plvalregtofile.htm

PROSPECTUS

May 1, 2010

PRUCO LIFE INSURANCE COMPANY

VARIABLE APPRECIABLE ACCOUNT

Variable

APPRECIABLE LIFE®

INSURANCE CONTRACTS

As of May 1, 1992, Pruco Life no longer offered these Contracts for sale.

This prospectus describes two forms of an individual variable life insurance Contract (the “Contract”) offered by Pruco Life Insurance Company (“Pruco Life”, “us”, “we”, or “our”) under the name Variable Appreciable Life® Insurance.

You may choose to invest your Contract’s premiums and its earnings in one or more of the following ways:

·	Invest your Contract’s premiums and its earnings in one or more of the available Variable Investment Options of the Pruco Life Variable Appreciable Account (the “Account”), each of which invests in a corresponding Portfolio of The Prudential Series Fund (the “Series Fund”):

Conservative Balanced

Diversified Bond

Equity

Flexible Managed

Global

Government Income

High Yield Bond

Jennison

Money Market

Natural Resources

Small Capitalization Stock

Stock Index

Value

·	Invest in the Fixed Rate Option, which pays a guaranteed interest rate.

·	Invest in the Pruco Life Variable Contract Real Property Account (the “Real Property Account”).

Please Read this Prospectus. Please read this prospectus and keep it for future reference. A current prospectus for the Real Property Account accompanies this prospectus. These prospectuses contain important information about the available Variable Investment Options. Please read these prospectuses and keep them for future reference.

Neither the Securities and Exchange Commission (“SEC”) nor any state securities commission has approved or disapproved of these securities or determined that this Contract is a good investment, nor has the SEC determined that this prospectus is complete or accurate. It is a criminal offense to state otherwise.

The Contract may have been purchased through registered representatives located in banks and other financial institutions. Investment in a variable life insurance Contract is subject to risk, including the possible loss of your money. An investment in Pruco Life Variable Appreciable Life® is not a bank deposit and is not insured by the Federal Deposit Insurance Corporation (“FDIC”) or any other governmental agency.

Pruco Life Insurance Company

213 Washington Street

Newark, New Jersey 07102

Telephone: (800) 778-2255

Appreciable Life is a registered mark of Prudential.

TABLE OF CONTENTS
	Page
SUMMARY OF CHARGES AND EXPENSES	1
Expenses other than Portfolio Expenses	1
Portfolio Expenses	4

SUMMARY OF THE CONTRACT AND CONTRACT BENEFITS	4
Brief Description of the Contract	4
Types of Death Benefit Available Under the Contract	4
Death Benefit Guarantee	4
The Contract Fund	5
Tabular Contract Fund	5
Premium Payments	5
Allocation of Premium Payments	5
Investment Choices	6
Transfers Among Investment Options	6
Increasing or Decreasing the Face Amount	6
Access to Contract Values	7
Contract Loans	7
Canceling the Contract	7

SUMMARY OF CONTRACT RISKS	7
Contract Values are not Guaranteed	7
Limitation of Benefits on Certain Riders for Claims Due to War or Service in the Armed Forces	7
Increase in Charges	7
Contract Lapse	8
Risks of Using the Contract as a Short-Term Savings Vehicle	8
Risks of Taking Withdrawals	8
Limitations on Transfers	8
Charges on Surrender of the Contract	9
Risks of Taking a Contract Loan	9
Potential Tax Consequences	9
Replacement of the Contract	10

SUMMARY OF RISKS ASSOCIATED WITH THE VARIABLE INVESTMENT OPTIONS	10
Risks Associated with the Variable Investment Options	10
Learn More about the Variable Investment Options	11

GENERAL DESCRIPTIONS OF PRUCO LIFE INSURANCE COMPANY, THE REGISTRANT, AND THE SERIES FUND	11
Pruco Life Insurance Company	11
The Pruco Life Variable Appreciable Account	11
The Prudential Series Fund	11
Investment Manager	12
Investment Subadvisers	13
Service Fees Payable to Pruco Life	13
Voting Rights	14
Substitution of Variable Investment Options	14
The Fixed Rate Option	14
The Pruco Life Variable Contract Real Property Account	14


CHARGES AND EXPENSES	15
Deduction from Premiums	15
Taxes Attributable to Premiums	15
Sales Load Charges	16
Cost of Insurance	17
Monthly Deductions from the Contract Fund	17
Daily Deduction from the Variable Investment Options	17
Surrender Charges	18
Transaction Charges	18
Portfolio Charges	18
Rider Charges	18

PERSONS HAVING RIGHTS UNDER THE CONTRACT	18
Contract Owner	18
Beneficiary	18

OTHER GENERAL CONTRACT PROVISIONS	19
Assignment	19
Incontestability	19
Misstatement of Age or Sex	19
Settlement Options	19
Suicide Exclusion	19

RIDERS	19

REQUIREMENTS FOR ISSUANCE OF A CONTRACT	20

PREMIUMS	21
Allocation of Premiums	22
When a Contract Becomes Paid-Up	23
Transfers/Restrictions on Transfers	23
Dollar Cost Averaging	25

DEATH BENEFITS	25
Contract Date	25
When Proceeds Are Paid	25
Death Claim Settlement Options	26
Types of Death Benefit	26
How a Contract's Death Benefit Will Vary	27
Increases in the Face Amount	28
Decreases in the Face Amount	29

CONTRACT VALUES	29
Surrender of a Contract	29
How a Contract’s Cash Surrender Value Will Vary	30
Loans	30
Withdrawals	31

LAPSE AND REINSTATEMENT	32
Options on Lapse	33

TAXES	33
Tax Treatment of Contract Benefits	33
Tax-Qualified Pension Plans	35

DISTRIBUTION AND COMPENSATION	35


LEGAL PROCEEDINGS	37

ADDITIONAL INFORMATION	38

DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS	39

TABLE OF CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION	39

SUMMARY OF CHARGES AND EXPENSES

Capitalized terms used in this prospectus are defined where first used or in the DEFINITIONS OF SPECIAL TERMS USED IN THIS PROSPECTUS, which is located at the end of this prospectus.

Expenses other than Portfolio Expenses

The following tables describe the maximum fees and expenses that you could pay when buying, owning, and surrendering the Contract. Generally, our current fees and expenses are lower than the maximum fees and expenses reflected in the following tables. For more information about fees and expenses, see CHARGES AND EXPENSES.

The first table describes maximum fees and expenses that we deduct from each premium payment, and maximum fees we charge for sales of the Contract and transactions.

Transaction and Optional Rider Fees

Charge	When Charge is Deducted	Amount Deducted

Maximum Sales Charge on Premiums (Load)(2) (Charge is a percentage of premium payments.)	Deducted from premium payments.	5%

Administrative fee	Deducted from premium payments.	$2

Taxes Attributable to Premiums(1) (Charge is a percentage of premium payments.)	Deducted from premium payments.	2.5%

Maximum Deferred Sales Charge (Load)(2) (Charge is a percentage of one scheduled annual premium.)	Upon lapse, surrender, or decrease in the Face Amount.	45%

Surrender fee per $1,000 of Coverage Amount(2)	Upon lapse, surrender, or decrease in the Face Amount.	$5

Withdrawal fee (Charge is based on the withdrawal amount.)	Upon withdrawal.	The lesser of $15 and 2%

Face Amount Change fee	When there is a change in the Face Amount.	$15

Living Needs Benefit Rider fee	When the benefit is paid.	$150

(1)	For these purposes, “taxes attributable to premiums” shall include any federal, state or local income, premium, excise, business, or any other type of tax (or component thereof) measured by or based upon the amount of premium received by Pruco Life.

(2)	Duration of charge is limited. See CHARGES AND EXPENSES.

The second table describes the maximum Contract fees and expenses that you will pay periodically during the time you own the Contract, not including the Portfolio fees and expenses.

Periodic Contract and Optional Rider Charges Other Than The Series Fund's Operating Expenses

Charge	When Charge is Deducted	Amount Deducted

Cost of Insurance (“COI”) for the Face Amount.(1)(2) Minimum and Maximum Charges per $1,000 of the net amount at risk . _____________ Initial COI for a representative Contract Owner, male age 30 in the Preferred underwriting class, no riders. (Charge per $1,000 of the net amount at risk.)	Monthly	From $0.06 to $83.34 _____________ $0.15(3)

Mortality and Expense Risk fee. (Effective annual rate calculated as a percentage of assets in the Variable Investment Options.)	Daily	0.60%

Additional Mortality fee for risk associated with certain occupation, avocation, or aviation risks.	Monthly	From $0.10 to $2.08(4)

Fee for the Face Amount. (Flat fee plus a charge per $1,000 of Face Amount.)	Monthly	$2.50 plus $0.02

Fee for an increase to the Face Amount. (Charge per $1,000 of increase in Face Amount.)	Monthly	$0.02

Net interest on loans.(5)	Annually	1.5%

Guaranteed Death Benefit fee for the Face Amount or an increase to the Face Amount. (Charge per $1,000 of the Face Amount or increase in the Face Amount.)	Monthly	$0.01

Level Premium Term Rider.(1) Minimum and Maximum Charges per $1,000 of rider coverage . _____________ Level Premium Term Rider fee for a representative Contract Owner, male age 30 in the Preferred underwriting class. (Charge per $1,000 of rider coverage.)	Monthly	From $0.16 to $7.91 _____________ $0.19(3)

Child Level Premium Term Rider.(4)(6) (Charge per $1,000 of rider coverage.)	Monthly	$0.45


Accidental Death Benefit Rider. Minimum and Maximum Charges per $1,000 of coverage . ____________ Accidental Death Benefit fee for a representative Contract Owner, male age 30 in the Preferred underwriting class. (Charge per $1,000 of coverage.)	Monthly	From $0.04 to $0.64 _____________ $0.07(3)

Option to Purchase Additional Insurance Rider.(1) Minimum and Maximum Charges per $1,000 of additional insurance amount . _____________ Option to Purchase Additional Insurance Rider fee for a representative Contract Owner, male age 30 in the Preferred underwriting class. (Charge per $1,000 of additional insurance amount.)	Monthly	From $0.06 to $0.47 _____________ $0.17(3)

Waiver of Premium Rider. Minimum and Maximum Charges per $1,000 of coverage . _____________ Waiver of Premium Rider fee for a representative Contract Owner, male age 30 in the Preferred underwriting class. (Charge per $1,000 of coverage.)	Monthly	From $0.008 to $0.21 _____________ $0.07(3)

Applicant Waiver of Premium Rider. Minimum and Maximum Charges (Charge is a percentage of the Contract's applicable premium, and capped at $0.15 per $1,000 of coverage.) _____________ Applicant Waiver of Premium Rider fee for a representative Contract Owner, male age 30 in the Preferred underwriting class. (Charge is a percentage of the Contract's applicable premium.)	Monthly	From 0.40% to 3.14% _____________ 0.7%(3)

(1)	The charge varies based on the individual characteristics of the insured, including such characteristics as: age, sex, and underwriting class.

(2)	For example, the highest COI rate is for an insured who is a male/female age 99.

(3)	You may obtain more information about the particular COI charges that apply to you by contacting your Pruco Life representative.

(4)	Both the charge and the duration of the charge will vary based on individual circumstances including Issue Age, type of risk, and the frequency of exposure to the risk, and is charged per $1,000 of Face Amount.

(5)	The maximum loan rate reflects the net difference between a loan with an effective annual interest rate of 5.5% and an effective annual interest credited equal to 4%. A loan with a variable loan interest rate may be charged a lower effective annual interest rate. See Loans.
(6)	Duration of charge is limited. See CHARGES AND EXPENSES.

Portfolio Expenses

This table shows the minimum and maximum total operating expenses charged by the Series Fund that you will pay periodically during the time you own the Contract. More detail concerning Portfolio fees and expenses is contained in the prospectus for the Series Fund.

Total Annual Fund Operating Expenses (1)	Minimum	Maximum

(expenses that are deducted from the Fund’s assets, including management fees, any distribution [and/or service] (12b-1) fees, and other expenses, but not including reductions for any fee waiver or other reimbursements.)	0.37%	0.85%

(1)	Total Annual operating expense for Real Property Partnership is 9.33 %.

SUMMARY OF THE CONTRACT

AND CONTRACT BENEFITS

Brief Description of the Contract

The Contract is a form of variable universal life insurance. Our variable appreciable life insurance policy is a flexible form of variable universal life insurance. It has a Death Benefit and a Contract Fund, the value of which changes every day according to the investment performance of the investment options to which you have allocated your net premiums. You may invest premiums in one or more of the available Variable Investment Options that invest in Portfolios of The Prudential Series Fund, in the Fixed Rate Option, or in the Real Property Account. Although the value of your Contract Fund may increase if there is favorable investment performance in the Portfolios you select, investment returns in the Portfolios are NOT guaranteed. There is a risk that investment performance will be unfavorable and that the value of your Contract Fund will decrease. The risk will be different, depending upon which investment options you choose. You bear the risk of any decrease. Within certain limits, the Contract will provide you with some flexibility in determining the amount and timing of your premium payments. The Contract has a Tabular Contract Fund that is designed to encourage the payment of premiums and the accumulation of cash value. Some features and/or riders described in this prospectus may not be available in some states.

Types of Death Benefit Available Under the Contract

The Death Benefit is an important feature of the Contract. You may choose one of the following two forms of the Contract. They each have a different Death Benefit amount.

Contract Form A, level Death Benefit: The Death Benefit will generally be equal to the Face Amount of insurance. It can never be less than this amount. The Death Benefit remains fixed in amount (unless the Contract becomes paid-up) and only the Cash Surrender Value will vary with investment experience. Under a newer version, sold in most jurisdictions beginning in September 1986, the Death Benefit may be increased to ensure that the Contract continues to satisfy the Internal Revenue Code's definition of life insurance.

Contract Form B, variable Death Benefit: The Death Benefit will increase and decrease as the amount of the Contract Fund varies with the investment performance of the selected options. However, the Death Benefit under Form B, as is true under Form A, will never be less than the initial Face Amount and it may also be increased to satisfy Internal Revenue Code requirements.

Throughout this prospectus the word “Contract” refers to both Form A and B unless specifically stated otherwise. Under both Form A and B Contracts there is no guaranteed minimum Cash Surrender Value.

Death Benefit Guarantee

The Pruco Life Variable Appreciable Life Insurance Contract is a form of life insurance that provides much of the flexibility of variable universal life, however, with two important distinctions:

We guarantee that if the Scheduled Premiums are paid when due, or received within 61 days after the Scheduled Premiums are due (or missed premiums are paid later with interest), the Contract will not lapse because of unfavorable investment performance, and the least amount we will pay upon the death of the insured is the Face Amount of insurance.

If all premiums are not paid when due (or not made up later with interest), the Contract will still not lapse as long as the Contract Fund is higher than a stated amount set forth in the Contract. This amount is called the “Tabular Contract Fund”, and it increases each month. In later years it becomes quite high. The Contract lapses when the Contract Fund falls below this stated amount, rather than when it drops to zero. This means that when a Variable Appreciable Life Contract lapses, it may still have considerable value and you may have a substantial incentive to reinstate it. If you choose otherwise, you may take, in one form or another, the Cash Surrender Value. See LAPSE AND REINSTATEMENT.

The Contract Fund

Your Contract Fund value changes daily, reflecting: (1) increases or decreases in the value of your Variable Investment Options; (2) interest credited on any amounts allocated to the Fixed Rate Option; (3) interest credited on any loan; and (4) the daily asset charge for mortality and expense risks assessed against the Variable Investment Options. The Contract Fund value also changes to reflect the receipt of premium payments and the monthly deductions described under CHARGES AND EXPENSES.

Tabular Contract Fund

The Tabular Contract Fund is designed to encourage the payment of premiums and the accumulation of cash value. Even if a Scheduled Premium is not paid, the Contract will remain in-force as long as the Contract Fund on any Monthly Date is equal to or greater than the Tabular Contract Fund Value on the next Monthly Date.

The Tabular Contract Fund is a guideline representing the amount that would be in the Contract Fund if all Scheduled Premiums are paid on their due dates, there are no unscheduled premiums paid, there are no withdrawals, the investment options you have chosen earn exactly a uniform rate of return of 4% per year, and we have deducted the maximum mortality, sales load and expense charges.

Premium Payments

Your Contract sets forth a Scheduled Premium which is payable annually, semi-annually, quarterly or monthly. We guarantee that, if the Scheduled Premiums are paid when due (or if missed premiums are paid later, with interest) and there are no withdrawals, the Contract will not lapse because of unfavorable investment experience. Your Contract may terminate if the Contract Debt exceeds what the Cash Surrender Value would be if there was no Contract Debt. We will notify you before the Contract is terminated and you may then repay all or enough of the loan to keep the Contract in-force. See Loans.

Your Scheduled Premium consists of two amounts:

·	The initial amount is payable from the time you purchase your Contract until the Contract Anniversary immediately following your 65th birthday or the Contract's tenth anniversary, whichever is later (the “Premium Change Date”);

·	The guaranteed maximum amount payable after the Premium Change Date. See PREMIUMS.

The payment of premiums in excess of Scheduled Premiums may cause the Contract to become a Modified Endowment Contract for federal income tax purposes. See PREMIUMS and Tax Treatment of Contract Benefits. Pruco Life will generally accept any premium payment of at least $25. You may be flexible with your premium payments depending on your Contract’s performance. If the performance of the Contract is less favorable and the Contract Fund is less than the Tabular Contract Fund Value the Contract would go into default.

Allocation of Premium Payments

When you apply for the Contract, you tell us how to allocate your premiums. You may change the way in which subsequent premiums are allocated by giving written notice to a Service Office, by our website, provided you are enrolled to use Prudential Online® Account Access, or by telephoning a Service Office, provided you are enrolled to use the Telephone Transfer System. See Allocation of Premiums.

On the Contract Date, we deduct a $2 administrative charge, a deduction of up to 5% for sales charges, and 2.5% for taxes attributable to premiums from the initial premium. Then the first monthly charges are deducted. The remainder of the initial premium will be allocated among the Variable Investment Options, the Fixed Rate Option, or the Real Property Account according to the allocations you specified in the application form. The invested portion of any part of the initial premium in excess of the Scheduled Premium is generally placed in the selected investment options on the date of receipt in Good Order at the Payment Office (the address on your bill), but not earlier than the Contract Date.

After the Contract Date, we deduct a $2 administrative charge, a deduction of up to 5% for sales charges, and 2.5% for taxes attributable to premiums from each subsequent premium payment. After the deductions from premiums and the monthly charges are made, the remainder of each subsequent premium payment will be invested as of the end of the Valuation Period in which it is received in Good Order at the Payment Office, in accordance with the allocation you previously designated.

Investment Choices

You may choose to invest your Contract’s premiums and its earnings in one or more of the available Variable Investment Options that invest in Portfolios of The Prudential Series Fund. You may also invest in the Fixed Rate Option and the Real Property Account. See The Prudential Series Fund, The Fixed Rate Option, and The Pruco Life Variable Contract Real Property Account. Subsequent net premiums are applied to your Contract as of the date of receipt at the Payment Office.

We may add additional Variable Investment Options in the future.

Transfers Among Investment Options

If the Contract is not in default, you may, up to four times each Contract Year, transfer amounts among the Variable Investment Options, to the Fixed Rate Option, or to the Real Property Account. Additional transfers may be made only with our consent. Currently, we allow you to make additional transfers. There is no charge. For the first 20 transfers in a calendar year, you may transfer amounts by proper written notice to a Service Office, by our website, provided you are enrolled to use Prudential Online® Account Access, or by telephone, provided you are enrolled to use the Telephone Transfer System.

Multiple transfers that occur during the same day, but prior to the end of the Valuation Period for that day, will be counted as a single transfer.

