%		—		—		—		6		125		42		173
Total Retail	$	1,536	$	915	$	1,666	$	1,125	$	586	$	72	$	5,900
Commercial Mortgage Loans - Office
	Debt Service Coverage Ratio
	Greater than 2.0X		1.8X to 2.0X		1.5X to <1.8X		1.2X to <1.5X		1.0X to <1.2X		Less than 1.0X		Grand Total
					(in millions)
Loan-to-Value Ratio
0%-49.99%	$	1,743	$	49	$	310	$	137	$	17	$	7	$	2,263
50%-59.99%		182		197		192		106		46		17		740
60%-69.99%		136		222		103		156		16		46		679
70%-79.99%		16		—		79		172		589		1		857
80%-89.99%		—		—		—		371		39		25		435
90%-100%		—		—		—		—		174		48		222
Greater than 100%		—		—		—		28		17		18		63
Total Office	$	2,077	$	468	$	684	$	970	$	898	$	162	$	5,259

B-33

Commercial Mortgage Loans - Apartments/Multi-Family

	Debt Service Coverage Ratio
	Greater than 2.0X		1.8X to 2.0X		1.5X to <1.8X		1.2X to <1.5X		1.0X to <1.2X		Less than 1.0X		Grand Total
	(in millions)
Loan-to-Value Ratio
0%-49.99%	$	701	$	184	$	326	$	178	$	199	$	56	$	1,644
50%-59.99%		16		—		108		162		57		9		352
60%-69.99%		96		17		170		225		101		27		636
70%-79.99%		62		47		113		186		107		45		560
80%-89.99%		—		—		44		43		254		100		441
90%-100%		20		—		—		—		10		120		150
Greater than 100%		—		—		—		—		—		288		288
Total Multi Family/Apartment	$	895	$	248	$	761	$	794	$	728	$	645	$	4,071
Commercial Mortgage Loans - Hospitality
	Debt Service Coverage Ratio
	Greater than 2.0X		1.8X to 2.0X		1.5X to <1.8X		1.2X to <1.5X		1.0X to <1.2X		Less than 1.0X		Grand Total
	(in millions)
Loan-to-Value Ratio
0%-49.99%	$	143	$	—	$	128	$	121	$	—	$	27	$	419
50%-59.99%		21		—		—		—		—		—		21
60%-69.99%		—		36		52		156		59		11		314
70%-79.99%		—		—		6		243		—		—		249
80%-89.99%		—		—		72		—		71		101		244
90%-100%		—		—		—		—		—		87		87
Greater than 100%		—		—		—		46		32		99		177
Total Hospitality	$	164	$	36	$	258	$	566	$	162	$	325	$	1,511
Commercial Mortgage Loans - Other
	Debt Service Coverage Ratio
	Greater than 2.0X		1.8X to 2.0X		1.5X to <1.8X		1.2X to <1.5X		1.0X to <1.2X		Less than 1.0X		Grand Total
	(in millions)
Loan-to-Value Ratio
0%-49.99%	$	338	$	—	$	10	$	18	$	1	$	1	$	368
50%-59.99%		40		14		25		59		—		—		138
60%-69.99%		57		193		37		424		123		7		841
70%-79.99%		3		67		188		72		74		—		404
80%-89.99%		133		—		45		136		10		6		330
90%-100%		—		—		—		—		—		—		—
Greater than 100%		—		—		—		38		24		92		154
Total Other	$	571	$	274	$	305	$	747	$	232	$	106	$	2,235

B-34

Agricultural Property Loans

	Debt Service Coverage Ratio
	Greater than 2.0X		1.8X to 2.0X		1.5X to <1.8X		1.2X to <1.5X		1.0X to <1.2X		Less than 1.0X		Grand Total
	(in millions)
Loan-to-Value Ratio
0%-49.99%	$	397	$	107	$	349	$	477	$	108	$	6	$	1,444
50%-59.99%		38		124		15		26		—		—		203
60%-69.99%		161		—		—		—		29		—		190
70%-79.99%		—		—		—		—		—		—		—
80%-89.99%		—		—		—		—		—		—		—
90%-100%		—		—		—		—		—		—		—
Greater than 100%		—		—		—		—		—		—		—
Total Agricultural Property Loans	$	596	$	231	$	364	$	503	$	137	$	6	$	1,837
Total Commercial Mortgage and Agricultural Loans
	Debt Service Coverage Ratio
	Greater than 2.0X		1.8X to 2.0X		1.5X to <1.8X		1.2X to <1.5X		1.0X to <1.2X		Less than 1.0X		Grand Total
	(in millions)
Loan-to-Value Ratio
0%-49.99%	$	4,542	$	975	$	1,697	$	1,208	$	368	$	124	$	8,914
50%-59.99%		1,152		552		872		583		301		76		3,536
60%-69.99%		1,121		939		1,283		1,653		545		208		5,749
70%-79.99%		217		237		1,302		1,729		1,094		246		4,825
80%-89.99%		133		—		243		779		545		487		2,187
90%-100%		20		—		—		9		259		407		695
Greater than 100%		16		—		—		125		198		647		986
Total Commercial Mortgage and Agricultural	$	7,201	$	2,703	$	5,397	$	6,086	$	3,310	$	2,195	$	26,892

See Note 2 for further discussion regarding the credit quality of other loans.

B-35

The following table provides an aging of past due commercial mortgage and other loans as of December 31, 2010, based upon the recorded investment gross of allowance for credit losses.

	As of December 31, 2010
	Current		30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Day - Accruing		Greater Than 90 Day - Not Accruing		Total Past Due Due		Total Commercial Mortgage and other Loans
	(in millions)
Commercial mortgage loans:
Industrial	$	6,079	$	—	$	—	$	—	$	—	$	—	$	6,079
Retail		5,834		61		—		—		5		66		5,900
Office		5,237		22		—		—		—		22		5,259
Multi-Family/Apartment		4,070		—		—		—		1		1		4,071
Hospitality		1,405		11		10		—		85		106		1,511
Other		2,165		17		—		—		53		70		2,235
Total commercial mortgage loans	$	24,790	$	111	$	10	$	—	$	144	$	265	$	25,055
Agricultural property loans	$	1,805	$	2	$	—	$	—	$	30	$	32	$	1,837
Residential property loans		3		4		—		—		1		5		8
Other collateralized loans		—		—		—		—		—		—		—
Uncollateralized loans		121		—		—		—		—		—		121
Total	$	26,719	$	117	$	10	$	—	$	175	$	302	$	27,021

See Note 2 for further discussion regarding nonaccrual status loans. The following table sets forth commercial mortgage and other loans on nonaccrual status at December 31.

	2010
	(in millions)
Commercial mortgage loans:
Industrial	$	43
Retail		102
Office		44
Multi-Family/Apartment		49
Hospitality		258
Other		77
Total commercial mortgage loans	$	573
Agricultural property loans	$	30
Residential property loans		1
Other collateralized loans		—
Uncollateralized loans		—
Total	$	604

Other Long-term Investments

B-36

“Other long-term investments” are comprised as follows at December 31:

	2010		2009
	(in millions)
Joint ventures and limited partnerships:
Real estate related	$	421	$	562
Non-real estate related		2,261		1,899
Total joint ventures and limited partnerships		2,682		2,461
Real estate held through direct ownership		15		—
Other		788		796
Total other long-term investments	$	3,485	$	3,257

Equity Method Investments

The following tables set forth summarized combined financial information for significant joint ventures and limited partnership interests accounted for under the equity method, including the Company’s investments in operating joint ventures that are disclosed in more detail in Note 7. Changes between periods in the tables below reflect changes in the activities within the joint ventures and limited partnerships, as well as changes in the Company’s level of investment in such entities.

	At December 31,
	2010		2009
	(in millions)
STATEMENT OF FINANCIAL POSITION
Investments in real estate	$	4,136	$	3,848
Investments in securities		10,454		8,528
Cash and cash equivalents		369		446
Receivables		192		693
Property and equipment		—		43
Other assets(1)		684		825
Total assets	$	15,835	$	14,383
Borrowed funds-third party	$	1,868	$	2,940
Borrowed funds-Prudential		49		179
Payables		275		833
Other liabilities(2)		1,606		561
Total liabilities		3,798		4,513
Partners’ capital		12,037		9,870
Total liabilities and partners’ capital	$	15,835	$	14,383
Total liabilities and partners’ capital included above	$	2,208	$	2,219
Equity in limited partnership interests not included above		197		185
Carrying value	$	2,405	$	2,404

(1) Other assets consist of goodwill, intangible assets and other miscellaneous assets.

(2) Other liabilities consist of securities repurchase agreements and other miscellaneous liabilities.

B-37

	Years ended December 31,
	2010			2009			2008
	(in millions)
STATEMENTS OF OPERATIONS
Income from real estate investments	$	353		$	(325	)	$	54
Income from securities investments		1,104			9,529			2,980
Income from other		21			78			12
Interest expense		(108	)		(460	)		(510	)
Depreciation		(4	)		(7	)		(10	)
Management fees/salary expense		(95	)		(4,409	)		(2,790	)
Other expenses		(533	)		(4,563	)		(1,699	)
Net earnings(losses)	$	738		$	(157	)	$	(1,963	)
Equity in net earnings (losses) included above(1)	$	89		$	2,194		$	(398	)
Equity in net earnings (losses) of limited partnership interests not included above		73			(28	)		(18	)
Total equity in net earnings(losses)	$	162		$	2,166		$	(416	)

(1) The year ended December 31, 2009 includes a $2.247 billion pre-tax gain related to the sale of the Company’s minority joint venture interest in Wachovia Securities, not included in the detailed financial lines above. See Note 7 for additional information regarding this sale.

Net Investment Income

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

	2010			2009			2008
	(in millions)
Fixed maturities, available for sale	$	5,945		$	6,039		$	6,600
Equity securities, available for sale		215			216			227
Trading account assets		741			738			741
Commercial mortgage and other loans		1,644			1,653			1,670
Policy loans		469			479			464
Short-term investments and cash equivalents		22			76			277
Other long-term investments		33			(215	)		(10	)
Gross investment income		9,069			8,986			9,969
Less investment expenses		(379	)		(393	)		(719	)
Net investment income	$	8,690		$	8,593		$	9,250

Carrying value for non-income producing assets included in fixed maturities and commercial mortgage and other loans totaled $197 million and $12 million, respectively, as of December 31, 2010. Non-income producing assets represent investments that have not produced income for the twelve months preceding December 31, 2010.

B-38

Realized Investment Gains (Losses), Net

Realized investment gains (losses), net, for years ended December 31 were from the following sources:

	2010			2009			2008
	(in millions)
Fixed maturities	$	135		$	(1,126	)	$	(1,869	)
Equity securities		228			(574	)		(754	)
Commercial mortgage and other loans		78			(358	)		(85	)
Investment real-estate		—			—			—
Joint ventures and limited partnerships		(31	)		(39	)		(45	)
Derivatives(1)		848			(501	)		1,262
Other		5			3			11
Realized investment gains (losses), net	$	1,263		$	(2,595	)	$	(1,480	)

(1) Includes the offset of hedged items in qualifying effective hedge relationships prior to maturity or termination.

Net Unrealized Investment Gains (Losses)

Net unrealized investment gains and losses on securities classified as “available for sale” and certain other long-term investments and other assets are included in the Consolidated Statements of Financial Position as a component of “Accumulated other comprehensive income (loss),” or “AOCI.” Changes in these amounts include reclassification adjustments to exclude from “Other comprehensive income (loss)” those items that are included as part of “Net income” for a period that had been part of “Other comprehensive income (loss)” in earlier periods. The amounts for the periods indicated below, split between amounts related to fixed maturity securities on which an OTTI loss has been recognized, and all other net unrealized investment gains and losses, are as follows:

B-39

Net Unrealized Investment Gains and Losses on Fixed Maturity Securities on which an OTTI loss has been recognized

	Net Unrealized Gains (Losses) on Investments			Deferred Policy Acquisition Costs, Deferred Sales Inducements, and Valuation of Business Acquired		Future Policy Benefits		Policyholders’ Dividends		Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Lossess)
	(in millions)
Balance, December 31, 2008	$	—		$	—	$	—	$	—	$	—		$	—
Cumulative impact of the adoption of new authoritative guidance on January 1, 2009		(1,012	)		9		1				343			(659	)
Net investment gains (losses) on investments arising during the period		565									(203	)		362
Reclassification adjustment for (gains) losses included in net income		925									(333	)		592
Reclassification adjustment for OTTI losses excluded from net income(1)		(1,630	)								587			(1,043	)
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs, deferred sales inducements and valuation of business acquired					156						(56	)		100
Impact of net unrealized investment (gains) losses on future policy benefits							1				—			1
Impact of net unrealized investment (gains) losses on policyholders’ dividends									—		—			—
Balance, December 31, 2009	$	(1,152	)	$	165	$	2	$	—	$	338		$	(647	)

B-40

Net investment gains (losses) on investments arising during the period		3											(1	)		2
Reclassification adjustment for (gains) losses included in net income		393											(138	)		255
Reclassification adjustment for OTTI losses excluded from net income(1)		(51	)										18			(33	)
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs, deferred sales inducements and valuation of business acquired					(158	)							55			(103	)
Impact of net unrealized investment (gains) losses on future policy benefits								(7	)				2			(5	)
Impact of net unrealized investment (gains) losses on policyholders’ dividends											334		(117	)		217
Balance, December 31, 2010	$	(807	)	$	7		$	(5	)	$	334	$	157		$	(314	)

(1) Represents “transfers in” related to the portion of OTTI losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss.

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All Other Net Unrealized Investment Gains and Losses in AOCI

	Net Unrealized Gains (Losses) on Investments(1)			Deferred Policy Acquisition Costs, Deferred Sales Inducements, and Valuation of Business Acquired			Future Policy Benefits			Policyholders’ Dividends			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)
	(in millions)
Balance, December 31, 2007	$	2,749		$	(104	)	$	(1,250	)	$	(1,048	)	$	(135	)	$	212
Net investment gains (losses) on investments arising during the period		(15,572	)											5,427			(10,145	)
Reclassification adjustment for (gains) losses included in net income		2,574												(897	)		1,677
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs, deferred sales inducements and valuation of business acquired					1,591									(557	)		1,034
Impact of net unrealized investment (gains) losses on future policy benefits								899						(315	)		584
Impact of net unrealized investment (gains) losses on policyholders’ dividends											1,480			(518	)		962
Purchase of fixed maturities from an affiliate		(222	)											77			(145	)
Balance, December 31, 2008	$	(10,471	)	$	1,487		$	(351	)	$	432		$	3,082		$	(5,821	)
Cumulative impact of the adoption of new authoritative guidance on January 1, 2009		(320	)		15			4			418			(33	)		84

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Net investment gains (losses) on investments arising during the period		11,564												(3,876	)		7,688
Reclassification adjustment for (gains) losses included in net income		797												(279	)		518
Reclassification adjustment for OTTI losses excluded from net income(2)		1,630												(587	)		1,043
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs, deferred sales inducements and valuation of business acquired					(1,943	)								681			(1,262	)
Impact of net unrealized investment (gains) losses on future policy benefits								(177	)					62			(115	)
Impact of net unrealized investment (gains) losses on policyholders’ dividends											(850	)		298			(552	)
Balance, December 31, 2009	$	3,200		$	(441	)	$	(524	)	$	—		$	(652	)	$	1,583
Net investment gains (losses) on investments arising during the period		5,089												(1,753	)		3,336
Reclassification adjustment for (gains) losses included in net income		(750	)											262			(488	)
Reclassification adjustment for OTTI losses excluded from net income(2)		51												(18	)		33
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs, deferred sales inducements and valuation of business acquired					10									(4	)		6
Impact of net unrealized investment (gains) losses on future policy benefits								(411	)					144			(267	)
Impact of net unrealized investment (gains) losses on policyholders’ dividends											(2,450	)		858			(1,592	)
Balance, December 31, 2010	$	7,590		$	(431	)	$	(935	)	$	(2,450	)	$	(1,163	)	$	2,611

(1) Includes cash flow hedges. See Note 21 for information on cash flow hedges.

(2) Represents “transfers out” related to the portion of OTTI losses recognized during the period that were not recognized in earnings for securities with no prior OTTI loss.

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The table below presents net unrealized gains (losses) on investments by asset class at December 31:

	2010			2009			2008
	(in millions)
Fixed maturity securities on which an OTTI loss has been recognized	$	(807	)	$	(1,152	)	$	—
Fixed maturity securities, available for sale - all other		6,052			2,004			(9,811	)
Equity securities, available for sale		1,189			860			(748	)
Derivatives designated as cash flow hedges (1)		(174	)		(242	)		(115	)
Other investments (2)		523			578			203
Net unrealized gains (losses) on investments	$	6,783		$	2,048		$	(10,471	)

(1) See Note 21 for more information on cash flow hedges.

(2) Includes net unrealized gains on certain joint ventures that are strategic in nature and are included in “Other Assets.”

Duration of Gross Unrealized Loss Positions for Fixed Maturities

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

	2010
	Less than twelve months				Twelve months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
					(in millions)
Fixed maturities
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	3,275	$	196	$	294	$	68	$	3,569	$	264
Obligations of U.S. states and their political subdivisions		989		41		53		6		1,042		47
Foreign government bonds		50		3		37		6		87		9
Corporate securities		7,585		253		4,279		372		11,864		625
Commercial mortgage-backed securities		503		7		101		12		604		19
Asset-backed securities		1,247		15		5,073		1,527		6,320		1,542
Residential mortgage-backed securities		583		9		235		8		818		17
Total	$	14,232	$	524	$	10,072	$	1,999	$	24,304	$	2,523

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	2009
	Less than twelve months				Twelve months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
					(in millions)
Fixed maturities
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	2,676	$	200	$	403	$	100	$	3,079	$	300
Obligations of U.S. states and their political subdivisions		881		42		8		—		889		42
Foreign government bonds		254		4		42		7		296		11
Corporate securities		7,867		251		9,830		966		17,697		1,217
Commercial mortgage-backed securities		1,279		18		2,809		133		4,088		151
Asset-backed securities		1,329		553		5,621		1,774		6,950		2,327
Residential mortgage-backed securities		1,309		17		394		42		1,703		59
Total	$	15,595	$	1,085	$	19,107	$	3,022	$	34,702	$	4,107

The gross unrealized losses at December 31, 2010 and 2009 are composed of $1,441 million and $2,523 million related to high or highest quality securities based on NAIC or equivalent rating and $1,082 million and $1,584 million related to other than high or highest quality securities based on NAIC or equivalent rating. At December 31, 2010, $1,383 million of the gross unrealized losses represented declines in value of greater than 20%, $97 million of which had been in that position for less than six months, as compared to $2,386 million at December 31, 2009, that represented declines in value of greater than 20%, $202 million of which had been in that position for less than six months. At December 31, 2010, the $1,999 million of gross unrealized losses of twelve months or more were concentrated in asset-backed securities, and in the manufacturing and public utilities sectors of the Company’s corporate securities. At December 31, 2009, the $3,022 million of gross unrealized losses of twelve months or more were concentrated in asset backed securities, and in the manufacturing and services sectors of the Company’s corporate securities. In accordance with its policy described in Note 2, the Company concluded that an adjustment to earnings for other- than- temporary impairments for these securities was not warranted at December 31, 2010 and 2009. These conclusions are based on a detailed analysis of the underlying credit and cash flows on each security. The gross unrealized losses are primarily attributable to credit spread widening and increased liquidity discounts. At December 31, 2010, the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell the securities before the anticipated recovery of its remaining amortized cost basis.

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Duration of Gross Unrealized Loss Positions for Equity Securities

The following table shows the fair value and gross unrealized losses aggregated by length of time that individual equity securities have been in a continuous unrealized loss position, at December 31:

	2010
	Less than twelve months				Twelve months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
					(in millions)
Equity securities, available for sale	$	505	$	44	$	56	$	7	$	561	$	51
	2009
	Less than twelve months				Twelve months or more				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
					(in millions)
Equity securities, available for sale	$	535	$	60	$	144	$	20	$	679	$	80

At December 31, 2010, $17 million of the gross unrealized losses represented declines of greater than 20%, $12 million of which had been in that position for less than six months. At December 31, 2009, $22 million of the gross unrealized losses represented declines of greater than 20%, $20 million of which had been in that position for less than six months. Perpetual preferred securities have characteristics of both debt and equity securities. Since an impairment model similar to fixed maturity securities is applied to these securities, an other- than- temporary impairment has not been recognized on certain perpetual preferred securities that have been in a continuous unrealized loss position for twelve months or more as of December 31, 2010 and 2009. In accordance with its policy described in Note 2, the Company concluded that an adjustment for other- than- temporary impairments for these equity securities was not warranted at December 31, 2010 and 2009.

Securities Pledged, Restricted Assets and Special Deposits

The Company pledges as collateral investment securities it owns to unaffiliated parties through certain transactions, including securities lending, securities sold under agreements to repurchase, collateralized borrowings and postings of collateral with derivative counterparties. At December 31, the carrying value of investments pledged to third parties as reported in the Consolidated Statements of Financial Position included the following:

	2010		2009
	(in millions)
Fixed maturities, available for sale(1)	$	10,010	$	12,228
Trading account assets supporting insurance liabilities		276		388
Other trading account assets		321		340
Separate account assets		4,082		3,908
Equity securities		334		221
Total securities pledged	$	15,023	$	17,085

(1) Includes $132 million and $838 million of fixed maturity securities classified as short-term investments at December 31, 2010 and 2009, respectively.

As of December 31, 2010, the carrying amount of the associated liabilities supported by the pledged collateral was $14,565 million. Of this amount, $5,885 million was “Securities sold under agreements to repurchase,” $4,082 million was “Separate account liabilities,” $1,929 million was “Cash collateral for loaned securities,” $725 million was “Long-term debt,” $275 million was “Short-term debt,” $1,500 million was “Policyholders’ account balances,” and $169 million was “Other Liabilities.” As of

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December 31, 2009, the carrying amount of the associated liabilities supported by the pledged collateral was $16,752 million. Of this amount, $5,735 million was “Securities sold under agreements to repurchase,” $4,028 million was “Separate account liabilities,” $2,802 million was “Cash collateral for loaned securities,” $2,000 million was “Short-term debt,” $1,500 million was “Policyholders’ account balances,” and $687 million was “Other liabilities.”

In the normal course of its business activities, the Company accepts collateral that can be sold or repledged. The primary sources of this collateral are securities in customer accounts and securities purchased under agreements to resell. The fair value of this collateral was approximately $1,622 million and $1,102 million at December 31, 2010 and 2009, respectively, all of which, for both periods, had either been sold or repledged.

Assets of $58 million and $46 million at December 31, 2010 and 2009, respectively, were on deposit with governmental authorities or trustees. Additionally, assets carried at $694 million and $693 million at December 31, 2010 and 2009, respectively, were held in voluntary trusts established primarily to fund guaranteed dividends to certain policyholders and to fund certain employee benefits. Securities restricted as to sale amounted to $630 million and $530 million at December 31, 2010 and 2009, respectively. These amounts include member and activity based stock associated with memberships in the Federal Home Loan Bank of New York and Boston. Restricted cash and securities of $2,900 million and $2,620 million at December 31, 2010 and 2009, respectively, were included “Other assets.” The restricted cash and securities primarily represent funds deposited by clients and funds accruing to clients as a result of trades or contracts.

5. VARIABLE INTEREST ENTITIES

In the normal course of its activities, the Company enters into relationships with various special purpose entities and other entities that are deemed to be variable interest entities (“VIEs”). A VIE is an entity that either (1) has equity investors that lack certain essential characteristics of a controlling financial interest (including the ability to control activities of the entity, the obligation to absorb the entity’s expected losses and the right to receive the entity’s expected residual returns) or (2) lacks sufficient equity to finance its own activities without financial support provided by other entities, which in turn would be expected to absorb at least some of the expected losses of the VIE.

If the Company determines that it is the VIE’s “primary beneficiary” it consolidates the VIE. There are currently two models for determining whether or not the Company is the “primary beneficiary” of a VIE. The first relates to those VIE’s that have the characteristics of an investment company and for which certain other conditions are true. These conditions are that (1) the Company does not have the implicit or explicit obligation to fund losses of the VIE and (2) the VIE is not a securitization entity, asset-backed financing entity or an entity that was formerly considered a qualified special-purpose entity. In this model the Company is the primary beneficiary if it stands to absorb a majority of the VIE’s expected losses or to receive a majority of the VIE’s expected residual returns and would be required to consolidate the VIE.

For all other VIE’s, the Company is the primary beneficiary if the Company has (1) the power to direct the activities of the VIE that most significantly impact the economic performance of the entity and (2) the obligation to absorb losses of the entity that could be potentially significant to the VIE or the right to receive benefits from the entity that could be potentially significant. If both conditions are present the Company would be required to consolidate the VIE.

Consolidated Variable Interest Entities

The Company is the primary beneficiary of certain VIEs in which the Company has invested, as part of its investment activities, but over which the Company does not exercise control. The Company’s position in the capital structure and/or relative size indicates that the Company is the primary beneficiary. The Company is not required to provide, and has not provided material financial or other support to these VIEs. The table below reflects the carrying amount and balance sheet caption in which the assets and liabilities of these consolidated VIEs are reported. The creditors of each consolidated VIE have recourse only to the assets of that VIE.

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	December 31,
	2010			2009
	(in millions)
Fixed maturities, available for sale	$	14		$	41
Trading account assets supporting insurance liabilities		9			7
Other long-term investments		6			9
Cash and cash equivalents		(2	)		—
Separate account assets		4			38
Total assets of consolidated VIEs	$	31		$	95
Separate account liabilities	$	4		$	38
Total liabilities of consolidated VIEs	$	4		$	38

In addition, not reflected in the table above, the Company has created a trust that is a VIE, to facilitate Prudential Insurance’s Funding Agreement Notes Issuance Program (“FANIP”). The trust issues medium-term notes secured by funding agreements issued to the trust by Prudential Insurance with the proceeds of such notes. The trust is the beneficiary of an indemnity agreement with the Company that provides that the Company is responsible for costs related to the notes issued with limited exception. As a result, the Company has determined that it is the primary beneficiary of the trust, which is therefore consolidated.

The funding agreements represent an intercompany transaction that is eliminated upon consolidation. However, in recognition of the security interest in such funding agreements, the trust’s medium-term note liability of $3,509 million and $4,927 million at December 31, 2010 and 2009, respectively, is classified with “Policyholders’ account balances.” Creditors of the trust have recourse to Prudential Insurance if the trust fails to make contractual payments on the medium-term notes. The Company has not provided material financial or other support that was not contractually required to the trust.

Unconsolidated Variable Interest Entities

The Company may invest in debt or equity securities issued by certain asset-backed investment vehicles (commonly referred to as collateralized debt obligations, or “CDOs”) that are managed by an affiliated company. CDOs raise capital by issuing debt securities, and use the proceeds to purchase investments, typically interest-bearing financial instruments. The Company’s maximum exposure to loss resulting from its relationship with unconsolidated CDOs managed by affiliates is limited to its investment in the CDOs, which was $389 million and $380 million at December 31, 2010 and 2009, respectively. These investments are reflected in “Fixed maturities, available for sale.” The fair value of assets held within these unconsolidated VIEs was $3,813 million and $3,421 million as of December 31, 2010 and 2009, respectively. There are no liabilities associated with these unconsolidated VIEs on the Company’s balance sheet.

The Company has an investment in a note receivable issued by an affiliated VIE. This VIE issued notes to the Company in consideration for certain fixed maturity assets sold by the Company in December 2009. The total assets of this VIE at December 31, 2010 and 2009 were approximately $1.5 billion and $1.9 billion, respectively, and primarily consisted of fixed maturity securities. The market value and book value of the notes issued by the VIE and held by the Company at December 31, 2010 and 2009 was $1.1 billion and $1.4 billion, respectively. The Company’s maximum exposure to loss was $1.1 billion and $1.4 billion as of December 31, 2010 and 2009, respectively.

In the normal course of its activities, the Company will invest in joint ventures and limited partnerships. These ventures include hedge funds, private equity funds and real estate related funds and may or may not be VIEs. The Company’s maximum exposure to loss on these investments, both VIEs and non-VIEs, is limited to the amount of its investment. The Company has determined that it is not required to consolidate these entities because either (1) it does not control them or (2) it does not have the obligation to absorb losses of the entities that could be potentially significant to the entities or the right to receive benefits from the entities that could be potentially significant. The Company classifies these investments as “Other long-term investments” and its maximum exposure to loss associated with these entities was $2,683 million and $2,461 million as of December 30, 2010 and 2009, respectively.

