Prudential Annuities Life Assurance Corporation

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

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

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

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

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

As of August 11, 2008 25,000 shares of the registrant’s Common Stock (par value $100) consisting of 100 voting shares and 24,900 non-voting shares, were outstanding. As of such date, Prudential Annuities, Inc. formerly known as American Skandia, Inc., an indirect wholly owned subsidiary of Prudential Financial, Inc., a New Jersey corporation, owned all of the registrant’s Common Stock.

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

As of June 30, 2008 and December 31, 2007 (in thousands, except share amounts)

Prudential Annuities Life Assurance Corporation (the “Company” ”, “we”, or “our”), formerly known as American Skandia Life Assurance Corporation, with its principal offices in Shelton, Connecticut, is an indirect wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”), a New Jersey corporation. The Company is a wholly owned subsidiary of Prudential Annuities, Inc. (“PAI”), formerly known as American Skandia, Inc., which in turn is an indirect wholly owned subsidiary of Prudential Financial. On December 19, 2002, Skandia Insurance Company Ltd. (publ) (“Skandia”), an insurance company organized under the laws of the Kingdom of Sweden, and the ultimate parent company of the Company prior to May 1, 2003, entered into a definitive purchase agreement (the “Acquisition Agreement”) with Prudential Financial, whereby Prudential Financial would acquire the Company and certain of its affiliates (the “Acquisition”) and would be authorized to use the American Skandia name through April, 2008. On May 1, 2003, the Acquisition was consummated. Thus, the Company is now an indirect wholly owned subsidiary of Prudential Financial. The Company’s name was changed effective January 1, 2008.

The Company develops long-term savings and retirement products, which are distributed through its affiliated broker/dealer company, Prudential Annuities Distributors, Incorporated (“PAD”), formerly known as American Skandia Marketing, which is a wholly owned subsidiary of PAI. The Company currently issues variable and fixed deferred and immediate annuities for individuals and groups in the United States of America and its territories.

The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities engaged in marketing insurance products, and individual and group annuities.

The unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and on a basis consistent with reporting interim financial information in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (the “SEC”). These interim financial statements are unaudited but reflect all adjustments that, in the opinion of management, are necessary to provide a fair presentation of the results of operations and financial condition of the Company for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for any interim period are not necessarily indicative of results for a full year. These unaudited interim financial statements should be read in conjunction with the financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

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, valuation of business acquired, investments, future policy benefits, provision for income taxes, reserves for contingent liabilities and reserves for losses in connection with unresolved legal matters.

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.

The Company is subject to legal and regulatory actions in the ordinary course of its businesses. Pending legal and regulatory actions include proceedings relating to aspects of the Company’s businesses and operations that are specific to it and proceedings that are typical of the businesses in which it operates, including in both cases businesses that have either been divested or placed in wind-down status. Some of these proceedings have been brought on behalf of various alleged classes of complainants. In certain of these matters, the plaintiffs are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of a litigation or regulatory matter, and the amount or range of potential loss at any particular time, is often inherently uncertain. The following is a summary of certain pending proceedings:

The Company is in the final stage of its remediation program to correct errors in the administration of approximately 11,000 annuity contracts issued by the Company. The owners of these contracts did not receive notification that the contracts were approaching or past their designated annuitization date or default annuitization date (both dates referred to as the “contractual annuity date”) and the contracts were not annuitized at their contractual annuity dates. Some of these contracts also were affected by data integrity errors resulting in incorrect contractual annuity dates. The lack of notice and the data integrity errors, as reflected on the annuities administrative system, all occurred before the Acquisition. The remediation and administrative costs of the remediation program are subject to the indemnification provisions of the Acquisition Agreement.

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

During the third quarter of 2004, the Company identified a system-generated calculation error in its annuity contract administration system that existed prior to the Acquisition. This error related to the calculation of amounts due to customers for certain transactions subject to a market value adjustment upon the surrender or transfer of monies out of their annuity contract’s fixed allocation options. The error resulted in an underpayment to policyholders, as well as additional anticipated costs to the Company associated with remediation, breakage and other costs. The Company’s consultants have developed the systems functionality to compute remediation amounts and are in the process of running the computations on affected contracts. The Company contacted state insurance regulators and commenced Phase I of its outreach to customers on November 12, 2007. Phase II commenced June 6, 2008. A final phase is expected to rollout after that. The Company has advised Skandia that a portion of the remediation and related administrative costs are subject to the indemnification provisions of the Acquisition Agreement.

From January 2006 to February 2008, thirty-one complaints were filed in 17th Judicial Circuit Court, Broward County, Florida alleging misrepresentations in the sale of annuities against the Company and in certain of the cases the two brokers who sold the annuities. The complaints allege that the brokers represented that any losses in the annuities would be insured or paid by a state guaranty fund and purport to state claims of breach of fiduciary duty, negligence, fraud, fraudulent inducement, negligent misrepresentation and seek damages in unspecified amounts but in excess of $15,000 per case. These matters are subject to the indemnification provisions of the Acquisition Agreement.

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

The Company is a party to numerous transactions and relationships with its affiliate The Prudential Insurance Company of America (“Prudential Insurance”) and other affiliates. It is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties.

Many of the Company’s expenses are allocations or charges from Prudential Insurance or other affiliates.

