5. RELATED PARTY TRANSACTIONS

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.

Expense Charges and Allocations

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 $0.8 million and $1.0 million for the three months ended September 30, 2011 and 2010, respectively and $2.3 million and $3.8 million for the nine months ended September 30, 2011 and 2010, 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 to the Company for the matching contribution to the 401(k) plans was $0.4 million and $0.5 million for the three months ended September 30, 2011 and 2010, respectively and $1.0 million and $1.8 million for the nine months ended September 30, 2011 and 2010, respectively.

Debt Agreements

Short-term and Long-term Debt

On December 29, 2009, the Company obtained a $600 million loan from Prudential Financial. This loan has a fixed interest rate of 4.49% and matures on December 29, 2014.

On December 14, 2006, the Company obtained a $300 million loan from Prudential Financial. This loan has a fixed interest rate of 5.18% and matures on December 14, 2011. A partial payment was made to reduce this loan to $179.5 million on December 29, 2008 with the proceeds received from a capital contribution from PAI. On March 27, 2009, a partial payment of $4.5 million was paid to further reduce this loan to $175 million.

On May 1, 2004, the Company entered into a $500 million credit facility agreement with Prudential Funding, LLC, as the lender. During 2009, the credit facility agreement was increased to $900 million. As of September 30, 2011 and December 31, 2010, $53.9 million and $30.1 million, respectively, were outstanding under this credit facility.

Reinsurance Agreements

The Company uses reinsurance as part of its risk management and capital management strategies for certain of its optional living benefit features.

The following table provides information relating to fees ceded under these agreements which are included in "Realized investment gains (losses), net" on the Unaudited Interim Statement of Operations and Comprehensive Income for the dates indicated:


	Three Months Ended				Nine Months Ended
	September 30,		September 30,		September 30,		September 30,
	2011		2010		2011		2010
	(in thousands)
Pruco Reinsurance
Effective August 29, 2009
Highest Daily Lifetime 6 Plus ("HD6 Plus")	$	11,758	$	9,605	$	35,160	$	21,097
Spousal Highest Daily Lifetime 6 Plus ("SHD6")		5,060		4,041		15,024		8,776
Effective June 30, 2009
Highest Daily Lifetime 7 Plus ("HD7 Plus")		12,577		11,407		37,521		32,817
Spousal Highest Daily Lifetime 7 Plus ("SHD7 Plus")		6,599		5,892		19,661		16,905
Effective March 17, 2008
Highest Daily Lifetime 7 ("HD7")		7,337		7,104		21,961		21,090
Spousal Highest Daily Lifetime 7 ("SHD7")		2,257		2,178		6,722		6,471
Guaranteed Return Option Plus ("GRO Plus" & "GRO Plus II") (1)		2,261		3,056		6,596		9,046
Highest Daily Guaranteed Return Option ("HD GRO") (1)		850		920		2,591		2,730
Highest Daily Guaranteed Return Option ("HD GRO II") (1)		837		485		2,468		1,099
Effective Since 2006
Highest Daily Lifetime Five ("HDLT5")		3,441		3,559		10,574		10,762
Spousal Lifetime Five ("SLT5")		2,688		2,618		8,427		7,980
Effective Since 2005
Lifetime Five ("LT5")		8,817		8,713		27,865		26,623
Guaranteed Return Option ("GRO")		909		1,705		3,362		4,454

Total Fees Ceded to Pruco Reinsurance	$	65,391	$	61,283	$	197,932	$	169,850

Prudential Insurance
Effective Since 2004		442		538		1,499		1,681

Guaranteed Minimum Withdrawal Benefit ("GMWB")	$	442	$	538	$	1,499	$	1,681

Total Fees Ceded	$	65,833	$	61,821	$	199,431	$	171,531

(1)	GRO Plus and HD GRO were amended effective January 1, 2010 to include an amended version of the GRO Plus and HD GRO benefit features (GRO Plus II and HD GRO II).

The Company's reinsurance recoverables related to the above product reinsurance agreements were $1,839 million and $187 million as of September 30, 2011 and December 31, 2010, respectively. Realized losses ceded related to the mark-to-market on the reinsurance recoverables were $1,654 million and $240 million in the third quarter of 2011 and 2010, respectively. Realized losses were $1,460 million and $767 million for the nine months ended September 30, 2011 and 2010, respectively. Changes in realized losses ceded for the 2011 and 2010 periods were primarily due to changes in market conditions. The underlying asset is reflected in "Reinsurance recoverables" in the Company's Unaudited Interim Statements of Financial Position.

Affiliated Asset Administration Fee Income

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 $59.2 million and $59.0 million, for the three months ended September 30, 2011 and 2010, respectively; and $188.7 million and $174.1 million for the nine months ended September 30, 2011 and 2010, respectively. These revenues are recorded as "Asset administration fees and other income" in the Unaudited Interim Statements of Operations and Comprehensive Income.

Derivative Trades

In its ordinary course of business, the Company enters into over-the-counter ("OTC") derivative contracts with an affiliate, Prudential Global Funding, LLC. For these OTC derivative contracts, Prudential Global Funding, LLC has a substantially equal and offsetting position with an external counterparty.

Purchase/sale of fixed maturities and commercial mortgage loans from/to an affiliate

In March 2010, the Company sold fixed maturity securities to Prudential Insurance. These securities had an amortized cost of $222.4 million and a fair value of $239.5 million. The net difference between historic amortized cost and the fair value was $17.1 million and was recorded as a capital contribution on the Company's financial statements.

In May 2011, the Company sold fixed maturity securities to an affiliated company in various transactions. These securities had an amortized cost of $68.3 million and a fair value of $75.7 million. The net difference between historic amortized cost and the fair value was $7.4 million and was recorded as a realized investment gain on the Company's financial statements. The Company also sold commercial mortgage loans to an affiliated company. These securities had an amortized cost of $48.9 million and a fair value of $54.2 million. The net difference between historic amortized cost and the fair value was $5.3 million and was recorded as a realized gain on the Company's Unaudited Interim Statement of Operations and Comprehensive Income.