In addition, in the normal course of its activities, the Company will invest in structured investments including VIEs. These structured investments typically invest in fixed income investments and are managed by third parties and include asset-backed

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securities, commercial mortgage-backed securities and residential mortgage-backed securities. The Company’s maximum exposure to loss on these structured investments, both VIEs and non-VIEs, is limited to the amount of its investment. See Note 4 for details regarding the carrying amounts and classification of these assets. The Company has not provided material financial or other support that was not contractually required to these structures. The Company has determined that it is not the primary beneficiary of these structures due to the fact that it does not control these entities.

Included among these structured investments are asset-backed securities issued by VIEs that manage investments in the European market. In addition to a stated coupon, each investment provides a return based on the VIE’s portfolio of assets and related investment activity. The market value of these VIEs was approximately $5.0 billion and $6.0 billion as of December 31, 2010 and 2009, respectively, and these VIEs were financed primarily through the issuance of notes similar to those purchased by the Company. The Company generally accounts for these investments as available for sale fixed maturities containing embedded derivatives that are bifurcated and marked-to-market through “Realized investment gains (losses), net,” based upon the change in value of the underlying portfolio. The Company’s variable interest in each of these VIEs represents less than 50% of the only class of variable interests issued by the VIE. The Company’s maximum exposure to loss from these interests was $746 million and $696 million at December 31, 2010 and 2009, respectively, which includes the fair value of the embedded derivatives.

6. DEFERRED POLICY ACQUISITION COSTS

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

	2010			2009			2008
	(in millions)
Balance, beginning of year	$	7,314		$	8,538		$	6,687
Capitalization of commissions, sales and issue expenses		1,578			1,053			914
Amortization		(475	)		(483	)		(654	)
Change in unrealized investment gains and losses		(150	)		(1,760	)		1,591
Other (1)		—			(34	)		—
Balance, end of year	$	8,267		$	7,314		$	8,538

(1) Other represents DAC written off against additional paid in capital under Funding Agreement termination. See Note 20 for additional discussion.

7. INVESTMENTS IN OPERATING JOINT VENTURES

The Company has made investments in certain joint ventures that are strategic in nature and made other than for the sole purpose of generating investment income. These investments are accounted for under the equity method of accounting and are included in “Other assets” in the Company’s Consolidated Statements of Financial Position. The earnings from these investments are included on an after-tax basis in “Equity in earnings of operating joint ventures, net of taxes” in the Company’s Consolidated Statements of Operations. Investments in operating joint ventures include an indirect investment in China Pacific Group, and prior to its sale on December 31, 2009, also included the Company’s investment in Wachovia Securities. The summarized financial information for the Company’s operating joint ventures has been included in the summarized combined financial information for all significant equity method investments shown in Note 4.

Investment in China Pacific Group

The Company has made an indirect investment in China Pacific Group, a Chinese insurance operation. The carrying value of this operating joint venture was $459 million and $528 million, as of December 31, 2010 and 2009, respectively. The indirect investment in China Pacific Group includes unrealized changes in market value, which are included in accumulated other comprehensive income and relate to the market price of China Pacific Group’s publicly traded shares, which began trading on the Shanghai Exchange in 2007 and since the fourth quarter of 2009 are trading on the Hong Kong exchange. The Company recognized combined after-tax equity earnings from this operating joint venture of $46 million, $3 million and $3 million for the years ended December 31, 2010, 2009 and 2008, respectively. Dividends received from this investment were $5 million, $5 million and $4 million for the years ended December 31, 2010, 2009 and 2008, respectively. In December 2010, a consortium of

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investors including the Company sold approximately 16% of its holdings, resulting in a pre-tax gain of $66 million to the Company, and sold approximately 40% of its remaining holdings in the first quarter of 2011, resulting in a pre-tax gain of $153 million to the Company.

Former Investment in Wachovia Securities

On December 31, 2009, the Company completed the sale of its minority joint venture interest in Wachovia Securities (including Wells Fargo Advisors) to Wells Fargo. At the closing, the Company received $4.5 billion in cash as the purchase price of its joint venture interest and de-recognized the carrying value of its investment in the joint venture and the carrying value of the “lookback” option described below. For the year ended December 31, 2009, “Equity in earnings of operating joint ventures, net of taxes” includes the associated pre-tax gain on the sale of $2.247 billion. In addition, “General and administrative expenses” includes certain one-time costs related to the sale of the joint venture interest of $89 million, for pre-tax compensation costs and costs related to increased contributions to the Company’s charitable foundation.

In addition, the Company received $418 million in payment of the principal of and accrued interest on the subordinated promissory note in the principal amount of $417 million that had been issued by Wachovia Securities in connection with the establishment of the joint venture.

Wachovia Corporation’s (“Wachovia”) contribution to the joint venture of the A.G. Edwards retail securities brokerage business on January 1, 2008 entitled the Company to elect a “lookback” option (which the Company exercised) permitting the Company to delay for a period of two years ending on January 1, 2010, the decision on whether or not to make payments to avoid or limit dilution of its 38% ownership interest in the joint venture or, alternatively, to “put” its joint venture interests to Wachovia based on the appraised value of the joint venture, excluding the A.G. Edwards business, as of January 1, 2008. During this “lookback” period, the Company’s share in the earnings of the joint venture and one-time costs associated with the combination of the A.G. Edwards business with Wachovia Securities was based on the Company’s diluted ownership level. The Company adjusted the carrying value of its ownership interest in the joint venture effective as of January 1, 2008 to reflect the addition of the A.G. Edwards business and the dilution of the Company’s 38% ownership interest and to record the value of the above described rights under the “lookback” option. The Company accordingly recognized a corresponding increase to “Additional paid-in capital” of $1.041 billion, net of tax, which represented the excess of the estimated value of the Company’s share of the A.G. Edwards business received (of approximately $1.444 billion) and the estimated value of the “lookback” option acquired (of approximately $580 million) over the carrying value of the portion of the Company’s ownership interest in Wachovia Securities that was diluted (of approximately $422 million), net of taxes (of approximately $561 million). In connection with the sale of the Company’s interest in the joint venture to Wells Fargo on December 31, 2009, the Company’s final diluted ownership percentage in the joint venture for 2008 and 2009 was established as 23%. On December 31, 2009, the Company recognized a decrease to “Additional paid-in capital” of $109 million, net of tax, and a true-up to the Company’s 2008 and 2009 earnings from the joint venture of $15 million, net of tax based on the difference between the diluted ownership percentage previously used to record earnings and the final diluted ownership percentage.

On August 15, 2008, Wachovia announced that it had reached an agreement in principle for a global settlement of investigations concerning the underwriting, sale and subsequent auction of certain auction rate securities by subsidiaries of Wachovia Securities and had recorded an increase to legal reserves. The Company’s recorded share of pre-tax losses from the joint venture for the year ended December 31, 2008 included $355 million related to the impact of this item on our share of the equity earnings of the joint venture.

The Company’s investment in Wachovia Securities, excluding the value of the “lookback” option, was $1.812 billion as of December 31, 2008. The Company recognized pre-tax equity earnings (losses) from Wachovia Securities of $2.288 billion for the year ended December 31, 2009, including the gain on the sale of $2.247 billion, and $(331) million for the year ended December 31, 2008. The income tax expense (benefit) associated with these equity earnings was $805 million for the year ended December 31, 2009, including $790 million associated with the gain on the sale, and $(110) million for the year ended December 31, 2008. Dividends received from the investment in Wachovia Securities were $23 million and $104 million for the years ended December 31, 2009 and 2008, respectively.

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8. VALUATION OF BUSINESS ACQUIRED

The balances of and changes in VOBA as of and for the years ended December 31, are as follows:

	2010			2009			2008
				(in millions)
Balance, beginning of year	$	285		$	437		$	765
Amortization(1)		(25	)		(171	)		(369	)
Interest(2)		17			19			41
Balance, end of year	$	277		$	285		$	437

(1) The VOBA balances at December 31, 2010 were $0 million and $277 million related to the insurance transactions associated with the Allstate Corporation (“Allstate”) and CIGNA, respectively. The weighted average remaining expected life was approximately 17 years for the VOBA related to CIGNA.

(2) The interest accrual rates vary by product. The interest rate for 2010 was 7.00% for the VOBA related to CIGNA. The interest rates for 2009 were 5.42% and 6.90% for the VOBA related to Allstate and CIGNA, respectively. The interest rates for 2008 were 5.42% and 7.30% for the VOBA related to Allstate and CIGNA, respectively.

During the first quarter of 2009 and the fourth quarter of 2008, the Company recognized impairments of $73 million and $234 million, respectively, related to the VOBA associated with the Allstate acquisition. These impairments are included on the Amortization line in the table above. The impairment recorded in 2009 represented the remaining VOBA balance associated with the Allstate acquisition. These impairments are reflective of the deterioration in the financial markets, which resulted in additional market depreciation within the separate account assets and corresponding decreases in fee income and overall expected future earnings for this business. These impairments were determined using discounted present value of future estimated gross profits. Since the VOBA balance was completely impaired for these contracts, it cannot be reestablished for market value appreciation in subsequent periods. There were no impairments during 2010.

The following table provides estimated future amortization, net of interest, for the periods indicated.

	VOBA Amortization
	(in millions)
2011	$	3
2012		2
2013		1
2014		1
2015		1
2016 and thereafter		269
Total	$	277

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9. GOODWILL AND OTHER INTANGIBLES

Goodwill

The changes in the book value of goodwill are as follows:

	Goodwill
	(in millions)
Balance at January 1, 2008:
Goodwill		620
Accumulated Impairment Losses		—
Net Balance at January 1, 2008		620
2008 Activity:
Acquisitions		106
Other(1)		(1	)
Balance at December 31, 2008:
Goodwill		725
Accumulated Impairment Losses		—
Net Balance at December 31, 2008		725
2009 Activity:
Other(1)		2
Balance at December 31, 2009:
Goodwill		727
Accumulated Impairment Losses		—
Net Balance at December 31, 2009		727
2010 Activity:
Other(1)		10
Balance at December 31, 2010:
Goodwill		737
Accumulated Impairment Losses		—
Net Balance at December 31, 2010	$	737

(1) Other represents foreign currency translation.

The Company tests goodwill for impairment annually as of December 31 as discussed in further detail in Note 2. The Company performed goodwill impairment testing for the entire goodwill balance at December 31, 2010, all of which is in the Financial Services Business reporting unit. There were no goodwill impairment charges during 2010, 2009 or 2008.

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Other Intangibles

Other intangible balances at December 31, are as follows:

	2010							2009
	Gross  Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross  Carrying Amount		Accumulated Amortization			Net Carrying Amount
						(in millions)
Subject to amortization:
Customer relationships	$	175	$	(29	)	$	146	$	174	$	(18	)	$	156
Other		22		(22	)		—		23		(20	)		3
Total	$	197	$	(51	)	$	146	$	197	$	(38	)	$	159

Amortization expense for other intangibles was $13 million, $12 million and $7 million for the years ending December 31, 2010, 2009 and 2008, respectively. Amortization expense for other intangibles is expected to be approximately $11 million in 2011, $12 million in 2012 and 2013 and $ll million in 2014 and 2015.

10. POLICYHOLDERS’ LIABILITIES

Future Policy Benefits

Future policy benefits at December 31, are as follows:

	2010		2009
	(in millions)
Life Insurance	$	57,147	$	56,617
Individual and group annuities and supplementary contracts		16,071		14,727
Other contract liabilities		3,231		3,546
Subtotal future policy benefits excluding unpaid claims and claim adjustment expenses		76,449		74,890
Unpaid claims and claim adjustment expenses		2,372		2,207
Total future policy benefits	$	78,821	$	77,097

Life insurance liabilities include reserves for death and endowment policy benefits, terminal dividends and certain health benefits. Individual and group annuities and supplementary contracts liabilities include reserves for life contingent immediate annuities and life contingent group annuities. Other contract liabilities include unearned revenue and certain other reserves for group, annuities and individual life and health products.

Future policy benefits for individual participating traditional life insurance are based on the net level premium method, calculated using the guaranteed mortality and nonforfeiture interest rates which range from 2.5% to 7.5%. Participating insurance represented 12% and 13% of direct individual life insurance in force at December 31, 2010 and 2009, respectively, and 73%, 76% and 80% of direct individual life insurance premiums for 2010, 2009 and 2008, respectively.

Future policy benefits for individual non-participating traditional life insurance policies, group and individual long-term care policies and individual health insurance policies are generally equal to the aggregate of (1) the present value of future benefit payments and related expenses, less the present value of future net premiums, and (2) any premium deficiency reserves. Assumptions as to mortality, morbidity and persistency are based on the Company’s experience, and in certain instances, industry experience, when the basis of the reserve is established. Interest rates used in the determination of the present values range from 1.7% to 8.3%; less than 1% of the reserves are based on an interest rate in excess of 8%.

Future policy benefits for individual and group annuities and supplementary contracts are generally equal to the aggregate of (1) the present value of expected future payments, and (2) any premium deficiency reserves. Assumptions as to mortality are based

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on the Company’s experience, and in certain instances, industry experience, when the basis of the reserve is established. The interest rates used in the determination of the present values range from 1.0% to 14.8%; less than 1% of the reserves are based on an interest rate in excess of 8%.

Future policy benefits for other contract liabilities are generally equal to the present value of expected future payments based on the Company’s experience, except for example, certain group insurance coverages for which future policy benefits are equal to gross unearned premium reserves. The interest rates used in the determination of the present values range from 0.2% to 6.2%.

Premium deficiency reserves are established, if necessary, when the liability for future policy benefits plus the present value of expected future gross premiums are determined to be insufficient to provide for expected future policy benefits and expenses and to recover any unamortized policy acquisition costs. Premium deficiency reserves have been recorded for the group single premium annuity business, which consists of limited-payment, long-duration, traditional, and non-participating annuities; structured settlements; single premium immediate annuities with life contingencies; and for certain individual health policies. Liabilities of $2,001 million and $1,649 million as of December 31, 2010 and 2009, respectively, are included in “Future policy benefits” with respect to these deficiencies, of which $926 million and $490 million as of December 31, 2010 and 2009, respectively, relate to net unrealized gains on securities classified as available for sale.

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 11 and are primarily reflected in Other contract liabilities in the table above.

Unpaid claims and claim adjustment expenses primarily reflect the Company’s estimate of future disability claim payments and expenses as well as estimates of claims incurred but not yet reported as of the balance sheet dates related to group disability products. Unpaid claim liabilities are discounted using interest rates ranging from 0% to 6.4%.

Policyholders’ Account Balances

Policyholders’ account balances at December 31, are as follows:

	2010		2009
	(in millions)
Individual annuities	$	9,247	$	9,148
Group annuities		21,712		20,258
Guaranteed investment contracts and guaranteed interest accounts		14,325		13,049
Funding agreements		6,166		8,395
Interest-sensitive life contracts		7,524		7,069
Dividend accumulation and other		14,282		13,735
Total policyholders’ account balances	$	73,256	$	71,654

Policyholders’ account balances represent an accumulation of account deposits plus credited interest less withdrawals, expenses and mortality charges, if applicable. These policyholders’ account balances also include provisions for benefits under non-life contingent payout annuities. Included in “Funding agreements” at December 31, 2010 and 2009, are $3,592 million and $4,996 million, respectively, related to the Company’s FANIP product which is carried at amortized cost, adjusted for the effective portion of changes in fair value of qualifying derivative financial instruments. For additional details on the FANIP product see Note 5. The interest rates associated with such notes range from 0.4% to 5.6%. Also included in funding agreements at December 31, 2010 and 2009 are $1,005 and $1,814 million, respectively, of affiliated funding agreements with Prudential Financial in support of a retail note issuance program to financial wholesalers. Interest crediting rates range from 0% to 5.0% for interest-sensitive life contracts and from 0% to 13.4% for contracts other than interest-sensitive life. Less than 1% of policyholders’ account balances have interest crediting rates in excess of 8%.

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11. 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 reallocated to other investment options. The market value adjustment may result in a gain or loss to the Company, depending on crediting rates or an indexed rate at surrender, as applicable.

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

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 “Policy charges and fee income” and changes in liabilities for minimum guarantees are generally included in “Policyholders’ benefits.” In 2010, 2009 and 2008, 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 used in the original pricing of these products.

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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. The liabilities related to the net amount at risk are reflected within “Future policy benefits.” As of December 31, 2010 and 2009, the Company had the following guarantees associated with these contracts, by product and guarantee type:

	December 31, 2010				December 31, 2009
	In the Event of Death		At Annuitization  / Accumulation (1)		In the Event of Death		At Annuitization  / Accumulation (1)
			(dollars in millions)
Variable Annuity Contracts
Return of net deposits
Account value	$	26,167	$	24	$	11,706	$	26
Net amount at risk	$	155	$	6	$	401	$	2
Average attained age of contractholders		60 years		67 years		61 years		66 years
Minimum return or contract value
Account value	$	20,211	$	33,332	$	17,588	$	16,370
Net amount at risk	$	3,088	$	1,478	$	4,302	$	1,538
Average attained age of contractholders		66 years		60 years		66 years		62 years
Average period remaining until earliest expected annuitization		N/A		1 year		N/A		2 years

(1) Includes income and withdrawal benefits as described herein.

	December 31, 2010				December 31, 2009
	Unadjusted Value		Adjusted Value		Unadjusted Value		Adjusted Value
			(in millions)
Variable Annuity Contracts
Market value adjusted annuities
Account value	$	911	$	917	$	370	$	378

	December 31,
	2010		2009
	In the Event of Death
	(dollars in millions)
Variable Life, Variable Universal Life and Universal Life Contracts
No lapse guarantees
Separate account value	$	2,392	$	2,158
General account value	$	1,790	$	1,518
Net amount at risk	$	51,500	$	49,988
Average attained age of contractholders		51 years		50 years

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

	December 31,
	2010		2009
	(in millions)
Equity funds	$	26,851	$	17,002
Bond funds		12,667		5,181
Money market funds		3,250		3,686
Total	$	42,768	$	25,869

In addition to the amounts invested in separate account investment options above, $3,609 million at December 31, 2010 and $3,425 million at December 31, 2009 of account balances of variable annuity contracts with guarantees, inclusive of contracts with MVA features, were invested in general account investment options.

Liabilities For Guarantee Benefits

The table below summarizes the changes in general account liabilities, either written directly by the Company or assumed by the Company via reinsurance 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 “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 and are recorded at fair value. Changes in the fair value of these derivatives, including changes in the Company’s own risk of non-performance, along with any fees attributed or payments made relating to the derivative, are recorded in “Realized investment gains (losses), net.” See Note 19 for additional information regarding the methodology used in determining the fair value of these embedded derivatives. The liabilities for GMAB, GMWB and GMIWB are included in “Future policy benefits.” As discussed below, the Company maintains a portfolio of derivative investments that serve as a partial 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.

	GMDB						GMIB			GMAB/GMWB/ GMIWB
	Variable  Life, Variable Universal Life  and Universal Life			Variable Annuity			Variable Annuity			Variable Annuity
	(in millions)
Balance at December 31, 2007	$	55		$	42		$	50		$	71
Incurred guarantee benefits(1)		32			329			197			1,101
Paid guarantee benefits and other		(1	)		(87	)		—			—
Balance at December 31, 2008		86			284			247			1,172
Incurred guarantee benefits(1)		64			(11	)		(21	)		(1,114	)
Paid guarantee benefits and other		(7	)		(158	)		(32	)		—
Balance at December 31, 2009		143			115			194			58
Incurred guarantee benefits(1)		19			25			29			(406	)
Paid guarantee benefits and other		(1	)		(83	)		(123	)		—
Balance at December 31, 2010	$	161		$	57		$	100		$	(348	)

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

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

The GMAB features provide the contractholder with a guaranteed return of initial account value or an enhanced value if applicable. 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.

Liabilities for guaranteed benefits for GMAB, GMWB and GMIWB riders include amounts assumed from affiliates of $21 million and $14 million as of December 31, 2010 and December 31, 2009, respectively. See Note 13 for amounts recoverable from reinsurers relating to the ceding of certain embedded derivative liabilities associated with these guaranteed benefits, which are not reflected in the tables above.

As part of its risk management strategy, the Company hedges or limits its exposure to these risks, excluding those risks that have been deemed suitable to retain, through a combination of product design elements, such as an automatic rebalancing element, and externally purchased hedging instruments, such as equity options and interest rate derivatives. The automatic rebalancing element included in the design of certain optional living benefits transfers assets between the variable investments selected by the annuity contractholder and, depending on the benefit feature, a fixed rate account in the general account or a bond portfolio within the separate account. The transfers are based on the static mathematical formula used with the particular optional benefit which considers a number of factors, including the impact of investment performance of the contractholder’s total account value. In general, negative investment performance may result in transfers to a fixed rate account in the general account or a bond portfolio within the separate account, and positive investment performance may result in transfers back to contractholder-selected investments. Other product design elements utilized for certain products to manage these risks include asset allocation restrictions and minimum purchase age requirements. For risk management purposes the Company segregates the variable annuity living benefit features into those that include the automatic rebalancing element, including certain GMIWB riders and certain GMAB riders; and those that do not include the automatic rebalancing element, including certain legacy GMIWB, GMWB, GMAB and GMIB riders. Living benefit riders that include the automatic rebalancing element also include GMDB riders, and as such the GMDB risk in these riders also benefits from the automatic rebalancing element.

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Sales Inducements

The Company defers sales inducements and amortizes them over the anticipated life of the policy using the same methodology and assumptions used to amortize deferred policy acquisition costs. These deferred sales inducements are included in “Other assets.” The Company offers various types of sales inducements. These inducements include: (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, (2) additional credits after a certain number of years a contract is held and (3) enhanced interest crediting rates that are higher than the normal general account interest rate credited in certain product lines. Changes in deferred sales inducements, reported as “Interest credited to policyholders’ account balances,” are as follows:

	Sales Inducements
	(in millions)
Balance at December 31, 2007	$	239
Capitalization		74
Amortization		(16	)
Change in unrealized gain/(loss) on investments		—
Balance at December 31, 2008		297
Capitalization		97
Amortization		(51	)
Change in unrealized gain/(loss) on investments		(28	)
Balance at December 31, 2009		315
Capitalization		248
Amortization		(15	)
Change in unrealized gain/(loss) on investments		3
Balance at December 31, 2010	$	551

12. CLOSED BLOCK

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

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

The excess of Closed Block Liabilities over Closed Block Assets at the date of the demutualization (adjusted to eliminate the impact of related amounts “Accumulated other comprehensive income (loss)”) represented the estimated maximum future earnings at that date from the Closed Block expected to result from operations attributed to the Closed Block after income taxes. In establishing the Closed Block, the Company developed an actuarial calculation of the timing of such maximum future earnings. If actual cumulative earnings of the Closed Block from inception through the end of any given period are greater than the expected

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cumulative earnings, only the expected earnings will be recognized in income. Any excess of actual cumulative earnings over expected cumulative earnings will represent undistributed accumulated earnings attributable to policyholders, which are recorded as a policyholder dividend obligation. The policyholder dividend obligation represents amounts to be paid to Closed Block policyholders as an additional policyholder dividend unless otherwise offset by future Closed Block performance that is less favorable than originally expected. If the actual cumulative earnings of the Closed Block from its inception through the end of any given period are less than the expected cumulative earnings of the Closed Block, the Company will recognize only the actual earnings in income. However, the Company may reduce policyholder dividend scales, which would be intended to increase future actual earnings until the actual cumulative earnings equaled the expected cumulative earnings.

As of December 31, 2010, the Company recognized a policyholder dividend obligation of $126 million, to Closed Block policyholders for the excess of actual cumulative earnings over the expected cumulative earnings. Additionally, accumulated net unrealized investment gains that have arisen subsequent to the establishment of the Closed Block have been reflected as a policyholder dividend obligation of $2,117 million at December 31, 2010, to be paid to Closed Block policyholders unless offset by future experience, with an offsetting amount reported in “Accumulated other comprehensive income (loss).” As of December 31, 2009, actual cumulative earnings were below the expected cumulative earnings, thereby eliminating the cumulative earnings policyholder dividend obligation. Furthermore, the accumulation of net unrealized investment gains as of December 31, 2009 that had arisen subsequent to the establishment of the Closed Block, were not sufficient to overcome the cumulative earnings shortfall. See the table below for changes in the components of the policyholder dividend obligation for the years ended December 31, 2010 and 2009.

On December 14, 2010, Prudential Insurance’s Board of Directors approved a continuation of the Closed Block dividend scales in 2011. On December 8, 2009, Prudential Insurance’s Board of Directors acted to reduce the dividends payable in 2010 on Closed Block policies. This decrease reflected the deterioration in investment results and resulted in a $98 million reduction of the liability for policyholder dividends recognized in the year ended December 31, 2009. On December 19, 2008, Prudential Insurance’s Board of Directors acted to reduce the dividends payable in 2009 on Closed Block policies. This decrease also reflected the deterioration in investment results and resulted in a $187 million reduction of the liability for policyholder dividends recognized in the year ended December 31, 2008.

Closed Block Liabilities and Assets designated to the Closed Block at December 31, as well as maximum future earnings to be recognized from Closed Block Liabilities and Closed Block Assets, are as follows:

	2010		2009
	(in millions)
Closed Block Liabilities
Future policy benefits	$	51,632	$	51,774
Policyholders’ dividends payable		909		926
Policyholders’ dividend obligation		2,243		—
Policyholders’ account balances		5,536		5,588
Other Closed Block liabilities		4,637		4,300
Total Closed Block Liabilities		64,957		62,588

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Closed Block Assets
Fixed maturities, available for sale, at fair value		41,044			38,448
Other trading account assets, at fair value		150			166
Equity securities, available for sale, at fair value		3,545			3,037
Commercial mortgage and other loans		7,827			7,751
Policy loans		5,377			5,418
Other long-term investments		1,662			1,597
Short-term investments		1,119			1,218
Total investments		60,724			57,635
Cash and cash equivalents		345			662
Accrued investment income		600			608
Other Closed Block assets		275			307
Total Closed Block Assets		61,944			59,212
Excess of reported Closed Block Liabilities over Closed Block Assets		3,013			3,376
Portion of above representing accumulated other comprehensive income:
Net unrealized investment gains (losses)		2,092			231
Allocated to policyholder dividend obligation		(2,117	)		—
Future earnings to be recognized from Closed Block Assets and Closed Block Liabilities	$	2,988		$	3,607

Information regarding the policyholder dividend obligation is as follows:

	2010		2009
	(in millions)
Balance, January 1	$	—	$	—
Impact from earnings allocable to policyholder dividend obligation		126		(851	)
Change in net unrealized investment gains (losses) allocated to policyholder dividend obligation(1)		2,117		851
Balance, December 31	$	2,243	$	—

(1) For 2009, this amount was capped to the extent of earnings allocable to policyholder dividend obligation.

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Closed Block revenues and benefits and expenses for the years ended December 31, 2010, 2009 and 2008 were as follows:

	2010			2009			2008
	(in millions)
Revenues
Premiums	$	3,007		$	3,250		$	3,608
Net investment income		2,994			2,907			3,154
Realized investment gains (losses), net		804			(1,219	)		(8	)
Other income		38			102			15
Total Closed Block revenues		6,843			5,040			6,769
Benefits and Expenses
Policyholders’ benefits		3,512			3,762			4,087
Interest credited to policyholders’ account balances		140			141			141
Dividends to policyholders’		2,071			1,222			2,122
General and administrative expenses		540			568			632
Total Closed Block benefits and expenses		6,263			5,693			6,982
Closed Block revenues, net of Closed Block benefits and expenses, before income taxes and discontinued operations		580			(653	)		(213	)
Income tax benefit		(38	)		(63	)		(193	)
Closed Block revenues, net of Closed Block benefits and expenses and income taxes, before discontinued operations		618			(590	)		(20	)
Income from discontinued operations, net of taxes		1			—			—
Closed Block revenues, net of Closed Block benefits and expenses, income taxes and discontinued operations	$	619		$	(590	)	$	(20	)

13. REINSURANCE

The Company participates in reinsurance in order to provide additional capacity for future growth, to limit the maximum net loss potential arising from large risks and in acquiring or disposing of businesses.

In 2006, the Company acquired the variable annuity business of The Allstate Corporation (“Allstate”) through a reinsurance transaction. The reinsurance arrangements with Allstate include a coinsurance arrangement associated with the general account liabilities assumed and a modified coinsurance arrangement associated with the separate account liabilities assumed. The reinsurance payable, which represents the Company’s obligation under the modified coinsurance arrangement, is netted with the reinsurance receivable in the Company’s Consolidated Statement of Financial Position.