The Company’s general and administrative expenses are charged to the Company using allocation methodologies based on business processes. Management believes that the methodology is reasonable and reflects costs incurred by Prudential Insurance to process transactions on behalf of the Company. The Company operates under service and lease agreements whereby services of officers and

employees, supplies, use of equipment and office space are provided by Prudential Insurance. Since 2003, general and administrative expenses also include allocations of stock compensation expenses related to a stock option program and a deferred compensation program sponsored by Prudential Financial.

The Company is charged for its share of employee benefits expenses. These expenses include costs for funded and non-funded contributory and non-contributory defined benefit pension plans. Some of these benefits are based on earnings and length of service. Other benefits are based on an account balance, which takes into consideration age, service and earnings during career.

The Company’s share of net expense for the pension plans was $1.5 million and $1.0 million for the three months ended June 30, 2008 and 2007 respectively; and $2.9 million and $1.9 million, for the six months ended June 30, 2008 and 2007, respectively.

Prudential Insurance sponsors voluntary savings plans for the Company’s employees (“401(k) plans”). The 401(k) plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The expense charged the Company for the matching contribution to the 401(k) plans was $0.7 million and $0.5 million for the three months ended June 30, 2008 and 2007, respectively; and $1.4 million and $0.9 million, for the six months ended June 30, 2008 and 2007, respectively.

On January 11, 2008, the Company entered into a $350 million long-term loan with Prudential Financial. The original lender under this loan was Prudential Funding, LLC (“Pru Funding”), with an original issue date of 12/31/07 and was transferred to Prudential Financial on January 11, 2008. This loan has an interest rate of 5.26% and matures on January 15, 2013.

On December 14, 2006, the Company entered into a $300 million loan with Prudential Financial. This loan has an interest rate of 5.18% and matures on December 14, 2011.

On March 10, 2005, the Company entered into a $30 million loan with Pru Funding. This loan had an interest rate of 5.53% and matured on March 11, 2008.

On May 1, 2004, the Company entered into a $500 million credit facility agreement with Pru Funding. Effective December 1, 2004, the credit facility agreement was increased to $750 million. As of June 30, 2008 and 2007, $196.7 million and $409.2 million, respectively, was outstanding under this credit facility.

During 2008, the Company entered into three new reinsurance agreements with an affiliate as part of its risk management and capital management strategies. Effective January 28, 2008, the Company entered into a coinsurance agreement with Pruco Reinsurance, Ltd. (“Pruco Re”) providing for the 100% reinsurance of its Highest Daily Lifetime Seven (“HD7”) and Spousal Highest Daily Lifetime Seven (“SHD7”) benefit features sold on certain of its annuities. Effective January 28, 2008, the Company entered into a coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Guaranteed Return Option Plus (“GRO Plus”) benefit feature sold on certain of its annuities. Effective January 28, 2008 the Company entered into a coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Highest Daily Guaranteed Return Option (“HD GRO”) benefit feature sold on certain of its annuities.

During 2007, the Company amended the reinsurance agreements it entered into in 2005 covering its Lifetime Five benefit (“LT5”). The coinsurance agreement entered into with Prudential Insurance in 2005 provided for the 100% reinsurance of its LT5 feature sold on new business prior to May 6, 2005. This agreement was recaptured effective August 1, 2007. Effective July 1, 2005, the Company entered into a coinsurance agreement with Pruco Re providing for the 100% reinsurance of its LT5 feature sold on new business after May 5, 2005 as well as for features issued on or after March 15, 2005 forward on business in-force before March 15, 2005. This agreement was amended effective August 1, 2007 to include the reinsurance of business sold prior to May 6, 2005 that was previously reinsured to Prudential Insurance.

In accordance with an agreement with AST Investment Services, Inc., formerly known as American Skandia Investment Services, Inc, the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series Trust, formerly known as American Skandia Trust. Income received from AST Investment Services, Inc. related to this agreement was $47.4 million and $43.3 million, for the three months ended June 30, 2008 and 2007, respectively; and $92.7 million and $82.0 million, for the six months ended June 30, 2008 and 2007, respectively. These revenues are recorded as “Asset management fees” in the Statements of Operations and Comprehensive Income.

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

Level 1—Fair value is based on unadjusted quoted prices in active markets that are accessible to the Company for identical assets or liabilities. These generally provide the most reliable evidence and are used to measure fair value whenever available. The Company’s Level 1 assets and liabilities primarily include equity securities and derivative contracts that are traded in an active exchange market. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2—Fair value is based on significant inputs, other than Level 1 inputs, that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability through corroboration with observable market data. Level 2 inputs include quoted market prices in active markets for similar assets and liabilities, quoted market prices in markets that are not active for identical or similar assets or liabilities and other 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 and commercial loans, short-term investments and certain cash equivalents (primarily commercial paper), and certain over-the-counter derivatives. Valuations are generally obtained from third party pricing services for identical or comparable assets or liabilities (and validated through comparison to internal pricing information and economic indicators as well as backtesting to trade data or other data to confirm that the pricing service significant inputs are observable) or determined through use of valuation methodologies using observable market inputs. Under certain conditions, the Company may conclude the prices received from independent third party pricing services are not reasonable or reflective of market activity. In those instances, the Company may choose to over-ride the pricing information received and apply internally developed values to the related assets or liabilities. In such cases, the valuations are generally classified as Level 3. As of June 30, 2008 such over-rides on a net basis resulted in lower pricing levels being used and in aggregate were not materially different from the prices received from the independent pricing services.