Certain restrictions may apply to transfers from the Fixed Rate Option and the Real Property Account.

We reserve the right to prohibit transfer requests determined to be disruptive to the investment option or to the disadvantage of other Contract Owners.

Transfer restrictions will be applied in a uniform manner and will not be waived.

In addition, you may use our dollar cost averaging feature. See Transfers/Restrictions on Transfers, Dollar Cost Averaging.

Increasing or Decreasing the Face Amount

Subject to our underwriting requirements determined by us, after the first Contract Anniversary you may increase the amount of insurance by increasing the Face Amount of the Contract. An increase in the Face Amount is similar to the purchase of a second Contract and must be at least $25,000. Other conditions must be met before we approve of an increase in the Face Amount. See Increases in the Face Amount.

You also have the additional option of decreasing the Face Amount of your Contract, without withdrawing any surrender value. The minimum permissible decrease is $10,000 and will not be permitted if it causes the Face Amount of the Contract to drop below the minimum Face Amount applicable to the Contract.

We may decline a reduction if we determine it would cause the Contract to fail to qualify as "life insurance" for purposes of Section 7702 of the Internal Revenue Code. In addition, if the Face Amount is decreased or a significant premium is paid in conjunction with an increase, there is a possibility that the Contract will be classified as a Modified Endowment Contract. See Tax Treatment of Contract Benefits.

Access to Contract Values

A Contract may be surrendered for its Cash Surrender Value (the Contract Fund minus any Contract Debt and minus any applicable surrender charges) while the insured is living. To surrender a Contract, we may require you to deliver or mail the Contract with a written request in a form that meets our needs, to a Service Office. The Cash Surrender Value of a surrendered Contract will be determined as of the end of the Valuation Period in which such a request is received in a Service Office. Surrender of a Contract may have tax consequences. See Surrender of a Contract, and Tax Treatment of Contract Benefits.

Under certain circumstances, you may withdraw a part of the Contract's Cash Surrender Value without surrendering the Contract. The amount withdrawn must be at least $2,000 under a Form A Contract and at least $500 under a Form B Contract. There is an administrative processing fee for each withdrawal which is the lesser of: (a) $15 and; (b) 2% of the withdrawal amount. Withdrawal of the Cash Surrender Value may have tax consequences. See Withdrawals, and Tax Treatment of Contract Benefits.

Contract Loans

You may borrow money from us using your Contract as security for the loan. The maximum loan amount is equal to the sum of (1) 90% of the portion of the cash value attributable to the Variable Investment Options and (2) the balance of the cash value. The cash value is equal to the Contract Fund less any surrender charge. The minimum loan amount you may borrow at any one time is generally $500, unless the loan proceeds are used to pay premiums on your Contract. The minimum loan amount may be lower in some states. See Loans.

Canceling the Contract

Generally, you may return the Contract for a refund within 10 days after you receive it. Some states allow a longer period of time during which a Contract may be returned for a refund. In general, you will receive a refund of all premium payments made, less any applicable federal and/or state income tax withholding. However, if applicable law does not require a refund of all premium payments made, you will receive the greater of (1) the Contract Fund plus the amount of any charges that have been deducted or (2) all premium payments made, less any applicable federal and/or state income tax withholding. A Contract returned according to this provision shall be deemed void from the beginning.

SUMMARY OF CONTRACT RISKS

Contract Values are not Guaranteed

Your benefits (including life insurance) are not guaranteed, and may be entirely dependent on the investment performance of the Variable Investment Options you select. The value of your Contract Fund rises and falls with the performance of the investment options you choose and the charges that we deduct. Poor investment performance or loans could cause your Contract to lapse and you could lose your insurance coverage. However, we guarantee that if Scheduled Premiums are paid when due and there are no withdrawals, the Contract will not lapse because of unfavorable investment experience.

The Variable Investment Options you choose may not perform to your expectations. Investing in the Contract involves risks including the possible loss of your entire investment. Only the Fixed Rate Option provides a guaranteed rate of return. See Risks Associated with the Variable Investment Options and The Fixed Rate Option.

Limitation of Benefits on Certain Riders for Claims Due to War or Service in the Armed Forces

We will not pay a benefit on any Accidental Death Benefit type rider or make payments for any disability type rider if the death or injury is caused or contributed to by war or act of war, declared or undeclared, including resistance to armed aggression. This restriction includes service in the armed forces of any country at war.

Increase in Charges

In several instances we will use the terms “maximum charge” and “current charge.” The “maximum charge,” in each instance, is the highest charge that we may make under the Contract. The “current charge,” in each instance, is the

amount that we now charge, which may be lower than the maximum charge. If circumstances change, we reserve the right to increase each current charge, up to the maximum charge, without giving any advance notice.

Contract Lapse

If Scheduled Premiums are paid on or before each due date, or received within 61 days after the Scheduled Premiums are due, and there are no withdrawals or outstanding loans, a Contract will remain in-force even if the investment results of that Contract's Variable Investment Option[s] have been so unfavorable that the Contract Fund has decreased to zero or less.

In addition, even if a Scheduled Premium is not paid, the Contract will remain in-force as long as the Contract Fund on any Monthly Date is equal to or greater than the Tabular Contract Fund Value on the following Monthly Date. However, if a Scheduled Premium is not paid, and the Contract Fund is insufficient to keep the Contract in-force, the Contract will go into default. Should this happen, we will notify you of the required payment to prevent your Contract from lapsing. Your payment must be received at the Payment Office within the 61-day grace period after the notice of default is mailed or the Contract will lapse. If your Contract does lapse, it will still provide some benefits. See LAPSE AND REINSTATEMENT. If you have an outstanding loan when your Contract lapses, you may have taxable income as a result. See Tax Treatment of Contract Benefits - Pre-Death Distributions.

Risks of Using the Contract as a Short-Term Savings Vehicle

Because the Contract provides for an accumulation of a Contract Fund as well as a Death Benefit, you may wish to use it for various insurance planning purposes. Purchasing the Contract for such purposes may involve certain risks.

For example, a life insurance policy could play an important role in helping you to meet the future costs of a child’s education. The Contract’s Death Benefit could be used to provide for education costs should something happen to you, and its investment features could help you accumulate savings. However, if the Variable Investment Options you choose perform poorly, or if you do not pay sufficient premiums, your Contract may lapse or you may not accumulate the funds you need. Accessing the values in your Contract through withdrawals and Contract loans may significantly affect current and future Contract values or Death Benefit proceeds and may increase the chance that your Contract will lapse. If you have an outstanding loan when your Contract lapses, you may have taxable income as a result. See Tax Treatment of Contract Benefits - Pre-Death Distributions.

The Contract is designed to provide benefits on a long-term basis. Consequently, you should not use the Contract as a short-term investment or savings vehicle. Because of the long-term nature of the Contract, you should consider whether the Contract is consistent with the purpose for which it is being considered.

Risks of Taking Withdrawals

We may limit you to no more than four withdrawals in a Contract Year. The amount withdrawn must be at least $2,000 under a Form A Contract and at least $500 under a Form B Contract. You may make a withdrawal only to the extent that the Cash Surrender Value plus any Contract loan exceeds the applicable tabular cash value. There is an administrative processing fee for each withdrawal which is the lesser of: (a) $15 and; (b) 2% of the withdrawal amount. Withdrawal of the Cash Surrender Value may have tax consequences. See Tax Treatment of Contract Benefits.

Whenever a withdrawal is made, the Death Benefit will immediately be reduced by at least the amount of the withdrawal. Withdrawals under Form B (variable) Contracts, will not change the Face Amount of insurance. However, under a Type A (fixed) Contract, the withdrawal will cause a reduction in the Face Amount of insurance by no more than the amount of the withdrawal. A surrender charge may be deducted. See CHARGES AND EXPENSES.

It is important to note that, if the Face Amount of insurance is decreased, there is a possibility that the Contract might be classified as a Modified Endowment Contract. Before making any withdrawal that causes a decrease in the Face Amount of insurance, you should consult with your tax adviser and your Pruco Life representative. See Withdrawals and Tax Treatment of Contract Benefits.

Limitations on Transfers

All or a portion of the amount credited to a Variable Investment Option may be transferred to another Variable Investment Option, the Fixed Rate Option, or the Real Property Account.

with our consent. Currently, we allow you to make additional transfers. There is no charge. For the first 20 transfers in a calendar year, you may transfer amounts by proper written notice to a Service Office, by our website, provided you are enrolled to use Prudential Online® Account Access, or by telephone, provided you are enrolled to use the Telephone Transfer System. We use reasonable procedures to confirm that instructions given by telephone are genuine. However, we are not liable for following telephone instructions that we reasonably believe to be genuine. In addition, we cannot guarantee that you will be able to get through to complete a telephone transfer during peak periods such as periods of drastic economic or market change.

After you have submitted 20 transfers in a calendar year, we will accept subsequent transfer requests only if they are in a form that meets our needs , bear an original signature in ink, and are sent to us by U.S. regular mail. After you have submitted 20 transfers in a calendar year, a subsequent transfer request by telephone, fax or electronic means will be rejected, even in the event that it is inadvertently processed.

Currently, certain transfers effected systematically under the dollar cost averaging program described in this prospectus do not count towards the limit of 20 transfers. In the future, we may count such transfers towards the limit.

Multiple transfers that occur during the same day, but prior to the end of the Valuation Period for that day, will be counted as a single transfer.

Generally, only one transfer from the Fixed Rate Option is permitted during each Contract Year and only during the 30-day period beginning on the Contract Anniversary. The maximum amount you may transfer out of the Fixed Rate Option each year is the greater of: (a) 25% of the amount in the Fixed Rate Option; and (b) $2,000.

Transfers from the Real Property Account to the other investment options available under the Contract are currently permitted only during the 30-day period beginning on the Contract Anniversary. The maximum amount that may be transferred out of the Real Property Account each year is the greater of: (a) 50% of the amount invested in the Real Property Account; and (b) $10,000. See the attached Real Property Account Prospectus.

We may modify your right to make transfers by restricting the number, timing and/or amount of transfers we find to be disruptive to the investment option or to the disadvantage of other Contract Owners. We also reserve the right to prohibit transfer requests made by an individual acting under a power of attorney on behalf of more than one Contract Owner. We will immediately notify you at the time of a transfer request if we exercise this right.

Transfer restrictions will be applied uniformly and will not be waived. See Transfers/Restrictions on Transfers.

Charges on Surrender of the Contract

You may surrender your Contract at any time for its Cash Surrender Value while the insured is living. We deduct a surrender charge from the surrender proceeds.

We will assess a surrender charge if, during the first 10 Contract Years (or 10 years from an increase in the Face Amount of insurance), the Contract lapses, is surrendered, or the Face Amount of insurance is decreased (including as a result of a withdrawal). The surrender charge is determined by the primary annual premium amount. It is calculated as described in Surrender Charges. While the amount of the surrender charge decreases over time, it may be a substantial portion or even equal to your Contract Fund. In addition, the surrender of your Contract may have tax consequences. See Tax Treatment of Contract Benefits.

Risks of Taking a Contract Loan

Accessing the values in your Contract through Contract loans may significantly affect current and future Contract values or Death Benefit proceeds and may increase the chance that your Contract will lapse. Your Contract will be in default if at any time the Contract Fund (which includes the loan) less any applicable surrender charges is less than the Tabular Contract Fund. If the Contract lapses or is surrendered, the amount of unpaid Contract Debt will be treated as a distribution and will be immediately taxable to the extent of the gain in the Contract. In addition, if your Contract is a Modified Endowment Contract for tax purposes, taking a Contract loan may have tax consequences. See Tax Treatment of Contract Benefits.

If your Contract Fund is less than your Contract Debt your Contract will terminate 61 days after we notify you.

Potential Tax Consequences

Your Contract is structured to meet the definition of life insurance under Section 7702 of the Internal Revenue Code. Consequently, we reserve the right to refuse to accept a premium payment that would, in our opinion, cause this Contract

to fail to qualify as life insurance. We also have the right to refuse to accept any payment that increases the Death Benefit by more than it increases the Contract Fund. Although we believe that the Contract should qualify as life insurance for tax purposes, there are some uncertainties, particularly because the Secretary of Treasury has not yet issued permanent regulations that bear on this question. Accordingly, we reserve the right to make changes -- which will be applied uniformly to all Contract Owners after advance written notice -- that we deem necessary to insure that the Contract will qualify as life insurance.

Current federal tax law generally excludes all Death Benefits from the gross income of the beneficiary of a life insurance Contract. However, your Death Benefit could be subject to estate tax. In addition, you generally are not subject to taxation on any increase in the Contract value until it is withdrawn. Generally, you are taxed on surrender proceeds and the proceeds of any partial withdrawals only if those amounts, when added to all previous distributions, exceed the total premiums paid. Amounts received upon surrender or withdrawal (including any outstanding Contract loans) in excess of premiums paid are treated as ordinary income.

Special rules govern the tax treatment of life insurance policies that meet the federal definition of a Modified Endowment Contract. The Contract could be classified as a Modified Endowment Contract if premiums in amounts that are too large are paid or a decrease in the Face Amount of insurance is made (or a rider removed). The addition of a rider or an increase in the Face Amount of insurance may also cause the Contract to be classified as a Modified Endowment Contract if a significant premium is paid in conjunction with an increase or the addition of a rider. We will notify you if a premium or a reduction in the Face Amount would cause the Contract to become a Modified Endowment Contract, and advise you of your options.

Under current tax law, Death Benefit payments under Modified Endowment Contracts, like Death Benefit payments under other life insurance Contracts, generally are excluded from the gross income of the beneficiary. However, amounts you receive under the Contract before the insured's death, including loans and withdrawals, are included in income to the extent that the Contract Fund before surrender charges exceeds the premiums paid for the Contract increased by the amount of any loans previously included in income and reduced by any untaxed amounts previously received other than the amount of any loans excludible from income. An assignment of a Modified Endowment Contract is taxable in the same way. These rules also apply to pre-death distributions, including loans and assignments, made during the two-year period before the time that the Contract became a Modified Endowment Contract.

All Modified Endowment Contracts issued by us to you during the same calendar year are treated as a single Contract for purposes of applying these rules. See Tax Treatment of Contract Benefits.

Any taxable income on pre-death distributions (including full surrenders) is subject to a penalty of 10% unless the amount is received on or after age 59½, on account of your becoming disabled or as a life annuity. It is presently unclear how the penalty tax provisions apply to Contracts owned by businesses.

Replacement of the Contract

The replacement of life insurance is generally not in your best interest. In most cases, if you require additional life insurance coverage, the benefits of your existing Contract can be protected by increasing the insurance amount of your existing Contract, or by purchasing an additional Contract. If you are considering replacing a Contract, you should compare the benefits and costs of supplementing your existing Contract with the benefits and costs of purchasing a new Contract and you should consult with a tax adviser.

SUMMARY OF RISKS ASSOCIATED WITH

THE VARIABLE INVESTMENT OPTIONS

You may choose to invest your Contract’s premiums and its earnings in one or more of the available Variable Investment Options. You may also invest in the Fixed Rate Option or the Real Property Account. The Fixed Rate Option is the only investment option that offers a guaranteed rate of return. See The Prudential Series Fund, The Fixed Rate Option and The Pruco Life Variable Contract Real Property Account.

Risks Associated with the Variable Investment Options

The Separate Account invests in the shares of one or more open-end management investment companies registered under the Investment Company Act of 1940 other than the Real Property Account, which invests in a Real Property Partnership. See the accompanying prospectus for the Pruco Life Real Property Account. Each Variable Investment Option has its own investment objective and associated risks, which are described in the accompanying Series Fund

prospectus. The income, gains, and losses of one Variable Investment Option have no effect on the investment performance of any other Variable Investment Option.

We do not promise that the Variable Investment Options will meet their investment objectives. Amounts you allocate to the Variable Investment Options may grow in value, decline in value or grow less than you expect, depending on the investment performance of the Variable Investment Options you choose. You bear the investment risk that the Variable Investment Options may not meet their investment objectives. It is possible to lose your entire investment in the Variable Investment Options. 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. See The Prudential Series Fund.

Learn More about the Variable Investment Options

Before allocating amounts to the Variable Investment Options, you should read the current Series Fund prospectus for detailed information concerning their investment objectives, strategies, and investment risks.

GENERAL DESCRIPTIONS OF PRUCO LIFE INSURANCE COMPANY, THE REGISTRANT, AND THE SERIES FUND

Pruco Life Insurance Company

Pruco Life Insurance Company ("Pruco Life", “us”, “we”, or “our”) is a stock life insurance company, organized on December 23, 1971 under the laws of the state of Arizona. It is licensed to sell life insurance and annuities in the District of Columbia, Guam, and in all states except New York. Pruco Life’s principal Executive Office is located at 213 Washington Street, Newark, New Jersey 07102.

The Pruco Life Variable Appreciable Account

Pruco Life has established a Separate Account, the Pruco Life Variable Appreciable Account (the "Account" or the "Registrant ") to hold the assets that are associated with the Contracts. The Account was established on January 13, 1984 under Arizona law and 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 Account meets the definition of a "Separate Account" under the federal securities laws. The Account holds assets that are segregated from all of Pruco Life's other assets.

Pruco Life is the legal owner of the assets in the Account. Pruco Life will maintain assets in the Account with a total market value at least equal to the reserve and other liabilities relating to the variable benefits attributable to the Contracts. In addition to these assets, the Account's assets may include funds contributed by Pruco Life to commence operation of the Account and may include accumulations of the charges we make against the Account. From time to time Pruco Life will transfer capital contributions and earned fees and charges to its general account. Pruco Life will consider any possible adverse impact the transfer might have on the Account before making any such transfer.

Income, gains and losses credited to, or charged against, the Account reflect the Account’s own investment experience and not the investment experience of Pruco Life’s other assets. The assets of the Account may not be charged with liabilities that arise from any other business Pruco Life conducts.

We are obligated to pay all amounts promised to Contract Owners under the Contract. The obligations to Contract Owners and beneficiaries arising under the Contracts are general corporate obligations of Pruco Life.

You may invest in one or a combination of the available Variable Investment Options. When you choose a Variable Investment Option, we purchase shares of a Fund or a separate investment series of a Fund which are held as an investment for that option. We hold these shares in the Account. We may remove or add additional Variable Investment Options in the future. The Account’s financial statements are available in the Statement of Additional Information to this prospectus.

The Prudential Series Fund

The Prudential Series Fund (the “Series Fund”) is registered under the Investment Company Act of 1940 as an open-end diversified management investment company. Its shares are currently sold only to Separate Accounts of

Prudential and certain other insurers that offer variable life insurance and variable annuity Contracts. On October 31, 1986, the Pruco Life Series Fund, Inc, an open-end diversified management investment company, which sold its shares only to Separate Accounts of Pruco Life and Pruco Life Insurance Company of New Jersey (“Pruco Life of New Jersey”), was merged into the Prudential Series Fund. Prior to that date, the Account invested only in shares of Pruco Life Series Fund, Inc.

The Account will purchase and redeem shares from the Series Fund at net asset value. Shares will be redeemed to the extent necessary for us to provide benefits under the Contract and to transfer assets from one Variable Investment Option to another, as requested by Contract Owners. Any dividend or capital gain distribution received from a Portfolio of the Series Fund will be reinvested immediately at net asset value in shares of that Portfolio and retained as assets of the corresponding Variable Investment Option.

The Series Fund has a separate prospectus that is provided with this prospectus. You should read the Series Fund prospectus before you decide to allocate assets to the Portfolios. There is no assurance that the investment objectives of the Portfolios will be met. There may be Portfolios described in the accompanying Fund prospectus that are not available on this product. Please refer to the list below to see which Portfolios you may choose as your Variable Investment Options.