In 2004, the Company acquired the retirement business of CIGNA and as a result, entered into various reinsurance arrangements. The Company still has indemnity coinsurance and modified coinsurance without assumption arrangements in effect related to this acquisition.

Life and disability reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term, per person excess and coinsurance. In addition, the Company entered into reinsurance agreements covering 90% of the Closed Block policies, including 17% with an affiliate through various modified coinsurance arrangements. The Company accounts for these modified coinsurance arrangements under the deposit method of accounting. Reinsurance ceded arrangements do not discharge the Company as the primary insurer. Ceded balances would represent a liability of the Company in the event the reinsurers were unable to meet their obligations to the Company under the terms of the reinsurance agreements. Reinsurance premiums, commissions, expense reimbursements, benefits and reserves related to reinsured long-duration contracts are accounted for over the life of the underlying reinsured contracts using assumptions consistent with those used to account for the underlying contracts. The cost of reinsurance related to short-duration contracts is accounted for over the reinsurance contract period. Amounts

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recoverable from reinsurers, for both short-and long-duration reinsurance arrangements, are estimated in a manner consistent with the claim liabilities and policy benefits associated with the reinsured policies. The Company also participates in reinsurance of Liabilities for Guaranteed Benefits, which are more fully described in Note 11.

The Company participates in reinsurance transactions with the following subsidiaries of Prudential Financial: Prudential Life Insurance Company of Taiwan Inc., The Prudential Life Insurance Company of Korea, Ltd., The Prudential Life Insurance Company, Ltd., Pramerica Life S.p.A., Pramerica Zycie Towarzystwo Ubezpieczen i Reasekuracji Spolka Akcyjna, Prudential Holdings of Japan, Inc., Pruco Reinsurance Ltd., Prudential Annuities Life Assurance Corporation, Prudential Seguros Mexico, S.A., Prudential Seguros, S.A., Pramerica of Bermuda Life Assurance Company, Ltd., and Prudential Arizona Reinsurance III Company.

The tables presented below exclude amounts pertaining to the Company’s discontinued operations.

Reinsurance amounts included in the Consolidated Statements of Operations for premiums, policy charges and fees and policyholders’ benefits for the years ended December 31, were as follows:

	2010			2009			2008
	(in millions)
Direct premiums	$	10,183		$	9,866		$	9,787
Reinsurance assumed		1,368			1,164			987
Reinsurance ceded		(1,322	)		(1,397	)		(1,301	)
Premiums	$	10,229		$	9,633		$	9,473
Direct policy charges and fees	$	2,137		$	2,020		$	2,059
Reinsurance assumed		140			140			181
Reinsurance ceded		(80	)		(70	)		(60	)
Policy charges and fees	$	2,197		$	2,090		$	2,180
Direct policyholder benefits	$	11,971		$	11,485		$	11,695
Reinsurance assumed		1,225			959			1,169
Reinsurance ceded		(1,278	)		(1,397	)		(1,291	)
Policyholders’ benefits	$	11,918		$	11,047		$	11,573

Reinsurance recoverables at December 31, are as follows:

	2010		2009
	(in millions)
Individual and group annuities (1)	$	1,075	$	1,039
Life Insurance		1,702		1,482
Other reinsurance		126		119
Total reinsurance recoverable	$	2,903	$	2,640

(1) Primarily represents reinsurance recoverables established under the reinsurance arrangements associated with the acquisition of the retirement business of CIGNA. The Company has recorded related reinsurance payables of $1,068 million and $1,038 million at December 31, 2010 and 2009, respectively.

“Premiums” includes affiliated reinsurance assumed of $1,224 million, $1,092 million and $974 million and affiliated reinsurance ceded of $(111) million, $(111) million and $(114) million for the years ended December 31, 2010, 2009, and 2008, respectively.

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“Policyholders’ benefits” includes affiliated reinsurance assumed of $959 million, $823 million and $748 million and affiliated reinsurance ceded of $(58) million, $(61) million and $(66) million for the years ended December 31, 2010, 2009, and 2008, respectively.

“General and administrative expenses” include affiliated assumed expenses of $147 million, $128 million and $91 million for the years ended December 31, 2010, 2009, and 2008, respectively.

Amounts “Due from parent and affiliates” includes affiliated reinsurance recoverables of $1,120 million and $940 million at December 31, 2010 and 2009, respectively reflected in the table above. Excluding both the reinsurance recoverable associated with the acquisition of the retirement business of CIGNA and affiliated reinsurance recoverables, four major reinsurance companies account for approximately 62% of the reinsurance recoverable at December 31, 2010. The Company periodically reviews the financial condition of its reinsurers and amounts recoverable therefrom in order to minimize its exposure to loss from reinsurer insolvencies, recording an allowance when necessary for uncollectible reinsurance.

Amounts “Due from parent and affiliates” also include $(387) million and $(4) million at December 31, 2010 and 2009, respectively, related to the ceding of certain embedded derivative liabilities associated with the Company’s guaranteed benefits. “Realized investment gains (losses), net” includes a loss of $484 million, a loss of $878 million and a gain of $768 million for the years ended December 31, 2010, 2009, and 2008, respectively, related to the change in fair values of these ceded embedded derivative liabilities.

“Deferred policy acquisition costs” includes affiliated amounts related to reinsurance of $860 million and $754 million at December 31, 2010 and 2009, respectively.

Amounts “Due to parent and affiliates” includes reinsurance payables of $3,702 million and $2,880 million at December 31, 2010 and 2009, respectively.

14. SHORT-TERM AND LONG-TERM DEBT

Short-term Debt

Short-term debt at December 31, is as follows:

	2010		2009
	(in millions)
Commercial paper	$	874	$	730
Other notes payable(1)(2)		389		159
Current portion of long-term debt(3)(4)		225		2,042
Total short-term debt	$	1,488	$	2,931

(1) Includes collateralized borrowings from the Federal Home Loan Bank of New York of $275 million at December 31, 2010, which are discussed in more detail below.

(2) Includes notes due to related parties of $112 million and $157 million at December 31, 2010 and 2009, respectively. During 2009, a portion of the related party notes payable were variable rate notes where the payments on these loans were based on the performance of certain separate accounts held by a subsidiary of the Company, resulting in effective interest rates on these loans ranging from -74.9% to -30.0%. The remaining related party notes payable have variable interest rates ranging from 0.6% to 1.7% in 2010 and 0.4% to 1.8% in 2009.

(3) Includes collateralized borrowings from the Federal Home Loan Bank of New York of $2,000 million at December 31, 2009, which are discussed in more detail below.

(4) Includes notes due to related parties of $213 million at December 31, 2010.

The weighted average interest rate on outstanding short-term debt, excluding the current portion of long-term debt, was 0.4% and 0.6% at December 31, 2010 and 2009, respectively. At December 31, 2010 and 2009, the Company was in compliance with all covenants related to the above debt.

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Commercial Paper

Prudential Funding, LLC (“Prudential Funding”), a wholly-owned subsidiary of Prudential Insurance, has a commercial paper program with an authorized capacity of $7.0 billion. Prudential Funding commercial paper borrowings have generally served as an additional source of financing to meet the working capital needs of Prudential Insurance and its subsidiaries. Prudential Funding also lends to other subsidiaries of Prudential Financial up to limits agreed with the New Jersey Department of Banking and Insurance. Prudential Funding’s outstanding commercial paper borrowings were $874 million and $730 million at December 31, 2010 and 2009, respectively. At December 31, 2010 and 2009, the weighted average maturity of total commercial paper outstanding was 31 and 23 days, respectively. Prudential Financial has issued a subordinated guarantee covering Prudential Funding’s domestic commercial paper program.

Federal Home Loan Bank of New York

Prudential Insurance is a member of the Federal Home Loan Bank of New York (“FHLBNY”). Membership allows Prudential Insurance access to the FHLBNY’s financial services, including the ability to obtain collateralized loans and to issue collateralized funding agreements that can be used as an alternative source of liquidity. FHLBNY borrowings and funding agreements are collateralized by qualifying mortgage-related assets or U.S. Treasury securities, the fair value of which must be maintained at certain specified levels relative to outstanding borrowings, depending on the type of asset pledged. FHLBNY membership requires Prudential Insurance to own member stock and borrowings require the purchase of activity-based stock in an amount equal to 4.5% of outstanding borrowings. Under FHLBNY guidelines, if Prudential Insurance’s financial strength ratings decline below A/A2/A Stable by S&P/Moody’ s/Fitch, respectively, and the FHLBNY does not receive written assurances from the New Jersey Department of Banking and Insurance (“NJDOBI”) regarding Prudential Insurance’s solvency, new borrowings from the FHLBNY would be limited to a term of 90 days or less. Currently there are no restrictions on the term of borrowings from the FHLBNY. All FHLBNY stock purchased by Prudential Insurance is classified as restricted general account investments within “Other long-term investments,” and the carrying value of these investments was $177 million and $221 million as of December 31, 2010 and 2009, respectively.

NJDOBI previously permitted Prudential Insurance to pledge collateral to the FHLBNY in an amount up to 7% of its prior year-end statutory net admitted assets, excluding separate account assets; however, since the Company elected not to seek an extension, this limitation reset to 5% effective January 1, 2011. Based on Prudential Insurance’s statutory net admitted assets as of December 31, 2009, the 5% limitation equates to a maximum amount of pledged assets of $7.4 billion and an estimated maximum borrowing capacity (after taking into account required collateralization levels and purchases of activity-based stock) of approximately $6.2 billion. Nevertheless, FHLBNY borrowings are subject to the FHLBNY’s discretion and to the availability of qualifying assets at Prudential Insurance.

As of December 31, 2010, Prudential Insurance had pledged qualifying assets with a fair value of $2.8 billion, which supported outstanding collateralized advances of $1.0 billion and collateralized funding agreements of $1.5 billion. The fair value of qualifying assets that were available to Prudential Insurance but not pledged amounted to $5.5 billion as of December 31, 2010.

As of December 31, 2010, $275 million of the FHLBNY outstanding advances are reflected in “Short-term debt” and the remaining $725 million is in”Long-term debt.” FHLBNY advances declined $1,000 million from December 31, 2009, reflecting the repayment at maturity of $1,000 million of advances in June and the refinancing of $1,000 million of advances in December. Of the outstanding $1,000 million collateralized advances, $275 million matures in December 2011 and $725 million matures in December 2015. The funding agreements issued to the FHLBNY, which are reflected in “Policyholders’ account balances,” have priority claim status above debt holders of Prudential Insurance.

Federal Home Loan Bank of Boston

Prudential Retirement Insurance and Annuity Company (“PRIAC”) became a member of the Federal Home Loan Bank of Boston (“FHLBB”) in December 2009. Membership allows PRIAC access to collateralized advances which will be classified in “Short-term debt” or “Long-term debt,” depending on the maturity date of the obligation. PRIAC’s membership in FHLBB requires the ownership of member stock and borrowings from FHLBB require the purchase of activity-based stock in an amount between 3.0% and 4.5% of outstanding borrowings depending on the maturity date of the obligation. As of December 31, 2010, PRIAC had no advances outstanding under the FHLBB facility.

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The Connecticut Department of Insurance (“CTDOI”) permits PRIAC to pledge up to $2.6 billion in qualifying assets to secure FHLBB borrowings through December 31, 2011. PRIAC must seek re-approval from CTDOI prior to borrowing additional funds after that date. Based on available eligible assets as of December 31, 2010, PRIAC had an estimated maximum borrowing capacity, after taking into consideration required collateralization levels and required purchases of activity-based FHLBB stock, of approximately $1.1 billion.

Credit Facilities

As of December 31, 2010, the Company had $2,858 million of unsecured committed credit facilities. These facilities, which are available to Prudential Financial, Prudential Insurance, and Prudential Funding, have terms ranging from one to two years. There were no outstanding borrowings under these credit facilities as of December 31, 2010. Each of the facilities is available to the applicable borrowers up to the aggregate committed credit and may be used for general corporate purposes, including as backup liquidity for the Company’s commercial paper program discussed above. Any borrowings under the credit facilities would mature no later than the respective expiration dates of the facilities and would bear interest at the rates set forth in the applicable credit agreement.

These credit facilities contain representations and warranties, covenants and events of default that are customary for facilities of this type. The Company’s ability to borrow under the facilities is conditioned on the continued satisfaction of customary conditions, including, the maintenance at all times by Prudential Insurance of total adjusted capital of at least $5.5 billion based on statutory accounting principles prescribed under New Jersey law and, in the case of each of the facilities, Prudential Financial’s maintenance of a prescribed minimum level of consolidated net worth. The minimum level of consolidated net worth of Prudential Financial is $12.5 billion, which for this purpose is based on U.S. GAAP equity, excluding net unrealized gains and losses on investments.

As of December 31, 2010, Prudential Insurance’s total adjusted capital and Prudential Financial’s consolidated net worth (as defined in the applicable credit agreements) exceeded the minimum amounts required to borrow under the facilities. The Company’s ability to borrow under the facilities is not contingent on its credit ratings nor subject to material adverse change clauses.

The Company also has access to uncommitted lines of credit from financial institutions. In addition, the Company, as part of its real estate separate account activities, had outstanding lines of credit of $960 million at December 31, 2010, of which $100 million was used.

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Long-term Debt

Long-term debt at December 31, is as follows:

	Maturity Dates		Rate		2010		2009
	(in millions)
Fixed rate notes:
Surplus notes(1)		2014-2040		5.10%-8.30%	$	2,986	$	2,686
Other fixed rate notes(2)(3)		2011-2027		1.00%-14.85%		2,128		780
Floating rate notes:
Surplus notes(4)		2016-2052		(5)		3,200		3,250
Other floating rate notes		2011-2012		(6)		140		213
Total long-term debt					$	8,454	$	6,929

(1) Fixed rate surplus notes at December 31, 2010 and 2009 includes $2,044 million and $1,745 million, respectively, due to a related party. Maturities of these notes range from 2014 through 2040. The interest rates ranged from 5.1% to 6.7% in 2010 and 5.1% to 6.1% in 2009.

(2) Includes collateralized borrowings from the Federal Home Loan Bank of New York of $725 million at December 31, 2010. These borrowings are discussed in more detail above.

(3) Other fixed rate notes at December 31, 2010 and 2009 includes $1,213 million and $578 million, respectively, due to related parties. Maturities of these notes range from 2015 through 2027 and interest rates ranged from 3.01% to 14.85% in 2010 and 4.88% to 14.85% in 2009.

(4) Floating rate surplus notes at December 31, 2009 includes $50 million due to a related party, which was prepaid in 2010. The interest rates ranged from 2.28% to 2.90% in 2010 and was 2.61% in 2009.

(5) The interest rate on the floating rate Surplus notes ranged from 0.52% to 3.71% in 2010 and 0.55% to 4.84% in 2009.

(6) Other floating rate notes at December 31, 2010 and 2009, which are all due to related parties, are based on LIBOR Interest rates ranged from 1.23% to 1.96% in 2010 and 1.52% to 15.48% in 2009.

At December 31, 2010 and 2009, the Company was in compliance with all debt covenants related to the borrowings in the above table.

The following table presents, as of December 31, 2010, the Company’s contractual maturities of its long-term debt:

	Long-term Debt
	(in millions)
Calendar Year:
2012	$	143
2013		4
2014		904
2015		1,614
2016 and thereafter		5,789
Total	$	8,454

Surplus Notes

The fixed rate surplus notes issued by Prudential Insurance to non-affiliates are subordinated to other Prudential Insurance borrowings and policyholder obligations, and the payment of interest and principal may only be made with the prior approval of the Commissioner of Banking and Insurance of the State of New Jersey (the “Commissioner”). The Commissioner could prohibit the payment of the interest and principal on the surplus notes if certain statutory capital requirements are not met. At December 31, 2010 and 2009, the Company met these statutory capital requirements. At December 31, 2010 and 2009, $942 million and $941 million, respectively, of fixed rate surplus notes were outstanding to non-affiliates.

In September 2009, Prudential Insurance issued in a private placement $500 million of surplus notes due September 2019 with an interest rate of 5.36% per annum. The surplus notes are exchangeable at the option of the holder, in whole but not in part, for shares of Prudential Financial Common Stock beginning in September 2014, or earlier upon a fundamental business

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combination involving Prudential Financial or a continuing payment default. The initial exchange rate for the surplus notes is 10.1235 shares of Common Stock per each $1,000 principal amount of surplus notes, which represents an initial exchange price per share of Common Stock of $98.78; however, the exchange rate is subject to customary anti-dilution adjustments. The exchange rate is also subject to a make-whole decrease in the event of an exchange prior to maturity (except upon a fundamental business combination or a continuing payment default), that will result in a reduction in the number of shares issued upon exchange (per $1,000 principal amount of surplus notes) determined by dividing a prescribed cash reduction value (which will decline over the life of the surplus notes, from $102.62 for an exercise on September 18, 2014 to zero for an exercise at maturity) by the price of the Common Stock at the time of exchange. In addition, the exchange rate is subject to a customary make-whole increase in connection with an exchange of the surplus notes upon a fundamental business combination where 10% or more of the consideration in that business combination consists of cash, other property or securities that are not listed on a U.S. national securities exchange.

These exchangeable surplus notes are not redeemable by Prudential Insurance prior to maturity, except in connection with a fundamental business combination involving Prudential Financial, in which case the surplus notes will be redeemable by Prudential Insurance, subject to the noteholders’ right to exchange the surplus notes instead, at par or, if greater, a make-whole redemption price. The surplus notes are subordinated to all other Prudential Insurance borrowings and policyholder obligations, except for other surplus notes of Prudential Insurance (including those currently outstanding), with which the surplus notes rank pari passu. Payments of interest and principal on the surplus notes may only be made with the prior approval of the Commissioner.

During 2007, a subsidiary of Prudential Insurance issued $500 million of 45-year floating rate surplus notes to an unaffiliated financial institution. Surplus notes issued under this facility are subordinated to policyholder obligations, and the payment of interest and principal on them may only be made by the issuer with the prior approval of the Arizona Department of Insurance. Concurrent with the issuance of these surplus notes, Prudential Financial entered into a credit derivative that will require Prudential Financial to make certain payments in the event of deterioration in the value of the surplus notes. As of December 31, 2010 and 2009, the credit derivative was a liability of $26 million and $22 million, respectively, with no requirement to pledge collateral.

During 2006, a subsidiary of Prudential Insurance entered into a surplus note purchase agreement with an unaffiliated financial institution that provides for the issuance of up to $3,000 million of ten-year floating rate surplus notes. At December 31, 2010 and 2009, $2,700 million were outstanding under this agreement. Concurrent with the issuance of each surplus note, Prudential Financial enters into arrangements with the buyer, which are accounted for as derivative instruments that may result in payments by, or to, Prudential Financial over the term of the surplus notes, to the extent there are significant changes in the value of the surplus notes. Surplus notes issued under this facility are subordinated to policyholder obligations, and the payment of interest and principal on them may only be made by the issuer with the prior approval of the Arizona Department of Insurance. As of December 31, 2010 and 2009, these derivative instruments had no material value.

Other

In order to modify exposure to interest rate and currency exchange rate movements, the Company utilizes derivative instruments, primarily interest rate swaps, in conjunction with some of its debt issues. The impact of these derivative instruments are not reflected in the rates presented in the tables above. For those derivative instruments that qualify for hedge accounting treatment, there was no material effect on interest expense for the years ended December 31, 2010 and 2009 and interest expense was decreased by $10 million for the year ended December 31, 2008. See Note 21 for additional information on the Company’s use of derivative instruments.

Interest expense for short- and long-term debt, including interest on affiliated debt, was $318 million, $352 million and $539 million, for the years ended December 31, 2010, 2009 and 2008, respectively. Interest expense related to affiliated debt was $155 million, $154 million and $177 million for the years ended December 31, 2010, 2009 and 2008, respectively. “Due to parent and affiliates” included $25 million and $24 million associated with the affiliated long-term interest payable at December 31, 2010 and 2009, respectively.

Included in “Policyholders’ account balances” are additional debt obligations of the Company. See Notes 10 and 5 for further discussion.

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15. EQUITY

Comprehensive Income

The components of comprehensive income (loss) for the years ended December 31, are as follows:

	2010			2009			2008
	(in millions)
Net income (loss)	$	2,039		$	2,312		$	(668	)
Other comprehensive income (loss), net of taxes
Change in foreign currency translation adjustments		2			6			(24	)
Change in net unrealized investments gains (losses)(1)		1,361			7,332			(5,888	)
Change in pension and postretirement unrecognized net periodic benefit (cost)		328			(620	)		(707	)
Other comprehensive income (loss), net of tax expense (benefit) of $869, $3,364, ($3,517)		1,691			6,718			(6,619	)
Comprehensive income (loss)		3,730			9,030			(7,287	)
Comprehensive income attributable to noncontrolling interests		(1	)		(1	)		(2	)
Comprehensive income (loss) attributable to Prudential Insurance Company of America.	$	3,729		$	9,029		$	(7,289	)

(1) Includes cash flow hedges. See Note 21 for information on cash flow hedges.

The balance of and changes in each component of “Accumulated other comprehensive income (loss) attributable to Prudential Insurance Company of America” for the years ended December 31, are as follows (net of taxes):

	Accumulated Other Comprehensive Income (Loss) Attributable to  Prudential Insurance Company of America
	Foreign  Currency Translation Adjustments			Net Unrealized Investment  Gains (Losses) (1)			Pension and Postretirement Unrecognized  Net Periodic Benefit (Cost)			Total  Accumulated Other Comprehensive Income (Loss)
	(in millions)
Balance, December 31, 2007	$	123		$	212		$	(161	)	$	174
Change in component during year(2)		(24	)		(6,033	)		(707	)		(6,764	)
Balance, December 31, 2008		99			(5,821	)		(868	)		(6,590	)
Change in component during year		6			7,332			(620	)		6,718
Impact of adoption of guidance for other-than-temporary impairments of debt securities(3)		—			(575	)		—			(575	)
Balance, December 31, 2009		105			936			(1,488	)		(447	)
Change in component during year		2			1,361			328			1,691
Balance, December 31, 2010	$	107		$	2,297		$	(1,160	)	$	1,244

(1) Includes cash flow hedges. See Note 21 for information on cash flow hedges.

(2) Net unrealized investment gains (losses) for 2008 includes the purchase of fixed maturities from an affiliate of $(145) million.

(3) See Note 2 for additional information on the adoption of guidance for other-than-temporary impairments of debt securities.

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Dividend Restrictions

New Jersey insurance law provides that, except in the case of extraordinary dividends (as described below), all dividends or other distributions paid by Prudential Insurance may be paid only from unassigned surplus, as determined pursuant to statutory accounting principles, less unrealized investment gains and losses and revaluation of assets as of the prior calendar year-end. As of December 31, 2010, Prudential Insurance’s unassigned surplus was $4,224 million, and it recorded applicable adjustments for cumulative unrealized investment gains of $1,499 million. Prudential Insurance must give prior notification to the New Jersey Department of Banking and Insurance (the “Department”) of its intent to pay any dividend or distribution. Also, if any dividend, together with other dividends or distributions made within the preceding twelve months, exceeds the greater of (i) 10% of Prudential Insurance’s statutory surplus as of the preceding December 31 ($8,364 million as of December 31, 2010) or (ii) its statutory net gain from operations excluding realized investment gains and losses for the twelve month period ending on the preceding December 31, ($1,127 million for the year ended December 31, 2010), the dividend is considered to be an “extraordinary dividend” and the prior approval of the Department is required for the payment of the dividend. The laws regulating dividends of Prudential Insurance’s other insurance subsidiaries domiciled in other states are similar, but not identical, to New Jersey’s.

Statutory Net Income and Surplus

Prudential Insurance and its U.S. insurance subsidiaries are required to prepare statutory financial statements in accordance with statutory accounting practices prescribed or permitted by the insurance department of the state of domicile. 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 as well as valuing investments and certain assets and accounting for deferred taxes on a different basis. Statutory net income (loss) of Prudential Insurance amounted to $1,623 million, $1,101 million and $(808) million for the years ended December 31, 2010, 2009 and 2008, respectively. Statutory capital and surplus of Prudential Insurance amounted to $8,364 million and $10,042 million at December 31, 2010 and 2009, respectively.

The New York State Insurance Department recognizes only statutory accounting practices for determining and reporting the financial condition and results of operations of an insurance company for determining its solvency under the New York Insurance Law and for determining whether its financial condition warrants the payment of a dividend to its policyholders. No consideration is given by the New York State Insurance Department to financial statements prepared in accordance with GAAP in making such determinations.

16. STOCK-BASED COMPENSATION

In 2010 and prior, Prudential Financial issued stock-based compensation awards to employees of the Company, including stock options, restricted stock units, restricted stock awards, performance shares and performance units, under a plan authorized by Prudential Financial’s Board of Directors.

Prudential Financial recognizes the cost resulting from all share-based payments in the financial statements in accordance with the authoritative guidance on accounting for stock based compensation 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.

The results of operations of the Company for the years ended December 31, 2010, 2009 and 2008, include allocated costs of $13 million, $14 million and $20 million, respectively, associated with employee stock options and $44 million, $37 million, and $27 million, respectively, associated with employee restricted stock shares, restricted stock units, performance shares and performance units issued by Prudential Financial to certain employees of the Company.

17. EMPLOYEE BENEFIT PLANS

Pension and Other Postretirement Plans

The Company has funded and non-funded contributory and non-contributory defined benefit pension plans, which cover substantially all of its employees as well as employees of certain destacked subsidiaries. For some employees, benefits are based

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on final average earnings and length of service, while benefits for other employees are based on an account balance that takes into consideration age, service and earnings during their career.

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

Prepaid benefits costs and accrued benefit liabilities are included in “Other assets” and “Other liabilities,” respectively, in the Company’s Consolidated Statements of Financial Position. The status of these plans as of December 31, 2010 and 2009, is summarized below:

	Pension Benefits						Other Postretirement Benefits
	2010			2009			2010			2009
	(in millions)
Change in benefit obligation
Benefit obligation at the beginning of period	$	(7,957	)		(7,481	)	$	(2,122	)		(1,994	)
Service cost		(130	)		(120	)		(10	)		(10	)
Interest cost		(450	)		(441	)		(113	)		(115	)
Plan participants’ contributions		—			—			(23	)		(21	)
Medicare Part D subsidy receipts		—			—			(20	)		(14	)
Amendments		—			—			—			—
Actuarial gains/(losses), net		(201	)		(392	)		(40	)		(172	)
Settlements		—			—			—			—
Curtailments		4			—			—			—
Special termination benefits		—			(1	)		—			—
Benefits paid		498			494			213			209
Foreign currency changes and other		6			(16	)		(1	)		(5	)
Benefit obligation at end of period	$	(8,230	)	$	(7,957	)	$	(2,116	)	$	(2,122	)
Change in plan assets
Fair value of plan assets at beginning of period	$	9,572		$	9,900		$	1,519		$	1,417
Actual return on plan assets		1,366			90			152			278
Employer contributions		72			60			14			16
Plan participants’ contributions		—			—			23			21
Disbursement for settlements		—			—			—			—
Benefits paid		(498	)		(494	)		(213	)		(209	)
Foreign currency changes and other		(4	)		16			—			(4	)
Fair value of plan assets at end of period	$	10,508		$	9,572		$	1,495		$	1,519
Funded status at end of period	$	2,278		$	1,615		$	(621	)	$	(603	)
Amounts recognized in the Statements of Financial Position
Prepaid benefit cost	$	3,219		$	2,523		$	—		$	—
Accrued benefit liability		(941	)		(908	)		(621	)		(603	)
Net amount recognized	$	2,278		$	1,615		$	(621	)	$	(603	)

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Items recorded in “Accumulated other comprehensive income” not yet recognized as a component of net periodic (benefit) cost:
Transition obligation	$	—		$	—		$	1		$	1
Prior service cost		81			105			(54	)		(65	)
Net actuarial loss		1,221			1,674			617			660
Net amount not recognized	$	1,302		$	1,779		$	564		$	596
Accumulated benefit obligation	$	(7,834	)	$	(7,584	)	$	(2,116	)	$	(2,122	)

In addition to the plan assets above, the Company in 2007 established an irrevocable trust, commonly referred to as a “rabbi trust,” for the purpose of holding assets of the Company to be used to satisfy its obligations with respect to certain non-qualified retirement plans ($841 million and $779 million benefit obligation at December 31, 2010 and 2009, respectively). Assets held in the rabbi trust are available to the general creditors of the Company in the event of insolvency or bankruptcy. The Company may from time to time in its discretion make contributions to the trust to fund accrued benefits payable to participants in one or more of the plans, and, in the case of a change in control of the Company, as defined in the trust agreement, the Company will be required to make contributions to the trust to fund the accrued benefits, vested and unvested, payable on a pretax basis to participants in the plans. The Company made a discretionary payment of $95 million to the trust during both 2010 and 2009. As of December 31, 2010 and 2009, the assets in these trusts had a carrying value of $390 million and $281 million, respectively.