Level 3—Fair value is based on significant unobservable inputs for the asset or liability. These inputs reflect the Company’s assumptions about the assumptions market participants would use in pricing the asset or liability. The Company’s Level 3 assets and liabilities primarily include: certain private fixed maturities and equity securities, certain manually priced public equity securities and fixed maturities, including certain asset-backed securities, certain highly structured over-the-counter derivative contracts, certain commercial loans, 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.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis, as of June 30, 2008.

The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the three and six months ending June 30, 2008, as well as the portion of gains or losses included in income for the three and six months ended June 30, 2008 attributable to unrealized gains or losses related to those assets and liabilities still held at June 30, 2008.

Transfers – Transfers out of Level 3 for Fixed Maturities Available for Sale totaled $18.4 million at three months ended June 30, 2008, and $6.0 million at six months ended June 30, 2008. This activity was a result of pricing service information that the Company was able to validate in the second quarter of 2008 but was not available in the first quarter of 2008.

In February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities.” This statement provides companies with an option to report selected financial assets and liabilities at fair value, with the associated changes in fair value reflected in the Statements of Operations. The Company adopted this guidance effective January 1, 2008. The Company’s adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement does not change which assets and liabilities are required to be recorded at fair value, but the application of this statement could change current practices in determining fair value. The Company adopted this guidance effective January 1, 2008. The Company’s adoption of this guidance did not have a material effect on the Company’s financial position or results of operations.

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

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

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

In April 2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of Intangible Assets.” This FSP amends the list of factors an entity should consider in developing renewal or extension assumptions used in determining the useful life of recognized intangible assets under SFAS No. 142. The new guidance applies to (1) intangible assets that are acquired individually or with a group of other assets and (2) intangible assets acquired in both business combinations and asset acquisitions. This FSP is effective for fiscal years and interim periods beginning after December 15, 2008, with the guidance for determining the useful life of a recognized intangible asset being applied prospectively to intangible assets acquired after the effective date and the disclosure requirements being applied prospectively to all intangible assets recognized as of, and after, the effective date. The Company is currently assessing the impact of this FSP on the Company’s financial statements.

In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” an amendment of FASB Statement No. 133. This statement amends and expands the disclosure requirements for derivative instruments and hedging activities by requiring companies to provide enhanced disclosures about (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under Statement No. 133 and its related interpretations, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. This statement is effective for fiscal years and interim periods beginning after November 15, 2008. The Company is currently assessing the impact of SFAS No. 161 on the notes to the financial statements.

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

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

Prudential Annuities Life Assurance Corporation meets the conditions set forth in General Instruction H(1)(a) and (b) on Form 10-Q and is therefore filing this form with the reduced disclosure format.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) addresses the financial condition of Prudential Annuities Life Assurance Corporation (“PALAC” or the “Company”), formerly known as American Skandia Life Assurance Corporation, as of June 30, 2008 compared with December 31, 2007 and its results of operations for the three month and six month periods ended June 30, 2008 and 2007. You should read the following analysis of our financial condition and results of operations in conjunction with the “Risk Factors” section, the MD&A and the audited Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, as well as the “Risk Factors” section, the statements under “Forward Looking Statements”, and the Interim Financial Statements included elsewhere in this Quarterly Report on Form 10-Q.

The Company was established in 1988 and is a significant provider of variable annuity contracts for the individual market in the United States of America and its territories. The Company’s products are sold primarily to individuals to provide for savings and retirement needs, including variable annuity optional benefits designed to address the risk of outliving one’s retirement assets. The investment performance of the registered investment companies supporting the variable annuity contracts, which is principally correlated to equity market performance, can significantly impact the market for the Company’s products.

The Company offers a wide array of annuities, including deferred and immediate variable annuities that are registered with the United States Securities and Exchange Commission (the “SEC”), which may include (1) fixed interest rate allocation options, subject to a market value adjustment, and registered with the SEC, and (2) fixed rate allocation options not subject to a market value adjustment and not registered with the SEC. In addition, the Company has in force a relatively small block of variable life insurance policies, but it no longer actively sells such policies.

The Company offers variable annuities that provide our customers with a full suite of optional guaranteed death and living benefits. Our investment options within our variable annuities provide our customers with the opportunity to make allocations in proprietary and non-proprietary mutual fund options, frequently under asset allocation programs, and fixed interest rate options. The allocations made by customers to the proprietary and non-proprietary mutual fund options represent an interest in separate investment companies that provide a return linked to an underlying investment portfolio. The investments made in the fixed interest rate options are credited with a rate of return that we determine from time to time, subject to certain contractual minimums. The Company also offers fixed annuities that provide a guarantee of principal and a guaranteed interest rate.