Investment Manager

Prudential Investments LLC (“PI”), a wholly-owned subsidiary of Prudential Financial, Inc., serves as the investment manager of the Series Fund Portfolios.

The Series Fund's Investment Management Agreement, on behalf of each Portfolio, with PI (the “Management Agreement”), provide that PI (the “Investment Manager”) will furnish each applicable Portfolio with investment advice and administrative services subject to the supervision of the Board of Trustees and in conformity with the stated policies of the applicable Portfolio. The Investment Manager must also provide, or obtain and supervise, the executive, administrative, accounting, custody, transfer agent and shareholder servicing services that are deemed advisable by the Board.

The chart below reflects the Portfolios in which the Account invests, their investment objectives, and each Portfolio’s investment subadvisers. The full names of the investment subadvisers are listed immediately following the chart. For Portfolios with multiple subadvisers, each subadviser manages a portion of the assets for that Portfolio.

The Prudential Series Fund - Class 1 Shares

Portfolios	Objectives	Subadvisers

Conservative Balanced	Total investment return consistent with a conservatively managed diversified portfolio.	PIM QMA

Diversified Bond	High level of income over a longer term while providing reasonable safety of capital.	PIM

Equity	Long-term growth of capital.	Jennison

Flexible Managed	Total return consistent with an aggressively managed diversified portfolio.	PIM QMA

Global	Long-term growth of capital.	QMA LSV MCM T. Rowe Price William Blair

Government Income	High level of income over the long term consistent with the preservation of capital.	PIM

High Yield Bond	High total return.	PIM

Jennison	Long-term growth of capital.	Jennison


Money Market	Maximum current income consistent with the stability of capital and the maintenance of liquidity.	PIM

Natural Resources	Long-term growth of capital.	Jennison

Small Capitalization Stock	Long-term growth of capital.	QMA

Stock Index	Investment results that generally correspond to the performance of publicly-traded common stocks.	QMA

Value	Capital appreciation.	Jennison

Investment Subadvisers

·	Jennison Associates LLC (“Jennison”)

·	Prudential Investment Management, Inc. (“PIM”)

·	Quantitative Management Associates LLC (“QMA”)

·	LSV Asset Management (“LSV”)

·	Marsico Capital Management, LLC (“MCM”)

·	T. Rowe Price Associates, Inc. (“T. Rowe Price”)

·	William Blair & Company LLC (“William Blair”)

As an investment adviser, PI charges the Series Fund a daily investment management fee as compensation for its services. PI pays each subadviser out of the fee that PI receives from the Series Fund.

More detailed information is available in the attached Series Fund prospectus.

In the future, it may become disadvantageous for Separate Accounts of variable life insurance and variable annuity Contracts to invest in the same underlying Variable Investment Options . Neither the companies that invest in the Series Fund nor the Series Fund currently foresee any such disadvantage. The Series Fund's Board of Directors intends to monitor events in order to identify any material conflict between variable life insurance and variable annuity Contract Owners and to determine what action, if any, should be taken. 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 Variable Investment Option; or

(4)	differences between voting instructions given by variable life insurance and variable annuity Contract Owners.

A Portfolio may have a similar name, investment objective, or investment policy resembling those of a mutual fund managed by the same investment adviser or subadviser that is sold directly to the public. Despite such similarities, there can be no assurance that the investment performance of any such Portfolio will resemble that of the publicly available mutual fund.

Service Fees Payable to Pruco Life

Pruco Life has entered into an agreement with the Prudential Series Fund (the "Series Fund"). Under the terms of the agreement, Pruco Life provides administrative and support services to the Portfolios of the Series Fund for which it receives an annual fee from the investment adviser, distributor and/or the Portfolio based on the average assets allocated to the Portfolio. The agreement, including the fees paid and services provided, can vary for each Portfolio.

Pruco Life and/or our affiliates may receive substantial and varying administrative service payments from the Series Fund or related parties. These types of payments and fees are sometimes referred to as “revenue sharing” payments. Administrative service payments partially compensate for providing administrative services with respect to Contract Owners invested indirectly in the Series Fund, which include duties such as recordkeeping, shareholder services, and the mailing of periodic reports. The administrative service fees we receive originate from the assets of the Series Fund itself and/or the assets of the Series Fund’s investment adviser. In either case, the existence of administrative service fees may tend to increase the overall cost of investing in the Series Fund. In addition, because these fees are paid to us, allocations you make to the Portfolios may benefit us financially if these fees exceed the costs of the administrative support services.

STATEMENT OF ADDITIONAL INFORMATION

Pruco Life Variable Appreciable Account

Pruco Life Insurance Company

Variable Appreciable Life ®

Insurance Contracts

This Statement of Additional Information is not a prospectus. Please review the Variable Appreciable Life® prospectus (the “prospectus”), which contains information concerning the Contracts described above. You may obtain a copy of the prospectus without charge by calling us at 1-800-778-2255. You can also view the Statement of Additional Information located with the prospectus at www.prudential.com, or request a copy by writing to us.

The defined terms used in this Statement of Additional Information are as defined in the prospectus.

Pruco Life Insurance Company

213 Washington Street

Newark, New Jersey 07102

The Date of this Statement of Additional Information and of the related prospectus is May 1, 2010 .

TABLE OF CONTENTS

	Page
GENERAL INFORMATION AND HISTORY	1
Description of Pruco Life Insurance Company	1
Control of Pruco Life Insurance Company	1
State Regulation	1
Records	1
Services and Third Party Administration Agreements	1

INITIAL PREMIUM PROCESSING	2

ADDITIONAL INFORMATION ABOUT OPERATION OF CONTRACTS	3
Legal Considerations Relating to Sex-Distinct Premiums and Benefits	3
Sales to Persons 14 Years of Age or Younger	3
How a Type A and B Contract's Death Benefit Will Vary	3
Right to Exchange a Contract for a Fixed-Benefit Insurance Policy	4
Reports to Contract Owners	4

UNDERWRITING PROCEDURES	5

ADDITIONAL INFORMATION ABOUT CONTRACTS IN DEFAULT	5

DISTRIBUTION AND COMPENSATION	5

EXPERTS	7

PERFORMANCE DATA	7
Average Annual Total Return	7
Non-Standard Total Return	7
Money Market Subaccount Yield	7

FINANCIAL STATEMENTS	8

GENERAL INFORMATION AND HISTORY

Description of Pruco Life Insurance Company

Pruco Life Insurance Company ("Pruco Life", “us”, “we”, or “our”) is a stock life insurance company, organized on December 23, 1971 under the laws of the State of Arizona. It is licensed to sell life insurance and annuities in the District of Columbia, Guam, and in all states except New York. Pruco Life’s principal Executive Office is located at 213 Washington Street, Newark, New Jersey 07102.

Control of Pruco Life Insurance Company

Pruco Life is a wholly-owned subsidiary of The Prudential Insurance Company of America ("Prudential"), a New Jersey stock life insurance company that has been doing business since October 13, 1875. Prudential is an indirect wholly-owned subsidiary of Prudential Financial, Inc. (“Prudential Financial”), a New Jersey insurance holding company for financial services businesses offering a wide range of insurance, investment management, and other financial products and services. The principal Executive Office each of Prudential and Prudential Financial is Prudential Plaza, 751 Broad Street, Newark, New Jersey 07102.

As Pruco Life’s ultimate parent, Prudential Financial exercises significant influence over the operations and capital structure of Pruco Life and Prudential. However, neither Prudential Financial, Prudential, nor any other related company has any legal responsibility to pay amounts that Pruco Life may owe under the Contract.

State Regulation

Pruco Life is subject to regulation and supervision by the Department of Insurance of the State of Arizona, which periodically examines its operations and financial condition. It is also subject to the insurance laws and regulations of all jurisdictions in which it is authorized to do business.

Pruco Life is required to submit annual statements of its operations, including financial statements, to the insurance departments of the various jurisdictions in which it does business to determine solvency and compliance with local insurance laws and regulations.

In addition to the annual statements referred to above, Pruco Life is required to file with Arizona and other jurisdictions, a separate statement with respect to the operations of all of its variable contract accounts, in a form promulgated by the National Association of Insurance Commissioners.

Records

We maintain all records and accounts relating to the Account at our principal Executive Office. As presently required by the Investment Company Act of 1940, as amended, and regulations promulgated thereunder, reports containing such information as may be required under the Act or by any other applicable law or regulation will be sent to you semi-annually at your last address known to us.

Services and Third Party Administration Agreements

Pruco Life and Prudential have entered into a Service Agreement pursuant to which Prudential furnishes to Pruco Life various services, including preparation, maintenance, and filing of accounts, books, records, and other documents required under federal or state law, and various other accounting, administrative, and legal services, which are customarily performed by the officers and employees of Prudential. Pruco Life reimburses Prudential for its costs in providing such services. Under this Agreement, Pruco Life has reimbursed Prudential $17,879,927 in 2009, $18,861,514 in 2008, and $22,064,343 in 2007.

Pruco Life and Prudential have entered into an agreement under which Prudential furnishes Pruco Life the same administrative support services that it provides in the operation of its own business with regard to the payment of death claim proceeds by way of Prudential’s Alliance Account, Prudential’s retained asset settlement option. Pruco Life transfers to Prudential an amount equal to the amount of the death claim, and Prudential establishes a retained asset settlement option for the beneficiary within its General Account and makes all payments necessary to satisfy such obligations. As soon as the Pruco Life death claim is processed, the beneficiaries are furnished with an information kit that describes the settlement option and a check book on which they may write checks. Pruco Life pays no fees or other compensation to Prudential under this agreement.

Our individual life reinsurance treaties covering Pruco Life Variable Appreciable Life ® Insurance provide for the reinsurance of the mortality risk on a Yearly Renewable Term basis. Reinsurance is on a first-dollar quota share basis, with Pruco Life retaining 10% of the Face Amount, up to a limit of $100,000 per Contract, and the remainder is reinsured by Prudential.

The Prudential Insurance Company of America (“Prudential”), Pruco Life Insurance Company (“Pruco Life”), a subsidiary of Prudential, and Pruco Life Insurance Company of New Jersey (“Pruco Life of New Jersey”), a subsidiary of Pruco Life, jointly entered into an administrative agreement with First Tennessee Bank National Association (“First Express”), in which First Express provides remittance processing expertise and research and development capabilities providing Prudential, Pruco Life, and Pruco Life of New Jersey with the benefits of remittance processing, improved quality, increased productivity, decreased costs, and improved service levels. Fees for such services vary monthly, depending on the number of remittances and processing methods used for varying types of remittance. Under this Agreement, First Express received $2,790,008 in 2009, $3,014,514 in 2008, and $3,144,953 in 2007 from Prudential, Pruco Life, and Pruco Life of New Jersey for services rendered. First Tennessee Bank National Association’s principal business address is 165 Madison Avenue, Memphis, Tennessee 38103.

During 2009, Prudential and First Express entered into a temporary arrangement with the Regulus Group ("Regulus") in which First Express transitioned the lockbox services performed for Prudential to Regulus. The Regulus Group is a part of the 3i Infotech Group, North America, and is a provider of outsourced billing and payment services. On December 2, 2009, Regulus began performing remittance processing services under the arrangement and received $223,178 in 2009 for services rendered. Regulus Group's principal business address is 831 Latour Court, Suite B, Napa, California 94558.

INITIAL PREMIUM PROCESSING

In general, the invested portion of the minimum initial premium will be placed in the Contract Fund as of the later of the Contract Date and the date we receive the premium.

Upon receipt of a request for life insurance from a prospective Contract Owner, we will follow certain insurance underwriting (i.e. evaluation of risk) procedures designed to determine whether the proposed insured is insurable. The process may involve such verification procedures as medical examinations and may require that further information be provided by the proposed insured before a determination can be made. A Contract cannot be issued until this underwriting procedure has been completed.

These processing procedures are designed to provide temporary life insurance coverage to every prospective owner who pays the minimum initial premium at the time the request for coverage is submitted, subject to the terms of the Limited Insurance Agreement. Since a Contract cannot be issued until after the underwriting process has been completed, we will provide temporary life insurance coverage through use of the Limited Insurance Agreement. This coverage is for the total Death Benefit applied for, up to the maximum described by the Limited Insurance Agreement.

The Contract Date is the date we determine the proposed insured’s Issue Age. It represents the first day of the Contract Year and the commencement of the suicide and contestable periods for purposes of the initial Face Amount of insurance.

If the minimum initial premium is received on or before the Contract is issued, the premium will be applied as of the Contract Date. If an unusual delay is encountered in the underwriting procedure (for example, if a request for further information is not met promptly), the Contract Date will be 21 days prior to the date on which the Contract is physically issued. If a medical examination is required, the Contract Date will ordinarily be the date the examination is completed, subject to the same qualification as that noted above.

If the initial premium paid is less than the minimum initial premium, the Contract Date will be determined as described above. Upon receipt of the balance of the minimum initial premium, the total premiums received will be applied as of the date that the minimum initial premium was satisfied.

If the minimum initial premium is received after the Contract Date, it will be applied as of the date of receipt.

There is one principal variation from the foregoing procedure. If permitted by the insurance laws of the state in which the Contract is issued, the Contract may be backdated up to six months.

In situations where the Contract Date precedes the date that the minimum initial premium is received, charges due prior to the initial premium receipt date will be deducted from the initial premium.

ADDITIONAL INFORMATION ABOUT

OPERATION OF CONTRACTS

Legal Considerations Relating to Sex-Distinct Premiums and Benefits

The Contract generally employs mortality tables that distinguish between males and females. Thus, premiums and benefits differ under Contracts issued on males and females of the same age. However, in those states that have adopted regulations prohibiting sex-distinct insurance rates, premiums and cost of insurance charges will be based on male rates, whether the insureds are male or female. In addition, employers and employee organizations considering purchase of a Contract should consult their legal advisers to determine whether purchase of a Contract based on sex-distinct actuarial tables is consistent with Title VII of the Civil Rights Act of 1964 or other applicable law.

Sales to Persons 14 Years of Age or Younger

Both Form A and Form B Contracts covering insureds of 14 years of age or less contain a special provision providing that the Face Amount of insurance will automatically be increased on the Contract Anniversary after the insured's 21st birthday to 150% of the initial Face Amount, so long as the Contract is not then in default. The Death Benefit will also usually increase, at the same time, by the same dollar amount. In certain circumstances, however, it may increase by a smaller amount. See How a Form A and B Contract’s Death Benefit Will Vary, below. This increase in Death Benefit will also generally increase the net amount at risk under the Contract, thus increasing the mortality charge deducted each month from amounts invested under the Contract. The automatic increase in the Face Amount of insurance may affect the level of future premium payments you can make without causing the Contract to be classified as a Modified Endowment Contract. A Contract Owner should consult with a Pruco Life representative before making unscheduled premium payments.

How a Type A and B Contract's Death Benefit Will Vary

There are two forms of the Contract, Form A and Form B. Moreover, in September 1986 Pruco Life began issuing revised versions of both Form A and Form B Contracts. The primary difference between the original Contract and the revised Contract is that the original Contract may become paid-up, while the Death Benefit under the revised Contract operates differently and will not become paid-up.

1. Original Contracts:

(A)

If a Form A Contract is chosen, the Death Benefit will not vary (except for Contracts issued on insureds of age 14 or less) regardless of the payment of additional premiums or the investment results of the selected investment options, unless the Contract becomes paid-up. The Death Benefit does reflect a deduction for the amount of any Contract Debt.

(B)

If a Form B Contract is chosen, the Death Benefit will vary with investment experience and premium payments. Assuming no Contract Debt, the Death Benefit under a Form B Contract will, on any day, be equal to the Face Amount of insurance plus the amount (if any) by which the Contract Fund value exceeds the applicable “Tabular Contract Fund Value” for the Contract. The “Tabular Contract Fund Value” for each Contract Year is an amount that is slightly less than the Contract Fund value that would result as of the end of such year if:

(1) you paid only Scheduled Premiums;

(2) you paid Scheduled Premiums when due;

(3) your selected investment options earned a net return at a uniform rate of 4% per year;

(4) we deducted full mortality charges based upon the 1980 CSO Table;

(5) we deducted maximum sales load and expense charges; and

(6) there was no Contract Debt.

Each Contract contains a table that sets forth the Tabular Contract Fund Value as of the end of each of the first 20 years of the Contract. Tabular Contract Fund Values between Contract anniversaries are determined by interpolation.

Thus, under a Form B Contract with no Contract Debt, the Death Benefit will equal the Face Amount if the Contract Fund equals the Tabular Contract Fund Value. If, due to investment results greater than a net return of 4%, or to greater than Scheduled Premiums, or to lesser than maximum charges, the Contract Fund value is a given amount

greater than the Tabular Contract Fund Value, the Death Benefit will be the Face Amount plus that excess amount. If, due to investment results less favorable than a net return of 4%, the Contract Fund value is less than the Tabular Contract Fund Value, and the Contract nevertheless remains in-force because Scheduled Premiums have been paid, the Death Benefit will not fall below the initial Face Amount stated in the Contract. The Death Benefit will also reflect a deduction for the amount of any Contract Debt. Any unfavorable investment experience must subsequently be offset before favorable investment results or greater than Scheduled Premiums will increase the Death Benefit.

You may also increase or decrease the Face Amount of your Contract, subject to certain conditions.

2. Revised Contracts:

Under the revised Contracts issued since September 1986 in approved jurisdictions, the Death Benefit will be calculated as follows:

(A)

Under a Form A Contract, the Death Benefit will be the greater of (1) the Face Amount; or (2) the Contract Fund divided by the net single premium per $1 of Death Benefit at the insured's Attained Age on that date. In other words, the second alternative ensures that the Death Benefit will not be less than the amount of life insurance that could be provided for an invested single premium amount equal to the amount of the Contract Fund.

(B)

Under a Form B Contract, the Death Benefit will be the greater of (1) the Face Amount plus the excess, if any, of the Contract Fund over the Tabular Contract Fund Value; or (2) the Contract Fund divided by the net single premium per $1 of Death Benefit at the insured's Attained Age on that date. Thus, under the revised Contracts, the Death Benefit may be increased based on the size of the Contract Fund and the insured's Attained Age and sex. This ensures that the Contract will satisfy the Internal Revenue Code's definition of life insurance. The net single premium is used only in the calculation of the Death Benefit, not for premium payment purposes. The following is a table of illustrative net single premiums for $1 of Death Benefit.

Male Attained Age	Net Single Premium	Increase in Insurance Amount Per $1 Increase in Contract Fund	Female Attained Age	Net Single Premium	Increase in Insurance Amount Per $1 Increase in Contract Fund

5 25 35 55 65	.09884 .18455 .25596 .47352 .60986	$10.12 $ 5.42 $ 3.91 $ 2.11 $ 1.64	5 25 35 55 65	.08198 .15687 .21874 .40746 .54017	$12.20 $ 6.37 $ 4.57 $ 2.45 $ 1.85

Whenever the Death Benefit is determined in this way, Pruco Life reserves the right to refuse to accept further premium payments, although in practice the payment of the average of all premiums paid over the last five years will generally be allowed.

You may also increase or decrease the Face Amount of your Contract, subject to certain conditions.

Right to Exchange a Contract for a Fixed-Benefit Insurance Policy

The only right to exchange the Contract for a fixed-benefit contract is provided by allowing Contract Owners to transfer their entire Contract Fund to the Fixed Rate Option at any time within two years of any increase in Face Amount with respect to the amount of the increase. This is done without regard to the otherwise applicable limit of four transfers per year. This conversion right will also be provided if the Series Fund or one of its Portfolios has a material change in its investment policy.

Reports to Contract Owners

Once each year, we will send you a statement that provides certain information pertinent to your Contract. This statement will detail values, transactions made, and specific Contract data that apply only to your particular Contract.