The Company also maintains a separate rabbi trust established at the time of the combination of its retail securities brokerage and clearing operations with those of Wachovia for the purpose of holding assets of the Company to be used to satisfy its obligations with respect to certain non-qualified retirement plans ($74 million and $75 million benefit obligation at December 31, 2010 and 2009, respectively), as well as certain cash-based deferred compensation arrangements. As of December 31, 2010 and 2009, the assets in the trust had a carrying value of $124 million and $124 million, respectively.

Pension benefits for foreign plans comprised 3% and 3% of the ending benefit obligation for 2010 and 2009. Foreign pension plans comprised 2% of the ending fair value of plan assets for 2010 and 2009. There are no material foreign postretirement plans.

Information for pension plans with a projected benefit obligation in excess of plan assets

	2010		2009
	(in millions)
Projected benefit obligation	$	1,128	$	1,065
Fair value of plan assets		187		157

Information for pension plans with an accumulated benefit obligation in excess of plan assets

	2010		2009
	(in millions)
Accumulated benefit obligation	$	1,029	$	969
Fair value of plan assets		187		157

There were no purchases of annuity contracts in 2010 and 2009 from Prudential Insurance. The approximate future annual benefit payment payable by Prudential Insurance for all annuity contracts was $20 million and $20 million as of December 31, 2010 and 2009, respectively.

There were no pension plan amendments in 2010 and 2009. There were no postretirement plan amendments in 2010 and 2009.

B-72

Components of Net Periodic Benefit Cost

Net periodic (benefit) cost included in “General and administrative expenses” in the Company’s Consolidated Statements of Operations for the years ended December 31, includes the following components:

	Pension Benefits									Other Postretirement Benefits
	2010			2009			2008			2010			2009			2008
	(in millions)
Service cost	$	130		$	120		$	116		$	10		$	10		$	10
Interest cost		450			441			445			113			115			124
Expected return on plan assets		(743	)		(729	)		(717	)		(107	)		(107	)		(161	)
Amortization of transition obligation		—			—			—			1			1			1
Amortization of prior service cost		23			26			28			(12	)		(11	)		(11	)
Amortization of actuarial (gain) loss, net		26			20			17			39			42			1
Settlements		—			—			—			—			—			—
Special termination benefits		—			1			2			—			—			—
Net periodic (benefit) cost	$	(114	)	$	(121	)	$	(109	)	$	44		$	50		$	(36	)

Certain employees were provided special termination benefits under non-qualified plans in the form of unreduced early retirement benefits as a result of their involuntary termination.

Changes in Accumulated Other Comprehensive Income

The amounts recorded in “Accumulated other comprehensive income” as of the end of the period, which have not yet been recognized as a component of net periodic (benefit) cost, and the related changes in these items during the period that are recognized in “Other Comprehensive Income” are as follows:

	Pension Benefits								Other Postretirement Benefits
	Transition Obligation		Prior Service Cost			Net Actuarial (Gain)  Loss			Transition Obligation			Prior Service Cost			Net Actuarial (Gain)  Loss
	(in millions)
Balance, December 31, 2008	$	—	$	131		$	661		$	2		$	(76	)	$	700
Amortization for the period		—		(26	)		(20	)		(1	)		11			(42	)
Deferrals for the period		—		—			1,031			—			—			1
Impact of foreign currency changes and other		—		—			2			—			—			1
Balance, December 31, 2009		—		105			1,674			1			(65	)		660
Amortization for the period		—		(23	)		(26	)		(1	)		12			(39	)
Deferrals for the period		—		—			(422	)		—			—			(5	)
Impact of foreign currency changes and other		—		(1	)		(5	)		1			(1	)		1
Balance, December 31, 2010	$	—	$	81		$	1,221		$	1		$	(54	)	$	617

B-73

The amounts included in “Accumulated other comprehensive income” expected to be recognized as components of net periodic (benefit) cost in 2011 are as follows:

	Pension Benefits		Other Postretirement Benefits
	(in millions)
Amortization of transition obligation	$	—	$	1
Amortization of prior service cost		23		(12	)
Amortization of actuarial (gain) loss, net		26		36
Total	$	49	$	25

The Company’s assumptions related to the calculation of the domestic benefit obligation (end of period) and the determination of net periodic (benefit) cost (beginning of period) are presented in the table below. The assumptions for 2008 use September 30, 2007 for beginning of period and December 31, 2008 for end of period. The assumptions for 2009 use December 31, 2008 as the beginning of period and December 31, 2009 for end of period. The assumptions for 2010 use December 31, 2009 as the beginning of period and December 31, 2010 for end of period:

	Pension Benefits									Other Postretirement Benefits
	2010			2009			2008			2010			2009			2008
Weighted-average assumptions
Discount rate (beginning of period)		5.75	%		6.00	%		6.25	%		5.50	%		6.00	%		6.00	%
Discount rate (end of period)		5.60	%		5.75	%		6.00	%		5.35	%		5.50	%		6.00	%
Rate of increase in compensation levels (beginning of period)		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%
Rate of increase in compensation levels (end of period)		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%		4.50	%
Expected return on plan assets (beginning of period)		7.50	%		7.50	%		7.75	%		7.50	%		8.00	%		8.00	%
Health care cost trend rates (beginning of period)											5.00-7.50	%		5.00-8.00	%		5.00-8.75	%
Health care cost trend rates (end of period)											5.00-7.00	%		5.00-7.50	%		5.00-8.00	%
For 2010, 2009 and 2008, the ultimate health care cost trend rate after gradual decrease until: 2015, 2014, 2012 (beginning of period)											5.00	%		5.00	%		5.00	%
For 2010, 2009 and 2008, the ultimate health care cost trend rate after gradual decrease until: 2017, 2015, 2014 (end of period)											5.00	%		5.00	%		5.00	%

The domestic discount rate used to value the pension and postretirement obligations at December 31, 2010 is based upon the value of a portfolio of Aa investments whose cash flows would be available to pay the benefit obligation’s cash flows when due. The portfolio is selected from a compilation of approximately 600 Aa-rated bonds across the full range of maturities. Since yields can vary widely at each maturity point, the Company generally avoids using the highest and lowest yielding bonds at the maturity points, so as to avoid relying on bonds that might be mispriced or misrated. This refinement process generally results in having a distribution from the 10th to 90th percentile. The Aa portfolio is then selected and, accordingly, its value is a measure of the benefit obligation at December 31, 2010. A single equivalent discount rate is calculated to equate the value of the Aa portfolio to the cash flows for the benefit obligation. The result is rounded to the nearest 5 basis points and the benefit obligation is recalculated using the rounded discount rate.

The domestic discount rate used to value the pension and postretirement benefit obligations at December 31, 2009 and 2008 is based upon rates commensurate with current yields on high quality corporate bonds. The first step in determining the discount rate is the compilation of approximately 300 Aa-rated bonds across the full range of maturities. Since yields can vary widely at each maturity point, the Company generally avoids using the highest and lowest yielding bonds at the maturity points, so as to avoid relying on bonds that might be mispriced or misrated. This refinement process generally results in having a distribution from the 10th to 90th percentile. A spot yield curve is developed from this data that is then used to determine the present value of the expected disbursements associated with the pension and postretirement obligations, respectively. This results in the present value for each respective benefit obligation. A single discount rate is calculated that results in the same present value. The rate is then rounded to the nearest 25 basis points and the benefit obligation is recalculated using the rounded discount rate.

B-74

The pension and postretirement expected long-term rates of return on plan assets for 2010 were determined based upon an approach that considered an expectation of the allocation of plan assets during the measurement period of 2010. Expected returns are estimated by asset class as noted in the discussion of investment policies and strategies below. Expected returns on asset classes are developed using a building-block approach that is forward looking and are not strictly based upon historical returns. The building blocks for equity returns include inflation, real return, a term premium, an equity risk premium, capital appreciation, effect of active management, expenses and the effect of rebalancing. The building blocks for fixed maturity returns include inflation, real return, a term premium, credit spread, capital appreciation, effect of active management, expenses and the effect of rebalancing.

The Company applied the same approach to the determination of the expected long-term rate of return on plan assets in 2011. The expected long-term rate of return for 2011 is 7.0% for both the pension and postretirement plans.

The Company, with respect to pension benefits, uses market related value to determine the components of net periodic (benefit) cost. Market related value is a measure of asset value that reflects the difference between actual and expected return on assets over a five-year period.

The assumptions for foreign pension plans are based on local markets. There are no material foreign postretirement plans.

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage point increase and decrease in assumed health care cost trend rates would have the following effects:

	Other Postretirement Benefits
	(in millions)
One percentage point increase
Increase in total service and interest costs	$	6
Increase in postretirement benefit obligation		124
One percentage point decrease
Decrease in total service and interest costs	$	6
Decrease in postretirement benefit obligation		110

Plan Assets

The investment goal of the domestic pension plan assets is to generate an above benchmark return on a diversified portfolio of stocks, bonds and other investments, while meeting the cash requirements for a pension obligation that includes a traditional formula principally representing payments to annuitants and a cash balance formula that allows lump sum payments and annuity payments. The pension plan risk management practices include guidelines for asset concentration, credit rating and liquidity. The pension plan does not invest in leveraged derivatives. Derivatives such as futures contracts are used to reduce transaction costs and change asset concentration, while interest rate swaps are used to adjust duration.

The investment goal of the domestic postretirement plan assets is to generate an above benchmark return on a diversified portfolio of stocks, bonds, and other investments, while meeting the cash requirements for the postretirement obligation that includes a medical benefit including prescription drugs, a dental benefit, and a life benefit. The postretirement plans risk management practices include guidelines for asset concentration, credit rating, liquidity, and tax efficiency. The postretirement plan does not invest in leveraged derivatives. Derivatives such as futures contracts are used to reduce transaction costs and change asset concentration, while interest rate swaps are used to adjust duration.

B-75

The plan fiduciaries for the Company’s pension and postretirement plans have developed guidelines for asset allocations reflecting a percentage of total assets by asset class, which are reviewed on an annual basis. Asset allocation targets as of the December 31, 2010 are as follows:

	Pension						Postretirement
	Minimum			Maximum			Minimum			Maximum
Asset Category
U.S. Equities		2	%		11	%		36	%		47	%
International Equities		2	%		11	%		1	%		7	%
Fixed Maturities		53	%		72	%		0	%		55	%
Short-term Investments		0	%		12	%		0	%		60	%
Real Estate		1	%		14	%		0	%		0	%
Other		3	%		22	%		0	%		0	%

To implement the investment strategy, plan assets are invested in funds that primarily invest in securities that correspond to one of the asset categories under the investment guidelines. However, at any point in time, some of the assets in a fund may be of a different nature than the specified asset category.

Assets held with Prudential Insurance are in either pooled separate accounts or single client separate accounts. Pooled separate accounts hold assets for multiple investors. Each investor owns a “unit of account.” Single client separate accounts hold assets for only one investor, the domestic qualified pension plan and each security in the fund is treated as individually owned. Assets held with a bank are either in common/collective trusts or single client trusts. Common or collective trusts hold assets for more than one investor. Each investor owns a “unit of account.” Single client trusts hold assets for only one investor, the domestic qualified pension plan and each security in the fund is treated as individually owned.

There were no investments in Prudential Financial Common Stock as of December 31, 2010 and December 31, 2009 for either the pension or postretirement plans. Pension plan assets of $6,944 million and $6,393 million are included in the Company’s separate account assets and liabilities as of December 31, 2010 and December 31, 2009, respectively.

The authoritative guidance around fair value established a framework for measuring fair value. Fair value is disclosed using a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value, as described in Note 19.

The following describes the valuation methodologies used for pension and postretirement plans assets measured at fair value.

Insurance Company Pooled Separate Accounts, Common or Collective Trusts, and United Kingdom Insurance Pooled Funds – Insurance company pooled separate accounts are invested via group annuity contracts issued by Prudential Insurance. Assets are represented by a “unit of account.” The redemption value of those units is based on a per unit value whose value is the result of the accumulated values of underlying investments. The underlying investments are valued in accordance with the corresponding valuation method for the investments held.

Equities – See Note 19 for a discussion of the valuation methodologies for equity securities.

U.S. Government Securities (both Federal and State & Other), Non–U.S. Government Securities, and Corporate Debt - See Note 19 for a discussion of the valuation methodologies for fixed maturity securities.

Interest Rate Swaps – See Note 19 for a discussion of the valuation methodologies for derivative instruments.

Guaranteed Investment Contract - The value is based on contract cash flows and available market rates for similar investments.

Registered Investment Companies (Mutual Funds) - Securities are priced at the net asset value (“NAV”) of shares.

Unrealized Gain (Loss) on Investment of Securities Lending Collateral - This value is the contractual position relative to the investment of securities lending collateral.

B-76

Real Estate - The values are determined through an independent appraisal process. The estimate of fair value is based on three approaches; (1) current cost of reproducing the property less deterioration and functional/economic obsolescence; (2) discounting a series of income streams and reversion at a specific yield or by directly capitalizing a single year income estimate by an appropriate factor; and (3) value indicated by recent sales of comparable properties in the market. Each approach requires the exercise of subjective judgment.

Short-term Investments - Securities are valued initially at cost and thereafter adjusted for amortization of any discount or premium (i.e., amortized cost). Amortized Cost approximates fair value.

Partnerships - The value of interests owned in partnerships is based on valuations of the underlying investments that include private placements, structured debt, real estate, equities, fixed maturities, commodities and other investments.

Structured Debt (Gateway Recovery Trust) - The value is based primarily on unobservable inputs including probability weighted cash flows and reinvestment yield assumptions.

Hedge Funds - The value of interests in the hedge funds is based on the underlying investments that include equities, debt and other investments.

Variable Life Insurance Policies – These assets are held in group and individual variable life insurance policies issued by Prudential Insurance. Group policies are invested in Insurance Company Pooled Separate Accounts. Individual policies are invested in Registered Investment Companies (Mutual Funds). The value of interests in these policies is the cash surrender value of the policies based on the underlying investments.

Pension plan asset allocations in accordance with the investment guidelines are as follows:

	As of December 31, 2010
	Level 1		Level 2		Level 3		Total
	(in millions)
U.S. Equities:
Pooled separate accounts (1)	$	—	$	922	$	—	$	922
Common/collective trusts (1)		—		35		—		35
Sub-total								957
International Equities:
Pooled separate accounts (2)		—		24		—		24
Common/collective trusts (3)		—		191		—		191
United Kingdom insurance pooled funds (4)		—		77		—		77
Sub-total								292

B-77

Fixed Maturities:
Pooled separate accounts (5)		—		996			—			996
Common/collective trusts (6)		—		290			—			290
U.S. government securities (federal):
Mortgage backed		—		4			—			4
Other U.S. government securities		—		1,806			—			1,806
U.S. government securities (state & other)		—		533			—			533
Non-U.S. government securities		—		15			—			15
United Kingdom insurance pooled funds (7)		—		104			—			104
Corporate Debt:
Corporate bonds (8)		—		3,043			10			3,053
Asset backed		—		20			—			20
Collateralized Mortgage Obligations (CMO) (9)		—		739			—			739
Interest rate swaps (Notional amount: $412)		—		(23	)		—			(23	)
Guarenteed investment contract		—		1			—			1
Other (10)		101		9			(8	)		102
Unrealized gain (loss) on investment of securities lending collateral (11)		—		(123	)		—			(123	)
Sub-total										7,517
Short-term Investments:
Pooled separate accounts		—		32			—			32
United Kingdom insurance pooled funds		—		5			—			5
Sub-total										37
Real Estate:
Pooled separate accounts (12)		—		—			216			216
Partnerships		—		—			42			42
Sub-total										258
Other:
Structured debt (Gateway Recovery Trust)		—		—			658			658
Partnerships		—		—			219			219
Hedge funds		—		—			570			570
Sub-total										1,447
Total	$	101	$	8,700		$	1,707		$	10,508

B-78

	As of December 31, 2009
	Level 1		Level 2			Level 3		Total
	(in millions)
U.S. Equities:
Pooled separate accounts (1)	$	—	$	782		$	—	$	782
Common/collective trusts (1)		—		128			—		128
Other (10)		33		5			—		38
Sub-total									948
International Equities:
Pooled separate accounts (2)		—		23			—		23
Common/collective trusts (3)		—		156			—		156
Equities		61		—			—		61
Sub-total									240
Fixed Maturities:
Pooled separate accounts (5)		—		867			—		867
Common/collective trusts (6)		—		345			—		345
U.S. government securities (federal):
Mortgage backed		—		70			—		70
Other U.S. government securities		—		2,085			—		2,085
U.S. government securities (state & other)		—		385			—		385
Non-U.S. government securities		—		13			—		13
United Kingdom insurance pooled funds (7)		—		90			—		90
Corporate Debt:
Corporate bonds (8)		—		2,008			1		2,009
Asset backed		—		102			—		102
Collateralized Mortgage Obligations (CMO) (9)		—		881			2		883
Interest rate swaps (Notional amount: $5,686)		—		215			—		215
Guaranteed investment contract		—		1			—		1
Other (10)		61		(1	)		120		180
Unrealized gain (loss) on investment of securities lending collateral (13)		—		(182	)		—		(182	)
Sub-total									7,063
Short-term Investments:
Pooled separate accounts		—		10			—		10
United Kingdom insurance pooled funds		—		6			—		6
Sub-total									16
Real Estate:
Pooled separate accounts (12)		—		—			187		187
Partnerships		—		—			48		48
Other		—		—			—		—
Sub-total									235

B-79

Other:
Structured debt (Gateway Recovery Trust)		—		—		572		572
Partnerships		—		—		280		280
Hedge fund		—		—		218		218
Sub-total								1,070
Total	$	155	$	7,989	$	1,428	$	9,572

(1) These categories invest in U.S. equity funds whose objective is to track or outperform various indexes.

(2) This category invests in large cap international equity fund whose objective is to track an index.

(3) This category invests in international equity funds, primarily large cap, whose objective is to outperform various indexes.

(4) This category invests in an international equity fund whose objective is to track an index.

(5) This category invests in bond funds, primarily highly rated private placement securities.

(6) This category invests in bond funds, primarily highly rated public securities whose objective is to outperform an index.

(7) This category invests in bond funds, primarily highly rated corporate securities.

(8) This category invests in highly rated corporate securities.

(9) This category invests in highly rated Collateralized Mortgage Obligations.

(10) Primarily cash and cash equivalents, short term investments, payables and receivables and open future contract positions (including fixed income collateral).

(11) The contractual net value of the investment of securities lending collateral invested in primarily short-term bond funds is $1,295 million and the liability for securities lending collateral is $1,418 million.

(12) This category invests in commercial real estate and real estate securities funds, whose objective is to outperform an index

(13) The contractual value of investments of securities lending collateral invested in primarily short-term bond funds is $1,231 million and the liability for securities lending collateral is $1,413 million.

Changes in Fair Value of Level 3 Pension Assets

	Year Ended December 31, 2010
	Fixed Maturities - Corporate Debt - Corporate Bonds			Fixed Maturities - Corporate Debt - CMO			Fixed Maturities - Other			Real Estate - Pooled Separate Accounts
	(in millions)
Fair Value, beginning of period	$	1		$	2		$	120		$	187
Actual Return on Assets:
Relating to assets still held at the reporting date		1			—			—			42
Relating to assets sold during the period		—			—			—			(2	)
Purchases, sales and settlements		—			—			(128	)		(11	)
Transfers in and /or out of Level 3		8			(2	)		—			—
Fair Value, end of period	$	10		$	—		$	(8	)	$	216
	Year Ended December 31, 2010
	Real Estate - Partnerships			Other - Structured Debt			Other - Partnerships			Other - Hedge Fund
	(in millions)
Fair Value, beginning of period	$	48		$	572		$	280		$	218
Actual Return on Assets:
Relating to assets still held at the reporting date		4			86			17			44
Relating to assets sold during the period		—			—			—			—
Purchases, sales and settlements		(10	)		—			30			200
Transfers in and /or out of Level 3		—			—			(108	)		108
Fair Value, end of period	$	42		$	658		$	219		$	570

B-80

	Year Ended December 31, 2009
	Fixed Maturities - Corporate Debt - Corporate Bonds			Fixed Maturities - Corporate Debt - CMO		Fixed Maturities - Other			Real Estate - Pooled Separate Accounts
	(in millions)
Fair Value, beginning of period	$	13		$	2	$	161		$	323
Actual Return on Assets:
Relating to assets still held at the reporting date		—			—		—			(125	)
Relating to assets sold during the period		—			—		—			(1	)
Purchases, sales and settlements		(3	)		—		(41	)		(10	)
Transfers in and /or out of Level 3		(9	)		—		—			—
Fair Value, end of period	$	1		$	2	$	120		$	187
	Year Ended December 31, 2009
	Real Estate - Partnerships			Other - Structured Debt		Other - Partnerships			Other - Hedge Fund
				(in millions)
Fair Value, beginning of period	$	64		$	477	$	197		$	176
Actual Return on Assets:
Relating to assets still held at the reporting date		(15	)		95		17			42
Relating to assets sold during the period		—			—		—			—
Purchases, sales and settlements		(1	)		—		66			—
Transfers in and /or out of Level 3		—			—		—			—
Fair Value, end of period	$	48		$	572	$	280		$	218

Postretirement plan asset allocations in accordance with the investment guidelines are as follows:

	As of December 31, 2010
	Level 1		Level 2		Level 3		Total
	(in millions)
U.S. Equities:
Variable Life Insurance Policies (1)		—		449		—		449
Common trusts (2)		—		88		—		88
Equities		102		—		—		102
Sub-total								639
International Equities:
Variable Life Insurance Policies (3)		—		51		—		51
Common trusts (4)		—		17		—		17
Sub-total								68

B-81

Fixed Maturities:
Common trusts (5)		—		23		—		23
U.S. government securities (federal):
Mortgage Backed		—		13		—		13
Other U.S. government securities		—		157		—		157
U.S. government securities (state & other)		—		2		—		2
Non-U.S. government securities		—		3		—		3
Corporate Debt:
Corporate bonds (6)		—		281		2		283
Asset Backed		—		73		—		73
Collateralized Mortgage Obligations (CMO) (7)		—		201		—		201
Interest rate swaps (Notional amount: $322)		—		3		—		3
Other (8)		10		—		4		14
Unrealized gain (loss) on investment of securities lending collateral (9)		—		—		—		—
Sub-total								772
Short-term Investments:
Variable Life Insurance Policies Pooled separate accounts		—		1		—		1
Registered investment companies		15		—		—		15
Sub-total								16
Total	$	127	$	1,362	$	6	$	1,495
	As of December 31, 2009
	Level 1		Level 2		Level 3		Total
	(in millions)
U.S. Equities:
Variable Life Insurance Policies:
Pooled separate accounts (1)	$	—	$	155	$	—	$	155
Registered investment companies		253		—		—		253
Common trusts (2)		—		95		—		95
Equities		97		—		—		97
Sub-total								600
International Equities:
Variable Life Insurance Policies Pooled separate accounts (3)		—		39		—		39
Common trusts (4)		—		19		—		19
Sub-total								58

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Fixed Maturities:
Common trusts (5)		—		29		—		29
U.S. government securities (federal):
Mortgage Backed		—		33		—		33
Other U.S. government securities		—		84		—		84
U.S. government securities (state & other)		—		1		—		1
Non-U.S. government securities		—		3		—		3
Corporate Debt:
Corporate bonds (6)		—		259		1		260
Asset Backed		—		98		—		98
Collateralized Mortgage Obligations (CMO) (7)		—		215		2		217
Interest rate swaps (Notional amount: $322)		—		4		—		4
Other (8)		110		—		12		122
Sub-total								851
Short-term Investments:
Variable Life Insurance Policies Pooled separate accounts		—		1		—		1
Registered investment companies		9		—		—		9
Sub-total								10
Total	$	469	$	1,035	$	15	$	1,519

(1) This category invests in U.S. equity funds, primarily large cap equities whose objective is to track an index via pooled separate accounts and registered investment companies.

(2) This category invests in U.S. equity funds, primarily large cap equities.

(3) This category invests in international equity funds, primarily large cap international equities whose objective is to track an index.

(4) This category fund invests in large cap international equity fund whose objective is to outperform an index.

(5) This category invests in U.S. bonds funds.

(6) This category invests in highly rated corporate bonds.

(7) This category invests in highly rated Collateralized Mortgage Obligations.

(8) Cash and cash equivalents, short term investments, payables and receivables and open future contract positions (including fixed income collateral).

(9) The contractual net value of the investment of securities lending collateral invested in primarily short term bond funds is $30 million and the liability for securities lending collateral is $30 million.

Changes in Fair Value of Level 3 Postretirement Assets

	Year Ended December 31, 2010
	Fixed Maturities -  Corporate Debt - Corporate Bonds		Fixed Maturities -  Corporate Debt - CMO			Fixed Maturities - Other
			(in millions)
Fair Value, beginning of period	$	1	$	2		$	12
Actual Return on Assets:
Relating to assets still held at the reporting date		—		—			—
Relating to assets sold during the period		—		—			—
Purchases, sales and settlements		1		—			(8	)
Transfers in and /or out of Level 3		—		(2	)		—
Fair Value, end of period	$	2	$	—		$	4

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	Year Ended December 31, 2009
	Fixed Maturities - Corporate Debt - Corporate Bonds			Fixed Maturities - Corporate Debt - CMO		Fixed Maturities - Other
	(in millions)
Fair Value, beginning of period	$	3		$	2	$	11
Actual Return on Assets:
Relating to assets still held at the reporting date		—			—		—
Relating to assets sold during the period		—			—		—
Purchases, sales and settlements		(2	)		—		1
Transfers in and /or out of Level 3		—			—		—
Fair Value, end of period	$	1		$	2	$	12

A summary of pension and postretirement plan asset allocation as of the year ended December 31, are as follows:

	Pension Percentage of Plan Assets						Postretirement Percentage of Plan Assets
	2010			2009			2010			2009
Asset Category
U.S. Equities		9	%		10	%		43	%		40	%
International Equities		3			3			5			4
Fixed Maturities		72			74			51			55
Short-term Investments		—			—			1			1
Real Estate		2			2			—			—
Other		14			11			—			—
Total		100	%		100	%		100	%		100	%

The expected benefit payments for the Company’s pension and postretirement plans, as well as the expected Medicare Part D subsidy receipts related to the Company’s postretirement plan, for the years indicated are as follows:

	Pension Benefits		Other Postretirement Benefits		Other Postretirement Benefits - Medicare Part D Subsidy Receipts
	(in millions)
2011	$	524	$	199	$	19
2012		533		198		20
2013		535		198		21
2014		549		196		21
2015		557		193		22
2016-2020		2,921		920		110
Total	$	5,619	$	1,904	$	213

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The Company anticipates that it will make cash contributions in 2011 of approximately $60 million to the pension plans and approximately $10 million to the postretirement plans.

Postemployment Benefits

The Company accrues postemployment benefits for income continuance and health and life benefits provided to former or inactive employees who are not retirees. The net accumulated liability for these benefits at December 31, 2010 and 2009 was $33 million and $38 million, respectively, and is included “Other liabilities.”

Other Employee Benefits

The Company sponsors voluntary savings plans for 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 matching contributions by the Company included in “General and administrative expenses” were $52 million, $53 million and $51 million for the years ended December 31, 2010, 2009 and 2008, respectively.