Annuity contracts represent the insurer’s contractual obligation to make payments over a given period of time, often measured by the life of the annuitant, in return for a single purchase payment or a series of scheduled or flexible purchase payments. The insurer’s obligation to pay may commence immediately or be deferred. If the insurer’s payments are deferred, the insurer generally incurs an obligation to offer a surrender value available during the deferral period based on an account value, and certain guarantees as applicable. The account value consists of the purchase payments and may earn interest, or may vary with the performance of investments in the underlying fund options made available by the insurer and elected by contractholders. Gains on purchase payments made by the contractholder, before distribution, generally are tax deferred for the contractholder. Distributions are taxed as ordinary income to the contractholder, until all gain has been withdrawn. For immediate annuities and annuitized deferred annuities, a portion of each distribution may be treated as a return of the contractholder’s investment in the contract.

The Company sells its annuity products through multiple distribution channels, including (1) independent broker-dealer firms and financial planners; (2) broker-dealers that are members of the New York Stock Exchange, including “wirehouse” and regional broker-dealer firms; and (3) broker-dealers affiliated with banks or that specialize in marketing to customers of banks. Although

the Company is active in each of those distribution channels, the majority of the Company’s sales have come from the independent broker-dealer firms and financial planners. The Company has selling agreements with approximately nine hundred broker-dealer firms and financial institutions. On June 1, 2006, Prudential Insurance an affiliate of the Company, acquired the variable annuity business of The Allstate Corporation (“Allstate”), which included access to the Allstate affiliated broker-dealer. The Company began distributing variable annuities through the Allstate affiliated broker-dealer registered representatives in the third quarter of 2006.

Although many of the Company’s competitors have acquired or are seeking to acquire their distribution channels as a means of securing sales, the Company typically does not follow that model. Instead, the Company believes that its success is dependent on its ability to enhance its relationships with both the selling firms and their registered representatives. In cooperation with its affiliated broker-dealer, Prudential Annuities Distributors Incorporated, (“PAD”), formerly known as American Skandia Marketing, Incorporated, the Company uses wholesalers to provide support to its distribution channels.

The Company’s Changes in Financial Position and Results of Operations are described below.

For information on the Company’s significant accounting policies, see Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

Assets decreased by $538.9 million, from $45.3 billion at December 31, 2007 to $44.8 billion at June 30, 2008. Separate account assets decreased by $5.5 billion, driven by market depreciation during the current year and transfers to our general account due to the automatic rebalancing element in certain of our living benefit features. As discussed, partially offsetting the separate account decrease was increases in fixed maturities of $3.4 billion and short term investments of $1.1 billion, driven by higher general account balances due to the automatic rebalancing element in certain of our living benefit features. Additionally, deferred policy acquisition costs (“DAC”) and deferred sales inducements also increased by $151.2 million and $104.8 million, respectively, from December 31, 2007 to June 30, 2008, due to sales driving higher capitalized costs.

During the period, total liabilities decreased by $638.5 million, from $44.2 billion at December 31, 2007 to $43.5 billion at June 30, 2008. Separate account liabilities decreased by $5.5 billion, driven by market depreciation during the current year and the aforementioned transfers related to our automatic rebalancing element. As discussed, partially offsetting the separate account decrease was increases in policyholders’ account balances of $3.6 billion and investment payable on open trades of $1.1 billion, primarily due to transfers of customer account values from the separate account variable investment options into the general account fixed rate investment options due to the automatic rebalancing element in certain of our living benefit features.

Net income decreased $31.0 million, from $66.2 million for the three months ended June 30, 2007 to $35.2 million for the three months ended June 30, 2008. Realized investment losses, net, increased by $55.5 million from losses of $8.1 million for the three months ended June 30, 2007 to losses of $63.6 million for the three months ended June 30, 2008, primarily driven by increased investment losses on our MVA portfolio due to derivative hedges in the second quarter of 2008. Interest credited to policyholder account balances increased $26.6 million from the three months ended June 30, 2007 as a result of higher policyholder account values due to transfers from the separate account variable investment options into the general account fixed rate options due to the GRO and Highest Daily Lifetime Five automatic rebalancing element. Additionally, general administrative and other expenses increased $7.3 million from the three months ended June 30, 2007 driven by higher employee benefits and salary expenses. These unfavorable variances were partially offset by higher net investment income of $39.3 million due to the aforementioned general account transfers, and policy charges and fee income increased $12.8 million, primarily due to the change in realized market value adjustments related to the Company’s market value adjusted investment option (the “MVA option”). Further details regarding the components of revenues and expenses are described below.

Revenues decreased $4.8 million, from $246.4 million for the three months ended June 30, 2007 to $241.6 million for the three months ended June 30, 2008. Premiums decreased $3.9 million, from $8.2 million for the three months ended June 30, 2007 to $4.3 million for the three months ended June 30, 2008, reflecting a decrease in funds from customers electing to enter into the payout phase of their annuity contracts.

Policy charges and fee income increased $12.8 million, from $173.3 million for the three months ended June 30, 2007 to $186.1 million for the three months ended June 30, 2008 due to the change in realized market value adjustments related to the Company’s MVA option.

Net investment income increased $39.3 million from $17.4 million for the three months ended June 30, 2007 to $56.7 million for the three months ended June 30, 2008 as a result of higher general account assets as these assets moved from separate account variable investment options into the general account fixed rate investment options due to the GRO and Highest Daily Lifetime Five automatic rebalancing element.