You will also be sent annual and semi-annual reports of the Funds showing the financial condition of the Portfolios and the investments held in each Portfolio.

UNDERWRITING PROCEDURES

When you express interest in obtaining insurance from us, you may apply for coverage in one of two ways, via a paper application or through our Worksheet process. When using the paper application, a registered representative completes a full application and submits it to our underwriting unit to commence the underwriting process. A registered representative may be an agent/broker who is a representative of Pruco Securities, LLC (“Prusec”), a broker dealer affiliate of Prudential, or in some cases, a broker dealer not directly affiliated with Prudential.

When using the Worksheet process, a registered representative typically collects enough applicant information to start the underwriting process. The representative will submit the information to our New Business Department to begin processing, which includes scheduling a direct call to the applicant to obtain medical information, and to confirm other data.

Regardless of which of the two underwriting processes is followed, once we receive the necessary information, which may include doctors’ statements, medical examinations from physicians or paramedical vendors, test results, and other information, we will make a decision regarding our willingness to accept the risk, and the price at which we will accept the risk. We will issue the Contract when the risk has been accepted and priced.

ADDITIONAL INFORMATION ABOUT CONTRACTS IN DEFAULT

When your Contract is in default, you may not change the way in which subsequent premiums are allocated or increase the amount of your insurance by increasing the Face Amount of the Contract.

DISTRIBUTION AND COMPENSATION

In an effort to promote the sale of our variable products (which may include the placement of our Contracts on a preferred or recommended company or product list and/or access to a broker-dealer’s registered representatives), we or Prusec may enter into compensation arrangements with certain broker-dealer firms authorized by Prusec to sell the Contract, or branches of such 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, marketing and / or administrative and / or other services they provide to us or our affiliates.

To the extent permitted by applicable rules, laws, and regulations, Prusec may pay or allow other promotional incentives or payments in the form of cash or non-cash compensation. These arrangements may not be offered to all firms, and the terms of such arrangements may differ between firms. 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 Contract that is not eligible for these compensation arrangements.

Pruco Life makes these promotional payments 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.

The list below provides the names of the firms (or their affiliated broker/dealers) that we are aware of (as of December 31, 2009) that received payment or accrued a payment amount with respect to variable product business during 2009. The least amount paid or accrued and the greatest amount paid or accrued during 2009 were $3 and $3,913,733, respectively.

Name of Firms:

1 Financial Marketplace Securities LLC, 1ST Global Capital Corp., 3 Mark Equities Inc., Ace Diversified Capital, Inc., AFA Financial Group LLC, Allstate Financial Services LLC, American Portfolios Financial Services Inc., Ameriprise Financial Services Inc., Ameritas Investment Corp., AON Benfield Securities, Inc., Arlington Securities Inc., Askar Corp., Associated Securities Corp., AXA Advisors LLC, BB&T Investments Services Inc., BCG Securities Inc., Becker & Suffern Ltd., Benefit Funding Services LLC, Berthel Fisher & Company Financial Services Inc., BG Worldwide Securities Inc., Brecek & Young Advisors Inc., Broker Dealer Financial Services Corp., Brokers International Financial Services, Brookstone Securities, Inc., Cadaret Grant & Company Inc., Cambridge Investment Research Inc.,

Cambridge Legacy Securities LLC, Cantella & Company Inc., Cantone Research Inc., Capital Analysts Inc., Capital Financial Services Inc., Capital Investment Group Inc., Catholic Financial Services Corp., CBIZ Financial Solutions Inc., Centara Capital Securities, Inc., Centaurus Financial Inc., CFD Investments Inc., CFG Financial Associates Inc., CIBC World Markets Corp., Citigroup Global Markets Inc., Clark Securities Inc., CMS Investment Resources Inc., Comerica Securities Inc., Commonwealth Financial Network, Comprehensive Asset Management & Services, Conservative Financial Services Inc., Cornerstone Institutional Investors Inc., CPS Financial and Insurance Services Inc., Crown Capital Securities LP, Curtis Securities LLC, Cutter & Company Brokerage Inc., Dempsey Financial Network Inc., Dewaay Financial Network, LLC., Dolphin Securities Inc., Edward D. Jones and Company LP, Elite Securities Inc., Empire Securities Corp., Eplanning Securities Inc., Equity Services Inc., Essex Financial Services Inc., Farmers Financial Solutions Inc., FAS Corp., Ferris Baker Watts Inc., Fifth Third Securities Inc., Financial Network Investment Corp., Financial West Group, Fintegra LLC, First Allied Securities Inc., First Brokerage America, LLC., First Heartland Capital Inc., First Midwest Securities Inc., Foothill Securities Inc., Fortune Financial Services Inc., Fortune Securities Inc., FPCM Securities, LLC, FSC Securities Corp., GA Financial Inc., Geneos Wealth Management Inc., Genworth Financial Securities Corp., Girard Securities Inc., Great American Advisors Inc., Guardian Investors Services Corp., Gunn Allen Financial Inc., GWN Securities Inc., H&R Block Financial Advisors Inc., Haas Financial Products Inc., Hancock Securities Group, Hantz Financial Services, Inc., Harbour Investments Inc., HD Vest Investment Securities Inc., Herndon Plant Oakley Limited, Horan Securities Inc., Hornor Townsend & Kent Inc., Huntleigh Securities Corp., IMS Securities Inc., ING Financial Partners Inc., Interlink Securities Corp., Intervest Int'l. Equities Corp., Invest Financial Corp., Investacorp Inc., Investment Planners Inc., Investors Capital Corp., Investors Security Company Inc., Janney Montgomery Scott LLC, JJB Hilliard, WL Lyons, LLC, JW Cole Financial Inc., KCD Financial Inc., KMS Financial Services, Inc., Kovack Securities Inc., Landoak Securities, Larimer Capital Corp., Lasalle St. Securities LLC, The Leaders Group Inc., Legend Equities Corp., Lifemark Securities Corp., Lincoln Financial Advisors Corp., Lincoln Financial Securities Corp., Lincoln Investment Planning Inc., LM Kohn & Company, Loria Financial Group LLC, LPL Financial Corp., LSY Inc. DBA American Investors Company, M Financial Securities Marketing, Inc., M Holdings Securities Inc., M&T Securities, Inc., MAFG RIA Services Inc., Medallion Investment Services Inc., Meridien Financial Group Inc., Merrill Lynch Pierce Fenner & Smith Inc., Metlife Securities, Inc., Mid Atlantic Capital Corp., MMC Securities Corp., MML Investors Services Inc., Money Concepts Capital Corp., Moors & Cabot Inc., Morgan Keegan & Company Inc., Morgan Stanley & Co. Inc., MTL Equity Products Inc., Multi Financial Securities Corp., Mutual Service Corp., MWA Financial Services Inc., National Planning Corp., NBC Securities Inc., New England Securities, Newport Group Securities Inc., Next Financial Group Inc., NFP Securities Inc., Northland Securities Inc., Northwestern Mutual Investment Services, NPB Financial Group, LLC, NRP Financial, Inc., NYLife Securities, Oberweis Securities, Ogilvie Security Advisors Corp., Omnivest Inc., One Securities Corp., Oneamerica Securities Inc., Pacific West Securities Inc., Packerland Brokerage Services Inc., Papalia Securities, Inc., Park Avenue Securities LLC, Partnervest Securities Inc., PJ Robb Variable Corp., Primevest Financial Services Inc., Princor Financial Services, Private Consulting Group Inc., Proequities Inc., Prospera Financial Services, Inc., Purshe Kaplan Sterling Investments Inc., QA3 Financial Corp., Quest Capital Strategies Inc., Questar Capital Corp., RA Bench, Rampart Financial Services Inc., Raymond James & Associates Inc., RBC Capital Markets Corp., Resource Horizons Group LLC, Retirement Capital Group Securities Inc., RMIN Securities Inc., Robert W Baird & Co. Inc., Royal Alliance Associates Inc., Rydex Distributors Inc., Sagepoint Financial, Inc., Sammons Securities Company LLC, SCF Securities Inc., Securian Financial Services Inc., Securities America Inc., Securities Service Network Inc., Sigma Financial Corp., Signal Securities Inc., Signator Investors Inc., SII Investments Inc., SMH Capital, Inc., Smith, Brown & Groover Inc., Southwest Securities Inc., SSI Equity Services Inc., Stanley Laman Group Securities LLC, Stephens Inc., Stifel Nicolaus & Co. Inc., Stone & Youngberg LLC, Summit Brokerage Services, Inc., Summit Equities Inc., Sunset Financial Services Inc., Symetra Investments Services Inc., Syndicated Capital Inc., Synergy Investment Group LLC, TD Wealth Management Services, Inc., TFS Securities Inc., The Enterprise Securities Company, The Investment Center Inc., The New Penfacs, Inc., The ON Equity Sales Company, The Strategic Financial Alliance Inc., Thoroughbred Financial Services LLC, Tower Square Securities Inc., Trading Services Group Inc., Transamerica Financial Advisors, Inc., Triad Advisors Inc., Trustmont Financial Group, Inc., UBS Financial Services Inc., United Planners Financial Services, Univest Investments Inc., USA Advanced Planners, Inc., USA Financial Securities Corp., USI Securities Inc., UVEST Investment Services Inc., Valmark Securities Inc., VFIC Securities Inc., VSR Financial Services Inc., Wachovia Insurance Services Broker Dealer, Wachovia Securities LLC, Wall Street Financial Group Inc., Walnut Street Securities, Waterstone Financial Group Inc., Wells Fargo Advisors LLC, Wells Fargo Investments LLC, Western Equity Group Inc., Windham Financial Services Inc., Woodbury Financial Services Inc., Workman Securities Corp., World Equity Group, Worth Financial Group Inc., WRP Investments Inc.

Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Contract.

EXPERTS

The consolidated financial statements of Pruco Life Insurance Company and its subsidiaries as of December 31, 2009 and 2008 and for each of the three years in the period ended December 31, 2009 and the financial statements of Pruco Life Variable Appreciable Account as of December 31, 2009 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.

Actuarial matters included in this Statement of Additional Information have been examined by Nancy D. Davis, MAAA, FSA, Vice President and Actuary of Prudential.

PERFORMANCE DATA

Average Annual Total Return

The Account may advertise average annual total return information calculated according to a formula prescribed by the U.S. Securities and Exchange Commission (“SEC”). Average annual total return shows the average annual percentage increase, or decrease, in the value of a hypothetical contribution allocated to a Subaccount from the beginning to the end of each specified period of time. The SEC standardized version of this performance information is based on an assumed contribution of $1,000 allocated to a Subaccount at the beginning of each period and full withdrawal of the value of that amount at the end of each specified period. This method of calculating performance further assumes that (i) a $1,000 contribution was allocated to a Subaccount and (ii) no transfers or additional payments were made. Premium taxes are not included in the term “charges” for purposes of this calculation. Average annual total return is calculated by finding the average annual compounded rates of return of a hypothetical contribution that would compare the Unit Value on the first day of a specified period to the ending redeemable value at the end of the period according to the following formula:

P(1+T)n = ERV

Where T equals average annual total return, where ERV (the ending redeemable value) is the value at the end of the applicable period of a hypothetical contribution of $1,000 made at the beginning of the applicable period, where P equals a hypothetical contribution of $1,000, and where n equals the number of years.

Non-Standard Total Return

In addition to the standardized average annual total return information described above, we may present total return information computed on bases different from that standardized method. The Account may also present aggregate total return figures for various periods, reflecting the cumulative change in value of an investment in the Account for the specified period.

For the periods prior to the date the Subaccounts commenced operations, non-standard performance information for the Contracts will be calculated based on the performance of the Funds and the assumption that the Subaccounts were in existence for the same periods as those indicated for the Funds, with the level of Contract charges that were in effect at the inception of the Subaccounts (this is referred to as “hypothetical performance data”). Standard and non-standard average annual return calculations include the mortality and expense risk charge under the Contract, but do not reflect other life insurance contract charges (sales, administration, and actual cost of insurance) nor any applicable surrender or lapse charges, which would significantly lower the returns. Information stated for any given period does not indicate or represent future performance.

Money Market Subaccount Yield

The “total return” figures for the Money Market Subaccount are calculated using historical investment returns of the Money Market Portfolio of The Prudential Series Fund as if Pruco Life’s Variable Appreciable Life® had been investing in that Subaccount during a specified period. Fees associated with the Series Fund are reflected; however, all fees, expenses, and charges associated with Pruco Life’s Variable Appreciable Life® are not reflected.

The yield is computed by determining the net change, exclusive of capital changes, in the value of a hypothetical pre-existing account having a balance of one accumulation unit of the Money Market Subaccount at the beginning of a

specified period, subtracting a hypothetical charge reflecting deductions from Contract Owner accounts, and dividing the difference by the value of the Subaccount at the beginning of the base period to obtain the base period return, and then multiplying the base period return by (365/7), with the resulting figure carried to the nearest ten-thousandth of 1%. The effective yield is obtained by taking the base period return, adding 1, raising the sum to a power equal to 365 divided by 7, and subtracting 1 from the result, according to the following formula: Effective Yield ([base period return + 1] 365/7)-1.

The yields on amounts held in the Money Market Subaccount will fluctuate on a daily basis. Therefore, the stated yields for any given period are not an indication of future yields.

FINANCIAL STATEMENTS

The financial statements of the Account should be distinguished from the consolidated financial statements of Pruco Life and its subsidiaries, which should be considered only as bearing upon the ability of Pruco Life to meet its obligations under the Contracts.

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF NET ASSETS

December 31, 2009


	SUBACCOUNTS

	Prudential Money Market Portfolio			Prudential Diversified Bond Portfolio			Prudential Equity Portfolio			Prudential Flexible Managed Portfolio

ASSETS
Investment in the portfolios, at value	$	85,739,468		$	236,919,354		$	604,580,938		$	878,935,452

Net Assets	$	85,739,468		$	236,919,354		$	604,580,938		$	878,935,452


NET ASSETS, representing:
Accumulation units	$	85,739,468		$	236,919,354		$	604,580,938		$	878,935,452

	$	85,739,468		$	236,919,354		$	604,580,938		$	878,935,452


Units outstanding		46,693,044			87,595,787			85,599,376			155,086,454


Portfolio shares held		8,573,947			21,229,333			27,111,253			61,550,102
Portfolio net asset value per share	$	10.00		$	11.16		$	22.30		$	14.28
Investment in portfolio shares, at cost	$	85,739,468		$	230,519,913		$	615,308,222		$	961,272,171

STATEMENT OF OPERATIONS
For the period ended December 31, 2009

	SUBACCOUNTS

	Prudential Money Market Portfolio			Prudential Diversified Bond Portfolio			Prudential Equity Portfolio			Prudential Flexible Managed Portfolio

INVESTMENT INCOME
Dividend income	$	443,633		$	10,277,319		$	8,158,588		$	27,558,792

EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration		634,751			1,301,371			3,050,964			4,732,644
Reimbursement for excess expenses		(1,116	)		(30,536	)		(393,500	)		(1,762,565	)


NET EXPENSES		633,635			1,270,835			2,657,464			2,970,079


NET INVESTMENT INCOME (LOSS)		(190,002	)		9,006,484			5,501,124			24,588,713


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received		0			3,828,970			0			0
Realized gain (loss) on shares redeemed		0			(832,643	)		(10,949,072	)		(13,208,315	)
Net change in unrealized gain (loss) on investments		0			27,411,550			172,821,259			133,532,302


NET GAIN (LOSS) ON INVESTMENTS		0			30,407,877			161,872,187			120,323,987


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	(190,002	)	$	39,414,361		$	167,373,311		$	144,912,700

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


SUBACCOUNTS (Continued)

Prudential Conservative Balanced Portfolio			Prudential Value Portfolio			Prudential High Yield Bond Portfolio			Prudential Natural Resources Portfolio			Prudential Stock Index Portfolio			Prudential Global Portfolio


$	455,288,718		$	135,277,070		$	860,286,482		$	140,071,903		$	215,286,928		$	78,851,218

$	455,288,718		$	135,277,070		$	860,286,482		$	140,071,903		$	215,286,928		$	78,851,218


$	455,288,718		$	135,277,070		$	860,286,482		$	140,071,903		$	215,286,928		$	78,851,218

$	455,288,718		$	135,277,070		$	860,286,482		$	140,071,903		$	215,286,928		$	78,851,218


	96,176,818			32,686,525			452,382,702			7,858,590			73,672,575			41,730,261


	31,077,728			8,958,746			178,113,143			3,770,442			7,719,144			4,727,291
$	14.65		$	15.10		$	4.83		$	37.15		$	27.89		$	16.68
$	438,096,082		$	166,163,802		$	904,848,610		$	133,764,957		$	213,874,345		$	88,741,277

SUBACCOUNTS (Continued)

Prudential Conservative Balanced Portfolio			Prudential Value Portfolio			Prudential High Yield Bond Portfolio			Prudential Natural Resources Portfolio			Prudential Stock Index Portfolio			Prudential Global Portfolio


$	15,785,618		$	2,358,237		$	68,883,460		$	791,291		$	5,348,094		$	1,970,340


	2,493,624			685,840			4,345,478			660,525			1,126,392			405,482
	(746,359	)		0			0			0			0			0


	1,747,265			685,840			4,345,478			660,525			1,126,392			405,482


	14,038,353			1,672,397			64,537,982			130,766			4,221,702			1,564,858


	0			0			0			13,067,109			0			0
	(2,839,459	)		(6,488,398	)		(3,077,950	)		(2,731,070	)		(5,355,119	)		(3,489,297	)
	64,972,156			44,953,399			210,628,831			50,997,521			45,969,388			20,449,276


	62,132,697			38,465,001			207,550,881			61,333,560			40,614,269			16,959,979


$	76,171,050		$	40,137,398		$	272,088,863		$	61,464,326		$	44,835,971		$	18,524,837

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

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF NET ASSETS

December 31, 2009


	SUBACCOUNTS


	Prudential Government Income Portfolio			Prudential Jennison Portfolio			Prudential Small Capitalization Stock Portfolio			T. Rowe Price International Stock Portfolio

ASSETS
Investment in the portfolios, at value	$	24,451,113		$	174,394,075		$	59,351,075		$	20,786,600

Net Assets	$	24,451,113		$	174,394,075		$	59,351,075		$	20,786,600


NET ASSETS, representing:
Accumulation units	$	24,451,113		$	174,394,075		$	59,351,075		$	20,786,600

	$	24,451,113		$	174,394,075		$	59,351,075		$	20,786,600


Units outstanding		6,858,311			80,745,599			17,843,132			16,668,885


Portfolio shares held		2,061,645			8,356,209			4,291,473			1,694,099
Portfolio net asset value per share	$	11.86		$	20.87		$	13.83		$	12.27
Investment in portfolio shares, at cost	$	24,328,644		$	171,577,029		$	72,869,811		$	21,881,093


STATEMENT OF OPERATIONS
For the period ended December 31, 2009

	SUBACCOUNTS


	Prudential Government Income Portfolio			Prudential Jennison Portfolio			Prudential Small Capitalization Stock Portfolio			T. Rowe Price International Stock Portfolio

INVESTMENT INCOME
Dividend income	$	800,052		$	991,876		$	933,229		$	462,932

EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration		152,873			878,259			303,313			100,660
Reimbursement for excess expenses		0			0			0			0


NET EXPENSES		152,873			878,259			303,313			100,660


NET INVESTMENT INCOME (LOSS)		647,179			113,617			629,916			362,272


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received		96,112			0			5,064,693			0
Realized gain (loss) on shares redeemed		(159,911	)		(2,807,557	)		(3,813,670	)		(570,005	)
Net change in unrealized gain (loss) on investments		1,121,471			55,465,055			9,554,793			7,412,332