18. INCOME TAXES

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

	2010			2009			2008
	(in millions)
Current tax expense (benefit)
U.S.	$	(304	)	$	202		$	(309	)
State and local		(3	)		(2	)		5
Foreign		13			9			20
Total		(294	)		209			(284	)
Deferred tax expense (benefit)
U.S.		1,131			(606	)		(61	)
State and local		(3	)		9			3
Foreign		—			(3	)		5
Total		1,128			(600	)		(53	)
Total income tax expense (benefit) on continuing operations before equity in earnings of operating joint ventures	$	834		$	(391	)	$	(337	)
Income tax expense (benefit) on equity in earnings of operating joint ventures		25			807			(109	)
Income tax expense (benefit) on discontinued operations		4			—			(2	)
Income tax expense (benefit) reported in equity related to:
Other comprehensive income (loss)		869			3,054			(3,594	)
Impact on Company’s investment in Wachovia Securities due to addition of A.G. Edwards business		—			(59	)		561
Stock-based compensation programs		1			10			(8	)
Cumulative effect of changes in accounting principles		—			310			10
Total income taxes	$	1,733		$	3,731		$	(3,479	)

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The Company’s actual income tax expense on continuing operations before equity in earnings of operating joint ventures 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 continuing operations before income taxes and equity in earnings of operating joint ventures for the following reasons:

	2010			2009			2008
				(in millions)
Expected federal income tax expense (benefit)	$	987		$	152		$	(277	)
Low income housing and other tax credits		(58	)		(68	)		(79	)
Non-taxable investment income		(157	)		(120	)		(22	)
Expiration of statute of limitations and related interest		—			(272	)		—
Change in tax rate		93			—			—
Other		(31	)		(83	)		41
Total income tax expense (benefit) on continuing operations before equity in earnings of operating joint ventures	$	834		$	(391	)	$	(337	)

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

	2010			2009
	(in millions)
Deferred tax assets
Policyholders’ dividends	$	938		$	142
Net operating and capital loss carryforwards		4			39
Insurance reserves		714			1,164
Other		322			358
Deferred tax assets before valuation allowance		1,978			1,703
Valuation allowance		(10	)		(8	)
Deferred tax assets after valuation allowance		1,968			1,695
Deferred tax liabilities
Net unrealized investment gains		2,284			678
Employee benefits		221			433
Investments		623			88
Deferred policy acquisition costs		1,948			1,603
Deferred tax liabilities		5,076			2,802
Net deferred tax liability	$	(3,108	)	$	(1,107	)

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 expected 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.

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A valuation allowance has been recorded primarily related to tax benefits associated with state and local and foreign deferred tax assets. Adjustments to the valuation allowance are made to reflect changes in management’s assessment of the amount of the deferred tax asset that is realizable. The valuation allowance includes amounts recorded in connection with deferred tax assets at December 31, as follows

	2010		2009
	(in millions)
Valuation allowance related to state and local deferred tax assets	$	—	$	—
Valuation allowance related to foreign operations deferred tax assets	$	10	$	8

The following table sets forth the federal and state operating and capital loss carryforwards for tax purposes, at December 31:

	2010		2009
	(in millions)
Federal net operating and capital loss carryforwards (1)	$	11	$	108
State net operating and capital loss carryforwards (2)	$	5	$	5

(1) Expires between 2014 and 2030.

(2) Expires between 2025 and 2030.

The Company does not provide U.S. income taxes on unremitted foreign earnings of its non-U.S. operations, other than its Taiwan investment management subsidiary. During 2010, 2009, and 2008 the Company made no changes with respect to its repatriation assumptions.

The following table sets forth the undistributed earnings of foreign subsidiaries, where the Company assumes permanent reinvestment, for which U.S. deferred taxes have not been provided, as of the periods indicated. Determining the tax liability that would arise if these earnings were remitted is not practicable.

	At December 31,
	2010		2009		2008
	(in millions)
Undistributed earnings of foreign subsidiaries (assuming permanent reinvestment)	$	205	$	187	$	166

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The Company’s unrecognized tax benefits for the

	Unrecognized tax benefits prior to 2002			Unrecognized tax benefits 2002 and forward			Total unrecognized tax benefits all years
				(in millions)
Amounts as of December 31, 2007	$	386		$	135		$	521
Increases in unrecognized tax benefits taken in prior period		—			98			98
(Decreases) in unrecognized tax benefits taken in prior period		—			(27	)		(27	)
Amounts as of December 31, 2008		386			206			592
Increases in unrecognized tax benefits taken in prior period		—			43			43
(Decreases) in unrecognized tax benefits taken in prior period		(22	)		(21	)		(43	)
Settlements with Parent		(150	)		(247	)		(397	)
(Decreases) in unrecognized tax benefits as a result of lapse of the applicable statute of limitations		(214	)		—			(214	)
Amounts as of December 31, 2009		—			(19	)		(19	)
Increases in unrecognized tax benefits taken in prior period		2			—			2
(Decreases) in unrecognized tax benefits taken in prior period		—			—			—
Amounts as of December 31, 2010	$	2		$	(19	)	$	(17	)
Unrecognized tax benefits that, if recognized, would favorably impact the effective rate as of December 31, 2008	$	386		$	88		$	474
Unrecognized tax benefits that, if recognized, would favorably impact the effective rate as of December 31, 2009	$	—		$	9		$	9
Unrecognized tax benefits that, if recognized, would favorably impact the effective rate as of December 31, 2010	$	2		$	9		$	11

The Company classifies all interest and penalties related to tax uncertainties as income tax expense (benefit). The amounts recognized in the consolidated financial statements for tax-related interest and penalties for the years ended December 31, are as follows:

	2010		2009			2008
			(in millions)
Interest and penalties recognized in the consolidated statements of operations	$	18	$	(138	)	$	52
Interest and penalties recognized in liabilities in the consolidated statements of financial position	$	—	$	(18	)	$	190

On December 22, 2009, in accordance with the terms of the tax sharing agreement with its parent, the Company settled $310 million of its contingent tax liability with Prudential Financial and was relieved of any future obligation related thereto. The liability is primarily related to tax years prior to 2002. The settlement of this liability was recorded as a capital contribution.

The Company’s liability for income taxes includes the liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by the Internal Revenue Service (“IRS”) or other taxing authorities. Audit periods remain open for review until the statute of limitations has passed. Generally, for tax years which produce net operating losses, capital losses or tax credit carry forwards (“tax attributes”), the statute of limitations does not close, to the extent of these tax attributes, until the expiration of the statute of limitations for the tax year in which they are fully utilized. The completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the liability for income taxes. The statute of limitations for the 2002 tax year expired on April 30, 2009. The statute of limitations for the 2003 tax year expired on

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July 31, 2009. The statute of limitations for the 2004 through 2007 tax years will expire in February 2012, unless extended. Tax years 2008 and 2009 are still open for IRS examination. The Company does not anticipate any significant changes within the next 12 months to its total unrecognized tax benefits related to tax years for which the statute of limitations has not expired. See Note 20 for a discussion of the settlement of the Company’s contingent tax liability with Prudential Financial.

As discussed above, the completion of review or the expiration of the statute of limitations for a given audit period could result in an adjustment to the liability for income taxes. As such, 2009 benefited from a reduction to the liability for unrecognized tax benefits and related interest of $272 million, primarily related to tax years prior to 2002 as a result of the expiration of the statute of limitations for the 2002 and 2003 tax years.

The dividends received deduction (“DRD”) reduces the amount of dividend income subject to U.S. tax and is the primary component of the non-taxable investment income shown in the table above, and, as such, is a significant component of the difference between the Company’s effective tax rate and the federal statutory tax rate of 35%. The DRD for the current period was estimated using information from 2009, current year results, and was adjusted to take into account the current year’s equity market performance. The actual current year DRD can vary from the estimate based on factors such as, but not limited to, changes in the amount of dividends received that are eligible for the DRD, changes in the amount of distributions received from mutual fund investments, changes in the account balances of variable life and annuity contracts, and the Company’s taxable income before the DRD.

In August 2007, the IRS released Revenue Ruling 2007-54, which included, among other items, guidance on the methodology to be followed in calculating the DRD related to variable life insurance and annuity contracts. In September 2007, the IRS released Revenue Ruling 2007-61. Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54 and informed taxpayers that the U.S. Treasury Department and the 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. On February 14, 2011, the Obama Administration released the “General Explanations of the Administration’s Revenue Proposals.” Although the Administration has not released proposed statutory language, one proposal would change the method used to determine the amount of the DRD. A change in the DRD, including the possible retroactive or prospective elimination of this deduction through regulation or legislation, could increase actual tax expense and reduce the Company’s consolidated net income. These activities had no impact on the Company’s 2008, 2009 or 2010 results.

In December 2006, the IRS completed all fieldwork with respect to its examination of the consolidated federal income tax returns for tax years 2002 and 2003. The final report was initially submitted to the Joint Committee on Taxation for their review in April 2007. The final report was resubmitted in March 2008 and again in April 2008. The Joint Committee returned the report to the IRS for additional review of an industry issue regarding the methodology for calculating the DRD related to variable life insurance and annuity contracts. The IRS completed its review of the issue and proposed an adjustment with respect to the calculation of the DRD. In order to expedite receipt of an income tax refund related to the 2002 and 2003 tax years, the Company agreed to such adjustment. The report, with the adjustment to the DRD, was submitted to the Joint Committee on Taxation in October 2008. The Company was advised on January 2, 2009 that the Joint Committee completed its consideration of the report and took no exception to the conclusions reached by the IRS. Accordingly, the final report was processed and a $157 million refund was received in February 2009. The Company believed that its return position with respect to the calculation of the DRD was technically correct. Therefore, the Company filed protective refund claims on October 1, 2009 to recover the taxes associated with the agreed upon adjustment. The IRS recently issued an Industry Director Directive (“IDD”) stating that the methodology for calculating the DRD set forth in Revenue Ruling 2007-54 should not be followed. The IDD also confirmed that the IRS guidance issued before Revenue Ruling 2007-54, which guidance the Company relied upon in calculating its DRD, should be used to determine the DRD. The Company is working with its IRS audit team to bring the DRD issue to a close in accordance with the IDD. These activities had no impact on the Company’s 2008, 2009 or 2010 results.

In January 2007, the IRS began an examination of tax years 2004 through 2006. For tax years 2007 through 2010, the Company is participating in the IRS’s Compliance Assurance Program (“CAP”). Under CAP, the IRS assigns an examination team to review completed transactions contemporaneously during these tax years in order to reach agreement with the Company on how they should be reported in the tax returns. If disagreements arise, accelerated resolutions programs are available to resolve the disagreements in a timely manner before the tax returns are filed. It is management’s expectation this program will shorten the time period between the filing of the Company’s federal income tax returns and the IRS’s completion of its examination of the returns.

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On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act, which was modified by the Health Care and Education Reconciliation Act of 2010 signed into law on March 30, 2010, (together, the “Healthcare Act”). The federal government provides a subsidy to companies that provide certain retiree prescription drug benefits (the “Medicare Part D subsidy”), including the Company. The Medicare Part D subsidy was previously provided tax-free. However, as currently adopted, the Healthcare Act includes a provision that would reduce the tax deductibility of retiree health care costs to the extent of any Medicare Part D subsidy received. In effect, this provision of the Healthcare Act makes the Medicare Part D subsidy taxable beginning in 2013. Therefore, the Company incurred a charge in 2010 for the reduction of deferred tax assets of $94 million, which reduces net income and is reflected in “Income tax expense (benefit).”

19. 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. The authoritative guidance around fair value established 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 into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows:

Level 1 – Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available. Active markets are defined as having the following characteristics 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. The Company’s 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.

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. The Company’s Level 2 assets and liabilities include: fixed maturities (corporate public and private bonds, most government securities, certain asset- backed and mortgage-backed securities, etc.), certain equity securities (mutual funds, which do not actively trade and are priced based on a net asset value), 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 services are validated through comparison to trade data and internal estimates of current fair value, generally developed using market observable inputs and economic indicators.

Level 3 – Fair value is based on at least one or more significant unobservable inputs for the asset or liability. These inputs reflect the Company’s assumptions about the inputs market participants would use in pricing the asset or liability. The Company’s Level 3 assets and liabilities primarily include: certain private fixed maturities and equity securities, certain manually priced public equity securities and fixed maturities, certain highly structured over-the-counter derivative contracts, and embedded derivatives resulting from certain products with guaranteed benefits. Prices are determined using valuation methodologies such as option pricing models, discounted cash flow models and other similar techniques. Non-binding broker quotes, which are utilized when pricing service information is not available, are reviewed for reasonableness based on the Company’s understanding of the market, and are generally considered Level 3. Under certain conditions, based on its observations of transactions in active markets, the Company may conclude the prices received from independent third party pricing services or brokers are not reasonable or reflective of market activity. In those instances, the Company may choose to over-ride the third-party pricing information or quotes received and apply internally developed values to the related assets or liabilities. To the extent the internally developed valuations use significant unobservable inputs, they are classified as Level 3. As of December 31, 2010 and 2009, these over-rides on a net basis were not material.

Inactive Markets – During 2009 and continuing through the first quarter of 2010, the Company observed that the volume and level of activity in the market for asset-backed securities collateralized by sub-prime mortgages remained at historically low levels. This stood in particular contrast to the markets for other structured products with similar cash flow and credit profiles. The

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Company also observed significant implied relative liquidity risk premiums, yields, and weighting of “worst case” cash flows for asset-backed securities collateralized by sub-prime mortgages in comparison with its own estimates for such securities. In contrast, the liquidity of other spread-based asset classes, such as corporate bonds, high yield and consumer asset-backed securities, such as those collateralized by credit cards or autos, which were previously more correlated with sub-prime securities, improved beginning in the second quarter of 2009. Based on this information, the Company concluded as of June 30, 2009, and continuing through March 31, 2010, that the market for asset-backed securities collateralized by sub-prime mortgages was inactive and also determined the pricing quotes it received were based on limited market transactions, calling into question their representation of observable fair value. As a result, the Company considered both third-party pricing information and an internally developed price based on a discounted cash flow model in determining the fair value of certain of these securities as of June 30, 2009 through March 31, 2010. Based on the unobservable inputs used in the discounted cash flow model and the limited observable market activity, the Company classified these securities within Level 3 as of June 30, 2009 through March 31, 2010.

Beginning in the second quarter of 2010, the Company observed an increasingly active market, as evidence of orderly transactions in asset-backed securities collateralized by sub-prime mortgages became more apparent. Additionally, the valuation based on the pricing the Company received from independent pricing services was not materially different from its internal estimates of current market value for these securities. As a result, where third party pricing information based on observable inputs was used to fair value the security, and based on the assessment that the market has been becoming increasingly active, the Company reported fair values for these asset-backed securities collateralized by sub-prime mortgages in Level 2 since June 30, 2010. As of December 31, 2010, the fair value of these securities included in Level 2 were $4,505 million included in Fixed Maturities Available for Sale – Asset-Backed Securities and $208 million included in Trading Account Assets Supporting Insurance Liabilities – Asset-Backed Securities.

Assets and Liabilities by Hierarchy Level – The tables below present the balances of assets and liabilities measured at fair value on a recurring basis, as of the dates indicated.

	As of December 31, 2010
	Level 1		Level 2		Level 3		Netting (2)		Total
	(in millions)
Fixed maturities, available for sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	9,842	$	—	$	—	$	9,842
Obligations of U.S. states and their political subdivisions		—		1,777		—		—		1,777
Foreign government bonds		—		2,161		27		—		2,188
Corporate securities		5		73,507		991		—		74,503
Asset-backed securities		—		8,467		1,507		—		9,974
Commercial mortgage-backed securities		—		11,113		—		—		11,113
Residential mortgage-backed securities		—		7,138		23		—		7,161
Subtotal		5		114,005		2,548		—		116,558
Trading account assets supporting insurance liabilities:
U.S. Treasury securities and obligations of U.S. government authorities and agencies		—		178		—		—		178
Obligations of U.S. states and their political subdivisions		—		182		—		—		182
Foreign government bonds		—		101		—		—		101
Corporate securities		—		9,924		82		—		10,006
Asset-backed securities		—		804		226		—		1,030
Commercial mortgage-backed securities		—		2,402		5		—		2,407
Residential mortgage-backed securities		—		1,345		18		—		1,363
Equity securities		2		67		4		—		73
All other activity		606		91		—		—		697
Subtotal		608		15,094		335		—		16,037

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Other trading account assets:
U.S. Treasury securities and obligations of U.S. government authorities and agencies		—		84		—			—			84
Obligations of U.S. states and their political subdivisions		118		—		—			—			118
Corporate securities		—		164		—			—			164
Asset-backed securities		—		164		11			—			175
Commercial mortgage-backed securities		—		52		—			—			52
Equity Securities		222		—		4			—			226
All other activity		17		10,116		129			(5,904	)		4,358
Subtotal		357		10,580		144			(5,904	)		5,177
Equity securities, available for sale		3,440		1,923		69			—			5,432
Commercial mortgage and other loans		—		—		(6	)		—			(6	)
Other long-term investments		3		10		251			—			264
Short-term investments		2,586		505		—			—			3,091
Cash equivalents		478		1,667		—			—			2,145
Other assets		2,781		—		—			—			2,781
Due from parent and affiliates		—		528		1,919			—			2,447
Subtotal excluding separate account assets		10,258		144,312		5,260			(5,904	)		153,926
Separate account assets (1)		41,092		102,341		15,771			—			159,204
Total assets	$	51,350	$	246,653	$	21,031		$	(5,904	)	$	313,130
Future policy benefits		—		—		(348	)		—			(348	)
Other liabilities		3		6,582		3			(5,712	)		876
Due to parent and affiliates		—		2,882		126			—			3,008
Total liabilities	$	3	$	9,464	$	(219	)	$	(5,712	)	$	3,536
	As of December 31, 2009 (3)
	Level 1		Level 2		Level 3			Netting (2)			Total
	(in millions)
Fixed maturities, available for sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	—	$	6,718	$	—		$	—		$	6,718
Obligations of U.S. states and their political subdivisions		—		1,284		—			—			1,284
Foreign government bonds		—		2,122		42			—			2,164
Corporate securities		5		67,387		752			—			68,144
Asset-backed securities		—		3,058		6,085			—			9,143
Commercial mortgage-backed securities		—		9,953		—			—			9,953
Residential mortgage-backed securities		—		8,719		83			—			8,802
Subtotal		5		99,241		6,962			—			106,208
Trading account assets supporting insurance liabilities:
U.S. Treasury securities and obligations of U.S. government authorities and agencies		—		56		—			—			56
Obligations of U.S. states and their political subdivisions		—		31		—			—			31
Foreign government bonds		—		106		—			—			106
Corporate securities		—		9,335		83			—			9,418
Asset-backed securities		—		576		281			—			857
Commercial mortgage-backed securities		—		1,888		5			—			1,893
Residential mortgage-backed securities		—		1,412		20			—			1,432
Equity securities		—		118		3			—			121

B-92

All other activity		343		382		—			—			725
Subtotal		343		13,904		392			—			14,639
Other trading account assets:
U.S. Treasury securities and obligations of U.S. government authorities and agencies		1		70		—			—			71
Corporate securities		—		169		—			—			169
Asset-backed securities		—		141		42			—			183
Commercial mortgage-backed securities		—		52		—			—			52
Equity Securities		213		—		2			—			215
All other activity		13		6,427		290			(4,555	)		2,175
Subtotal		227		6,859		334			(4,555	)		2,865
Equity securities, available for sale		2,909		1,823		124			—			4,856
Commercial mortgage and other loans		—		—		(10	)		—			(10	)
Other long-term investments		1		21		—			—			22
Short-term investments		3,181		1,464		—			—			4,645
Cash equivalents		4,394		1,983		—			—			6,377
Other assets		2,555		7		—			—			2,562
Due from parent and affiliates		—		450		3,372			—			3,822
Subtotal excluding separate account assets		13,615		125,752		11,174			(4,555	)		145,986
Separate account assets (1)		32,653		86,776		13,047			—			132,476
Total assets	$	46,268	$	212,528	$	24,221		$	(4,555	)	$	278,462
Future policy benefits		—		—		58			—			58
Other liabilities		—		4,996		10			(4,154	)		852
Due to parent and affiliates		—		1,122		288			—			1,410
Total liabilities	$	—	$	6,118	$	356		$	(4,154	)	$	2,320

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

(2) “Netting” amounts represent cash collateral and the impact of offsetting unaffiliated asset and liability positions held with the same counterparty. External derivative transactions are classified as receivables or payables within the table on an individual trade basis. Affiliated derivative transactions within each fair value hierarchy level are classified net as receivables or payables based on their net counterparty exposure.

(3) Includes reclassifications to conform to current period presentation.

The methods and assumptions the Company uses to estimate fair value of assets and liabilities measured at fair value on a recurring basis are summarized below. Information regarding Separate Account Assets is excluded as the risk of assets for these categories is primarily borne by our customers and policyholders.

Fixed Maturity Securities – The fair values of the Company’s public fixed maturity securities are generally based on prices obtained from independent pricing services. 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 uses the price from the pricing service highest in the vendor hierarchy based on the respective asset type. 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. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2, as they are primarily based on observable pricing for similar assets and/or other market observable inputs. If the pricing information received from third party pricing services is not reflective of market activity or other inputs observable in the market, the Company may challenge the price through a formal process with the pricing service. If the pricing service updates the price to be more consistent in comparison to the presented market observations, the security remains within Level 2.

B-93

If the Company ultimately concludes that pricing information received from the independent pricing service is not reflective of market activity, non-binding broker quotes are used, if available. If the Company concludes the values from both pricing services and brokers are not reflective of market activity, it may over-ride the information from the pricing service or broker with an internally developed valuation. As of December 31, 2010 and 2009, over-rides on a net basis were not material. Internally developed valuations or non-binding broker quotes are also used to determine fair value in circumstances where vendor pricing is not available. These estimates may use significant unobservable inputs, which reflect our own assumptions about the inputs market participants would use in pricing the asset. Circumstances where observable market data are not available may include events such as market illiquidity and credit events related to the security. Pricing service over-rides, internally developed valuations and non-binding broker quotes are generally included in Level 3 in our fair value hierarchy.

The fair value of private fixed maturities, which are primarily comprised of investments in private placement securities, originated by internal private asset managers, are primarily determined using a discounted cash flow model. In certain cases these models primarily use observable inputs with a discount rate based upon the average of spread surveys collected from private market intermediaries who are active in both primary and secondary transactions, taking into account, among other factors, the credit quality and industry sector of the issuer and the reduced liquidity associated with private placements. Generally, these securities have been reflected within Level 2. For certain private fixed maturities, 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. To the extent management determines that such unobservable inputs are not significant to the price of a security, a Level 2 classification is made. Otherwise, a Level 3 classification is used.

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”). Since the NAV at which the funds trade can be observed by redemption and subscription transactions between third parties, the fair values of these investments have been reflected within Level 2 in the fair value hierarchy.

Trading Account Assets – Trading account assets (including trading account assets supporting insurance liabilities) consist primarily of public corporate bonds, treasuries, equity securities and derivatives whose fair values are determined consistent with similar instruments described above under “Fixed Maturity Securities” and below under “Equity Securities” and “Derivative Instruments.”

Equity Securities – Equity securities consist principally of investments in common and preferred stock of publicly traded companies, privately traded securities, as well as common stock mutual fund shares. The fair values of most publicly traded equity securities are based on quoted market prices in active markets for identical assets and are classified within Level 1 in the fair value hierarchy. Estimated fair values for most privately traded equity securities are determined using valuation and discounted cash flow models that require a substantial level of judgment. In determining the fair value of certain privately traded equity securities the discounted cash flow model may also use unobservable inputs, which reflect the Company’s assumptions about the inputs market participants would use in pricing the asset. Most privately traded equity securities are classified within Level 3. The fair values of common stock mutual fund shares that transact regularly (but do not trade in active markets because they are not publicly available) are based on transaction prices of identical fund shares and are classified within Level 2 in the fair value hierarchy. The fair values of preferred equity securities are based on prices obtained from independent pricing services and, in order to validate reasonability, are compared with directly observed recent market trades. Accordingly, these securities are generally classified within Level 2 in the fair value hierarchy.

Other Long-Term Investments – Other long-term investments, other than derivatives, consist of fund investments where the fair value option has been elected. The fair value of these fund investments is primarily determined by the fund managers. Since the valuations may be based on unobservable market inputs and cannot be validated by the Company, these investments have been included within Level 3 in the fair value hierarchy.

Derivative Instruments – Derivatives are recorded at fair value either as assets, with “Other trading account assets,” or “Other long-term investments,” or as liabilities, with “Other liabilities,” except for embedded derivatives which are recorded with the associated host contract. The fair values of derivative contracts are determined based on quoted prices in active exchanges or through the use of valuation models. The fair values of derivative contracts can be affected by changes in interest rates, foreign exchange rates, commodity prices, credit spreads, market volatility, expected returns, non-performance risk and liquidity as well as other factors. Liquidity valuation adjustments are made to reflect the cost of exiting significant risk positions, and consider the bid-ask spread, maturity, complexity, and other specific attributes of the underlying derivative position. Fair values can also be affected by changes in estimates and assumptions including those related to counterparty behavior used in valuation models.

B-94

The Company’s exchange-traded futures and options include treasury futures, eurodollar futures, commodity futures, eurodollar options and commodity options. Exchange-traded futures and options are valued using quoted prices in active markets and are classified within Level 1 in our fair value hierarchy.

The majority of the Company’s derivative positions are traded in the over-the-counter (OTC) derivative market and are 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, third-party pricing vendors and/or recent trading activity. The fair values of most OTC derivatives, including interest rate and cross currency swaps, currency forward contracts, commodity swaps, commodity forward contracts, single name credit default swaps, loan commitments held for sale and to-be-announced (or TBA) forward contracts on highly rated mortgage-backed securities issued by U.S. government sponsored entities are determined using discounted cash flow models. The fair values of European style option contracts are determined using Black-Scholes option pricing 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, equity prices, index dividend yields, non-performance risk and volatility, and are classified as Level 2.

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. The vast majority of the Company’s derivative agreements are with highly rated major international financial institutions. To reflect the market’s perception of its own and the counterparty’s non-performance risk, the Company incorporates additional spreads over London Interbank Offered Rate (“LIBOR”) into the discount rate used in determining the fair value of OTC derivative assets and liabilities. However, the non-performance risk adjustment is applied only to the uncollateralized portion of the OTC derivative assets and liabilities, after consideration of the impacts of two-way collateral posting. Most OTC derivative contract inputs have bid and ask prices that are actively quoted or can be readily obtained from external market data providers. The Company’s policy is to use mid-market pricing in determining its best estimate of fair value and classify these derivative contracts as Level 2.

Derivatives classified as Level 3 include first-to-default credit basket swaps, look-back equity options and other structured products. These derivatives are valued based upon models with some significant unobservable market inputs or inputs from less actively traded markets. 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. Look-back equity options and other structured options and derivatives are valued using simulation models such as the Monte Carlo technique. The input values for look-back equity options are derived from observable market indices such as interest rates, dividend yields, equity indices as well as unobservable model-specific input values such as certain volatility parameters. Level 3 methodologies are validated through periodic comparison of the Company’s fair values to broker-dealer values.

Cash Equivalents and Short-Term Investments – Cash equivalents and short-term investments include money market instruments, commercial paper and other highly liquid debt instruments. Money market instruments are generally valued using unadjusted quoted prices in active markets that are accessible for identical assets and are primarily classified as Level 1. The remaining instruments in the Cash Equivalents and Short-term Investments category are typically not traded in active markets; however, their fair values are based on market observable inputs and, accordingly, these investments have been classified within Level 2 in the fair value hierarchy.

Other Assets and Other Liabilities – Other assets carried at fair value include U.S. Treasury bills held within our global commodities group whose fair values are based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. As a result, they are reported in the Level 1 hierarchy. Included in other liabilities are various derivatives contracts executed within our global commodities group, including exchange-traded futures, foreign currency and commodity contracts. The fair values of these derivative instruments are determined consistent with similar derivative instruments described above under “Derivative Instruments.”

Due to\from parent and affiliates – Due to\from parent and affiliates consist primarily of notes receivable, derivative activity and receivables associated with the reinsurance of guarantees on variable annuity contracts whose fair values are determined consistent with similar instruments described above under “Fixed Maturity Securities” and “Derivative Instruments” and “Future Policy Benefits” below.

B-95

Future Policy Benefits – The liability for future policy benefits includes general account liabilities for guarantees on variable annuity contracts, including guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum income and withdrawal benefits (“GMlWB”), accounted for as embedded derivatives. 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. This methodology could result in either a liability or contra-liability balance, given changing capital market conditions and various policyholder behavior assumptions. 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 are based on a risk neutral valuation framework and incorporate premiums for risks inherent in valuation techniques, inputs, and the general uncertainty around the timing and amount of future cash flows. The determination of these risk premiums requires the use of management judgment.