Realized investment losses, net, increased $55.5 million from a loss of $8.1 million for the three months ended June 30, 2007 to a loss of $63.6 million for the three months ended June 30, 2008. This change was driven by increased investment losses on our MVA portfolio due to derivative hedges in the second quarter of 2008.

Asset management fees increased $3.0 million, from $55.1 million for the three months ended June 30, 2007 to $58.1 million for the three months ended June 30, 2008 as a result of growth of average daily separate account assets compared to the prior year period. Asset management fees are asset based fees, which are dependent on the value of assets under management.

Policyholders’ benefits decreased $8.5 million, from $22.9 million for the three months ended June 30, 2007 to $14.4 million for the three months ended June 30, 2008, primarily driven by a $4.4 million decrease in reserves, net of claims, for the guaranteed minimum death benefit feature due to decreased costs of actual and expected claims. Additionally, change in reserves decreased $3.9 million due to decreased funds from customers entering into the payout phase of their annuity contracts. This was offset by lower premium revenue, as previously discussed.

Interest credited to policyholders’ account balances increased $26.6 million, from $23.4 million for the three months ended June 30, 2007 to $50.0 million for the three months ended June 30, 2008, primarily driven by higher policyholder account values due to transfers from the separate account variable investment options into the general account fixed rate options due to the GRO and Highest Daily Lifetime Five automatic rebalancing element.

General, administrative and other expenses increased by $7.3 million, from $134.7 million for the three months ended June 30, 2007 to $142.0 million for the three months ended June 30, 2008. The increase was primarily due to higher employee benefits and salary expenses of $5.0 million, and increased commission expenses, net of capitalization, of $4.6 million driven by higher trail commissions due to growth in average daily separate account assets, as previously discussed.

Net income decreased $6.9 million, from $118.2 million for the six months ended June 30, 2007 to $111.3 million for the six months ended June 30, 2008. Realized investment losses, net, increased $48.9 million from losses of $15.9 million for the six months ended June 30, 2007 to losses of $64.8 million for the six months ended June 30, 2008 primarily driven by increased investment losses on our MVA portfolio due to derivative hedges in the first half of 2008. Interest credited to policyholder account balances increased $43.8 million from the six months ended June 30, 2007 as a result of higher policyholder account values due to transfers from the separate account variable investment options into the general account fixed rate options due to the GRO and Highest Daily Lifetime Five automatic rebalancing element. Additionally, general administrative and other expenses increased $13.3 million from the six months ended June 30, 2007 driven by higher employee benefits and salary expenses. These unfavorable variances were partially offset by higher net investment income of $65.9 million due to the aforementioned general account transfers and increased policy charges and fee income of $24.3 million primarily due to the change in realized market value adjustments related to the Company’s MVA option. In addition, asset management fees increased by $8.0 million due to growth of average daily separate account assets compared to the prior year period. Further details regarding the components of revenues and expenses are described below.

Revenues increased $43.1 million, from $475.9 million for the six months ended June 30, 2007 to $519.0 million for the six months ended June 30, 2008. Premiums decreased $5.4 million, from $16.9 million for the six months ended June 30, 2007 to $11.5 million for the six months ended June 30, 2008 reflecting a decrease in funds from customers electing to enter into the payout phase of their annuity contracts.

Policy charges and fee income increased by $24.3 million, from $333.2 million for the six months ended June 30, 2007 to $357.5 million for the six months ended June 30, 2008 due to a $16.0 million change in realized market value adjustments related to the Company’s MVA option. Mortality and expense (“M&E”) charges increased $6.9 million as a result of growth of average daily separate account assets compared to the prior year period. Optional benefit charges on our living and death benefit features increased $3.0 million, primarily driven by the sales of our Lifetime Five, Spousal Lifetime Five, Highest Daily Lifetime Five and Highest Daily Seven benefit features. This increase was primarily offset in realized investment losses, net because these features are reinsured with affiliates.

Net investment income increased $65.9 million from $36.0 million for the six months ended June 30, 2007 to $101.9 million for the six months ended June 30, 2008 as a result of higher general account assets as these assets moved from separate account variable investment options into the general account fixed rate investment options due to the GRO and Highest Daily Lifetime Five automatic rebalancing element.

Realized investment losses, net, increased $48.9 million from a loss of $15.9 million for the six months ended June 30, 2007 to a loss of $64.8 million for the six months ended June 30, 2008. This change was driven by increased investment losses on our MVA portfolio due to derivative hedges in the first half of 2008. Also contributing to the increase were increased fees ceded as part of our reinsurance of living benefit features to affiliates, as discussed above.

Asset management fees increased $8.1 million, from $104.8 million for the six months ended June 30, 2007 to $112.9 million for the six months ended June 30, 2008 as a result of growth of average daily separate account assets compared to the prior year period. Asset management fees are asset based fees, which are dependent on the value of assets under management.

Policyholders’ benefits decreased $7.7 million, from $46.6 million for the six months ended June 30, 2007 to $38.9 million for the six months ended June 30, 2008, primarily driven a decrease in change in reserves due to decreased funds from customers entering into the payout phase of their annuity contracts. This was offset by lower premium revenue as previously discussed.

Interest credited to policyholders’ account balances increased $43.7 million, from $44.8 million for the six months ended June 30, 2007 to $88.5 million for the six months ended June 30, 2008, primarily driven by higher policyholder account values due to transfers from the separate account variable investment options into the general account fixed rate options due to the GRO and Highest Daily Lifetime Five automatic rebalancing element.