NET GAIN (LOSS) ON INVESTMENTS		1,057,672			52,657,498			10,805,816			6,842,327


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	1,704,851		$	52,771,115		$	11,435,732		$	7,204,599

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


SUBACCOUNTS (Continued)

Janus Aspen Janus Portfolio - Institutional Shares			MFS VIT Growth Series - Initial Class			American Century VP Value Fund			Prudential SP Davis Value Portfolio			Prudential SP Small Cap Value Fund			Prudential SP PIMCO Total Return Portflio


$	43,674,333		$	46,485,234		$	18,334,985		$	6,343,803		$	9,120,616		$	0

$	43,674,333		$	46,485,234		$	18,334,985		$	6,343,803		$	9,120,616		$	0


$	43,674,333		$	46,485,234		$	18,334,985		$	6,343,803		$	9,120,616		$	0

$	43,674,333		$	46,485,234		$	18,334,985		$	6,343,803		$	9,120,616		$	0


	31,220,929			29,941,794			9,640,200			5,077,845			7,184,586			0


	2,038,000			2,169,166			3,472,535			730,853			931,626			0
$	21.43		$	21.43		$	5.28		$	8.68		$	9.79		$	0.00
$	37,697,287		$	37,820,192		$	23,590,106		$	7,153,486		$	11,287,152		$	0

SUBACCOUNTS (Continued)

Janus Aspen Janus Portfolio - Institutional Shares			MFS VIT Growth Series - Initial Class			American Century VP Value Fund			Prudential SP Davis Value Portfolio			Prudential SP Small Cap Value Fund			Prudential SP PIMCO Total Return Portflio


$	202,437		$	115,698		$	921,973		$	106,152		$	118,782		$	701,641


	223,854			225,083			97,131			37,809			46,611			124,935
	0			0			0			0			0			0


	223,854			225,083			97,131			37,809			46,611			124,935


	(21,417	)		(109,385	)		824,842			68,343			72,171			576,706


	0			0			0			0			0			544,417
	(206,484	)		37,761			(1,022,720	)		(512,195	)		(702,651	)		1,223,057
	11,935,356			12,223,698			3,219,350			2,275,359			2,782,232			316,588


	11,728,872			12,261,459			2,196,630			1,763,164			2,079,581			2,084,062


$	11,707,455		$	12,152,074		$	3,021,472		$	1,831,507		$	2,151,752		$	2,660,768

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

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF NET ASSETS

December 31, 2009


	SUBACCOUNTS

	Prudential SP PIMCO High Yield Portfolio		Prudential SP Strategic Partners Focused Growth Portfolio		Prudential SP Mid Cap Growth Portfolio		SP Prudential U.S. Emerging Growth Portfolio

ASSETS
Investment in the portfolios, at value	$	0	$	1,673,354	$	3,391,884	$	6,991,035

Net Assets	$	0	$	1,673,354	$	3,391,884	$	6,991,035


NET ASSETS, representing:
Accumulation units	$	0	$	1,673,354	$	3,391,884	$	6,991,035

	$	0	$	1,673,354	$	3,391,884	$	6,991,035


Units outstanding	$	0		1,317,550		3,399,703		4,068,411


Portfolio shares held		0		242,867		752,081		1,083,881
Portfolio net asset value per share	$	0.00	$	6.89	$	4.51	$	6.45
Investment in portfolio shares, at cost	$	0	$	1,687,851	$	4,529,145	$	7,763,295

STATEMENT OF OPERATIONS

For the period ended December 31, 2009


	SUBACCOUNTS

	Prudential SP PIMCO High Yield Portfolio		Prudential SP Strategic Partners Focused Growth Portfolio			Prudential SP Mid Cap Growth Portfolio			SP Prudential U.S. Emerging Growth Portfolio

INVESTMENT INCOME
Dividend income	$	227,400	$	0		$	0		$	45,734

EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration		17,904		8,193			17,826			35,515
Reimbursement for excess expenses		0		0			0			0


NET EXPENSES		17,904		8,193			17,826			35,515


NET INVESTMENT INCOME (LOSS)		209,496		(8,193	)		(17,826	)		10,219


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received		0		0			0			0
Realized gain (loss) on shares redeemed		310,078		(66,709	)		(321,706	)		(381,622	)
Net change in unrealized gain (loss) on investments		1,241,860		572,576			1,165,230			2,449,885


NET GAIN (LOSS) ON INVESTMENTS		931,782		505,867			843,524			2,068,263


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	1,141,278	$	497,674		$	825,698		$	2,078,482

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


SUBACCOUNTS (Continued)


Prudential SP Conservative Asset Allocation Portfolio		Prudential SP Balanced Asset Allocation Portfolio			Prudential SP Growth Asset Allocation Portfolio			Prudential SP Aggressive Growth Asset Allocation Portfolio			Prudential SP International Growth Portfolio			Prudential SP International Value Portfolio


$	0	$	0		$	10,326,898		$	0		$	5,569,291		$	7,570,786

$	0	$	0		$	10,326,898		$	0		$	5,569,291		$	7,570,786


$	0	$	0		$	10,326,898		$	0		$	5,569,291		$	7,570,786

$	0	$	0		$	10,326,898		$	0		$	5,569,291		$	7,570,786


	0		0			8,090,200			0			4,017,349			5,059,908


	0		0			1,286,040			0			1,202,871			1,192,250
$	0.00	$	0.00		$	8.03		$	0.00		$	4.63		$	6.35
$	0	$	0		$	12,140,773		$	0		$	7,917,073		$	10,925,413

SUBACCOUNTS (Continued)


Prudential SP Conservative Asset Allocation Portfolio		Prudential SP Balanced Asset Allocation Portfolio			Prudential SP Growth Asset Allocation Portfolio			Prudential SP Aggressive Growth Asset Allocation Portfolio			Prudential SP International Growth Portfolio			Prudential SP International Value Portfolio


$	56,874	$	212,032		$	202,049		$	74,169		$	104,681		$	221,030


	20,359		36,625			55,228			27,030			29,759			41,574
	0		0			0			0			0			0


	20,359		36,625			55,228			27,030			29,759			41,574


	36,515		175,407			146,821			47,139			74,922			179,456


	0		56,316			132,139			0			0			0
	306,071		(1,223,894	)		(1,087,992	)		(1,931,408	)		(1,235,221	)		(1,076,231	)
	265,930		2,384,816			2,836,638			3,146,018			2,673,861			2,864,193


	572,001		1,217,238			1,880,785			1,214,610			1,438,640			1,787,962


$	608,516	$	1,392,645		$	2,027,606		$	1,261,749		$	1,513,562		$	1,967,418

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

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF NET ASSETS

December 31, 2009


	SUBACCOUNTS

	AST T. Rowe Price Large-Cap Growth Portfolio		AST Large-Cap Value Portfolio		AST Marsico Capital Growth Portfolio		AST Small-Cap Growth Portfolio

ASSETS
Investment in the portfolios, at value	$	7,295,658	$	2,496,278	$	4,480,808	$	3,197,353

Net Assets	$	7,295,658	$	2,496,278	$	4,480,808	$	3,197,353


NET ASSETS, representing:
Accumulation units	$	7,295,658	$	2,496,278	$	4,480,808	$	3,197,353

	$	7,295,658	$	2,496,278	$	4,480,808	$	3,197,353


Units outstanding		763,637		341,955		569,210		353,363


Portfolio shares held		682,475		209,771		275,403		213,299
Portfolio net asset value per share	$	10.69	$	11.90	$	16.27	$	14.99
Investment in portfolio shares, at cost	$	7,121,838	$	3,468,384	$	5,326,220	$	3,338,060

STATEMENT OF OPERATIONS

For the period ended December 31, 2009


	SUBACCOUNTS

	AST T. Rowe Price Large-Cap Growth Portfolio			AST Large-Cap Value Portfolio			AST Marsico Capital Growth Portfolio			AST Small-Cap Growth Portfolio

INVESTMENT INCOME
Dividend income	$	0		$	71,675		$	31,365		$	1,411

EXPENSES
Charges to contract owners for assuming mortality risk and expense risk and for administration		28,396			14,074			21,720			16,214
Reimbursement for excess expenses		0			0			0			0


NET EXPENSES		28,396			14,074			21,720			16,214


NET INVESTMENT INCOME (LOSS)		(28,396	)		57,601			9,645			(14,803	)


NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Capital gains distributions received		0			0			0			0
Realized gain (loss) on shares redeemed		(53,537	)		(363,475	)		(133,672	)		(118,919	)
Net change in unrealized gain (loss) on investments		2,090,287			735,489			1,100,209			974,487


NET GAIN (LOSS) ON INVESTMENTS		2,036,750			372,014			966,537			855,568


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS	$	2,008,354		$	429,615		$	976,182		$	840,765

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


SUBACCOUNTS (Continued)

AST PIMCO Total Return Bond Portfolio			AST Aggressive Asset Allocation Portfolio			AST Balanced Asset Allocation Portfolio			AST Preservation Asset Allocation Portfolio


$	23,065,501		$	5,819,901		$	8,432,859		$	17,757,760

$	23,065,501		$	5,819,901		$	8,432,859		$	17,757,760


$	23,065,501		$	5,819,901		$	8,432,859		$	17,757,760

$	23,065,501		$	5,819,901		$	8,432,859		$	17,757,760


	2,321,414			569,655			832,969			1,772,053


	1,971,410			710,611			844,976			1,647,288
$	11.70		$	8.19		$	9.98		$	10.78
$	23,124,768		$	5,734,959		$	8,366,266		$	17,716,978

SUBACCOUNTS (Continued)

AST PIMCO Total Return Bond Portfolio			AST Aggressive Asset Allocation Portfolio			AST Balanced Asset Allocation Portfolio			AST Preservation Asset Allocation Portfolio


$	0		$	0		$	0		$	0


	11,038			4,552			6,606			10,189
	0			0			0			0


	11,038			4,552			6,606			10,189

	(11,038	)		(4,552	)		(6,606	)		(10,189	)


	0			0			0			0
	11,779			392			451			299
	(59,267	)		84,942			66,593			40,782


	(47,488	)		85,334			67,044			41,081


$	(58,526	)	$	80,782		$	60,438		$	30,892

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

[This page intentionally left blank.]

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2009 and 2008


	SUBACCOUNTS

	Prudential Money Market Portfolio						Prudential Diversified Bond Portfolio

	01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008

OPERATIONS
Net investment income (loss)	$	(190,002	)	$	2,222,039		$	9,006,484		$	9,855,581
Capital gains distributions received		0			0			3,828,970			2,000,126
Realized gain (loss) on shares redeemed		0			0			(832,643	)		(568,095	)
Net change in unrealized gain (loss) on investments		0			0			27,411,550			(20,040,406	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		(190,002	)		2,222,039			39,414,361			(8,752,794	)


CONTRACT OWNER TRANSACTIONS
Contract owner net payments		8,553,181			10,063,656			5,898,491			7,515,188
Policy loans		(9,395,612	)		(3,669,887	)		(2,200,415	)		(2,171,429	)
Policy loan repayments and interest		11,384,724			2,257,800			2,379,552			1,969,321
Surrenders, withdrawals and death benefits		(15,456,585	)		(11,336,041	)		(10,241,278	)		(6,727,784	)
Net transfers between other subaccounts
or fixed rate option		(15,322,055	)		14,703,779			3,023,331			(427,343	)
Withdrawal and other charges		(7,494,944	)		(7,137,642	)		(5,858,548	)		(5,519,195	)


NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CONTRACT
OWNER TRANSACTIONS		(27,731,291	)		4,881,665			(6,998,867	)		(5,361,242	)


TOTAL INCREASE (DECREASE) IN NET ASSETS		(27,921,293	)		7,103,704			32,415,494			(14,114,036	)

NET ASSETS
Beginning of period		113,660,761			106,557,057			204,503,860			218,617,896

End of period	$	85,739,468		$	113,660,761		$	236,919,354		$	204,503,860



Beginning units		64,977,707			63,522,209			91,201,902			93,555,466

Units issued		23,789,447			22,084,571			4,841,884			4,002,491
Units redeemed		(42,074,110	)		(20,629,073	)		(8,447,999	)		(6,356,055	)

Ending units		46,693,044			64,977,707			87,595,787			91,201,902

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

A10


SUBACCOUNTS (Continued)

Prudential Equity Portfolio						Prudential Flexible Managed Portfolio						Prudential Conservative Balanced Portfolio

01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008


$	5,501,124		$	5,547,787		$	24,588,713		$	24,546,846		$	14,038,353		$	14,560,767
	0			70,506,165			0			76,145,304			0			0
	(10,949,072	)		1,941,457			(13,208,315	)		(917,158	)		(2,839,459	)		1,175,520
	172,821,259			(376,905,011	)		133,532,302			(365,646,482	)		64,972,156			(130,886,261	)


	167,373,311			(298,909,602	)		144,912,700			(265,871,490	)		76,171,050			(115,149,974	)


	26,558,582			36,319,186			40,815,714			56,416,303			22,519,104			32,355,878
	(11,787,985	)		(14,676,141	)		(17,167,573	)		(19,008,940	)		(7,846,642	)		(8,823,321	)
	18,120,353			16,707,557			25,529,751			22,470,593			10,844,705			9,265,428
	(36,470,339	)		(32,904,887	)		(51,332,064	)		(48,078,412	)		(26,850,624	)		(24,363,879	)

	(12,597,698	)		(10,245,208	)		(17,641,011	)		(21,679,340	)		(13,434,209	)		(11,282,576	)
	(18,220,515	)		(19,235,418	)		(28,242,116	)		(28,977,792	)		(15,452,590	)		(15,818,214	)




	(34,397,602	)		(24,034,911	)		(48,037,299	)		(38,857,588	)		(30,220,256	)		(18,666,684	)


	132,975,709			(322,944,513	)		96,875,401			(304,729,078	)		45,950,794			(133,816,658	)


	471,605,229			794,549,742			782,060,051			1,086,789,129			409,337,924			543,154,582

$	604,580,938		$	471,605,229		$	878,935,452		$	782,060,051		$	455,288,718		$	409,337,924



	91,742,494			95,451,076			165,142,949			172,117,773			103,381,074			107,990,049

	9,456,659			9,003,530			13,926,014			13,011,192			9,120,861			8,486,050
	(15,599,777	)		(12,712,112	)		(23,982,509	)		(19,986,016	)		(16,325,117	)		(13,095,025	)

	85,599,376			91,742,494			155,086,454			165,142,949			96,176,818			103,381,074

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

A11

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2009 and 2008


	SUBACCOUNTS

	Prudential Value Portfolio						Prudential High Yield Bond Portfolio

	01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008

OPERATIONS
Net investment income (loss)	$	1,672,397		$	1,949,702		$	64,537,982		$	58,333,592
Capital gains distributions received		0			32,889,239			0			0
Realized gain (loss) on shares redeemed		(6,488,398	)		(713,595	)		(3,077,950	)		(1,867,293	)
Net change in unrealized gain (loss) on investments		44,953,399			(112,287,759	)		210,628,831			(230,281,994	)


NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS		40,137,398			(78,162,413	)		272,088,863			(173,815,695	)


CONTRACT OWNER TRANSACTIONS
Contract owner net payments		7,741,244			10,118,905			2,447,638			3,261,782
Policy loans		(2,643,579	)		(3,581,573	)		(1,104,448	)		(962,708	)
Policy loan repayments and interest		2,660,707			2,518,344			1,036,180			701,146
Surrenders, withdrawals and death benefits		(7,829,498	)		(8,819,586	)		(2,890,608	)		(2,189,962	)
Net transfers between other subaccounts
or fixed rate option		(3,025,076	)		(1,498,770	)		6,671,217			(1,145,063	)
Withdrawal and other charges		(5,531,341	)		(5,951,957	)		(6,933,952	)		(6,559,489	)


NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM CONTRACT
OWNER TRANSACTIONS		(8,627,543	)		(7,214,637	)		(773,973	)		(6,894,294	)


TOTAL INCREASE (DECREASE) IN NET ASSETS		31,509,855			(85,377,050	)		271,314,890			(180,709,989	)

NET ASSETS
Beginning of period		103,767,215			189,144,265			588,971,592			769,681,581

End of period	$	135,277,070		$	103,767,215		$	860,286,482		$	588,971,592



Beginning units		35,190,983			37,490,236			453,401,728			457,465,068

Units issued		4,107,163			4,540,579			5,996,431			1,856,276
Units redeemed		(6,611,621	)		(6,839,832	)		(7,015,457	)		(5,919,616	)

Ending units		32,686,525			35,190,983			452,382,702			453,401,728

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

A12


SUBACCOUNTS (Continued)

Prudential Natural Resources Portfolio						Prudential Stock Index Portfolio						Prudential Global Portfolio

01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008


$	130,766		$	270,972		$	4,221,702		$	4,318,277		$	1,564,858		$	1,318,822
	13,067,109			22,035,639			0			0			0			6,458,251
	(2,731,070	)		16,777,389			(5,355,119	)		2,976,852			(3,489,297	)		1,647,042
	50,997,521			(138,470,467	)		45,969,388			(119,880,235	)		20,449,276			(60,943,416	)


	61,464,326			(99,386,467	)		44,835,971			(112,585,106	)		18,524,837			(51,519,301	)


	2,463,729			3,462,200			17,939,789			20,632,769			5,847,096			6,927,912
	(2,662,763	)		(4,036,445	)		(4,702,629	)		(4,916,272	)		(2,326,674	)		(2,233,808	)
	2,881,722			2,687,796			4,851,970			3,944,730			1,634,731			1,578,179
	(5,280,502	)		(5,844,585	)		(15,027,459	)		(18,320,910	)		(4,632,184	)		(4,772,159	)

	(1,067,587	)		(27,561,118	)		(8,022,060	)		2,440,555			(1,560,232	)		(7,272,442	)
	(2,362,440	)		(2,538,582	)		(10,617,655	)		(11,753,479	)		(3,496,664	)		(4,100,783	)




	(6,027,841	)		(33,830,734	)		(15,578,044	)		(7,972,607	)		(4,533,927	)		(9,873,101	)


	55,436,485			(133,217,201	)		29,257,927			(120,557,713	)		13,990,910			(61,392,402	)


	84,635,418			217,852,619			186,029,001			306,586,714			64,860,308			126,252,710

$	140,071,903		$	84,635,418		$	215,286,928		$	186,029,001		$	78,851,218		$	64,860,308



	8,359,450			10,052,169			79,665,286			84,335,464			44,767,582			50,640,501

	1,072,788			1,190,846			11,305,848			11,597,296			6,438,532			8,681,623
	(1,573,648	)		(2,883,565	)		(17,298,559	)		(16,267,474	)		(9,475,853	)		(14,554,542	)

	7,858,590			8,359,450			73,672,575			79,665,286			41,730,261			44,767,582

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

A13

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2009 and 2008


	SUBACCOUNTS

	Prudential Government Income Portfolio						Prudential Jennison Portfolio

	01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008

OPERATIONS
Net investment income (loss)	$	647,179		$	849,837		$	113,617		$	(136,576	)
Capital gains distributions received		96,112			0			0			0
Realized gain (loss) on shares redeemed		(159,911	)		(83,888	)		(2,807,557	)		(429,596	)
Net change in unrealized gain (loss) on investments		1,121,471			140,710			55,465,055			(79,687,629	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		1,704,851			906,659			52,771,115			(80,253,801	)