The Company is also required to incorporate the market-perceived risk of its own non-performance in the valuation of the embedded derivatives associated with its optional living benefit features. Since insurance liabilities are senior to debt, the Company believes that reflecting the financial strength ratings of the Company’s insurance subsidiaries in the valuation of the liability appropriately takes into consideration the Company’s own risk of non-performance. To reflect the market’s perception of its non-performance risk, the Company incorporates an additional spread over LIBOR into the discount rate used in the valuations of the embedded derivatives associated with its optional living benefit features. The additional spread over LIBOR is determined taking into consideration publicly available information relating to the financial strength of the Company’s insurance subsidiaries, as indicated by the credit spreads associated with funding agreements issued by these subsidiaries. The Company adjusts these credit spreads to remove any liquidity risk premium. The additional spread over LIBOR incorporated into the discount rate as of December 31, 2010 generally ranged from 50 to 150 basis points for the portion of the interest rate curve most relevant to these liabilities. This additional spread is applied at an individual contract level and only to those embedded derivatives in a liability position and not to those in a contra-liability position.

Other significant inputs to the valuation models for the embedded derivatives associated with the optional living benefit features of the Company’s variable annuity products 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. Since many of the assumptions utilized in the valuation of the embedded derivatives associated with the Company’s optional living benefit features are unobservable and are considered to be significant inputs to the liability valuation, the liability included in future policy benefits has been reflected within Level 3 in the fair value hierarchy.

Transfers between Levels 1 and 2 – Periodically there are transfers between Level 1 and Level 2 for foreign common stocks held in the Company’s Separate Account. In certain periods, an adjustment may be made to the fair value of these assets beyond the quoted market price to reflect events that occurred between the close of foreign trading markets and the close of U.S. trading markets for that day. If an adjustment is made in the reporting period, these Separate Account assets are classified as Level 2. When an adjustment is not made, they are classified as Level 1. This type of adjustment was made at December 31, 2009, but not at December 31, 2010. As a result, for the year ended December 31, 2010, $3.4 billion of transfers from Level 2 to Level 1 occurred for these Separate Account assets on a net basis.

B-96

The following tables provide a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2010, as well as the portion of gains or losses included in income for the year ended December 31, 2010 attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2010.

	Year Ended December 31, 2010
	Fixed Maturities Available For Sale -  Foreign Government Bonds			Fixed Maturities Available For Sale - Corporate Securities			Fixed Maturities Available For Sale - Asset- Backed Securities			Fixed Maturities Available For Sale - Commercial Mortgage- Backed Securities			Fixed Maturities Available For Sale - Residential Mortgage- Backed Securities
							(in millions)
Fair Value, beginning of period	$	42		$	752		$	6,085		$	—		$	83
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		—			(28	)		(47	)		—			—
Other income		—			—			—			—			—
Included in other comprehensive income (loss)		—			94			109			1			—
Net investment income		—			8			(19	)		—			1
Purchases, sales, issuances and settlements		—			(183	)		339			19			(6	)
Other(1)		—			10			—			48			(48	)
Transfers into Level 3(2)		—			455			129			8			2
Transfers out of Level 3(2)		(15	)		(117	)		(5,089	)		(76	)		(9	)
Fair Value, end of period	$	27		$	991		$	1,507		$	—		$	23
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period(3):
Included in earnings:
Realized investment gains (losses), net	$	—		$	(30	)	$	(66	)	$	—		$	—
Other income	$	—		$	—		$	—		$	—		$	—
Included in other comprehensive income (loss)	$	—		$	101		$	98		$	1		$	—

B-97

	Year Ended December 31, 2010
	Trading Account  Asset Supporting Insurance Liabilities- Corporate Securities			Trading Account  Asset Supporting Insurance Liabilities- Asset- Backed Securities			Trading Account  Asset Supporting Insurance Liabilities- Commercial Mortgage- Backed Securities			Trading Account  Asset Supporting Insurance Liabilities- Residential Mortgage- Backed Securities			Trading Account  Asset Supporting Insurance Liabilities- Equity Securities
							(in millions)
Fair Value, beginning of period	$	83		$	281		$	5		$	20		$	3
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		—			—			—			—			—
Other income		(1	)		1			3			1			2
Included in other comprehensive income (loss)		—			—			—			—			—
Net investment income		1			1			—			—			—
Purchases, sales, issuances and settlements		(36	)		185			(2	)		(3	)		(1	)
Other(1)		—			—			—			—			—
Transfers into Level 3(2)		72			9			31			—			—
Transfers out of Level 3(2)		(37	)		(251	)		(32	)		—			—
Fair Value, end of period	$	82		$	226		$	5		$	18		$	4
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period(3):
Included in earnings:
Realized investment gains (losses), net	$	—		$	—		$	—		$	—		$	—
Other income	$	(3	)	$	1		$	5		$	1		$	2
Included in other comprehensive income (loss)	$	—		$	—		$	—		$	—		$	—

	Year Ended December 31, 2010
	Other Trading Account  Assets- Asset- Backed Securities			Other Trading Account  Assets- Equity Securities		Other Trading Account  Assets- All Other Activity			Equity Securities, Available for Sale
				(in millions)
Fair Value, beginning of period	$	42		$	2	$	290		$	124
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		—			—		(66	)		51
Other income		3			2		3			—
Included in other comprehensive income (loss)		—			—		—			(39	)
Net investment income		—			—		—			—
Purchases, sales, issuances and settlements		(49	)		—		(98	)		(69	)
Other(1)		—			—		—			—
Transfers into Level 3(2)		15			—		—			3
Transfers out of Level 3(2)		—			—		—			(1	)
Fair Value, end of period	$	11		$	4	$	129		$	69

B-98

Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period(3):
Included in earnings:
Realized investment gains (losses), net	$	—		$	—		$	(65	)	$	(2	)
Other income	$	2		$	1		$	3		$	—
Included in other comprehensive income (loss)	$	—		$	—		$	—		$	5
	Year Ended December 31, 2010
	Commercial Mortgage  and Other Loans			Other Long- term Investments			Due from parent  and affiliates			Separate Account Assets(4)
				(in millions)
Fair Value, beginning of period	$	(10	)	$	—		$	3,372		$	13,047
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		4			(9	)		(477	)		—
Other income		—			18			—			—
Interest credited to policyholders’ account balances		—			—			—			2,125
Included in other comprehensive income (loss)		—			—			37			—
Net investment income		—			—			45			—
Purchases, sales, issuances and settlements		—			242			(1,468	)		839
Foreign currency translation		—			—			—			—
Other(1)		—			—			—			—
Transfers into Level 3(2)		—			—			410			171
Transfers out of Level 3(2)		—			—			—			(411	)
Fair Value, end of period	$	(6	)	$	251		$	1,919		$	15,771
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period(3):
Included in earnings:
Realized investment gains (losses), net	$	4		$	(9	)	$	(476	)	$	—
Other income	$	—		$	18		$	—		$	—
Interest credited to policyholders’ account balances	$	—		$	—		$	—		$	1,077
Included in other comprehensive income (loss)	$	—		$	—		$	48		$	—

B-99

	Year Ended December 31, 2010
	Future  Policy Benefits			Other Liabilities			Due to parent and affiliates
				(in millions)
Fair Value, beginning of period	$	(58	)	$	(10	)	$	(288	)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		520			4			68
Other income		—			—			(3	)
Included in other comprehensive income (loss)		—			—			—
Net investment income		—			—			—
Purchases, sales, issuances and settlements		(114	)		3			97
Other(1)		—			—			—
Transfers into Level 3(2)		—			—			—
Transfers out of Level 3(2)		—			—			—
Fair Value, end of period	$	348		$	(3	)	$	(126	)
Unrealized gains (losses) for the period relating to those Level 3 assets and liabilities that were still held at the end of the period(3):
Included in earnings:
Realized investment gains (losses), net	$	474		$	4		$	68
Other income	$	—		$	—		$	(3	)
Included in other comprehensive income (loss)	$	—		$	—		$	—

(1) Other represents reclassifications of certain assets between reporting categories.

(2) 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.

(3) 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.

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

Transfers – Transfers out of Level 3 for Fixed Maturities Available for Sale – Asset-Backed Securities and Trading Account Assets Supporting Insurance Liabilities – Asset-Backed Securities include $4,880 million and $222 million, respectively, for the year ended December 31, 2010 resulting from the Company’s conclusion that the market for asset-backed securities collateralized by sub-prime mortgages has been becoming increasingly active, as evidenced by orderly transactions. The pricing received from independent pricing services could be validated by the Company, as discussed in detail above. Other transfers out of Level 3 were typically due to 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. Transfers into Level 3 were primarily the result of unobservable inputs utilized within valuation methodologies and the use of broker quotes (that could not be validated) when previously, information from third party pricing services (that could be validated) was utilized.

B-100

The following tables provide a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2009, as well as the portion of gains or losses included in income for the year ended December 31, 2009 attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2009.

	Year Ended December 31, 2009
	Fixed Maturities Available For Sale -  Foreign Government Bonds			Fixed Maturities Available For Sale - Corporate Securities			Fixed Maturities Available For Sale - Asset- Backed Securities			Fixed Maturities Available For Sale - Residential Mortgage- Backed Securities			Trading Account  Asset Supporting Insurance Liabilities- Foreign Government Bonds
				(in millions)
Fair Value, beginning of period	$	27		$	833		$	855		$	208		$	—
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		—			(96	)		(661	)		—			—
Other income		—			—			—			—			—
Included in other comprehensive income (loss)		5			112			2,257			(1	)		—
Net investment income		—			11			57			1			—
Purchases, sales, issuances and settlements		123			(579	)		(1,582	)		18			12
Other(1)		—			—			—			—			—
Transfers into Level 3(2)		10			872			5,228			—			—
Transfers out of Level 3(2)		(123	)		(401	)		(69	)		(143	)		(12	)
Fair Value, end of period	$	42		$	752		$	6,085		$	83		$	—
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period(3):
Included in earnings:
Realized investment gains (losses), net	$	—		$	(100	)	$	(658	)	$	—		$	—
Other income	$	—		$	—		$	—		$	—		$	—
Included in other comprehensive income (loss)	$	5		$	103		$	2,202		$	(1	)	$	—

B-101

	Year Ended December 31, 2009
	Trading Account  Asset Supporting Insurance Liabilities- Corporate Securities			Trading Account Asset Supporting Insurance Liabilities- Asset- Backed Securities			Trading Account  Asset Supporting Insurance Liabilities- Commercial Mortgage- Backed Securities			Trading Account  Asset Supporting Insurance Liabilities- Residential Mortgage- Backed Securities			Trading Account  Asset Supporting Insurance Liabilities- Equity Securities
				(in millions)
Fair Value, beginning of period	$	75		$	35		$	6		$	28		$	1
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		—			—			—			—			—
Other income		20			59			(1	)		3			2
Included in other comprehensive income (loss)		—			—			—			—			—
Net investment income		2			—			—			—			—
Purchases, sales, issuances and settlements		(72	)		(66	)		—			(4	)		—
Other(1)		—			—			—			—			—
Transfers into Level 3(2)		229			266			—			—			—
Transfers out of Level 3(2)		(171	)		(13	)		—			(7	)		—
Fair Value, end of period	$	83		$	281		$	5		$	20		$	3
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period(3):
Included in earnings:
Realized investment gains (losses), net	$	—		$	—		$	—		$	—		$	—
Other income	$	16		$	47		$	(1	)	$	3		$	2
Included in other comprehensive income (loss)	$	—		$	—		$	—		$	—		$	—

	Year Ended December 31, 2009
	Other Trading Account Assets- Corporate Securities			Other Trading Account Assets- Asset- Backed Securities		Other Trading Account Assets- Equity Securities			Other Trading Account Assets- All Other Activity			Equity Securities, Available for Sale
				(in millions)
Fair Value, beginning of period	$	38		$	—	$	7		$	1,306		$	73
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		—			—		—			(320	)		(10	)
Other income		—			3		3			24			—
Included in other comprehensive income (loss)		—			—		—			—			51
Net investment income		—			—		—			—			—
Purchases, sales, issuances and settlements		(2	)		3		(7	)		(720	)		13
Other(1)		(36	)		36		—			—			—
Transfers into Level 3(2)		—			—		—			—			12
Transfers out of Level 3(2)		—			—		(1	)		—			(15	)
Fair Value, end of period	$	—		$	42	$	2		$	290		$	124

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Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period(3):
Included in earnings:
Realized investment gains (losses), net	$	—	$	—	$	—	$	(320	)	$	(21	)
Other income	$	2	$	1	$	3	$	—		$	—
Included in other comprehensive income (loss)	$	—	$	—	$	—	$	—		$	51

	Year Ended December 31, 2009
	Commercial Mortgage and Other Loans			Due from parent and affiliates			Separate Account Assets(4)
	(in millions)
Fair Value, beginning of period	$	—		$	833		$	19,780
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		(10	)		(872	)		—
Other income		—			—			—
Interest credited to policyholders’ account balances		—			—			(7,365	)
Included in other comprehensive income (loss)		—			58			—
Net investment income		—			—			—
Purchases, sales, issuances and settlements		—			1,669			420
Other(1)		—			—			—
Transfers into Level 3(2)		—			1,684			559
Transfers out of Level 3(2)		—			—			(347	)
Fair Value, end of period	$	(10	)	$	3,372		$	13,047
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period(3):
Included in earnings:
Realized investment gains (losses), net	$	(10	)	$	(846	)	$	—
Other income	$	—		$	—		$	—
Interest credited to policyholders’ account balances	$	—		$	—		$	(7,579	)
Included in other comprehensive income (loss)	$	—		$	—		$	—

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	Year Ended December 31, 2009
	Future  Policy Benefits			Other Liabilities			Due to parent and affiliates
	(in millions)
Fair Value, beginning of period	$	(1,172	)	$	(139	)	$	(1,260	)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		1,159			82			272
Other income		—			—			9
Included in other comprehensive income (loss)		—			—			—
Net investment income		—			—			—
Purchases, sales, issuances and settlements		(45	)		49			691
Other(1)		—			—			—
Transfers into Level 3(2)		—			(2	)		—
Transfers out of Level 3(2)		—			—			—
Fair Value, end of period	$	(58	)	$	(10	)	$	(288	)
Unrealized gains (losses) for the period relating to those Level 3 assets and liabilities that were still held at the end of the period(3):
Included in earnings:
Realized investment gains (losses), net	$	1,079		$	82		$	272
Other income	$	—		$	—		$	—
Included in other comprehensive income (loss)	$	—		$	—		$	—

(1) Other represents reclassifications of certain assets between reporting categories.

(2) 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.

(3) 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.

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

Transfers – Transfers into Level 3 for Fixed Maturities Available for Sale - Asset-Backed Securities and Trading Account Assets Supporting Insurance Liabilities – Asset-Backed Securities include $4,583 million and $188 million, respectively, resulting from the Company’s conclusion that the market for asset-backed securities collateralized by sub-prime mortgages was an inactive market, as discussed above. Other transfers into Level 3 were primarily the result of unobservable inputs utilized within valuation methodologies and the use of broker quotes (that could not be validated) when previously, information from third party pricing services (that could be validated) or models with observable inputs were utilized.

Transfers out of Level 3 were typically due to 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.

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

	Year Ended December 31, 2008
	Fixed Maturities Available For Sale			Trading Account  Assets Supporting Insurance Liabilities			Other Trading Account  Assets			Equity Securities Available for Sale
	(in millions)
Fair Value, beginning of period	$	2,787		$	291		$	469		$	164
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		(347	)		—			628			(5	)
Other income		—			(39	)		(5	)		—
Included in other comprehensive income (loss)		(346	)		—			—			(24	)
Net investment income		11			(1	)		—			—
Purchases, sales, issuances and settlements		(305	)		(32	)		259			(12	)
Transfers into (out of) Level 3(1)		123			(74	)		—			(50	)
Fair Value, end of period	$	1,923		$	145		$	1,351		$	73
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period(2)
Included in earnings:
Realized investment gains (losses), net	$	(363	)	$	—		$	628		$	(5	)
Other income	$	—		$	(46	)	$	(5	)	$	—
Included in other comprehensive income (loss)	$	(327	)	$	—		$	—		$	(21	)

	Year Ended December 31, 2008
	Due from Parent  and Affiliates		Separate Account  Assets (3)			Future  Policy Benefits			Other Liabilities
	(in millions)
Fair Value, beginning of period	$	35	$	21,815		$	(71	)	$	(77	)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		777		—			(1,079	)		(101	)
Other income		—		—			—			—
Interest credited to policyholders’ account balances		—		(2,983	)		—			—
Included in other comprehensive income (loss)		—		—			—			—
Net investment income		—		—			—			—
Purchases, sales, issuances and settlements		21		1,555			(22	)		39
Transfers into (out of) Level 3(1)		—		(607	)		—			—
Fair Value, end of period	$	833	$	19,780		$	(1,172	)	$	(139	)
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held at the end of the period(2)
Included in earnings:
Realized investment gains (losses), net	$	777	$	—		$	(1,079	)	$	(101	)
Other income	$	—	$	—		$	—		$	—
Interest credited to policyholders’ account balances	$	—	$	(3,733	)	$	—		$	—

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	Year Ended December  31, 2008
	Due to Parent and  Affiliates
	(in millions)
Fair Value, beginning of period	$	(395	)
Total gains or (losses) (realized\unrealized):
Included in earnings:
Realized investment gains (losses), net		(650	)
Other income		—
Included in other comprehensive income (loss)		—
Net investment income		—
Purchases, sales, issuances and settlements		(215	)
Transfers into (out of) Level 3(2)		—
Fair Value, end of period	$	(1,260	)
Unrealized gains (losses) for the period relating to those Level 3 liabilities that were still held at the end of the period(2)
Included in earnings:
Realized investment gains (losses), net	$	(650	)
Other income	$	—
Interest credited to policyholders’ account balances	$	—

(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.

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

Transfers – Net transfers into Level 3 for Fixed Maturities Available for Sale totaled $123 million during the year ended December 31, 2008. Transfers into Level 3 for these investments was primarily the result of unobservable inputs utilized within valuation methodologies and the use of broker quotes when previously information from third party pricing services was utilized. Partially offsetting these transfers into Level 3 were transfers out of Level 3 due to 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.

The net amount of transfers out of level 3 for Trading Account Assets Supporting Insurance Liabilities of $74 million during the year ended December 31, 2008 is due primarily to the use of observable inputs in valuation methodologies as well as pricing service information for certain assets that the Company was able to validate. Partially offsetting these transfers out of Level 3 were transfers into Level 3 due to the use of unobservable inputs within the valuation methodologies and broker quotes, when previously information from third party pricing services was utilized.

The net amount of Separate Account Assets transferred out of Level 3 for the year ended December 31, 2008 was $607 million. This resulted from the use of vendor pricing information that the Company was able to validate that was previously unavailable. Partially offsetting the transfers out for this activity were transfers into Level 3 as a result of further review of valuation methodologies for certain assets that had been previously classified as Level 2.

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Derivative Fair Value Information

The following tables present the balance of derivative assets and liabilities measured at fair value on a recurring basis, as of the date indicated, by primary underlying. These tables exclude embedded derivatives which are recorded with the associated host contract. These derivative assets and liabilities are included “Other trading account assets,” “Other long-term investments” or “Other liabilities” in the tables presented above.

	As of December 31, 2010
	Level 1		Level 2		Level 3		Netting (1)			Total
	(in millions)
Derivative assets:
Interest Rate	$	17	$	6,536	$	3	$			$	6,556
Currency		7		1,743		—					1,750
Credit		—		107		—					107
Currency/Interest Rate		—		2,284		—					2,284
Equity		—		549		126					675
Commodity		144		235		—					379
Netting (1)								(7,416	)		(7,416	)
Total derivative assets	$	168	$	11,454	$	129	$	(7,416	)	$	4,335
Derivative liabilities:
Interest Rate	$	18	$	6,206	$	12	$			$	6,236
Currency		—		1,678		—					1,678
Credit		—		108		—					108
Currency/Interest Rate		—		2,402		—					2,402
Equity		—		513		126					639
Commodity		—		314		—					314
Netting (1)								(7,325	)		(7,325	)
Total derivative liabilities	$	18	$	11,221	$	138	$	(7,325	)	$	4,052

(1) “Netting” amounts represent cash collateral and the impact of offsetting asset and liability positions held with the same counterparty.

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Changes in Level 3 derivative assets and liabilities - The following tables provide a summary of the changes in fair value of Level 3 derivative assets and liabilities for the year ended December 31, 2010, as well as the portion of gains or losses included in income for the year ended December 31, 2010, attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2010.

	Year Ended December 31, 2010
	Derivative Assets - Equity			Derivative Liability - Equity			Derivative Asset - Credit			Derivative Liabilities  - Credit			Derivative Asset - Interest Rate		Derivative Liabilities  - Interest Rate
	(in millions)
Fair Value, beginning of period	$	297		$	(297	)	$	5		$	(5	)	$	—	$	(4	)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		(110	)		110			(5	)		5			3		(12	)
Other income		—			—			—			—			—		4
Purchases, sales, issuances and settlements		(61	)		61			—			—			—		—
Transfers into Level 3(1)		—						—			—			—		—
Transfers out of Level 3(1)		—						—			—			—		—
Fair Value, end of period	$	126		$	(126	)	$	—		$	—		$	3	$	(12	)
Unrealized gains (losses) for the period relating to those level 3 assets that were still held at the end of the period:
Included in earnings:
Realized investment gains (losses), net	$	(104	)	$	104		$	(5	)	$	5		$	3	$	(12	)
Other income	$	(6	)	$	6		$	—		$	—		$	—	$	—

Nonrecurring Fair Value Measurements - Certain assets and liabilities are measured at fair value on a nonrecurring basis. Nonrecurring fair value adjustments resulted in $5 million of losses being recorded for the year ended December 31, 2010 on certain commercial mortgage loans. The carrying value of these loans as of December 31, 2010 was $56 million. Similar losses on commercial mortgage loans of $109 million and $6 million were recorded for the years ended December 31, 2009 and 2008. The reserves were based on either discounted cash flows utilizing market rates or the fair value of the underlying real estate collateral and were classified as Level 3 in the hierarchy.

Impairments of $6 million, $51 million and $27 million were recorded for the years ended December 31, 2010, 2009 and 2008, respectively, on certain cost method investments. The carrying value as of December 31, 2010 of these investments was $165 million. In addition, impairments of $2 million and $11 million were recorded for the year ended December 31, 2010 and 2009, respectively, on certain equity method investments. These fair value adjustments were based on inputs classified as Level 3 in the valuation hierarchy. The inputs utilized were primarily discounted estimated future cash flows and, where appropriate, valuations provided by the general partners taken into consideration with deal and management fee expenses.

Fair Value Option - The following table presents information regarding changes in fair values recorded in earnings for other long-term investments where the fair value option has been elected.

	2010		2009		2008
	(in millions)
Assets:
Other long-term investments:
Changes in fair value		18		—		—

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Changes in fair value are reflected in “Other income.” The fair value of other long-term investments was $258 million as of December 31, 2010.

Fair Value of Financial Instruments

The Company is required by U.S. GAAP to disclose the fair value of certain financial instruments including those that are not carried at fair value. 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, securities purchased under agreements to resell, short-term investments, cash and cash equivalents, accrued investment income, affiliated notes receivable classified as available for sale, separate account assets, investment contracts included in separate account liabilities, securities sold under agreements to repurchase, and cash collateral for loaned securities, as well as certain items recorded within other assets and other liabilities such as broker-dealer related receivables and payables. See Note 21 for a discussion of derivative instruments.

The following table discloses the Company’s financial instruments where the carrying amounts and fair values may differ:

	December 31, 2010				December 31, 2009
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
			(in millions)
Assets:
Commercial mortgage and other loans	$	26,647	$	27,773	$	26,289	$	25,649
Policy loans		8,036		9,831		7,907		9,358
Other affiliated notes receivable		971		993		964		966
Liabilities:
Policyholders’ account balances - investment contracts	$	59,179	$	60,451	$	58,162	$	58,921
Short-term and long-term debt		9,942		10,328		9,860		9,787

The fair values presented above 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, as described in more detail below.

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, adjusted for the current market spread for similar quality loans.

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. For group corporate- and trust-owned life insurance contracts and group universal life contracts, the fair value of the policy loans is the amount due as of the reporting date.

Notes Receivable – Affiliated

The fair value of affiliated notes receivable is determined using a discounted cash flow model, which utilizes a discount rate based upon market indications from broker-dealers, as well as internal assumptions and takes into account, among other factors, the credit quality of the issuer and the reduced liquidity associated with private placements, where appropriate. Affiliated notes receivable are reflected within “Due from parent and affiliates.”

Investment Contracts – Policyholders’ Account Balances

Only the portion of policyholders’ account balances related to products that are investment contracts (those without significant mortality or morbidity risk) are reflected in the table above. For fixed deferred annuities, single premium endowments,

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payout annuities and other similar contracts without life contingencies, fair values are derived using discounted projected cash flows based on interest rates that are representative of the Company’s financial strength ratings, and hence reflects the Company’s own non-performance risk. For guaranteed investment contracts, funding agreements, structured settlements without life contingencies and other similar products, fair values are derived using discounted projected cash flows based on interest rates being offered for similar contracts with maturities consistent with those of the contracts being valued. For those balances that can be withdrawn by the customer at any time without prior notice or penalty, the fair value is the amount estimated to be payable to the customer as of the reporting date, which is generally the carrying value. For defined contribution and defined benefit contracts and certain other products the fair value is the market value of the assets supporting the liabilities.

Debt

The fair value of short-term and long-term debt is generally determined by either prices obtained from independent pricing services, which are validated by the Company, or discounted cash flow models. These fair values consider the Company’s own non-performance risk. Discounted cash flow models predominately use market observable inputs such as the borrowing rates currently available to the Company for debt and financial instruments with similar terms and remaining maturities. For commercial paper issuances and other debt with a maturity of less than 90 days, the carrying value approximates fair value.

20. RELATED PARTY

Service Agreements – Services Provided

The Company has service agreements with Prudential Financial and certain of its subsidiaries. These companies, along with their subsidiaries, include PRUCO, LLC, Prudential Asset Management Holding Company, LLC, Prudential International Insurance Holdings, Ltd., Prudential International Insurance Service Company, LLC, Prudential IBH Holdco, Inc., Prudential Real Estate and Relocation Services, Inc., Prudential International Investments Corporation, Prudential International Investments, LLC, Prudential Annuities Holding Company, Inc. and Prudential Japan Holdings, LLC. Under these agreements, the Company provides general and administrative services and, accordingly, charges these companies for such services. These charges totaled $519 million, $499 million and $408 million for the years ended December 31, 2010, 2009 and 2008, respectively, and are recorded as a reduction to the Company’s “General and administrative expenses.”

The Company also engages in other transactions with affiliates in the normal course of business. Affiliated revenues in “Other income” were $1 million, $1 million and $18 million for the years ended December 31, 2010, 2009 and 2008, respectively, related primarily to royalties and compensation for the sale of affiliates’ products through the Company’s distribution network.

“Due from parent and affiliates” includes $154 million and $85 million at December 31, 2010 and 2009, respectively, due primarily to these agreements.

Service Agreements – Services Received

Prudential Financial and certain of its subsidiaries have service agreements with the Company. Under the agreements, the Company primarily receives the services of the officers and employees of Prudential Financial, asset management services from Prudential Asset Management Holding Company and subsidiaries and consulting services from Pramerica Systems Ireland Limited. The Company is charged based on the level of service received. Affiliated expenses for services received were $262 million, $248 million and $272 million as contra-revenue in “Net investment income” and $110 million, $155 million and $129 million in “General and administrative expenses” for the years ended December 31, 2010, 2009 and 2008, respectively. “Due to parent and affiliates” includes $29 million and $20 million at December 31, 2010 and 2009, respectively, due primarily to these agreements.

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Notes Receivable and Other Lending Activities

Affiliated notes receivable included in “Due from parent and affiliates” at December 31, are as follows:

	Maturity Dates		Rate		2010		2009
					(in millions)
U.S. Dollar floating rate notes(1)		2010 - 2026		0.29% - 5.59%	$	264	$	1,018
U.S. Dollar fixed rate notes(2)		2010 - 2026		1.72% - 11.03%		1,794		2,977
Japanese Yen fixed rate notes		2014 - 2019		1.73% - 3.40%		290		252
Total long-term notes receivable - affiliated(3)						2,348		4,247
Short-term notes receivable - affiliated(4)						1,077		544
Total notes receivable - affiliated					$	3,425	$	4,791

(1) Includes current portion of the long-term notes receivable of $5 million and $660 million at December 31, 2010 and 2009, respectively.

(2) Includes current portion of the long-term notes receivable of $539 million at 2009.