General, administrative and other expenses increased $13.3 million, from $258.5 million for the six months ended June 30, 2007 to $271.8 million for the six months ended June 30, 2008. The increase was primarily due to higher employee benefit, salary expenses and travel entertainment of $13.7 million, and increased commission expenses, net of capitalization, of $6.7 million driven by higher trail commissions due to growth in average daily separate account assets, as previously discussed. Partially offsetting these increases was a decrease in the amortization of DAC and valuation of business acquired of $7.4 million due to lower levels of actual gross profits driven by unfavorable market performance.

Our income tax provision amounted to $8.5 million for the six months ended June 30, 2008 compared to $7.8 million for the six months ended June 30, 2007, representing 7.1% of income from continuing operations before income taxes for the six months ended June 30, 2008 and 6.2% for the six months ended June 30, 2007.

The dividends received deduction reduces the amount of dividend income subject to tax and is a significant component of the difference between our periodic effective tax rate and the federal statutory tax rate of 35%. In August 2007, the Service released Revenue Ruling 2007-54, which included, among other items, guidance on the methodology to be followed in calculating the dividends received deduction related to variable life insurance and annuity contracts. In September 2007, the Service released Revenue Ruling 2007-61. Revenue Ruling 2007-61 suspends Revenue Ruling 2007-54 and informs taxpayers that the U.S. Treasury Department and the Service intend to address through new regulations the issues considered in Revenue Ruling 2007-54, including the methodology to be followed in determining the dividends received deduction related to variable life insurance and annuity contracts. These activities had no impact on our 2008 results. The increase in the effective tax rate is primarily due to a higher estimate of full year income from continuing operations before income taxes in the current year compared to the prior year. The estimate of full year income from continuing operations before income taxes is used in conjunction with permanent differences to determine effective tax rates that are used throughout the year.

In order to ensure that the information we must disclose in our filings with the SEC is recorded, processed, summarized and reported on a timely basis, the Company’s management, including our Chief Executive Officer and Chief Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended, or the “Exchange Act”, as of June 30, 2008. Based on such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2008, our disclosure controls and procedures were effective. No change in our internal control over financial reporting, as defined in Exchange Act Rules 13a-15(f) and 15d-15(f), occurred during the quarter ended June 30, 2008 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

We are subject to legal and regulatory actions in the ordinary course of our businesses, including class action lawsuits. Our pending legal and regulatory actions include proceedings specific to the Company and proceedings generally applicable to business practices in the industry in which we operate. We are subject to class action lawsuits and other litigation alleging, among other things, that we made improper or inadequate disclosures in connection with the sale of annuity products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. We are also subject to litigation arising out of our general business activities, such as our investments and contracts, and could be exposed to claims or litigation concerning certain business or process patents. Regulatory authorities from time to time make inquiries and conduct investigations and examinations relating particularly to us and our products. In addition, we, along with other participants in the business in which we engage, may be subject from time to time to investigations, examinations and inquiries, in some cases industry-wide, concerning issues or matters upon which such regulators have determined to focus. In some of our pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of a litigation or regulatory matter, and the amount or range of potential loss at any particular time, is inherently uncertain.

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

It should be noted that the judgments, settlements and expenses associated with many of these lawsuits, administrative and regulatory matters, and contingencies, including certain claims described in this report, may, in whole or in part, after satisfaction of certain retention requirements, fall within Skandia’s indemnification obligations to Prudential Financial and its subsidiaries under the terms of the Acquisition Agreement. Those obligations of Skandia provide for indemnification of certain judgments, settlements, and costs and expenses associated with lawsuits and other claims against the Company (“matters”), and apply only to matters, or groups of related matters, for which the costs and expenses exceed $25,000 individually. Additionally, those obligations only apply to such otherwise indemnifiable costs and expenses that exceed $10 million in the aggregate, subject to reduction for insurance proceeds, certain accruals and any realized tax benefit applicable to such amounts, and those obligations do not apply to the extent that such aggregate exceeds $1 billion. We are in discussions with Skandia regarding the satisfaction of the $10 million deductible.

The foregoing discussion is limited to recent developments concerning our legal and regulatory proceedings. See Note 3 to the Unaudited Interim Financial Statements included herein for additional discussion of our litigation and regulatory matters.

You should carefully consider the risks described under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007. These risks could materially affect our business, results of operations or financial condition, or cause our actual results to differ materially from those expected or those expressed in any forward looking statements made by or on behalf of the Company. These risks are not exclusive, and additional risks to which we are subject include, but are not limited to, the factors mentioned under “Forward-Looking Statements” above and the risks of our businesses described elsewhere in our Annual Report on Form 10-K and elsewhere in this Quarterly Report on Form 10-Q.