CONTRACT OWNER TRANSACTIONS
Contract owner net payments		1,005,059			1,071,442			15,770,163			19,225,173
Policy loans		(395,406	)		(367,656	)		(4,729,534	)		(5,401,914	)
Policy loan repayments and interest		515,866			468,436			3,826,369			3,477,854
Surrenders, withdrawals and death benefits		(4,533,325	)		(1,028,882	)		(10,079,513	)		(11,070,871	)
Net transfers between other subaccounts or fixed rate option		927,255			1,883,809			(3,307,223	)		(3,962,031	)
Withdrawal and other charges		(694,368	)		(585,625	)		(10,170,585	)		(10,292,648	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		(3,174,919	)		1,441,524			(8,690,323	)		(8,024,437	)


TOTAL INCREASE (DECREASE) IN NET ASSETS		(1,470,068	)		2,348,183			44,080,792			(88,278,238	)

NET ASSETS
Beginning of period		25,921,181			23,572,998			130,313,283			218,591,521

End of period	$	24,451,113		$	25,921,181		$	174,394,075		$	130,313,283



Beginning units		7,784,606			7,339,977			85,715,587			89,713,450

Units issued		1,514,497			1,487,170			12,891,081			12,332,659
Units redeemed		(2,440,792	)		(1,042,541	)		(17,861,069	)		(16,330,522	)

Ending units		6,858,311			7,784,606			80,745,599			85,715,587

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

A14


SUBACCOUNTS (Continued)

Prudential Small Capitalization Stock Portfolio						T. Rowe Price International Stock Portfolio						Janus Aspen Janus Portfolio - Institutional Shares

01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008

$	629,916		$	392,188		$	362,272		$	311,014		$	(21,417	)	$	70,752
	5,064,693			10,789,514			0			910,238			0			0
	(3,813,670	)		(369,470	)		(570,005	)		159,510			(206,484	)		786,402
	9,554,793			(35,468,615	)		7,412,332			(16,584,113	)		11,935,356			(24,140,330	)


	11,435,732			(24,656,383	)		7,204,599			(15,203,351	)		11,707,455			(23,283,176	)



	2,253,978			2,565,472			1,859,819			2,135,396			5,681,749			6,695,032
	(925,048	)		(1,315,046	)		(335,918	)		(415,181	)		(1,238,926	)		(1,316,084	)
	1,269,524			1,249,368			125,618			143,284			338,395			309,678
	(3,577,118	)		(2,997,374	)		(1,036,240	)		(2,056,090	)		(2,593,264	)		(3,433,476	)

	(2,465,988	)		(781,152	)		497,136			(6,749,527	)		(856,386	)		(1,105,438	)
	(1,319,303	)		(1,498,422	)		(1,326,902	)		(1,534,319	)		(3,561,387	)		(3,847,371	)


	(4,763,955	)		(2,777,154	)		(216,487	)		(8,476,437	)		(2,229,819	)		(2,697,659	)


	6,671,777			(27,433,537	)		6,988,112			(23,679,788	)		9,477,636			(25,980,835	)


	52,679,298			80,112,835			13,798,488			37,478,276			34,196,697			60,177,532

$	59,351,075		$	52,679,298		$	20,786,600		$	13,798,488		$	43,674,333		$	34,196,697


	19,708,004			20,545,546			16,762,012			23,215,419			33,136,334			34,940,621

	2,375,353			2,878,414			3,471,407			2,136,617			5,366,855			5,183,102
	(4,240,225	)		(3,715,956	)		(3,564,534	)		(8,590,024	)		(7,282,260	)		(6,987,389	)

	17,843,132			19,708,004			16,668,885			16,762,012			31,220,929			33,136,334

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

A15

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2009 and 2008


	SUBACCOUNTS


	MFS VIT Growth Series - Initial Class						American Century VP Value Fund

	01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008

OPERATIONS
Net investment income (loss)	$	(109,385	)	$	(165,881	)	$	824,842		$	407,157
Capital gains distributions received		0			0			0			2,828,106
Realized gain (loss) on shares redeemed		37,761			988,050			(1,022,720	)		(843,499	)
Net change in unrealized gain (loss) on investments		12,223,698			(20,901,460	)		3,219,350			(8,755,386	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		12,152,074			(20,079,291	)		3,021,472			(6,363,622	)


CONTRACT OWNER TRANSACTIONS
Contract owner net payments		5,194,050			5,937,014			2,090,358			2,383,950
Policy loans		(1,028,767	)		(1,256,099	)		(465,085	)		(533,679	)
Policy loan repayments and interest		304,628			210,803			170,392			99,966
Surrenders, withdrawals and death benefits		(1,962,740	)		(2,984,771	)		(964,615	)		(2,425,707	)
Net transfers between other subaccounts or fixed rate option		1,213,604			7,259,744			(595,581	)		(629,281	)
Withdrawal and other charges		(3,105,866	)		(3,223,286	)		(1,322,932	)		(1,470,190	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		614,909			5,943,405			(1,087,463	)		(2,574,941	)


TOTAL INCREASE (DECREASE) IN NET ASSETS		12,766,983			(14,135,886	)		1,934,009			(8,938,563	)

NET ASSETS
Beginning of period		33,718,251			47,854,137			16,400,976			25,339,539

End of period	$	46,485,234		$	33,718,251		$	18,334,985		$	16,400,976



Beginning units		29,723,947			26,243,015			10,274,369			11,554,632

Units issued		5,723,471			8,997,628			1,607,882			1,512,020
Units redeemed		(5,505,624	)		(5,516,696	)		(2,242,051	)		(2,792,283	)

Ending units		29,941,794			29,723,947			9,640,200			10,274,369

** Date subaccount was no longer available for investment.

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

A16


SUBACCOUNTS (Continued)

Prudential SP Davis Value Portfolio						Prudential SP Small Cap Value Portfolio						Prudential SP PIMCO Total Return Portfolio

01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/4/2009**			01/01/2008 to 12/31/2008

$	68,343		$	75,673		$	72,171		$	50,457		$	576,706		$	831,954
	0			538,648			0			1,056,860			544,417			0
	(512,195	)		(55,291	)		(702,651	)		(229,096	)		1,223,057			(20,636	)
	2,275,359			(4,611,137	)		2,782,232			(4,330,416	)		316,588			(1,009,055	)


	1,831,507			(4,052,107	)		2,151,752			(3,452,195	)		2,660,768			(197,737	)


	687,881			889,019			753,327			929,068			1,390,757			1,251,415
	(124,442	)		(243,697	)		(129,693	)		(211,909	)		(250,726	)		(406,250	)
	32,861			97,145			34,913			30,553			78,357			89,802
	(380,493	)		(317,894	)		(485,305	)		(398,019	)		(854,859	)		(4,176,199	)

	(1,252,404	)		(70,492	)		(338,307	)		(178,679	)		(20,369,407	)		3,268,866
	(432,825	)		(456,215	)		(560,129	)		(558,844	)		(1,238,771	)		(1,201,679	)


	(1,469,422	)		(102,134	)		(725,194	)		(387,830	)		(21,244,649	)		(1,174,045	)


	362,085			(4,154,241	)		1,426,558			(3,840,025	)		(18,583,881	)		(1,371,782	)


	5,981,718			10,135,959			7,694,058			11,534,083			18,583,881			19,955,663

$	6,343,803		$	5,981,718		$	9,120,616		$	7,694,058		$	0		$	18,583,881



	6,247,682			6,326,513			7,880,753			8,161,678			14,006,437			14,921,907

	1,120,725			1,087,620			1,094,626			1,011,241			10,297,393			4,925,120
	(2,290,562	)		(1,166,451	)		(1,790,793	)		(1,292,166	)		(24,303,830	)		(5,840,590	)

	5,077,845			6,247,682			7,184,586			7,880,753			0			14,006,437

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

A17

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2009 and 2008


	SUBACCOUNTS

	Prudential SP PIMCO High Yield Portfolio						Prudential SP Strategic Partners Focused Growth Portfolio

	01/01/2009 to 11/13/2009**			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008

OPERATIONS
Net investment income (loss)	$	209,496		$	249,819		$	(8,193	)	$	(9,653	)
Capital gains distributions received		0			3,211			0			121,247
Realized gain (loss) on shares redeemed		(310,078	)		(48,594	)		(66,709	)		(44,833	)
Net change in unrealized gain (loss) on investments		1,241,860			(1,080,966	)		572,576			(818,468	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		1,141,278			(876,530	)		497,674			(751,707	)


CONTRACT OWNER TRANSACTIONS
Contract owner net payments		182,269			229,865			160,868			182,846
Policy loans		(45,283	)		(16,541	)		(9,303	)		(15,094	)
Policy loan repayments and interest		11,958			8,494			9,389			4,432
Surrenders, withdrawals and death benefits		(116,897	)		(48,809	)		(60,033	)		(15,060	)
Net transfers between other subaccounts or fixed rate option		(3,922,437	)		333,715			10,947			(12,654	)
Withdrawal and other charges		(216,733	)		(190,181	)		(93,684	)		(86,837	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		(4,107,123	)		316,543			18,184			57,633


TOTAL INCREASE (DECREASE) IN NET ASSETS		(2,965,845	)		(559,987	)		515,858			(694,074	)

NET ASSETS
Beginning of period		2,965,845			3,525,832			1,157,496			1,851,570

End of period	$	0		$	2,965,845		$	1,673,354		$	1,157,496


Beginning units		2,665,569			2,346,644			1,305,766			1,278,726

Units issued		356,321			717,326			327,583			258,494
Units redeemed		(3,021,890	)		(398,401	)		(315,799	)		(231,454	)

Ending units		0			2,665,569			1,317,550			1,305,766

** Date subaccount was no longer available for investment.

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

A18

SUBACCOUNTS (Continued)

Prudential SP Mid Cap Growth Portfolio						SP Prudential U.S. Emerging Growth Portfolio						Prudential SP Conservative Asset Allocation Portfolio

01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 11/20/2009**			01/01/2008 to 12/31/2008


$	(17,826	)	$	(24,233	)	$	10,219		$	(21,476	)	$	36,515		$	32,627
	0			963,260			0			1,201,156			0			67,541
	(321,706	)		(70,270	)		(381,622	)		(187,743	)		306,071			(10,276	)
	1,165,230			(3,010,808	)		2,449,885			(4,064,456	)		265,930			(402,094	)


	825,698			(2,142,051	)		2,078,482			(3,072,519	)		608,516			(312,202	)



	301,065			375,163			646,083			837,571			221,308			190,226
	(40,052	)		(67,906	)		(124,681	)		(211,083	)		(31,447	)		(29,938	)
	26,327			17,069			37,189			48,502			20,293			8,081
	(178,491	)		(144,194	)		(376,558	)		(435,052	)		(106,866	)		(70,433	)

	(157,644	)		(46,726	)		(34,138	)		380,967			(1,776,995	)		227,717
	(229,774	)		(236,346	)		(473,444	)		(455,269	)		(163,572	)		(117,618	)


	(278,569	)		(102,940	)		(325,549	)		165,636			(1,837,279	)		208,035


	547,129			(2,244,991	)		1,752,933			(2,906,883	)		(1,228,763	)		(104,167	)


	2,844,755			5,089,746			5,238,102			8,144,985			1,228,763			1,332,930

$	3,391,884		$	2,844,755		$	6,991,035		$	5,238,102		$	0		$	1,228,763


	3,727,063			3,807,097			4,299,623			4,237,986			1,057,146			909,657

	513,249			519,150			953,499			1,074,853			8,804,842			351,954
	(840,609	)		(599,184	)		(1,184,711	)		(1,013,216	)		(9,861,988	)		(204,465	)

	3,399,703			3,727,063			4,068,411			4,299,623			0			1,057,146

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

A19

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2009 and 2008


	SUBACCOUNTS

	Prudential SP Balanced Asset Allocation Portfolio						Prudential SP Growth Asset Allocation Portfolio

	01/01/2009 to 11/13/2009**			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008

OPERATIONS
Net investment income (loss)	$	175,407		$	156,610		$	146,821		$	143,696
Capital gains distributions received		56,316			623,625			132,139			1,297,010
Realized gain (loss) on shares redeemed		(1,223,894	)		(103,939	)		(1,087,992	)		(184,715	)
Net change in unrealized gain (loss) on investments		2,384,816			(3,440,761	)		2,836,638			(6,989,786	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		1,392,645			(2,764,465	)		2,027,606			(5,733,795	)


CONTRACT OWNER TRANSACTIONS
Contract owner net payments		640,299			819,097			1,140,154			1,555,843
Policy loans		(79,623	)		(237,074	)		(224,050	)		(200,615	)
Policy loan repayments and interest		49,724			31,504			90,471			83,670
Surrenders, withdrawals and death benefits		(595,561	)		(430,060	)		(610,863	)		(1,144,544	)
Net transfers between other subaccounts or fixed rate option		(7,605,770	)		792,557			(625,904	)		(53,777	)
Withdrawal and other charges		(550,437	)		(595,936	)		(931,828	)		(1,050,489	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		(8,141,368	)		380,088			(1,162,020	)		(809,912	)


TOTAL INCREASE (DECREASE) IN NET ASSETS		(6,748,723	)		(2,384,377	)		865,586			(6,543,707	)

NET ASSETS
Beginning of period		6,748,723			9,133,100			9,461,312			16,005,019

End of period	$	0		$	6,748,723		$	10,326,898		$	9,461,312


Beginning units		6,147,441			5,909,097			9,299,501			9,951,823

Units issued		1,379,344			1,301,109			1,687,960			1,512,918
Units redeemed		(7,526,785	)		(1,062,765	)		(2,897,261	)		(2,165,240	)

Ending units		0			6,147,441			8,090,200			9,299,501

** Date subaccount was no longer available for investment.

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

A20


SUBACCOUNTS (Continued)

Prudential SP Aggressive Growth Asset Allocation Portfolio						Prudential SP International Growth Portfolio						Prudential SP International Value Portfolio

01/01/2009 to 11/13/2009**			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008			01/01/2009 to 12/31/2009			01/01/2008 to 12/31/2008


$	47,139		$	34,777		$	74,922		$	80,342		$	179,456		$	211,908
	0			777,326			0			1,596,713			0			1,563,995
	(1,931,408	)		(57,675	)		(1,235,221	)		(1,276,764	)		(1,076,231	)		(431,136	)
	3,146,018			(4,588,711	)		2,673,861			(6,341,003	)		2,864,193			(6,751,616	)


	1,261,749			(3,834,283	)		1,513,562			(5,940,712	)		1,967,418			(5,406,849	)



	478,383			669,235			474,169			869,927			700,824			840,332
	(207,678	)		(89,734	)		(98,048	)		(105,109	)		(188,177	)		(167,949	)
	16,092			36,721			24,704			27,756			32,998			29,454
	(147,412	)		(279,540	)		(373,097	)		(290,181	)		(378,380	)		(382,513	)

	(6,277,403	)		271,751			(633,368	)		875,537			(681,273	)		12,253
	(336,544	)		(382,185	)		(354,542	)		(435,309	)		(519,620	)		(549,714	)


	(6,474,562	)		226,248			(960,182	)		942,621			(1,033,628	)		(218,137	)


	(5,212,813	)		(3,608,035	)		553,380			(4,998,091	)		933,790			(5,624,986	)


	5,212,813			8,820,848			5,015,911			10,014,002			6,636,996			12,261,982

$	0		$	5,212,813		$	5,569,291		$	5,015,911		$	7,570,786		$	6,636,996


	5,556,363			5,403,739			4,932,745			4,865,819			5,836,056			5,995,757

	554,403			773,911			684,012			1,856,209			874,777			931,462
	(6,110,766	)		(621,287	)		(1,599,408	)		(1,789,283	)		(1,650,925	)		(1,091,163	)

	0			5,556,363			4,017,349			4,932,745			5,059,908			5,836,056

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

A21

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2009 and 2008


	SUBACCOUNTS

	AST T. Rowe Price Large-Cap Growth Portfolio						AST Large-Cap Value Portfolio

	01/01/2009 to 12/31/2009			05/01/2008* to 12/31/2008			01/01/2009 to 12/31/2009			05/01/2008* to 12/31/2008


OPERATIONS
Net investment income (loss)	$	(28,396	)	$	(12,881	)	$	57,601		$	39,030
Capital gains distributions received		0			0			0			190,146
Realized gain (loss) on shares redeemed		(53,537	)		(71,597	)		(363,475	)		(82,038	)
Net change in unrealized gain (loss) on investments		2,090,287			(1,916,467	)		735,489			(1,707,595	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		2,008,354			(2,000,945	)		429,615			(1,560,457	)


CONTRACT OWNER TRANSACTIONS
Contract owner net payments		530,617			556,335			348,964			317,315
Policy loans		(24,172	)		(12,105	)		(33,590	)		(13,543	)
Policy loan repayments and interest		6,186			3,053			13,428			4,514
Surrenders, withdrawals and death benefits		(86,638	)		(16,277	)		(251,358	)		(70,057	)
Net transfers between other subaccounts or fixed rate option		1,596,277			5,065,015			(245,192	)		3,888,198
Withdrawal and other charges		(219,979	)		(110,063	)		(194,925	)		(136,634	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		1,802,291			5,485,958			(362,673	)		3,989,793


TOTAL INCREASE (DECREASE) IN NET ASSETS		3,810,645			3,485,013			66,942			2,429,336

NET ASSETS
Beginning of period		3,485,013			0			2,429,336			0

End of period	$	7,295,658		$	3,485,013		$	2,496,278		$	2,429,336


Beginning units		556,131			0			395,093			0

Units issued		258,233			591,010			68,382			443,032
Units redeemed		(50,727	)		(34,879	)		(121,520	)		(47,939	)

Ending units		763,637			556,131			341,955			395,093

* Date subaccount became available for investment.

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

A22


SUBACCOUNTS (Continued)

AST Marsico Capital Growth Portfolio						AST Small-Cap Growth Portfolio						AST PIMCO Total Return Bond Portfolio			AST Aggressive Asset Allocation Portfolio

01/01/2009 to 12/31/2009			05/01/2008* to 12/31/2008			01/01/2009 to 12/31/2009			05/01/2008* to 12/31/2008			12/04/2009* to 12/31/2009			11/13/2009* to 12/31/2009


$	9,645		$	(6,236	)	$	(14,803	)	$	(12,606	)	$	(11,038	)	$	(4,552	)
	0			83,448			0			0			0			0
	(133,672	)		(33,249	)		(118,919	)		(53,160	)		11,779			392
	1,100,209			(1,945,621	)		974,487			(1,115,194	)		(59,267	)		84,942


	976,182			(1,901,658	)		840,765			(1,180,960	)		(58,526	)		80,782


	449,823			466,292			226,821			168,320			57,621			53,541
	(22,143	)		(18,360	)		(33,726	)		(31,721	)		(26,891	)		(19,901	)
	7,206			6,020			9,131			10,335			1,859			3,142
	(57,099	)		(47,387	)		(145,003	)		(71,728	)		(21,349	)		(6,777	)

	(26,737	)		4,896,139			(13,985	)		3,707,764			23,196,902			5,749,004
	(155,387	)		(92,083	)		(172,868	)		(115,792	)		(84,115	)		(39,890	)


	195,663			5,210,621			(129,630	)		3,667,178			23,124,027			5,739,119


	1,171,845			3,308,963			711,135			2,486,218			23,065,501			5,819,901

	3,308,963			0			2,486,218			0			0			0

$	4,480,808		$	3,308,963		$	3,197,353		$	2,486,218		$	23,065,501		$	5,819,901


	542,185			0			365,742			0			0			0

	79,713			566,893			64,757			405,650			2,809,053			578,068
	(52,688	)		(24,708	)		(77,136	)		(39,908	)		(487,639	)		(8,413	)

	569,210			542,185			353,363			365,742			2,321,414			569,655

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

A23

FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

STATEMENT OF CHANGES IN NET ASSETS

For the periods ended December 31, 2009 and 2008


	SUBACCOUNTS

	AST Balanced Asset Allocation Portfolio			AST Preservation Asset Allocation Portfolio

	11/13/2009* to 12/31/2009			11/20/2009* to 12/31/2009

OPERATIONS
Net investment income (loss)	$	(6,606	)	$	(10,189	)
Capital gains distributions received		0			0
Realized gain (loss) on shares redeemed		451			299
Net change in unrealized gain (loss) on investments		66,593			40,782


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS		60,438			30,892


CONTRACT OWNER TRANSACTIONS
Contract owner net payments		123,004			24,083
Policy loans		(103,009	)		(20,255	)
Policy loan repayments and interest		4,654			942
Surrenders, withdrawals and death benefits		(28,820	)		(24,541	)
Net transfers between other subaccounts or fixed rate option		8,456,730			17,770,763
Withdrawal and other charges		(80,138	)		(24,124	)


NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS		8,372,421			17,726,868


TOTAL INCREASE (DECREASE) IN NET ASSETS		8,432,859			17,757,760

NET ASSETS
Beginning of period		0			0

End of period	$	8,432,859		$	17,757,760



Beginning units		0			0

Units issued		859,216			1,780,038
Units redeemed		(26,247	)		(7,985	)

Ending units		832,969			1,772,053

* Date subaccount became available for investment.