(3) All long-term notes receivable may be called for prepayment prior to the respective maturity dates under specified circumstances.

(4) Short-term notes receivable have variable rates, which averaged 1.36% at December 31, 2010 and 1.32% at December 31, 2009. Short-term notes receivable are payable on demand.

The affiliated notes receivable included above that are classified as loans, and carried at unpaid principal balance, net of any allowance for losses. The Company monitors the internal and external credit ratings of these loans and loan performance. The Company also considers any guarantees made by Prudential Financial for loans due from affiliates.

Accrued interest receivable related to these loans was $21 million and $30 million at December 31, 2010 and 2009, respectively, and is included in “Due from parent and affiliates.” Revenues related to these loans were $258 million, $207 million and $97 million for the years ended December 31, 2010, 2009, and 2008, respectively and are included in “Other income.”

The Company also engages in overnight borrowing and lending of funds with Prudential Financial and affiliates. “Cash and cash equivalents” included $181 million and $70 million, associated with these transactions at December 31, 2010 and 2009, respectively. Revenues related to this lending activity were $1 million, $0 million and $3 million for the years ended December 31, 2010, 2009, and 2008, respectively, and are included in “Net investment income.”

Sales of Fixed Maturities and Commercial Mortgage & Agricultural Mortgage Loans between Related Parties

During 2010, the Company purchased fixed maturity investments, classified as available for sale, from affiliates for a total of $1,136 million, the fair value on the date of the transfer plus accrued interest. The difference of $96 million between the amortized cost and the fair value of the securities was recorded by the Company as a reduction to additional paid-in capital.

In March 2010, the Company purchased fixed maturities classified as trading account assets from an affiliate for a total of $175 million, the fair value on the date of the transfer plus accrued interest. The Company recorded the assets at fair at the time of the purchase. Trading account assets are carried at fair value in the Company’s consolidated statement of financial position.

In June 2010, the Company purchased fixed maturity investments from its separate account for a total of $118 million, the fair value on the date of the transfer plus accrued interest. The Company recorded the investments at fair value at the time of the purchase.

In December 2009, the Company sold fixed maturity investments to an affiliate for a total of $1,871 million, the fair value on the date of transfer plus accrued interest. In consideration for this sale, the Company received notes receivable from affiliates with a fair value of $1,890 million and $24 million for the accrued interest.

In September 2009, the Company purchased fixed maturity investments from affiliates for a total of $294 million, the fair value on the date of the transfer plus accrued interest.

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In June 2009, the Company sold fixed maturity investments to an affiliate for a total of $682 million, the fair value on the date of the transfer plus accrued interest.

In July 2009, the Company sold commercial mortgage and agricultural mortgage loans to an affiliate for a total of $27 million, the fair value on the date of the transfer plus accrued interest and premiums, less escrows. Commercial mortgage loans are categorized in the Company’s consolidated statement of financial position as commercial mortgage and other loans.

In June 2009, the Company bought back certain loans that were sold to an affiliate in 2008 because they did not meet the affiliate’s criteria. The purchase price was $62 million, the fair value on the date of the original transfer plus accrued interest, less escrows.

Transfer of Loans between Affiliates

In October 2009, the Company received a ¥9 billion affiliated loan from Prudential Financial. The Company recorded the loan at a fair value of $105 million, net of taxes, which also represented the affiliate’s carrying value. The offset was recorded by the Company as a capital contribution.

Settlement of Contingent Tax Liability between Affiliates

During 2009, in accordance with the terms of the tax sharing agreement with its parent, the Company settled $310 million of its contingent tax liability with Prudential Financial and was relieved of any future obligation related thereto. The liability is primarily related to tax years prior to 2002. The settlement of this liability was recorded as a capital contribution.

Derivatives

Prudential Global Funding, Inc., an indirect, wholly owned consolidated subsidiary of the Company enters into derivative contracts with Prudential Financial and certain of its subsidiaries. Affiliated derivative assets included in “Other trading account assets” were $2,217 million and $1,410 million at December 31, 2010 and 2009, respectively. Affiliated derivative liabilities included in “Due to parent and affiliates” were $3,006 million and $1,407 million at December 31, 2010 and 2009, respectively.

Retail Medium Term Notes Program

The Company has sold funding agreements (“agreements”) to Prudential Financial as part of a retail note issuance program to financial wholesalers. As discussed in Note 10, “Policyholders’ account balances” include $1,005 million and $1,814 million related to these agreements at December 31, 2010 and 2009, respectively. In March and June 2009, the Company settled $1,522 million of its obligation related to the affiliated funding agreements mentioned above for $1,221 million, which resulted in an increase in “Additional paid-in capital” of $278 million. In addition, “Deferred policy acquisition costs” includes affiliated amounts of $11 million and $23 million related to these agreements at December 31, 2010 and 2009, respectively. The affiliated interest credited on these agreements is included in “Interest credited to policyholders’ account balances” and was $70 million, $121 million and $192 million for the years ended December 31, 2010, 2009, and 2008, respectively.

Joint Ventures

The Company has made investments in joint ventures with certain subsidiaries of Prudential Financial. “Other long term investments” includes $93 million and $83 million at December 31, 2010 and 2009, respectively. “Net investment income” includes gains of $18 million for the year ended December 31, 2010, gains of $22 million for the year ended December 31, 2009 and a loss of $3 million for the year ended December 31, 2008, related to these ventures.

Reinsurance

As discussed in Notes 11 and 13, the Company participates in reinsurance transactions with certain subsidiaries of Prudential Financial.

Short-term and Long-term Debt

As discussed in Note 14, the Company participates in debt transactions with certain subsidiaries of Prudential Financial.

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21. DERIVATIVE INSTRUMENTS

Types of Derivative Instruments and Derivative Strategies used in a non- dealer or broker capacity

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 and options 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.

Equity index options are contracts which will settle in cash based on differentials in the underlying indices at the time of exercise and the strike price. The Company uses combinations of purchases and sales of equity index options to hedge the effects of adverse changes in equity indices within a predetermined range. These hedges do not qualify for hedge accounting.

Currency derivatives, including exchange-traded currency futures and options, currency forwards and 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. The Company also uses currency forwards to hedge the currency risk associated with net investments in foreign operations.

Under currency forwards, the Company agrees with other parties to deliver a specified amount of an identified currency at a specified future date. Typically, the price is agreed upon at the time of the contract and payment for such a contract is made at the specified future date. As noted above, the Company uses currency forwards to mitigate the risk that unfavorable changes in currency exchange rates will reduce U.S. dollar equivalent earnings generated by certain of its non-U.S. businesses, primarily its international insurance and investments operations. The Company executes forward sales of the hedged currency in exchange for U.S. dollars at a specified exchange rate. The maturities of these forwards correspond with the future periods in which the non- U.S. earnings are expected to be generated. These earnings hedges do not qualify for hedge accounting.

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

Credit derivatives are used by the Company to enhance the return on the Company’s investment portfolio by creating credit exposure similar to an investment in public fixed maturity cash instruments. With credit derivatives the Company 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. See Note 22 for a discussion of guarantees related to these credit derivatives. In addition to selling credit protection, in limited instances the Company has purchased credit protection using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio.

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The Company uses “to be announced” (“TBA”) forward contracts to gain exposure to the investment risk and return of mortgage-backed securities. TBA transactions can help the Company to achieve better diversification and to enhance the return on its investment portfolio. TBAs provide a more liquid and cost effective method of achieving these goals than purchasing or selling individual mortgage-backed pools. Typically, the price is agreed upon at the time of the contract and payment for such a contract is made at a specified future date. Additionally, pursuant to the Company’s mortgage dollar roll program, TBAs or mortgage-backed securities are transferred to counterparties with a corresponding agreement to repurchase them at a future date. These transactions do not qualify as secured borrowings and are accounted for as derivatives.

The Company sells variable annuity products, which may include guaranteed benefit features that are accounted for as embedded derivatives. These embedded derivatives are marked to market through “Realized investment gains (losses), net” based on the change in value of the underlying contractual guarantees, which are determined using valuation models. The Company 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 sells synthetic guaranteed investment contracts which are investment-only, fee-based stable value products, to qualified pension plans. The assets are owned by the trustees of such plans, who invest the assets under the terms of investment guidelines agreed to with the Company. The contracts contain a guarantee of a minimum rate of return on participant balances supported by the underlying assets, and a guarantee of liquidity to meet certain participant-initiated plan cash flow requirements. These contracts are accounted for as derivatives and recorded at fair value.

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.

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The table below provides a summary of the gross notional amount and fair value of derivatives contracts, excluding embedded derivatives which are recorded with the associated host, by the primary underlying. Many derivative instruments contain multiple underlyings.

	December 31, 2010							December 31, 2009
	Notional Amount		Fair Value					Notional Amount		Fair Value
			Assets		Liabilities					Assets		Liabilities
					(in millions)
Qualifying Hedge Relationships
Interest Rate	$	5,560	$	93	$	(359	)	$	6,831	$	93	$	(355	)
Currency		—		—		—			34		—		—
Currency/Interest Rate		2,245		37		(211	)		1,207		9		(245	)
Total Qualifying Hedge Relationships	$	7,805	$	130	$	(570	)	$	8,072	$	102	$	(600	)
Non-Qualifying Hedge Relationships
Interest Rate	$	78,853	$	2,226	$	(1,496	)	$	64,020	$	1,835	$	(1,179	)
Currency		2,998		13		(40	)		3,176		57		(2	)
Credit		1,149		72		(72	)		1,818		236		(68	)
Currency/Interest Rate		2,262		190		(146	)		2,379		119		(181	)
Equity		3,116		50		(15	)		1,121		56		(36	)
Total Non-Qualifying Hedge Relationships	$	88,378	$	2,551	$	(1,769	)	$	72,514	$	2,303	$	(1,466	)
Total Derivatives (1)	$	96,183	$	2,681	$	(2,339	)	$	80,586	$	2,405	$	(2,066	)

(1) Excludes embedded derivatives which contain multiple underlyings. The fair value of these embedded derivatives was a net liability of $247 million as of December 31, 2010 and a net liability of $306 million as of December 31, 2009, included in “Future policy benefits” and “Fixed maturities, available for sale.”

Cash Flow, Fair Value and Net Investment Hedges

The primary derivative instruments used by the Company in its fair value, cash flow, and net investment hedge accounting relationships are interest rate swaps, currency swaps and currency forwards. These instruments are only designated for hedge accounting in instances where the appropriate criteria are met. The Company does not use futures, options, credit, equity or embedded derivatives in any of its fair value, cash flow or net investment hedge accounting relationships.

The following table provides the financial statement classification and impact of derivatives used in qualifying and non- qualifying hedge relationships, excluding the offset of the hedged item in an effective hedge relationship:

	Year Ended December 31,
	2010			2009			2008
				(in millions)
Qualifying Hedges
Fair value hedges
Interest Rate
Realized investment gains (losses), net	$	(114	)	$	340		$	(551	)
Net investment income		(147	)		(157	)		(99	)
Interest credited to policyholder account balances—(increase)/decrease		68			70			17
Currency
Other income		—			—			5
Total fair value hedges	$	(193	)	$	253		$	(628	)

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Cash flow hedges
Interest Rate
Interest credited to policyholder account balances—(increase)/decrease		(3	)		(7	)		3
Accumulated other comprehensive income (loss) (1)		(3	)		29			(31	)
Currency/Interest Rate
Net investment income		(2	)		(2	)		(10	)
Interest expense—(increase)/decrease		—			—			11
Other income		4			(4	)		(37	)
Accumulated other comprehensive income (loss) (1)		71			(156	)		127
Total cash flow hedges	$	67		$	(140	)	$	63
Net investment hedges
Currency
Accumulated other comprehensive income (loss) (1)		—			(5	)		14
Total net investment hedges	$	—		$	(5	)	$	14
Non-qualifying Hedges
Realized investment gains (losses), net
Interest Rate		807			(508	)		1,435
Currency		51			(36	)		35
Currency/Interest Rate		98			(162	)		232
Credit		(86	)		—			95
Equity		(17	)		(239	)		159
Embedded Derivatives (Interest/Equity/Credit)		585			1,280			(1,382	)
Total non-qualifying hedges	$	1,438		$	335		$	574
Total Derivative Impact	$	1,312		$	443		$	23

(1) Amounts deferred in Equity.

For the years ended December 31, 2010, 2009, and 2008, the ineffective portion of derivatives accounted for using hedge accounting was not material to the Company’s results of operations and there were no material amounts reclassified into earnings relating to instances in which the Company discontinued cash flow hedge accounting because the forecasted transaction did not occur by the anticipated date or within the additional time period permitted by the authoritative guidance for the accounting for derivatives and hedging. In addition, there were no instances in which the Company discontinued fair value hedge accounting due to a hedged firm commitment no longer qualifying as a fair value hedge.

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Presented below is a roll forward of current period cash flow hedges in “Accumulated other comprehensive income (loss)” before taxes:

	(in millions)
Balance, December 31, 2007	$	(211	)
Net deferred gains on cash flow hedges from January 1 to December 31, 2008		138
Amount reclassified into current period earnings		(42	)
Balance, December 31, 2008		(115	)
Net deferred losses on cash flow hedges from January 1 to December 31, 2009		(151	)
Amount reclassified into current period earnings		24
Balance, December 31, 2009		(242	)
Net deferred gains on cash flow hedges from January 1 to December 31, 2010		62
Amount reclassified into current period earnings		6
Balance, December 31, 2010	$	(174	)

Using December 31, 2010 values it is anticipated that a pre-tax loss of approximately $9 million will be reclassified from “Accumulated other comprehensive income (loss)” to earnings during the subsequent twelve months ending December 31, 2011, offset by amounts pertaining to the hedged items. As of December 31, 2010, the Company does not have any qualifying cash flow hedges of forecasted transactions other than those related to the variability of the payment or receipt of interest or foreign currency amounts on existing financial instruments. The maximum length of time for which these variable cash flows are hedged is 13 years. Income amounts deferred in “Accumulated other comprehensive income (loss)” as a result of cash flow hedges are included in “Net unrealized investment gains (losses)” in the Unaudited Interim Consolidated Statements of Equity.

For effective net investment hedges, the amounts, before applicable taxes, recorded in the cumulative translation adjustment account with “Accumulated other comprehensive income (loss)” were $123 million in 2010, $122 million in 2009, and $128 million in 2008.

Credit Derivatives Written

The following tables set forth the Company’s exposure from credit derivatives where the Company has written credit protection, excluding embedded derivatives contained in externally-managed investments in the European market, by NAIC rating of the underlying credits as of December 31, 2010 and December 31, 2009.

	December 31, 2010
	Single Name				First to Default Basket				Total
NAIC Designation (1)	Notional		Fair Value		Notional		Fair Value		Notional		Fair value
					(in millions)
1	$	5	$	—	$	—	$	—	$	5	$	—
2		—		—		—		—		—		—
Subtotal		5		—		—		—		5		—
3		—		—		—		—		—		—
4		—		—		—		—		—		—
5		—		—		—		—		—		—
6		—		—		—		—		—		—
Subtotal		—		—		—		—		—		—
Total	$	5	$	—	$	—	$	—	$	5	$	—

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	December 31, 2009
	Single Name				First to Default Basket					Total
NAIC Designation (1)	Notional		Fair Value		Notional		Fair Value			Notional		Fair value
					(in millions)
1	$	28	$	—	$	119	$	—		$	147	$	—
2		—		—		242		(3	)		242		(3	)
Subtotal		28		—		361		(3	)		389		(3	)
3		—		—		104		(1	)		104		(1	)
4		—		—		—		—			—		—
5		—		—		50		(1	)		50		(1	)
6		—		—		—		—			—		—
Subtotal		—		—		154		(2	)		154		(2	)
Total	$	28	$	—	$	515	$	(5	)	$	543	$	(5	)

(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.

The following table sets forth the composition of the Company’s credit derivatives where the Company has written credit protection excluding the embedded derivatives contained in externally-managed investments in the European market, by industry category as of the dates indicated.

	December 31, 2010				December 31, 2009
	Notional		Fair Value		Notional		Fair Value
	(in millions)
Industry
Corporate Securities:
Manufacturing	$	—	$	—	$	5	$	—
Utilities		—		—		5		—
Finance		—		—		—		—
Services		5		—		8		—
Energy		—		—		—		—
Transportation		—		—		—		—
Retail and Wholesale		—		—		10		—
Other		—		—		—		—
First to Default Baskets(1)		—		—		515		(5	)
Total Credit Derivatives	$	5	$	—	$	543	$	(5	)

(1) Credit default baskets may include various industry categories.

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 Equity under the heading “Accumulated Other Comprehensive Income (Loss)” 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 investments was $746 million and $696 million at December 31, 2010 and 2009, respectively.

In addition to writing credit protection, the Company has purchased credit protection using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio. As of December 31, 2010 and December 31, 2009, the

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Company had $1. 144 billion and $ 1.275 billion of outstanding notional amounts, respectively, reported at fair value as a liability of less than $1 million and an asset of $173 million, respectively.

Types of Derivative Instruments and Derivative Strategies used in a dealer or broker capacity

Futures, forwards and options contracts, and swap agreements, are also used in a derivative dealer or broker capacity in the Company’s commodities operations to facilitate transactions of the Company’s clients, hedge proprietary trading activities and as a means of risk management. These derivatives allow the Company to structure transactions to manage its exposure to commodities and securities prices, foreign exchange rates and interest rates. Risk exposures are managed through diversification, by controlling position sizes and by entering into offsetting positions. For example, the Company may manage the risk related to its precious metals inventory by entering into an offsetting position in exchange traded futures contracts.

The fair value of the Company’s derivative contracts used in a derivative dealer or broker capacity is reported on a net-by-counterparty basis in the Company’s Consolidated Statements of Financial Position when management believes a legal right of setoff exists under an enforceable netting agreement.

Realized and unrealized gains and losses from marking-to-market the derivatives used in proprietary positions are recognized on a trade date basis and reported in “Other income.”

The following table sets forth the income statement impact of derivatives used in a dealer or broker capacity.

	Year Ended December 31,
	2010			2009
	(in millions)
Other income
Interest Rate	$	(7	)	$	(19	)
Commodity		58			54
Currency		48			52
Equity		9			3
Total other income	$	108		$	90

Credit Risk

The Company is exposed to credit-related losses in the event of non-performance by counterparties to financial derivative transactions. The Company manages credit risk by entering into derivative transactions with highly rated 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. To reduce credit exposures, the Company seeks to (i) enter into OTC derivative transactions pursuant to master agreements that provide for a netting of payments and receipts with a single counterparty (ii) enter into agreements that allow the use of credit support annexes (CSAs), which are bilateral rating-sensitive agreements that require collateral postings at established threshold levels. Likewise, the Company effects exchange-traded futures and options transactions through regulated exchanges and these transactions are settled on a daily basis, thereby reducing credit risk exposure in the event of non-performance by counterparties to such financial instruments.

Under fair value measurements, the Company incorporates the market’s perception of its own and the counterparty’s nonperformance risk in determining the fair value of the portion of its OTC derivative assets and liabilities that are uncollateralized. Credit spreads are applied to the derivative fair values on a net basis by counterparty. To reflect the Company’s own credit spread a proxy based on relevant debt spreads is applied to OTC derivative net liability positions. Similarly, the Company’s counterparty’s credit spread is applied to OTC derivative net asset positions.

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Certain of the Company’s derivative agreements with some of its counterparties contain credit-risk related triggers. If the Company’s credit rating were to fall below a certain level, the counterparties to the derivative instruments could request termination at the then fair value of the derivative or demand immediate full collateralization on derivative instruments in net liability positions. If a downgrade occurred and the derivative positions were terminated, the Company anticipates it would be able to replace the derivative positions with other counterparties in the normal course of business. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that are in a net liability position were $2,990 million as of December 31, 2010. In the normal course of business the Company has posted collateral related to these instruments of $1,449 million as of December 31, 2010. If the credit-risk-related contingent features underlying these agreements had been triggered on December 31, 2010, the Company estimates that it would be required to post a maximum of $1,541 million of additional collateral to its counterparties.

22. COMMITMENTS AND GUARANTEES, CONTINGENT LIABILITIES AND LITIGATION AND REGULATORY MATTERS

Commitments and Guarantees

The Company occupies leased office space in many locations under various long-term leases and has entered into numerous leases covering the long-term use of computers and other equipment. Rental expense, net of sub-lease income, incurred for the years ended December 31, 2010, 2009 and 2008 was $63 million, $67 million and $62 million, respectively.

The following table presents, at December 31, 2010, the Company’s future minimum lease payments under non-cancelable operating leases along with associated sub-lease income:

	Operating Leases		Sub-lease Income
2011	$	85	$	(6	)
2012		72		(6	)
2013		63		(5	)
2014		55		(4	)
2015		29		—
2016 and thereafter		64		—
Total	$	368	$	(21	)

Occasionally, for business reasons, the Company may exit certain non-cancelable operating leases prior to their expiration. In these instances, the Company’s policy is to accrue, at the time it ceases to use the property being leased, the future rental expense net of any expected sub-lease income, and to release this reserve over the remaining commitment period. Of the amount listed above in total non-cancelable operating leases and the amount listed above in total sub-lease income, $12 million and $15 million, respectively, has been accrued at December 31, 2010.

Commercial Mortgage Loan Commitments

	As of December 31, 2010
	(in millions)
Total outstanding mortgage loan commitments	$	878

In connection with the Company’s origination of commercial mortgage loans, it had outstanding commercial mortgage loan commitments with borrowers.

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Commitments to Purchase Investments (excluding Commercial Mortgage Loans)

	As of December 31, 2010
	(in millions)
Expected to be funded from the general account and other operations outside the separate accounts	$	2,686
Expected to be funded from separate accounts	$	1,868
Portion of separate account commitments with recourse to Prudential Insurance	$	1,015

The Company has other commitments to purchase or fund investments, some of which are contingent upon events or circumstances not under the Company’s control, including those at the discretion of the Company’s counterparties. The Company anticipates a portion of these commitments will ultimately be funded from its separate accounts. Some of the separate account commitments have recourse to Prudential Insurance if the separate accounts are unable to fund the amounts when due.

Guarantees of Investee Debt

	As of December 31, 2010
	(in millions)
Total guarantees of debt issued by entities in which the separate accounts have invested	$	2,233
Amount of above guarantee that is limited to separate account assets	$	2,162
Accrued liability associated with guarantee	$	—

A number of guarantees provided by the Company relate to real estate investments held in its separate accounts, in which entities that the separate account has invested in have borrowed funds, and the Company has guaranteed their obligations. The Company provides these guarantees to assist these entities in obtaining financing. The Company’s maximum potential exposure under these guarantees is mostly limited to the assets of the separate account. The exposure that is not limited to the separate account assets relates to guarantees limited to fraud, criminal activity or other bad acts. These guarantees generally expire at various times over the next fifteen years. At December 31, 2010, the Company’s assessment is that it is unlikely payments will be required. Any payments that may become required under these guarantees would either first be reduced by proceeds received by the creditor on a sale of the underlying collateral, or would provide rights to obtain the underlying collateral.

Credit Derivatives Written

	As of December 31, 2010
	(in millions)
Credit derivatives written - maximum amount at risk	$	320
Liability associated with guarantee, carried at fair value	$	3

As discussed in Note 21, 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 listed above assumes the value of the underlying referenced securities become worthless. Of the total maximum amount at risk, $315 million of credit derivatives have been written by the Company on behalf of affiliated companies. These credit derivatives generally have maturities of five years or less.

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Guarantees of Asset Values

	As of December 31, 2010
	(in millions)
Guaranteed value of third parties assets	$	24,019
Fair value of collateral supporting these assets	$	24,706
Liability associated with guarantee, carried at fair value	$	—

Certain contracts underwritten by the Retirement segment include guarantees related to financial assets owned by the guaranteed party. These contracts are accounted for as derivatives and carried at fair value. The collateral supporting these guarantees is not reflected on the Company’s balance sheet.

Contingent Consideration

	As of December 31, 2010
	(in millions)
Maximum potential contingent consideration associated with acquisition	$	40

In connection with an acquisition, the Company has agreed to pay additional consideration in future periods, contingent upon the attainment by the acquired entity of defined operating objectives. This arrangement will be resolved over the next year. Any such payments would result in increases in intangible assets, such as goodwill.

Other Guarantees

	As of December 31, 2010
	(in millions)
Other guarantees where amount can be determined	$	22
Accrued liability for other guarantees and indemnifications	$	6

The Company is also subject to other financial guarantees and indemnity arrangements. The Company has provided indemnities and guarantees related to acquisitions, dispositions, investments and other transactions that are triggered by, among other things, breaches of representations, warranties or covenants provided by the Company. These obligations are typically subject to various time limitations, defined by the contract or by operation of law, such as statutes of limitation. In some cases, the maximum potential obligation is subject to contractual limitations, while in other cases such limitations are not specified or applicable. Since certain of these obligations are not subject to limitations, it is not possible to determine the maximum potential amount due under these guarantees. The accrued liabilities identified above do not include retained liabilities associated with sold businesses.

Contingent Liabilities

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

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

Litigation and Regulatory Matters

The Company is subject to legal and regulatory actions in the ordinary course of its businesses. The Company’s legal and regulatory actions include proceedings specific to it and proceedings generally applicable to business practices in the industries in which it operates, including in both cases businesses that have been either divested or placed in wind-down status. The Company is subject to class action lawsuits and individual lawsuits involving a variety of issues, including sales practices, underwriting practices, claims payment and procedures, additional premium charges for premiums paid on a periodic basis, denial or delay of benefits, return of premiums or excessive premium charges and breaching fiduciary duties to customers. In its investment-related operations, the Company is subject to litigation involving commercial disputes with counterparties or partners and class action lawsuits and other litigation alleging, among other things, that the Company has made improper or inadequate disclosures in connection with the sale of assets and annuity and investment products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. The Company is also subject to litigation arising out of its general business activities, such as its investments, contracts, leases and labor and employment relationships, including claims of discrimination and harassment 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 the Company and its businesses and products. In addition, the Company, along with other participants in the businesses in which it engages, 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 the Company’s pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of litigation or a regulatory matter, and the amount or range of potential loss at any particular time, is often inherently uncertain. The following is a summary of certain pending proceedings.

In January 2011, a purported state-wide class action, Garcia v. The Prudential Insurance Company of America, was dismissed by the Second Judicial District Court, Washoe County, Nevada. The complaint is brought on behalf of Nevada beneficiaries of life insurance policies sold by Prudential Insurance for which, unless the beneficiaries elected another settlement method, death benefits were placed in retained asset accounts that earn interest and are subject to withdrawal in whole or in part at any time by the beneficiaries. The complaint alleges that by failing to disclose material information about the accounts, Prudential Insurance wrongfully delayed payment and improperly retained undisclosed profits, and seeks damages, injunctive relief, attorneys’ fees and prejudgment and post-judgment interest. In February 2011, plaintiff appealed the dismissal. As previously reported, in December 2009, an earlier purported nationwide class action raising substantially similar allegations brought by the same plaintiff in the United States District Court for the District of New Jersey, Garcia v. Prudential Insurance Company of America, was dismissed. In December 2010, a purported state-wide class action complaint, Phillips v. Prudential Financial, Inc., was filed in the Circuit Court of the First Judicial Circuit, Williamson County, Illinois. The complaint makes allegations under Illinois law, substantially similar to the Garcia cases, on behalf of a class of Illinois residents whose death benefits were settled by retained assets accounts. In January 2011, the case was removed to the United States District Court for the Southern District of Illinois. In March 2011, an amended complaint, Phillips v. Prudential Insurance and Pruco Life Insurance Company, was filed. In July 2010, a purported nationwide class action that makes allegations similar to those in the Garcia and Phillips actions relating to retained asset accounts of beneficiaries of a group life insurance contract owned by the United States Department of Veterans Affairs (“VA Contract”) that covers the lives of members and veterans of the U.S. armed forces, Lucey v. Prudential Insurance Company of America, was filed in the United States District Court for the District of Massachusetts. The complaint challenges the use of retained asset accounts to settle death benefit claims, asserting violations of federal and state law, breach of contract and fraud and seeking compensatory and treble damages and equitable relief. In October 2010, Prudential Insurance filed a motion to dismiss the complaint. In November 2010, a second purported nationwide class action brought on behalf of the same beneficiaries of the VA Contract, Phillips v. Prudential Insurance Company of America and Prudential Financial, Inc., was filed in the United States District Court for the District of New Jersey, and makes substantially the same claims. In November and December 2010, two additional actions brought on behalf of the same putative class, alleging substantially the same claims and the same relief, Garrett v. The Prudential Insurance Company of America and Prudential Financial, Inc. and Witt v. The Prudential Insurance Company of America were filed in the United States District Court for the District of New Jersey. In February 2011, Phillips, Garrett and Witt were transferred to the United States District Court for the Western District of Massachusetts by the Judicial

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Panel for Multi-District Litigation and consolidated with the Lucey matter as In re Prudential Insurance Company of America SGLI/VGLI Contract Litigation. In March 2011, the motion to dismiss the complaint was denied. In September 2010, Huffman v. Prudential Insurance Company, a purported nationwide class action brought on behalf of beneficiaries of group life insurance contracts owned by ERISA-governed employee welfare benefit plans was filed in the United States District Court for the Eastern District of Pennsylvania, alleging that using retained asset accounts in employee welfare benefit plans to settle death benefit claims violates ERISA and seeking injunctive relief and disgorgement of profits. Prudential Insurance has moved to dismiss the complaint. In July 2010, Prudential Insurance along with other life insurance industry participants, received a formal request for information from the State of New York Attorney General’s Office in connection with its investigation into industry practices relating to the use of retained asset accounts. In August 2010, Prudential Insurance received a similar request for information from the State of Connecticut Attorney General’s Office, Prudential Insurance is cooperating with these investigations. Prudential Insurance has also been contacted by state insurance regulators and other governmental entities, including the U.S. Department of Veterans Affairs and Congressional committees regarding retained asset accounts. These matters may result in additional investigations, information requests, claims, hearings, litigation and adverse publicity.