Schedules are omitted because they are either inapplicable or the information required therein is included in the notes to the Unaudited Interim Financial Statements included herein.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION

By:		/s/ Kenneth Y. Tanji
		Kenneth Y. Tanji
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)


		Page Number
PART I FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Unaudited Interim Statements of Financial Position As of June 30, 2008 and December 31, 2007	4

	Unaudited Interim Statements of Operations and Comprehensive Income Three Months Ended and Six Months Ended June 30, 2008 and 2007	5

	Unaudited Interim Statement of Stockholder’s Equity Six Months Ended June 30, 2008	6

	Unaudited Interim Statements of Cash Flows Six Months Ended June 30, 2008 and 2007	7

	Notes to Unaudited Interim Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 4.	Controls and Procedures	18

PART II OTHER INFORMATION

Item 1.	Legal Proceedings	19

Item 1A.	Risk Factors	19

Item 6.	Exhibits	19

SIGNATURES		20


	June 30, 2008			December 31, 2007
ASSETS
Fixed maturities available for sale, at fair value (amortized cost – 2008: $4,767,559; 2007: $1,329,042)	$	4,749,410		$	1,335,678
Trading account assets, at fair value		14,275			16,314
Equity securities available for sale, at fair value (cost – 2008: $12,080; 2007: $12,476)		11,443			11,599
Commercial loans		38,923			38,503
Policy loans		13,537			12,965
Short-term investments		1,273,273			143,966
Other long-term investments		(11,303	)		(130	)

Total investments	$	6,089,558		$	1,558,895

Cash and cash equivalents		683			697
Deferred policy acquisition costs		1,194,002			1,042,823
Accrued investment income		32,564			13,258
Reinsurance recoverable		207,195			104,083
Income taxes receivable		213,628			215,689
Valuation of business acquired		106,582			118,566
Deferred sales inducements		663,667			558,821
Receivables from parent and affiliates		73,128			77,693
Investment receivable on open trades		124,487			36,542
Other assets		7,618			34,310
Separate account assets		36,047,767			41,538,366

TOTAL ASSETS	$	44,760,879		$	45,299,743


LIABILITIES AND STOCKHOLDER’S EQUITY

LIABILITIES
Policyholders’ account balances	$	4,774,238		$	1,135,095
Future policy benefits and other policyholder liabilities		338,800			228,190
Payables to parent and affiliates		58,975			53,735
Cash collateral for loaned securities		142,895			54,077
Short-term borrowing		196,669			195,280
Long-term borrowing		650,000			680,000
Future fees payable to Prudential Annuities, Inc.		4,118			12,171
Investment payable on open trades		1,140,938			40,533
Other liabilities		158,594			214,021
Separate account liabilities		36,047,767			41,538,366

Total liabilities	$	43,512,994		$	44,151,468

Commitments and Contingent Liabilities (See Note 3)

STOCKHOLDER’S EQUITY
Common stock, $100 par value; 25,000 shares, authorized, issued and outstanding		2,500			2,500
Additional paid-in capital		434,096			434,096
Retained earnings		820,416			709,142
Accumulated other comprehensive income (loss)		(9,127	)		2,537

Total stockholder’s equity	$	1,247,885		$	1,148,275

TOTAL LIABILITIES AND STOCKHOLDER’S EQUITY	$	44,760,879		$	45,299,743


	Three Months Ended June 30,						Six Months Ended June 30,
	2008			2007			2008			2007
REVENUES
Premiums	$	4,310		$	8,209		$	11,537		$	16,980
Policy charges and fee income		186,078			173,256			357,502			333,252
Net investment income		56,677			17,393			101,857			35,987
Realized investment (losses), net		(63,626	)		(8,076	)		(64,833	)		(15,916	)
Asset management fees		58,159			55,112			112,855			104,824
Other income		10			508			54			782

Total revenues		241,608			246,402			518,972			475,909

BENEFITS AND EXPENSES
Policyholders’ benefits		14,444			22,882			38,874			46,575
Interest credited to policyholders’ account balances		50,008			23,427			88,523			44,764
General, administrative and other expenses		141,980			134,695			271,847			258,540

Total benefits and expenses		206,432			181,004			399,244			349,879

Income from operations before income taxes		35,176			65,398			119,728			126,030

Income tax (benefit) expense		(40	)		(813	)		8,454			7,787

NET INCOME	$	35,216		$	66,211		$	111,274		$	118,243

Change in net unrealized investment gains, net of taxes (1)		(15,175	)		(8,586	)		(11,664	)		(6,718	)

COMPREHENSIVE INCOME	$	20,041		$	57,625		$	99,610		$	111,525


	Common Stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income			Total stockholder’s equity
Balance, December 31, 2007	$	2,500	$	434,096	$	709,142	$	2,537		$	1,148,275
Net income						111,274					111,274
Other comprehensive income, net of taxes								(11,664	)		(11,664	)

Balance, June 30, 2008	$	2,500	$	434,096	$	820,416	$	(9,127	)	$	1,247,885


	Six months ended June 30, 2008			Six months ended June 30, 2007
CASH FLOWS (USED IN) FROM OPERATING ACTIVITIES:
Net income	$	111,274		$	118,244
Adjustments to reconcile net income to net cash provided by operating activities:
Realized investment losses, net		64,833			15,917
Amortization and depreciation		12,252			19,228
Interest credited to policyholders’ account balances		80,958			30,832
Change in:
Policy reserves		110,611			19,559
Accrued investment income		(19,334	)		1,764
Trading account assets		2,039			1,609
Net receivable to parent and affiliates		9,806			24,623
Deferred sales inducements		(104,846	)		(93,196	)
Deferred policy acquisition costs		(145,781	)		(136,786	)
Income taxes payable		8,454			7,687
Reinsurance Recoverable		(103,112	)		(33,015	)
Other, net		(68,762	)		33,498