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

A24

NOTES TO FINANCIAL STATEMENTS OF

PRUCO LIFE VARIABLE APPRECIABLE ACCOUNT

December 31, 2009

Note 1:

General

Pruco Life Variable Appreciable Account (the “Account”) was established on January 13, 1984 under Arizona law as a separate investment account of Pruco Life Insurance Company (“Pruco Life”), a wholly-owned subsidiary of The Prudential Insurance Company of America (“Prudential”), which is a wholly-owned subsidiary of Prudential Financial, Inc (“PFI”). 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 life contracts is not chargeable with liabilities arising out of any other business Prudential may conduct. Proceeds from sales of purchases of Pruco Life’s Variable Appreciable Life (“VAL”) contracts and Pruco Life’s Variable Universal Life (“VUL”) contracts are invested in the Account.

The Account is registered under the Investment Company Act of 1940, as amended, as a unit investment trust. The Account is a funding vehicle for individual variable life contracts. There are thirty-eight subaccounts within the Account. Each contract offers the option to invest in various subaccounts, each of which invests only in a corresponding portfolio of The Prudential Series Fund, (the “Series Fund”) or one of the non-Prudential administered funds (collectively, the “portfolios”). Investment options vary by contract.

The name of each Portfolio and the corresponding subaccount name are as follows:

	Prudential Series Funds	Advanced Series Trust

	Money Market Portfolio Portfolio	AST T. Rowe Price Large-Cap Growth
	Diversified Bond Portfolio	AST Large-Cap Value Portfolio
	Equity Portfolio	AST Marsico Capital Growth Portfolio
	Flexible Managed Portfolio	AST Small-Cap Growth Portfolio
	Conservative Balanced Portfolio	AST PIMCO Total Return Bond Portfolio
	High Yield Bond Portfolio	AST Aggressive Asset Allocation Portfolio
	Stock Index Portfolio	AST Balanced Asset Allocation Portfolio
	Value Portfolio	AST Preservation Asset Allocation Portfolio
	Natural Resources Portfolio
	Global Portfolio
	Government Income Portfolio
	Jennison Portfolio
	Small Capitalization Stock Portfolio
	SP Davis Value Portfolio	T. Rowe Price

	SP Small-Cap Value Portfolio	International Stock Portfolio
	SP PIMCO Total Return Portfolio
	SP PIMCO High Yield Portfolio	Janus Aspen

	SP Strategic Partners Focused Growth Portfolio	Janus Portfolio - Institutional Shares
	SP Mid Cap Growth Portfolio
	SP Prudential U.S. Emerging Growth Portfolio	MFS Variable Insurance Trust

	SP Conservative Asset Allocation Portfolio	Growth Series - Initial Class
	SP Balanced Asset Allocation Portfolio
	SP Growth Asset Allocation Portfolio	America Century Investments

	SP Aggressive Growth Asset Allocation Portfolio	VP Value Fund
	SP International Growth Portfolio
	SP International Value Portfolio

A25

Note 1:

General (Continued)

The Series Fund is a diversified open-end management investment company, and is managed by an affiliate of Prudential.

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, 2009 as net transfers between subaccounts. The transfers occurred as follows:


November 13, 2009	Removed Portfolio Prudential SP Aggressive Growth Asset Allocation Portfolio			Surviving Portfolio AST Aggressive Asset Allocation Portfolio

Shares			825,619			714,105
Value		$	6.98		$	8.07
Net assets before merger		$	5,762,824		$	0
Net assets after merger		$	0		$	5,762,824

November 13, 2009	Removed Portfolio Prudential SP Balanced Asset Allocation Portfolio			Surviving Portfolio AST Balanced Asset Allocation Portfolio

Shares			914,408			846,058
Value		$	9.16		$	9.90
Net assets before merger		$	8,375,974		$	0
Net assets after merger		$	0		$	8,375,974

November 13, 2009	Removed Portfolio Prudential SP PIMCO High Yield Portfolio			Surviving Portfolio Prudential High Yield Bond Portfolio

Shares			460,547			174,882,726
Value		$	8.73		$	4.76
Net assets before merger		$	4,020,575		$	828,421,201
Net assets after merger		$	0		$	832,441,776

November 20, 2009	Removed Portfolio Prudential SP Conservative Asset Allocation Portfolio			Surviving Portfolio AST Preservation Asset Allocation Portfolio

Shares			1,294,238			1,233,985
Value		$	10.24		$	10.74
Net assets before merger		$	13,252,997		$	0
Net assets after merger		$	0		$	13,252,997

December 4, 2009	Removed Portfolio Prudential SP PIMCO Total Return Portfolio			Surviving Portfolio AST PIMCO Total Return Bond Portfolio

Shares			2,368,257			2,378,352
Value		$	11.78		$	11.73
Net assets before merger		$	27,898,069		$	0
Net assets after merger		$	0		$	27,898,069

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 statement should be read in conjunction with the financial statement 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.

A26

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 June 2009, the FASB issued authoritative guidance for the FASB’s Accounting Standards Codification ™ 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 Account’s adoption of this guidance effective with the interim reporting period ending September 30, 2009 impacts the way the Company references U.S. GAAP standards in the financial statements.

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 Account’s early adoption of this guidance effective January 1, 2009 did not have a material effect on the Account’s financial statements.

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 exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an ordinary transaction between market participants on the measurement date. The new guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value, and identifies three levels of inputs that may be used to measure fair value:

Level 1 — Quotes prices for identical instruments in active markets. Level 1 fair values generally are supported by market transactions that occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

A27

Note 3: Fair Value (Continued)

Level 2 — Observable inputs other than Level 1 prices, such as quotes prices for similar instruments, quotes prices in market that are not active, and inputs to model-derived valuations that are not directly observable or can be corroborated by observable market data.

Level 3 — Unobservable inputs supported by little or no market activity and often requiring significant judgment or estimation, such as an entity’s own assumptions about the cash flows or other significant components of value that market participants would use in pricing the asset or liability.

All investment assets of each subaccount are classified as Level 1. The Account invests in open-ended mutual funds, available to contract holders of variable life insurance policies. Contract holders may, without restriction, transact at the daily Net Asset Value(s) (“NAV”) of the mutual funds. The NAV represents the daily per share value of the portfolio of investments of the mutual funds, at which sufficient volumes of transactions occur.

All assets of the account are classified as Level 1. No reconciliation of Level 3 assets and change in unrealized gains (losses) for Level 3 assets held as of December 31, 2009 are presented.

Note 4: Taxes

Pruco Life 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. Pruco Life Management will review periodically the status of this policy in the event of changes in the tax law. A charge may be made in future years for any federal income taxes that would be attributable to the contracts.

A28

Note 5:

Purchases and Sales of Investments

The aggregate costs of purchases and proceeds from sales, excluding distributions received and invested, of investments in the portfolios for the year ended December 31, 2009 were as follows:


	Purchases		Sales


Prudential Money Market Portfolio	$	30,648,093	$	(59,013,019	)
Prudential Diversified Bond Portfolio	$	6,534,242	$	(14,803,944	)
Prudential Equity Portfolio	$	2,382,664	$	(39,437,730	)
Prudential Flexible Managed Portfolio	$	2,015,265	$	(53,022,643	)
Prudential Conservative Balanced Portfolio	$	4,369,991	$	(36,337,513	)
Prudential Value Portfolio	$	8,793,268	$	(13,912,720	)
Prudential High Yield Bond Portfolio	$	9,957,754	$	(26,662,191	)
Prudential Natural Resources Portfolio	$	2,493,867	$	(11,807,251	)
Prudential Stock Index Portfolio	$	3,585,252	$	(10,273,617	)
Prudential Global Portfolio	$	3,205,566	$	(8,144,974	)
Prudential Government Income Portfolio	$	2,850,464	$	(6,178,256	)
Prudential Jennison Portfolio	$	4,915,050	$	(14,483,632	)
Prudential Small Capitalization Stock Portfolio	$	2,043,248	$	(7,110,516	)
T. Rowe Price International Stock Portfolio	$	1,783,800	$	(2,100,948	)
Janus Aspen Janus Portfolio - Institutional Shares	$	2,044,726	$	(4,498,399	)
MFS VIT Growth Series - Initial Class	$	4,364,518	$	(3,974,692	)
American Century VP Value Fund	$	889,742	$	(2,074,335	)
Prudential SP Davis Value Portfolio	$	612,243	$	(2,119,474	)
Prudential SP Small Cap Value Portfolio	$	562,978	$	(1,334,782	)
Prudential SP PIMCO Total Return Portfolio	$	13,986,435	$	(35,356,020	)
Prudential SP PIMCO High Yield Portfolio	$	255,675	$	(4,380,702	)
Prudential SP Strategic Partners Focused Growth Portfolio	$	280,680	$	(270,689	)
Prudential SP Mid Cap Growth Portfolio	$	224,860	$	(521,255	)
SP Prudential U.S. Emerging Growth Portfolio	$	728,643	$	(1,089,706	)
Prudential SP Conservative Asset Allocation Portfolio	$	11,633,329	$	(13,490,966	)
Prudential SP Balanced Asset Allocation Portfolio	$	1,206,285	$	(9,384,276	)
Prudential SP Growth Asset Allocation Portfolio	$	943,484	$	(2,160,731	)
Prudential SP Aggressive Growth Asset Allocation Portfolio	$	327,373	$	(6,828,964	)
Prudential SP International Growth Portfolio	$	449,755	$	(1,439,696	)
Prudential SP International Value Portfolio	$	578,881	$	(1,654,083	)
AST T. Rowe Price Large-Cap Growth Portfolio	$	2,043,660	$	(269,765	)
AST Large-Cap Value Portfolio	$	271,979	$	(648,727	)
AST Marsico Capital Growth Portfolio	$	461,714	$	(287,771	)
AST Small-Cap Growth Portfolio	$	299,462	$	(445,307	)
AST PIMCO Total Return Bond Portfolio	$	27,936,031	$	(4,823,043	)
AST Aggressive Asset Allocation Portfolio	$	5,798,842	$	(64,276	)
AST Balanced Asset Allocation Portfolio	$	8,570,464	$	(204,649	)
AST Preservation Asset Allocation Portfolio	$	17,791,246	$	(74,567	)

A29

Note 6:

Related Party Transactions

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

The Series Funds have management agreements with Prudential Investment LLC (“PI”) and AST Investment Services, Inc, indirect, wholly-owned subsidiaries of PFI (together the “Investment Managers”). Pursuant to these agreements, the Investment Managers have responsibility for all investment advisory services and supervise the subadvisors’ performance of such services. The Investment Managers entered into subadvisory agreements with several subadvisors, including Prudential Investment Management, Inc. and Jennison Associates LLC, which are indirect, wholly-owned subsidiaries of PFI.

The Prudential Series Fund has a distribution agreement with Prudential Investment Management Services LLC (“PIMS”), an indirect, wholly-owned subsidiary of PFI, which acts as the distributor of the Class I and Class II shares of the Series Fund. No distribution or service fees are paid to PIMS as distributor of the Class I shares of the Series Fund.

The Investment Managers have agreed to reimburse certain portfolios of the Series Funds the portion of the management fee for that Portfolio equal to the amount that the aggregate annual ordinary operating expenses (excluding interest, taxes, 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, an affiliate of the Investment Managers and an indirect, wholly-owned subsidiary of PFI, serves as the transfer agent of the Series Funds.

A30

Note 7:

Financial Highlights

Pruco Life sells a number of variable life insurance products that are funded by the Account. These products have unique combinations of features and fees that are charged against the contract owner’s account balance. Differences in the fee structures result in a variety of unit values, expense ratios and total returns.

The following table was developed by determining which products offered by Pruco Life and funded by the Account have the lowest and highest expense ratio. Only product designs within each subaccount that had units outstanding during the respective periods were considered when determining the lowest and highest expense ratio. The summary may not reflect the minimum and maximum contract charges offered by Pruco Life as contract owners may not have selected all available and applicable contract options as discussed in note 1.

	At the period ended							For the period ended

						Net		Investment
	Units		Unit Value			Assets		Income		Expense Ratio**				Total Return***
	(000s)		Lowest - Highest			(000s)		Ratio*		Lowest - Highest				Lowest - Highest


	Prudential Money Market Portfolio

December 31, 2009	46,693	$ 1.44408		to	$ 2.53615	$	85,739	0.42%	0.60%		to	0.60%	-0.20%		to	-0.19%
December 31, 2008	64,978	$ 1.44687		to	$ 2.54120	$	113,661	2.60%	0.57%		to	0.60%	2.03%		to	2.07%
December 31, 2007	63,522	$ 1.41813		to	$ 2.48978	$	106,557	4.93%	0.59%		to	0.60%	4.42%		to	4.46%
December 31, 2006	55,737	$ 1.35814		to	$ 2.38359	$	92,812	4.67%	0.58%		to	0.60%	4.13%		to	4.17%
December 31, 2005	33,717	$ 1.30433		to	$ 2.28817	$	60,839	2.82%	0.57%		to	0.60%	2.29%		to	2.34%

	Prudential Diversified Bond Portfolio

December 31, 2009	87,596	$ 2.02819		to	$ 5.38601	$	236,919	4.72%	0.57%		to	0.60%	19.79%		to	19.84%
December 31, 2008	91,202	$ 1.69315		to	$ 4.49450	$	204,504	5.19%	0.56%		to	0.60%	-4.03%		to	-3.99%
December 31, 2007	93,555	$ 1.76433		to	$ 4.68142	$	218,618	5.06%	0.59%		to	0.60%	5.07%		to	5.11%
December 31, 2006	95,706	$ 1.67919		to	$ 4.45385	$	212,763	4.91%	0.58%		to	0.60%	4.35%		to	4.41%
December 31, 2005	99,050	$ 1.60922		to	$ 4.26564	$	211,201	5.25%	0.56%		to	0.60%	2.65%		to	2.72%

	Prudential Equity Portfolio

December 31, 2009	85,599	$ 1.73088		to	$ 9.24053	$	604,581	1.60%	0.44%		to	0.60%	37.35%		to	37.46%
December 31, 2008	91,742	$ 1.26021		to	$ 6.72228	$	471,605	1.44%	0.60%		to	0.60%	-38.53%		to	-38.53%
December 31, 2007	95,451	$ 2.05004		to	$ 10.93551	$	794,550	1.06%	0.60%		to	0.60%	8.66%		to	8.67%
December 31, 2006	100,446	$ 1.88658		to	$ 10.06310	$	772,370	1.10%	0.60%		to	0.60%	11.89%		to	11.90%
December 31, 2005	104,878	$ 1.68604		to	$ 8.99307	$	725,676	0.99%	0.51%		to	0.60%	10.81%		to	10.91%

	Prudential Flexible Managed Portfolio

December 31, 2009	155,086	$ 1.61803		to	$ 6.12740	$	878,935	3.48%	0.15%		to	0.60%	19.23% to 19.51%
December 31, 2008	165,143	$ 1.35704		to	$ 5.12702	$	782,060	2.97%	0.36%		to	0.60%	-25.27% to -25.09%
December 31, 2007	172,118	$ 1.81592		to	$ 6.84455	$	1,086,789	2.38%	0.38%		to	0.60%	5.72%			to 5.96%
December 31, 2006	178,794	$ 1.71765		to	$ 6.45962	$	1,067,127	1.96%	0.39%		to	0.60%	11.50% to 11.75%
December 31, 2005	185,949	$ 1.54053		to	$ 5.78058	$	995,201	1.93%	0.37%		to	0.60%	3.53%			to 3.78%

	Prudential Conservative Balanced Portfolio

December 31, 2009	96,177	$ 1.64005		to	$ 5.17076	$	455,289	3.78%	0.24%		to	0.60%	19.29% to 19.52%
December 31, 2008	103,381	$ 1.37489		to	$ 4.32625	$	409,338	3.44%	0.41%		to	0.60%	-21.88% to -21.72%
December 31, 2007	107,990	$ 1.75988		to	$ 5.52698	$	543,155	2.96%	0.43%		to	0.60%	5.49% to 5.68%
December 31, 2006	112,965	$ 1.66835		to	$ 5.22999	$	536,179	2.55%	0.43%		to	0.60%	9.77% to 9.97%
December 31, 2005	119,757	$ 1.51981		to	$ 4.75604	$	517,221	2.33%	0.43%		to	0.60%	2.82% to 3.00%

A31

Note 7:

Financial Highlights (Continued)


	At the period ended							For the period ended

						Net		Investment
	Units		Unit Value			Assets		Income		Expense Ratio**			Total Return***
	(000s)		Lowest - Highest			(000s)		Ratio*		Lowest - Highest			Lowest - Highest


	Prudential High Yield Bond Portfolio

December 31, 2009	452,383	$ 1.85600		to	$ 4.01699	$	860,286	9.46%	0.60%		to	0.60%	46.28%	to	46.29%
December 31, 2008	453,402	$ 1.26883		to	$ 2.74591	$	588,972	8.75%	0.60%		to	0.60%	-22.75%	to	-22.75%
December 31, 2007	457,465	$ 1.64253		to	$ 3.55439	$	769,682	7.08%	0.60%		to	0.60%	1.99%	to	2.00%
December 31, 2006	476,348	$ 1.61051		to	$ 3.48462	$	785,768	7.86%	0.60%		to	0.60%	9.60%	to	9.61%
December 31, 2005	480,268	$ 1.46934		to	$ 3.17938	$	723,089	6.89%	0.60%		to	0.60%	2.80%	to	2.82%

	Prudential Stock Index Portfolio

December 31, 2009	73,673	$ 1.69594		to	$ 5.19674	$	215,287	2.84%	0.60%		to	0.60%	25.32%	to	25.32%
December 31, 2008	79,665	$ 1.35329		to	$ 4.14676	$	186,029	2.30%	0.60%		to	0.60%	-37.32%	to	-37.32%
December 31, 2007	84,335	$ 2.15890		to	$ 6.61546	$	306,587	1.62%	0.60%		to	0.60%	4.47%	to	4.47%
December 31, 2006	88,621	$ 2.06659		to	$ 6.33248	$	310,658	1.59%	0.60%		to	0.60%	14.86%	to	14.86%
December 31, 2005	102,479	$ 1.79921		to	$ 5.51330	$	301,777	1.52%	0.60%		to	0.60%	3.91%	to	3.91%

