The Company is a party to numerous transactions and relationships with its affiliate 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. 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 $0.7 million and $0.8 million for the three months ended June 30, 2012 and 2011, respectively and $1.5 million and $1.5 million for the six months ended June 30, 2012 and 2011, 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 $0.3 million and $0.4 million for the three months ended June 30, 2012 and 2011, respectively and $0.7 million and $0.7 million for the six months ended June 30, 2012 and 2011, respectively.

The Company is authorized to borrow funds up to $2 billion from Prudential Financial and its affiliates to meet its capital and other funding needs. The Company had $73.9 million and $27.8 million of short-term debt outstanding with Prudential Funding, LLC as of June 30, 2012 and December 31, 2011, respectively. Total interest expense on short-term affiliated debt to the Company was $65 thousand and $86 thousand for the three months ended June 30, 2012 and 2011, respectively and $158 thousand and $163 thousand for the six months ended June 30, 2012 and 2011, respectively.

The Company had long-term debt of $600 million outstanding with Prudential Financial as of June 30, 2012 and December 31, 2011. This loan has a fixed interest rate of 4.49% and matures on December 29, 2014. Total interest expense on affiliated long-term debt was $6.7 million and $9.0 million for the three months ended June 30, 2012 and 2011, respectively and $13.5 million and $18.0 million for the six months ended June 30, 2012 and 2011, respectively.

At June 30, 2011 the Company had a $175 million loan from Prudential Financial. This loan had an interest rate of 5.18%. The balance of this loan was paid off on December 14, 2011. Total interest expense on this loan was $2.3 million and $4.5 million for the three months and six months ended June 30, 2011, respectively.

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						Six Months Ended
			June 30,			June 30,			June 30,			June 30,
					2012			2011			2012			2011

			(in thousands)
Pruco Reinsurance
	Effective August 24, 2009
		Highest Daily Lifetime 6 Plus ("HD6 Plus")	$	12,253		$	12,403		$	24,449		$	23,402
		Spousal Highest Daily Lifetime 6 Plus ("SHD6")		5,296			5,284			10,579			9,965
	Effective June 30, 2009
		Highest Daily Lifetime 7 Plus ("HD7 Plus")		12,961			12,868			25,970			24,944
		Spousal Highest Daily Lifetime 7 Plus ("SHD7 Plus")		6,857			6,776			13,695			13,062
	Effective March 17, 2008
		Highest Daily Lifetime 7 ("HD7")		7,346			7,347			14,778			14,624
		Spousal Highest Daily Lifetime 7 ("SHD7")		2,262			2,241			4,536			4,465
		Guaranteed Return Option Plus ("GRO Plus" & "GRO Plus II") (1)		2,144			2,339			4,316			4,334
		Highest Daily Guaranteed Return Option ("HD GRO") (1)		832			874			1,679			1,741
		Highest Daily Guaranteed Return Option ("HD GRO II") (1)		845			850			1,691			1,631
	Effective Since 2006
		Highest Daily Lifetime Five ("HDLT5")		3,314			3,548			6,666			7,133
		Spousal Lifetime Five ("SLT5")		2,647			2,882			5,321			5,739
	Effective Since 2005
		Lifetime Five ("LT5") (2)		8,653			9,547			17,412			19,048
		Guaranteed Return Option ("GRO")		546			1,223			1,107			2,454
Total Fees Ceded to Pruco Reinsurance			$	65,956		$	68,182		$	132,199		$	132,542

Prudential Insurance
	Effective Since 2004
		Guaranteed Minimum Withdrawal Benefit ("GMWB")		364			513			750			1,056
Total Fees Ceded to Prudential Insurance			$	364		$	513		$	750		$	1,056

Total Fees Ceded			$	66,320		$	68,695		$	132,949		$	133,598

The Company's reinsurance recoverables related to the above product reinsurance agreements were $1,762 million and $1,748 million as of June 30, 2012 and December 31, 2011, respectively. Realized gains ceded related to the mark-to-market on the reinsurance recoverables were $490 million and $70 million for the three months ended June 30, 2012 and 2011, respectively. Realized losses ceded were $119 million and $193 million for the six months ended June 30, 2012 and 2011, respectively. Changes in realized gains and losses ceded for the 2012 and 2011 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.

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 $55.8 million and $64.9 million, for the three months ended June 30, 2012 and 2011, respectively and $112.9 million and $129.5 million for the six months ended June 30, 2012 and 2011, respectively. These revenues are recorded as “Asset administration fees and other income” in the Unaudited Interim Statements of Operations and Comprehensive Income.

In its ordinary course of business, the Company enters into OTC derivative contracts with an affiliate, PGF. For these OTC derivative contracts, PGF has a substantially equal and offsetting position with an external counterparty.

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

During the second and fourth quarters of 2011, the Company sold fixed maturity securities to an affiliated company in various transactions. These securities had an amortized cost of $142.5 million and a fair value of $150.9 million. The net difference between historic amortized cost and the fair value was $8.4 million and was recorded as a realized investment gain on the Company's Unaudited Interim Statement of Operations and Comprehensive Income. During the second quarter of 2011 the Company also sold commercial mortgage loans to an affiliated company. These loans 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.

During first quarter of 2012, the Company sold fixed maturity securities to Prudential Financial. These securities had an amortized cost of $123.1 million and a fair value of $141.0 million. The net difference between historic amortized cost and the fair value was accounted for as an increase of $10.6 million to additional paid-in capital, net of taxe