In April 2009, a purported nationwide class action, Schultz v. The Prudential Insurance Company of America, was filed in the United States District Court for the Northern District of Illinois. In January 2010, the court dismissed the complaint without prejudice. In February 2010, plaintiff sought leave to amend the complaint to add another plaintiff and to name the ERISA welfare plans in which they were participants individually and as representatives of a purported defendant class of ERISA welfare plans for which Prudential offset benefits. The proposed amended complaint alleged that Prudential Insurance and the welfare plans violated ERISA by offsetting family Social Security benefits against Prudential contract benefits and seeks a declaratory judgment that the offsets are unlawful as they are not “loss of time” benefits and recovery of the amounts by which the challenged offsets reduced the disability payments. In August 2010, the court denied leave to amend as to Prudential and plaintiffs subsequently filed a third amended complaint asserting claims on behalf of a purported nationwide class against a purported defendant class of ERISA welfare plans for which Prudential offset family Social Security benefits. The action, now captioned Schultz v. Aviall Inc. Long Term Disability Plan, asserts the same ERISA violations. In December 2010, an action alleging substantially similar ERISA violations as in the Schultz action, Koehn v. Fireman’s Fund Insurance Company Long Term Disability Plan, was filed in the United States District Court for the Northern District of California. The Koehn complaint, naming only the plan as defendant, asserts that the defendant plan’s long term disability benefits are insured by Prudential and that the terms of the plan were violated by offsetting family Social Security benefits against Prudential contract benefits. The Company is indemnifying the defendant plans in both Schultz and Koehn.

From November 2002 to March 2005, eleven separate complaints were filed against the Company and the law firm of Leeds Morelli & Brown in New Jersey state court. The cases were consolidated for pre-trial proceedings in New Jersey Superior Court, Essex County and captioned Lederman v. Prudential Financial, Inc., et al. The complaints allege that an alternative dispute resolution agreement entered into among Prudential Insurance, over 350 claim ants who are current and former Prudential Insurance employees, and Leeds Morelli & Brown (the law firm representing the claimants) was illegal and that Prudential Insurance conspired with Leeds Morelli & Brown to commit fraud, malpractice, breach of contract, and violate racketeering laws by advancing legal fees to the law firm with the purpose of limiting Prudential’s liability to the claimants. In 2004, the Superior Court sealed these lawsuits and compelled them to arbitration. In May 2006, the Appellate Division reversed the trial court’s decisions, held that the cases were improperly sealed, and should be heard in court rather than arbitrated. In March 2007, the court granted plaintiffs’ motion to amend the complaint to add over 200 additional plaintiffs and a claim under the New Jersey discrimination law but denied without prejudice plaintiffs’ motion for a joint trial on liability issues. In June 2007, Prudential Financial and Prudential Insurance moved to dismiss the complaint. In November 2007, the court granted the motion, in part, and dismissed the commercial bribery and conspiracy to commit malpractice claims, and denied the motion with respect to other claims. In January 2008, plaintiffs filed a demand pursuant to New Jersey law stating that they were seeking damages in the amount of $6.5 billion. In February 2010, the New Jersey Supreme Court assigned the cases for centralized case management to the Superior Court, Bergen County. The Company participated in a court-ordered mediation that has resulted in a settlement in principle.

In October 2007, Prudential Retirement Insurance and Annuity Co. (“PRIAC”) filed an action in the United States District Court for the Southern District of New York, Prudential Retirement Insurance & Annuity Co. v. State Street Global Advisors, in PRIAC’s fiduciary capacity and on behalf of certain defined benefit and defined contribution plan clients of PRIAC, against an unaffiliated asset manager, State Street Global Advisors (“SSgA”) and SSgA’s affiliate, State Street Bank and Trust Company (“State Street”). This action seeks, among other relief, restitution of certain losses attributable to certain investment funds sold by SSgA as to which PRIAC believes SSgA employed investment strategies and practices that were misrepresented by SSgA and failed to exercise the standard of care of a prudent investment manager. Given the unusual circumstances surrounding the

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management of these SSgA funds and in order to protect the interests of the affected plans and their participants while PRIAC pursues these remedies, PRIAC implemented a process under which affected plan clients that authorized PRIAC to proceed on their behalf have received payments from funds provided by PRIAC for the losses referred to above. The Company’s consolidated financial statements for the year ended December 31, 2007 include a pre-tax charge of $82 million, reflecting these payments to plan clients and certain related costs. In September 2008, the United States District Court for the Southern District of New York denied the State Street defendants’ motion to dismiss claims for damages and other relief under Section 502(a)(2) of ERISA, but dismissed the claims for equitable relief under Section 502(a)(3) of ERISA. In October 2008, defendants answered the complaint and asserted counterclaims for contribution and indemnification, defamation and violations of Massachusetts’ unfair and deceptive trade practices law. In February 2010, State Street reached a settlement with the SEC over charges that it misled investors about their exposure to subprime investments, resulting in significant investor losses in mid-2007. Under the settlement, State Street paid approximately $313 million in disgorgement, pre-judgment interest, penalty and compensation into a Fair Fund that was distributed to injured investors and consequently, State Street paid PRIAC, for deposit into its separate accounts, approximately $52.5 million. By the terms of the settlement, State Street’s payment to PRIAC does not resolve any claims PRIAC has against State Street or SSgA in connection with the losses in the investment funds SSgA managed, and the penalty component of State Street’s SEC settlement (approximately $8.4 million) cannot be used to offset or reduce compensatory damages in the action against State Street and SSgA. In June 2010, PRIAC moved for partial summary judgment on State Street’s counterclaims. At the same time, State Street moved for summary judgment on PRIAC’s complaint. In March 2011, the district court denied State Street’s motion for summary judgment and denied in part and granted in part PRIAC’s motion for partial summary judgment on State Street’s counterclaims.

In June 2009, special bankruptcy counsel for Lehman Brothers Holdings Inc. (“LBHI”), Lehman Brothers Special Financing (“LBSF”) and certain of their affiliates made a demand of Prudential Global Funding LLC (“PGF”), a subsidiary of the Company, for the return of a portion of the $550 million in collateral delivered by LBSF to PGF pursuant to swap agreements and a cross margining and netting agreement between PGF, LBSF and Lehman Brothers Finance S.A. a/k/a Lehman Brothers Finance AG (“Lehman Switzerland”), a Swiss affiliate that is subject to insolvency proceedings in the United States and Switzerland. LBSF claims that PGF wrongfully applied the collateral to Lehman Switzerland’s obligations in violation of the automatic stay in LBSF’s bankruptcy case, which is jointly administered under In re Lehman Brothers Holdings Inc. in the United States Bankruptcy Court in the Southern District of New York (the “Lehman Chapter 11 Cases”). In August 2009, PGF filed a declaratory judgment action in the same court against LBSF, Lehman Switzerland and LBHI (as guarantor of LBSF and Lehman Switzerland under the swap agreements) seeking an order that (a) PGF had an effective lien on the collateral that secured the obligations of both LBSF ($197 million) and Lehman Switzerland ($488 million) and properly foreclosed on the collateral leaving PGF with an unsecured $135 million claim against LBSF (and LBHI as guarantor) or, in the alternative, (b) PGF was entitled, under the Bankruptcy Code, to set off amounts owed by Lehman Switzerland against the collateral and the automatic stay was inapplicable. The declaratory judgment action is captioned Prudential Global Funding LLC v. Lehman Brothers Holdings Inc., et al. In addition, PGF filed timely claims against LBSF and LBHI in the Lehman Chapter 11 Cases for any amounts due under the swap agreements, depending on the results of the declaratory judgment action. In October 2009, LBSF and LBHI answered in the declaratory judgment action and asserted counterclaims that PGF breached the swap agreement, seeking a declaratory judgment that PGF had a perfected lien on only $178 million of the collateral that could be applied only to amounts owed by LBSF and no right of set off against Lehman Switzerland’s obligations, as well as the return of collateral in the amount of $372 million plus interest and the disallowance of PGF’s claims against LBSF and LBHI. LBSF and LBHI also asserted cross-claims against Lehman Switzerland seeking return of the collateral. In December 2009, PGF filed a motion for judgment on the pleadings to resolve the matter in its favor. In February 2010, LBSF and LBHI cross-moved for judgment on the pleadings.

In October 2006, a purported class action lawsuit, Bouder v. Prudential Financial, Inc. and Prudential Insurance Company of America, was filed in the United States District Court for the District of New Jersey, claiming that Prudential Insurance failed to pay overtime to insurance agents in violation of federal and Pennsylvania law, and that improper deductions were made from these agents’ wages in violation of state law. The complaint seeks back overtime pay and statutory damages, recovery of improper deductions, interest, and attorneys’ fees. In March 2008, the court conditionally certified a nationwide class on the federal overtime claim. Separately, in March 2008, a purported nationwide class action lawsuit was filed in the United States District Court for the Southern District of California, Wang v. Prudential Financial, Inc. and Prudential Insurance, claiming that the Company failed to pay its agents overtime and provide other benefits in violation of California and federal law and seeking compensatory and punitive damages in unspecified amounts. In September 2008, Wang was transferred to the United States District Court for the District of New Jersey and consolidated with the Bouder matter. Subsequent amendments to the complaint have resulted in additional allegations involving purported violations of an additional nine states’ overtime and wage payment laws. In February 2010, Prudential Insurance moved to decertify the federal overtime class that had been conditionally certified in March 2008, and moved for summary judgment on the federal overtime claims of the named plaintiffs. In July 2010, plaintiffs filed a motion for

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class certification of the state law claims. In August 2010, the district court granted Prudential Insurance’s motion for summary judgment, dismissing the federal overtime claims. The motion for class certification of the state law claims is pending.

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

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Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder of

The Prudential Insurance Company of America:

In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of operations, of equity and of cash flows present fairly, in all material respects, the financial position of The Prudential Insurance Company of America (a wholly owned subsidiary of Prudential Holdings, LLC, which is a wholly owned subsidiary of Prudential Financial, Inc.), and its subsidiaries (collectively, the “Company”) at December 31, 2010 and 2009, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2010 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 consolidated financial statements, the Company changed its method of determining and recording other-than-temporary impairment for debt securities and of presenting non-controlling interest on January 1, 2009.

/S/ PRICEWATERHOUSECOOPERS LLP

New York, New York

March 31, 2011

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PART C

OTHER INFORMATION

Item 24. Financial Statements and Exhibits

(a) Financial Statements

1. Financial Statements of The Prudential Insurance Company of America (Depositor) and Financial Statements of the Prudential Discovery Premier Group Variable Contract Account (Registrant) as of December 31, 2010 appear in the Statement of Additional Information (Part B of the Registration Statement). (Note 1)

(b) Exhibits

1. Resolution adopted by the Board of Directors of The Prudential Insurance Company of America on November 9, 1999 establishing the Prudential Discovery Premier Group Variable Contract Account (the “Discovery Account”). (Note 4, Exhibit 1)

2. Not applicable.

3(a). Distribution Agreement. (Note 4, Exhibit 3a)

3(b). Broker-dealer sales agreement (Marketing Agreement). (Note 4, Exhibit 3b)

4(a). Form of Group Annuity Contract. (Note 4, Exhibit 4a)

4(b). Form of Group Annuity Contract Amendment. (Note 4, Exhibit 4b)

4(c). Form of Group Annuity Contract Amendment DCA-GBP-2000. (Note 5, Exhibit 4c)

5(a). Not applicable.

5(b). Not applicable.

6(a). Charter of The Prudential Insurance Company of America, as amended July 19, 2004. (Note 6, Exhibit 3A)

6(b). By-Laws of The Prudential Insurance Company of America, as amended December 9, 2008. (Note 7, Exhibit 6(b))

7. Not applicable.

8. Form of Participation Agreement. (Note 3, Exhibit 8a)

9. Consent and opinion of C. Christopher Sprague, Assistant General Counsel, The Prudential Insurance Company of America, as to the legality of the securities being registered. (Note 4, Exhibit 9)

10(a). Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. (Note 1)

10(b). Powers of Attorney for John R. Strangfeld, Jr.; Mark B. Grier; Thomas J. Baltimore, Jr.; Gordon M. Bethune; Gaston Caperton; Gilbert F. Casellas; James G. Cullen; William H. Gray, III; Jon F. Hanson; Constance J. Horner; Martina T. Hund-Mejean; Karl J. Krapek; Christine A. Poon; James A. Unruh; Richard J. Carbone; Peter B. Sayre. (Note 1)

11. Not applicable.

12. Not applicable.

(Note 1) Filed herewith.

(Note 2) N/A

(Note 3) Incorporated by reference to Post-Effective Amendment No. 1, Registration No. 333-06701, filed June 24, 1996, on behalf of the Pruco Life Flexible Premium Variable Annuity Account. See Exhibit 8(a).

(Note 4) Incorporated by reference to Pre-Effective Amendment No. 1, Registration No. 333-95637, filed April 26, 2000, on behalf of Registrant. See Exhibits 1, 3(a), 3(b), 4(a), 4(b) and 9.

(Note 5) Incorporated by reference to Post-Effective Amendment No. 1, Registration No. 333-95637, filed February 27, 2001, on behalf of Registrant. See Exhibit 4(c).

(Note 6) Incorporated by reference to Post-Effective Amendment No. 18 to Form S-1, Registration No. 33-20083-01, filed April 14, 2005, on behalf of The Prudential Variable Contract Real Property Account. See Exhibit (3A).

(Note 7) Incorporated by reference to Post-Effective Amendment No. 13 to this Registration Statement, filed April 23, 2010. See Exhibit 6(b).

Item 25. Directors and Officers of the Depositor

Name and Principal Business Address(*)	Position and Offices with Depositor
John R. Strangfeld, Jr.	Chairman, President, Chief Executive Officer and Director
Mark B. Grier	Vice Chairman and Director
Thomas J. Baltimore, Jr.	Director
Gordon M. Bethune	Director
Gaston Caperton	Director
Gilbert F. Casellas	Director
James G. Cullen	Director
William H. Gray, III	Director
Jon F. Hanson	Director
Constance J. Horner	Director
Martina T. Hund-Mejean	Director
Karl J. Krapek	Director
Christine A. Poon	Director
James A. Unruh	Director
Edward P. Baird	Executive Vice President and Chief Operating Officer, International Businesses
Richard J. Carbone	Executive Vice President and Chief Financial Officer
Charles F. Lowrey	Executive Vice President and Chief Operating Officer, U.S. Businesses
Lee D. Augsburger	Senior Vice President and Chief Ethics and Compliance Officer

Name and Principal Business Address(*)	Position and Offices with Depositor
Susan L. Blount	Senior Vice President and General Counsel
Robert M. Falzon	Senior Vice President and Treasurer
Helen M. Galt	Senior Vice President, Company Actuary and Chief Risk Officer
Peter B. Sayre Three Gateway Center Newark, NJ 07102	Senior Vice President, Principal Accounting Officer and Controller
Sharon C. Taylor	Senior Vice President, Human Resources
Margaret M. Foran	Chief Governance Officer, Vice President and Corporate Secretary

* The address of each Director and Officer named is 751 Broad Street, Newark, NJ 07102, unless otherwise noted.

Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant

Registrant is a separate account of Prudential, a stock life insurance company organized under the laws of the State of New Jersey and a subsidiary of Prudential Financial (“Prudential Financial”). The subsidiaries of Prudential Financial are listed under Exhibit 21.1 of the Annual Report on Form 10-K of Prudential Financial, Inc. (PFI), Registration No. 001-16707, filed February 25, 2011, the text of which is hereby incorporated.

In addition to the subsidiaries shown on the Organization Chart, Prudential holds all of the voting securities of Prudential’s Gibraltar Fund, Inc., a Maryland corporation, in three of its separate accounts. Prudential also holds directly and in three of its separate accounts, shares of The Prudential Series Fund, a Delaware statutory trust. The balance of the shares of The Prudential Series Fund is held in separate accounts of Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey, wholly-owned subsidiaries of Prudential and separate accounts of certain non-Prudential insurers. All of the separate accounts referred to above are unit investment trusts registered under the Investment Company Act of 1940. Prudential’s Gibraltar Fund, Inc. and The Prudential Series Fund are registered as open-end, diversified management investment companies under the Investment Company Act of 1940. The shares of these investment companies are voted in accordance with the instructions of persons having interests in the unit investment trusts, and Prudential, Pruco Life Insurance Company and Pruco Life Insurance Company of New Jersey vote the shares they hold directly in the same manner that they vote the shares that they hold in their separate accounts.

Registrant may also be deemed to be under common control with other insurers that are direct or indirect subsidiaries of PFI and their separate accounts.

Prudential is a stock insurance company. Its financial statements have been prepared in conformity with generally accepted accounting principles, which include statutory accounting practices prescribed or permitted by state regulatory authorities for insurance companies.

Item 27. Number of Contractholders

As of January 31, 2011, there were 7 contractholders of qualified and 1 contractholder of non-qualified Contracts, offered by the Registrant.

Item 28. Indemnification

The Registrant, in conjunction with certain of its affiliates, maintains insurance on behalf of any person who is or was a trustee, director, officer, employee, or agent of the Registrant, or who is or was serving at the request of the Registrant as a trustee, director, officer, employee or agent of such other affiliated trust or corporation, against any liability asserted against and incurred by him or her arising out of his or her position with such trust or corporation.

New Jersey, being the state of organization of The Prudential Insurance Company of America (“Prudential”), permits entities organized under its jurisdiction to indemnify directors and officers with certain limitations. The relevant provisions of New Jersey law permitting indemnification can be found in Section 14A:3-5 of the New Jersey Statutes Annotated. The text of Prudential’s by-law, Article VII, Section 1, which relates to indemnification of officers and directors, is incorporated by reference to Exhibit 1A(6)(c) to Post-Effective Amendment No. 29 to Form N-6, Registration No. 33-20000, filed April 21, 2006, on behalf of The Prudential Variable Appreciable Account.

Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the “Securities Act”), may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the 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, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

Item 29. Principal Underwriter

(a) Prudential Investment Management Services LLC (PIMS)

PIMS is distributor for Cash Accumulation Trust, Prudential California Municipal Income Fund, Prudential Jennison Blend Fund, Inc., Prudential Global Total Return Fund, Inc., Prudential Government Income Fund, Inc., Prudential Government Securities Money Market Fund, Prudential High Yield Fund, Inc., Prudential Stock Index Fund, Prudential Institutional Money Market Fund, Inc., Prudential MoneyMart Assets, Inc., Prudential Muni High Income Fund, Prudential National Municipals Fund, Inc., Prudential Jennison Natural Resources Fund, Inc., Prudential Sector Funds, Inc., Prudential Short-Term Corporate Bond Fund, Inc., Prudential

Jennison Small Company Fund, Inc., Prudential Large-Cap Core Equity Fund, Prudential Small-Cap Core Equity Fund, Inc., Prudential Total Return Bond Fund, Inc., Prudential Jennison 20/20 Focus Fund, Prudential Jennison Mid-Cap Growth Fund, Inc., Prudential Jennison Value Fund, Prudential International Equity Fund, Prudential Jennison Equity Income Fund, Prudential Mid-Cap Value Fund, The Prudential Investment Portfolios, Inc., Prudential Strategic Value Fund, Prudential Jennison Select Growth Fund, Prudential Jennison Conservative Growth Fund, Prudential Small-Cap Value Fund, Prudential Asset Allocation Fund, Prudential Jennison Equity Opportunity Fund, Prudential Jennison Growth Fund, Prudential Conservative Allocation Fund, Prudential Growth Allocation Fund, Prudential Moderate Allocation Fund, Prudential Financial Services Fund, Prudential Jennison Health Sciences Fund, Prudential Jennison Utility Fund, Target Asset Allocation Funds, The Target Portfolio Trust, The Prudential Series Fund and Advanced Series Trust.

PIMS is also distributor of the following other investment companies: Prudential’s Gibraltar Fund, Inc., The Prudential Variable Contract Account-2, The Prudential Variable Contract Account-10, The Prudential Variable Contract Account-11, The Prudential Variable Contract Account-24, The Prudential Variable Contract GI-2, The Prudential Discovery Premier Group Variable Contract Account, The Prudential Discovery Select Group Variable Contract Account and PRIAC Variable Contract Account A.

b) The following table sets forth information regarding certain officers of PIMS. As a limited liability company, PIMS has no directors.

NAME AND PRINCIPAL BUSINESS ADDRESS	POSITIONS AND OFFICES WITH UNDERWRITER
Charles F. Lowrey (1)	President and Chief Executive Officer
Scott E. Benjamin (1)	Executive Vice President
Lori L. High (6)	Executive Vice President
Christine C. Marcks (4)	Executive Vice President
Gary F. Neubeck (2)	Executive Vice President
Judy A. Rice (1)	Executive Vice President
Joanne M. Accurso—Soto (1)	Senior Vice President
Michael J. King (3)	Senior Vice President, Chief Legal Officer and Secretary
Iris Krug (6)	Senior Vice President
Peter J. Boland (1)	Senior Vice President and Vice President of Operations
Donnamarie B Dellechiaie (5)	Senior Vice President
Mark R. Hastings (1)	Senior Vice President and Chief Compliance Officer
Michael J. McQuade (1)	Senior Vice President, Comptroller and Chief Financial Officer
John L. Bronson (3)	Vice President and Deputy Chief Legal Officer
Richard W. Kinville (3)	Vice President and Anti-Money Laundering Officer

Principal Business Addresses:

(1) Gateway Center Three, Newark, NJ 07102-4061

(2) Gateway Center Two, Newark, NJ 07102-4061

(3) 751 Broad Street, Newark, NJ 07102-3714

(4) 280 Trumbull Street, Hartford, CT 06103-3509

(5) 200 Wood Avenue South, Iselin, NJ 08830-2706

(6) 80 Livingston Avenue, Roseland, NJ 07068-1753

(c) Commissions received by PIMS during last fiscal year with respect to annuities issued through the registrant separate account.

Name of Principal Underwriter	Net Underwriting Discounts and Commissions		Compensation on Redemption		Brokerage Commission
Prudential Investment Management Services LLC	$	155,684	$	0-	$	0-

Item 30. Location of Accounts and Records

All accounts, books and documents required to be maintained by Section 31(a) of the Investment Company Act of 1940 and the rules thereunder are maintained by the Registrant through Prudential at the following addresses:

The Prudential Insurance Company of America

and Prudential Investment Management, Inc.

751 Broad Street

Newark, NJ 07102-3777

The Prudential Insurance Company of America

and Prudential Investment Management, Inc.

Gateway Buildings Two, Three and Four

100 Mulberry Street

Newark, NJ 07102

The Prudential Insurance Company of America

213 Washington Street

Newark, NJ 07102

The Prudential Insurance Company of America and

Prudential Investment Management, Inc.

80 Livingston Avenue

Roseland, NJ 07088

The Prudential Insurance Company of America

c/o Prudential Investment

30 Scranton Office Park

Scranton, PA 18507-1789

The Prudential Insurance Company of America

200 Wood Avenue South

Iselin, NJ 08830

State Street Bank and Trust Company

801 Pennsylvania Avenue

Kansas City, MO 64105

Item 31. Management Services

None.

Item 32. Undertakings

(a) The Registrant undertakes to file a post-effective amendment to this registration statement as frequently as necessary to ensure that the audited financial statements in this registration statement are never more than 16 months old for so long as payments under the variable annuity contracts may be accepted, unless otherwise permitted.

(b) The Registrant undertakes to include either (1) as part of any enrollment form to purchase a contract offered by the prospectus, a space that an applicant 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.

(c) The Registrant 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) The Prudential Insurance Company of America 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 expected to be incurred, and the risks assumed by The Prudential Insurance Company of America.

403(b) ANNUITIES

The Registrant intends to rely on the no-action response dated November 28, 1988, from Ms. Angela C. Goelzer of the Commission staff to the American Council of Life Insurance concerning the redeemability of Section 403(b) annuity contracts and the Registrant has complied with the provisions of paragraphs (1)-(4) thereof.

TEXAS ORP

The Registrant intends to offer Contracts to Participants in the Texas Optional Retirement Program. In connection with that offering, Rule 6c-7 of the Investment Company Act of 1940 is being relied upon and paragraphs (a)-(d) of that Rule will be complied with.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant, Prudential Discovery Premier Group Variable Contract Account, represents that this post-effective amendment is filed solely for one or more of the purposes specified in paragraph (b)(1) of Rule 485 under the Securities Act of 1933, and further represents that no material event requiring disclosure in the prospectus has occurred since the effective date of the most recent post-effective amendment to this registration statement, and the Registrant and the Depositor have duly caused this Registration Statement to be signed on their behalf, in the City of Newark, and State of New Jersey, on this 19th day of April, 2011.

THE PRUDENTIAL DISCOVERY PREMIER GROUP VARIABLE CONTRACT ACCOUNT (Registrant)
	BY:	/s/ James W. McInnes
		JAMES W. MCINNES
		VICE PRESIDENT, PRODUCT MANAGEMENT AND DEVELOPMENT, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA (Depositor)
	BY:	/s/ James W. McInnes
		JAMES W. MCINNES
		VICE PRESIDENT, PRODUCT MANAGEMENT AND DEVELOPMENT, THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

SIGNATURES

            SIGNATURE AND TITLE            

*

JOHN R. STRANGFELD, JR.

CHAIRMAN, PRESIDENT, CHIEF EXECUTIVE OFFICER AND DIRECTOR

*

MARK B. GRIER

VICE CHAIRMAN AND DIRECTOR

*

THOMAS J. BALTIMORE, JR.

DIRECTOR

*

GORDON M. BETHUNE

DIRECTOR

*

GASTON CAPERTON

DIRECTOR

*

GILBERT F. CASELLAS

DIRECTOR

*

JAMES G. CULLEN

DIRECTOR

*
WILLIAM H. GRAY, III
DIRECTOR
*
JON F. HANSON
DIRECTOR
*
CONSTANCE J. HORNER
DIRECTOR
*
MARTINA T. HUND-MEJEAN DIRECTOR
*
KARL J. KRAPEK
DIRECTOR
*
CHRISTINE A. POON
DIRECTOR
*
JAMES A. UNRUH
DIRECTOR
*
RICHARD J. CARBONE
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
*
PETER B. SAYRE
SENIOR VICE PRESIDENT, CONTROLLER AND PRINCIPAL ACCOUNTING OFFICER
	*By:	/s/ C. CHRISTOPHER SPRAGUE
		C. CHRISTOPHER SPRAGUE (ATTORNEY-IN-FACT)

EXHIBIT INDEX

Exhibit No.	Description
10(a)	Consent of PricewaterhouseCoopers LLP, an independent registered public accounting firm.
10(b)	Powers of Attorney for John R. Strangfeld, Jr.; Mark B. Grier; Thomas J. Baltimore, Jr.; Gordon M. Bethune; Gaston Caperton; Gilbert F. Casellas; James G. Cullen; William H. Gray, III; Jon F. Hanson; Constance J. Horner; Martina T. Hund-Mejean; Karl J. Krapek; Christine A. Poon; James A. Unruh; Richard J. Carbone; Peter B. Sayre.