Cash Flows (Used in) From Operating Activities	$	(41,608	)	$	9,964

CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES:
Proceeds from the sale/maturity of:
Fixed maturities, available for sale	$	3,430,315		$	438,517
Commercial loans		359			338
Policy loans		591			1,263
Other long-term investments		409			1,419
Payments for the purchase/origination of:
Fixed maturities, available for sale		(5,879,408	)		(303,370	)
Commercial loans		(721	)		—
Policy loans		(1,163	)		(1,046	)
Other long-term investments		(7,487	)		—
Other short-term investments, net		(1,129,307	)		(2,246	)

Cash Flows (Used in) From Investing Activities	$	(3,586,412	)	$	134,875

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Decrease in future fees payable to Prudential Annuities Inc., net		(8,052	)		(21,963	)
Cash collateral for loaned securities		88,818			13,560
Repayments of debt (maturities longer than 90 days)		(30,000	)		(75,000	)
Net increase in short-term borrowing		1,390			249,669
Drafts outstanding		2,114			(19,446	)
Distribution (to) parent		—			(112,199	)
Policyholder’s account balances:
Deposits		4,984,416			290,304
Withdrawals		(1,410,680	)		(469,692	)

Cash Flows From (Used in) Financing Activities	$	3,628,006		$	(144,767	)

Net increase (decrease) in cash and cash equivalents		(14	)		72
Cash and cash equivalents, beginning of period		697			664

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	683		$	736

Income taxes paid	$	—		$	98

Interest paid	$	(438	)	$	17,020


	Level 1			Level 2			Level 3			Total
	(in thousands)
Fixed maturities, available for sale	$	—		$	4,728,771		$	20,639		$	4,749,410
Trading account assets		14,275			—			—			14,275
Equity securities, available for sale		9,549			1,894			—			11,443
Other long-term investments		(267	)		(12,849	)		(319	)		(13,435	)
Short term investments		1,273,273			—			—			1,273,273
Reinsurance recoverable		—						207,025			207,025

Sub-total excluding separate account assets	$	1,296,830		$	4,717,816		$	227,345		$	6,241,991

Separate account assets (1)		22,581,481			13,466,286			—			36,047,767

Total assets	$	23,878,311		$	18,184,102		$	227,345		$	42,289,758

Future policy benefits		—			—			207,025			207,025

Total liabilities	$	—		$	—		$	207,025		$	207,025


	Three Months Ended June 30, 2008
	Fixed Maturities, Available For Sale			Other Long-term Investments			Reinsurance Recoverable			Future Policy Benefits
	(in thousands)
Fair value, beginning of period	$	23,549		$	(413	)	$	289,108		$	(289,108	)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		—			94			(97,481	)		97,481
Asset management fees and other income		—			—			—			—
Included in other comprehensive income (loss)		(505	)		—			—			—
Net investment income		(18	)		—			—			—
Purchases, sales, issuances, and settlements		16,049			—			15,398			(15,398	)
Foreign currency translation		—			—			—			—
Transfers into (out of) level 3 (1)		(18,436	)		—			—			—

Fair value, end of period	$	20,639		$	(319	)	$	207,025		$	(207,025	)

Unrealized gains (losses) relating to those level 3 assets that were still held by the Company at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	—		$	94		$	(85,454	)	$	85,454
Asset management fees and other income	$	—		$	—		$	—		$	—
Interest credited to policyholder account	$	—		$	—		$	—		$	—
Included in other comprehensive income (loss)	$	(505	)	$	—		$	—		$	—


	Six Months Ended June 30, 2008
	Fixed Maturities, Available For Sale			Other Long-term Investments			Reinsurance Recoverable		Future Policy Benefits
	(in thousands)
Fair value, beginning of period	$	9,502		$	(56	)	$	103,909	$	(103,909	)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		—			(263	)		75,035		(75,035	)
Asset management fees and other income		—			—			—		—
Included in other comprehensive income (loss)		(1,124	)		—			—		—
Net investment income		(14	)		—			—		—
Purchases, sales, issuances, and settlements		18,279			—			28,081		(28,081	)
Foreign currency translation		—			—			—		—
Transfers into (out of) level 3 (1)		(6,004	)		—			—		—

Fair value, end of period	$	20,639		$	(319	)	$	207,025	$	(207,025	)

Unrealized gains (losses) relating to those level 3 assets that were still held by the Company at the end of the period (2):
Included in earnings:
Realized investment gains (losses), net	$	—		$	(263	)	$	88,033	$	(88,033	)
Asset management fees and other income	$	—		$	—		$	—	$	—
Interest credited to policyholder account	$	—		$	—		$	—	$	—
Included in other comprehensive income (loss)	$	(1,124	)	$	—		$	—	$	—


31.1		Section 302 Certification of the Chief Executive Officer.

31.2		Section 302 Certification of the Chief Financial Officer.

32.1		Section 906 Certification of the Chief Executive Officer.

32.2		Section 906 Certification of the Chief Financial Officer.

33.1		Cognizant Contract (Agreement executed on March 24, 2008, under which Cognizant will provide assistance with respect to certain of the Company’s core annuity systems)