	Prudential Value Portfolio

December 31, 2009	32,687	$ 2.21412		to	$ 6.90022	$	135,277	2.05%	0.60%		to	0.60%	41.08%	to	41.08%
December 31, 2008	35,191	$ 1.56943		to	$ 4.89092	$	103,767	1.87%	0.60%		to	0.60%	-42.64%	to	-42.64%
December 31, 2007	37,490	$ 2.73606		to	$ 8.52643	$	189,144	1.40%	0.60%		to	0.60%	2.57%	to	2.57%
December 31, 2006	39,119	$ 2.66742		to	$ 8.31279	$	191,822	1.50%	0.60%		to	0.60%	19.22%	to	19.23%
December 31, 2005	37,363	$ 2.23726		to	$ 6.97241	$	156,867	1.41%	0.60%		to	0.60%	15.96%	to	15.97%

	Prudential Natural Resources Portfolio

December 31, 2009	7,859	$17.82405		to	$ 17.82405	$	140,072	0.71%	0.60%		to	0.60%	76.05%	to	76.05%
December 31, 2008	8,359	$10.12452		to	$ 10.12452	$	84,635	0.76%	0.60%		to	0.60%	-53.28%	to	-53.28%
December 31, 2007	10,052	$21.67220		to	$ 21.67220	$	217,853	0.64%	0.60%		to	0.60%	47.41%	to	47.41%
December 31, 2006	10,207	$14.70238		to	$ 14.70238	$	150,063	1.86%	0.60%		to	0.60%	21.47%	to	21.47%
December 31, 2005	10,177	$12.10382		to	$ 12.10382	$	123,177	0.00%	0.60%		to	0.60%	54.98%	to	54.98%

	Prudential Global Portfolio

December 31, 2009	41,730	$ 1.60977		to	$ 2.09283	$	78,851	2.90%	0.60%		to	0.60%	30.60%	to	30.61%
December 31, 2008	44,768	$ 1.23256		to	$ 1.60237	$	64,860	1.93%	0.60%		to	0.60%	-43.26%	to	-43.26%
December 31, 2007	50,641	$ 2.17237		to	$ 2.82411	$	126,253	1.13%	0.60%		to	0.60%	9.81%	to	9.82%
December 31, 2006	48,710	$ 1.97822		to	$ 2.57168	$	110,416	0.61%	0.60%		to	0.60%	18.93%	to	18.94%
December 31, 2005	46,168	$ 1.66328		to	$ 2.16226	$	88,089	0.59%	0.60%		to	0.60%	15.37%	to	15.37%

	Prudential Government Income Portfolio

December 31, 2009	6,858	$ 3.56518		to	$ 3.56518	$	24,451	3.13%	0.60%		to	0.60%	7.07%	to	7.07%
December 31, 2008	7,785	$ 3.32980		to	$ 3.32980	$	25,921	4.04%	0.60%		to	0.60%	3.68%	to	3.68%
December 31, 2007	7,340	$ 3.21159		to	$ 3.21159	$	23,573	4.46%	0.60%		to	0.60%	5.06%	to	5.06%
December 31, 2006	7,560	$ 3.05682		to	$ 3.05682	$	23,108	4.88%	0.60%		to	0.60%	3.12%	to	3.12%
December 31, 2005	8,076	$ 2.96433		to	$ 2.96433	$	23,941	4.58%	0.60%		to	0.60%	1.90%	to	1.90%

	Prudential Jennison Portfolio

December 31, 2009	80,746	$ 1.83360		to	$ 2.64776	$	174,394	0.67%	0.60%		to	0.60%	42.18%	to	42.18%
December 31, 2008	85,716	$ 1.28966		to	$ 1.86228	$	130,313	0.52%	0.60%		to	0.60%	-37.66%	to	-37.65%
December 31, 2007	89,713	$ 2.06863		to	$ 2.98700	$	218,592	0.30%	0.60%		to	0.60%	11.33%	to	11.33%
December 31, 2006	93,669	$ 1.85818		to	$ 2.68309	$	205,701	0.30%	0.60%		to	0.60%	1.18%	to	1.18%
December 31, 2005	97,985	$ 1.83649		to	$ 2.65172	$	212,980	0.10%	0.60%		to	0.60%	13.87%	to	13.88%

A32

Note 7:

Financial Highlights (Continued)


	At the period ended							For the period ended

						Net		Investment
	Units		Unit Value			Assets		Income		Expense Ratio**			Total Return***
	(000s)		Lowest - Highest			(000s)		Ratio*		Lowest - Highest			Lowest - Highest


	Prudential Small Capitalization Stock Portfolio

December 31, 2009	17,843	$ 3.32627		to	$ 3.32627	$	59,351	1.84%	0.60%		to	0.60%	24.44%	to	24.44%
December 31, 2008	19,708	$ 2.67299		to	$ 2.67299	$	52,679	1.16%	0.60%		to	0.60%	-31.45%	to	-31.45%
December 31, 2007	20,546	$ 3.89928		to	$ 3.89928	$	80,113	0.59%	0.60%		to	0.60%	-1.13%	to	-1.13%
December 31, 2006	18,641	$ 3.94365		to	$ 3.94635	$	73,512	0.59%	0.60%		to	0.60%	13.99%	to	13.99%
December 31, 2005	19,398	$ 3.45969		to	$ 3.45969	$	67,112	0.60%	0.60%		to	0.60%	6.62%	to	6.62%

	T. Rowe Price International Stock Portfolio

December 31, 2009	16,669	$ 1.24703		to	$ 1.24703	$	20,787	2.74%	0.60%		to	0.60%	51.49%	to	51.49%
December 31, 2008	16,762	$ 0.82320		to	$ 0.82320	$	13,798	1.76%	0.60%		to	0.60%	-49.01%	to	-49.01%
December 31, 2007	23,215	$ 1.61437		to	$ 1.61437	$	37,478	1.49%	0.60%		to	0.60%	12.36%	to	12.36%
December 31, 2006	22,166	$ 1.43677		to	$ 1.43677	$	31,848	1.10%	0.60%		to	0.60%	18.38%	to	18.38%
December 31, 2005	20,594	$ 1.21372		to	$ 1.21372	$	24,995	1.64%	0.60%		to	0.60%	15.35%	to	15.35%

	Janus Aspen Janus Portfolio - Institutional Shares

December 31, 2009	31,221	$ 1.39888		to	$ 1.39888	$	43,674	0.54%	0.60%		to	0.60%	35.55%	to	35.55%
December 31, 2008	33,136	$ 1.03200		to	$ 1.03200	$	34,197	0.75%	0.60%		to	0.60%	-40.08%	to	-40.08%
December 31, 2007	34,941	$ 1.72228		to	$ 1.72228	$	60,178	0.73%	0.60%		to	0.60%	14.40%	to	14.40%
December 31, 2006	35,679	$ 1.50548		to	$ 1.50548	$	53,714	0.48%	0.60%		to	0.60%	10.72%	to	10.72%
December 31, 2005	39,262	$ 1.35970		to	$ 1.35970	$	53,384	0.34%	0.60%		to	0.60%	3.66%	to	3.66%

	MFS VIT Growth Series - Initial Class

December 31, 2009	29,942	$ 1.55252		to	$ 1.55252	$	46,485	0.31%	0.60%		to	0.60%	36.86%	to	36.86%
December 31, 2008	29,724	$ 1.13438		to	$ 1.13438	$	33,718	0.21%	0.60%		to	0.60%	-37.79%	to	-37.79%
December 31, 2007	26,243	$ 1.82350		to	$ 1.82350	$	47,854	0.00%	0.60%		to	0.60%	20.45%	to	20.45%
December 31, 2006	27,008	$ 1.51395		to	$ 1.51395	$	40,888	0.00%	0.60%		to	0.60%	7.25%	to	7.25%
December 31, 2005	28,718	$ 1.41158		to	$ 1.41158	$	40,538	0.00%	0.60%		to	0.60%	8.54%	to	8.54%

	American Century VP Value Fund

December 31, 2009	9,640	$ 1.90193		to	$ 1.90193	$	18,335	5.68%	0.60%		to	0.60%	19.15%	to	19.15%
December 31, 2008	10,274	$ 1.59630		to	$ 1.59630	$	16,401	2.54%	0.60%		to	0.60%	-27.21%	to	-27.21%
December 31, 2007	11,555	$ 2.19302		to	$ 2.19302	$	25,340	1.58%	0.60%		to	0.60%	-5.71%	to	-5.71%
December 31, 2006	12,205	$ 2.32585		to	$ 2.32585	$	28,387	1.39%	0.60%		to	0.60%	17.95%	to	17.95%
December 31, 2005	13,773	$ 1.97192		to	$ 1.97192	$	27,158	0.86%	0.60%		to	0.60%	4.41%	to	4.41%

	Prudential SP Davis Value Portfolio

December 31, 2009	5,078	$ 1.24931		to	$ 1.24931	$	6,344	1.68%	0.60%		to	0.60%	30.49%	to	30.49%
December 31, 2008	6,248	$ 0.95743		to	$ 0.95743	$	5,982	1.49%	0.60%		to	0.60%	-40.24%	to	-40.24%
December 31, 2007	6,327	$ 1.60214		to	$ 1.60214	$	10,136	0.80%	0.60%		to	0.60%	3.95%	to	3.95%
December 31, 2006	6,004	$ 1.54125		to	$ 1.54125	$	9,253	0.93%	0.60%		to	0.60%	14.34%	to	14.34%
December 31, 2005	7,462	$ 1.34795		to	$ 1.34795	$	10,058	0.89%	0.60%		to	0.60%	8.87%	to	8.87%

	Prudential SP Small Cap Value Portfolio

December 31, 2009	7,185	$ 1.26947		to	$ 1.26947	$	9,121	1.52%	0.60%		to	0.60%	30.03%	to	30.03%
December 31, 2008	7,881	$ 0.97631		to	$ 0.97631	$	7,694	1.10%	0.60%		to	0.60%	-30.91%	to	-30.91%
December 31, 2007	8,162	$ 1.41320		to	$ 1.41320	$	11,534	0.75%	0.60%		to	0.60%	-4.21%	to	-4.21%
December 31, 2006	8,196	$ 1.47528		to	$ 1.47528	$	12,092	0.43%	0.60%		to	0.60%	13.93%	to	13.93%
December 31, 2005	6,496	$ 1.29493		to	$ 1.29493	$	8,412	0.50%	0.60%		to	0.60%	3.98%	to	3.98%

A33

Note 7:

Financial Highlights (Continued)


	At the period ended							For the period ended

						Net		Investment
	Units		Unit Value			Assets		Income		Expense Ratio**			Total Return***
	(000s)		Lowest - Highest			(000s)		Ratio*		Lowest - Highest			Lowest - Highest


	Prudential SP PIMCO Total Return Portfolio (expired December 4, 2009)

December 31, 2009	—	$ —		to	$ —	$	—	3.11%	0.60%		to	0.60%	13.05%	to	13.05%
December 31, 2008	14,006	$ 1.32681		to	$ 1.32681	$	18,584	4.96%	0.60%		to	0.60%	-0.79%	to	-0.79%
December 31, 2007	14,922	$ 1.33734		to	$ 1.33734	$	19,956	4.39%	0.60%		to	0.60%	8.79%	to	8.79%
December 31, 2006	14,773	$ 1.22930		to	$ 1.22930	$	18,161	4.12%	0.60%		to	0.60%	3.06%	to	3.06%
December 31, 2005	19,419	$ 1.19281		to	$ 1.19281	$	23,163	4.79%	0.60%		to	0.60%	1.78%	to	1.78%

	Prudential SP PIMCO High Yield Portfolio (expired November 13, 2009)

December 31, 2009	—	$ —		to	$ —	$	—	6.61%	0.60%		to	0.60%	38.70%	to	38.70%
December 31, 2008	2,666	$ 1.11265		to	$ 1.11265	$	2,966	8.36%	0.60%		to	0.60%	-25.95%	to	-25.95%
December 31, 2007	2,347	$ 1.50250		to	$ 1.50250	$	3,526	7.12%	0.60%		to	0.60%	3.19%	to	3.19%
December 31, 2006	2,293	$ 1.45604		to	$ 1.45604	$	3,339	7.37%	0.60%		to	0.60%	8.85%	to	8.85%
December 31, 2005	1,885	$ 1.33759		to	$ 1.33759	$	2,521	6.21%	0.60%		to	0.60%	3.41%	to	3.41%

	Prudential SP Strategic Partners Focused Growth Portfolio

December 31, 2009	1,318	$ 1.27005		to	$ 1.27005	$	1,673	0.00%	0.60%		to	0.60%	43.27%	to	43.27%
December 31, 2008	1,306	$ 0.88645		to	$ 0.88645	$	1,157	0.00%	0.60%		to	0.60%	-38.78%	to	-38.78%
December 31, 2007	1,279	$ 1.44798		to	$ 1.44798	$	1,852	0.00%	0.60%		to	0.60%	14.56%	to	14.56%
December 31, 2006	1,245	$ 1.26395		to	$ 1.26395	$	1,574	0.00%	0.60%		to	0.60%	-1.25%	to	-1.25%
December 31, 2005	671	$ 1.27992		to	$ 1.27992	$	859	0.00%	0.60%		to	0.60%	14.45%	to	14.45%
	Prudential SP Mid Cap Growth Portfolio

December 31, 2009	3,400	$ 0.99770		to	$ 0.99770	$	3,392	0.00%	0.60%		to	0.60%	30.71%	to	30.71%
December 31, 2008	3,727	$ 0.76327		to	$ 0.76327	$	2,845	0.00%	0.60%		to	0.60%	-42.91%	to	-42.91%
December 31, 2007	3,807	$ 1.33691		to	$ 1.33691	$	5,090	0.23%	0.60%		to	0.60%	15.51%	to	15.51%
December 31, 2006	3,804	$ 1.15736		to	$ 1.15736	$	4,403	0.00%	0.60%		to	0.60%	-2.53%	to	-2.53%
December 31, 2005	3,614	$ 1.18742		to	$ 1.18742	$	4,291	0.00%	0.60%		to	0.60%	4.63%	to	4.63%

	SP Prudential U.S. Emerging Growth Portfolio

December 31, 2009	4,068	$ 1.71837		to	$ 1.71837	$	6,991	0.77%	0.60%		to	0.60%	41.05%	to	41.05%
December 31, 2008	4,300	$ 1.21827		to	$ 1.21827	$	5,238	0.30%	0.60%		to	0.60%	-36.61%	to	-36.61%
December 31, 2007	4,238	$ 1.92190		to	$ 1.92190	$	8,145	0.34%	0.60%		to	0.60%	16.12%	to	16.12%
December 31, 2006	3,899	$ 1.65517		to	$ 1.65517	$	6,454	0.00%	0.60%		to	0.60%	8.93%	to	8.93%
December 31, 2005	2,917	$ 1.51950		to	$ 1.51950	$	4,432	0.00%	0.60%		to	0.60%	17.07%	to	17.07%

	Prudential SP Conservative Asset Allocation Portfolio (expired November 20, 2009)

December 31, 2009	—	$ —		to	$ —	$	—	1.44%	0.60%		to	0.60%	18.76%	to	18.76%
December 31, 2008	1,057	$ 1.16234		to	$ 1.16234	$	1,229	3.03%	0.60%		to	0.60%	-20.68%	to	-20.68%
December 31, 2007	910	$ 1.46531		to	$ 1.46531	$	1,333	3.24%	0.60%		to	0.60%	8.74%	to	8.74%
December 31, 2006	796	$ 1.34756		to	$ 1.34756	$	1,072	3.56%	0.60%		to	0.60%	8.03%	to	8.03%
December 31, 2005	851	$ 1.24740		to	$ 1.24740	$	1,062	1.33%	0.60%		to	0.60%	5.27%	to	5.27%

	Prudential SP Balanced Asset Allocation Portfolio (expired November 13, 2009)

December 31, 2009	—	$ —		to	$ —	$	—	3.02%	0.60%		to	0.60%	21.10%	to	21.10%
December 31, 2008	6,147	$ 1.09781		to	$ 1.09781	$	6,749	2.51%	0.60%		to	0.60%	-28.97%	to	-28.97%
December 31, 2007	5,909	$ 1.54560		to	$ 1.54560	$	9,133	2.46%	0.60%		to	0.60%	8.70%	to	8.70%
December 31, 2006	4,882	$ 1.42193		to	$ 1.42193	$	6,941	2.26%	0.60%		to	0.60%	10.03%	to	10.03%
December 31, 2005	3,694	$ 1.29229		to	$ 1.29229	$	4,774	0.94%	0.60%		to	0.60%	6.96%	to	6.96%

A34

Note 7:

Financial Highlights (Continued)


	At the period ended							For the period ended

						Net		Investment
	Units		Unit Value			Assets		Income		Expense Ratio**			Total Return***
	(000s)		Lowest - Highest			(000s)		Ratio*		Lowest - Highest			Lowest - Highest


	Prudential SP Growth Asset Allocation Portfolio

December 31, 2009	8,090	$ 1.27647		to	$ 1.27647	$	10,327	2.19%	0.60%		to	0.60%	25.46%	to	25.46%
December 31, 2008	9,300	$ 1.01740		to	$ 1.01740	$	9,461	1.71%	0.60%		to	0.60%	-36.74%	to	-36.74%
December 31, 2007	9,952	$ 1.60825		to	$ 1.60825	$	16,005	1.61%	0.60%		to	0.60%	8.57%	to	8.57%
December 31, 2006	9,141	$ 1.48126		to	$ 1.48126	$	13,540	1.75%	0.60%		to	0.60%	12.22%	to	12.22%
December 31, 2005	8,299	$ 1.32000		to	$ 1.32000	$	10,955	0.58%	0.60%		to	0.60%	8.59%	to	8.59%

	Prudential SP Aggressive Growth Asset Allocation Portfolio (expired November 13, 2009)

December 31, 2009	—	$ —		to	$ —	$	—	1.43%	0.60%		to	0.60%	26.40%	to	26.40%
December 31, 2008	5,556	$ 0.93817		to	$ 0.93817	$	5,213	1.08%	0.60%		to	0.60%	-42.53%	to	-42.53%
December 31, 2007	5,404	$ 1.63236		to	$ 1.63236	$	8,821	0.99%	0.60%		to	0.60%	8.54%	to	8.54%
December 31, 2006	4,908	$ 1.50389		to	$ 1.50389	$	7,380	1.64%	0.60%		to	0.60%	13.60%	to	13.60%
December 31, 2005	3,740	$ 1.32384		to	$ 1.32384	$	4,952	0.17%	0.60%		to	0.60%	9.83%	to	9.83%

	Prudential SP International Growth Portfolio

December 31, 2009	4,017	$ 1.38631		to	$ 1.38631	$	5,569	2.10%	0.60%		to	0.60%	36.33%	to	36.33%
December 31, 2008	4,933	$ 1.01686		to	$ 1.01686	$	5,016	1.55%	0.60%		to	0.60%	-50.59%	to	-50.59%
December 31, 2007	4,866	$ 2.05803		to	$ 2.05803	$	10,014	0.74%	0.60%		to	0.60%	18.83%	to	18.83%
December 31, 2006	4,638	$ 1.73186		to	$ 1.73186	$	8,032	1.34%	0.60%		to	0.60%	20.33%	to	20.33%
December 31, 2005	2,720	$ 1.43929		to	$ 1.43929	$	3,915	0.53%	0.60%		to	0.60%	15.70%	to	15.70%

	Prudential SP International Value Portfolio

December 31, 2009	5,060	$ 1.49623		to	$ 1.49623	$	7,571	3.18%	0.60%		to	0.60%	31.57%	to	31.57%
December 31, 2008	5,836	$ 1.13724		to	$ 1.13724	$	6,637	2.80%	0.60%		to	0.60%	-44.39%	to	-44.39%
December 31, 2007	5,996	$ 2.04511		to	$ 2.04511	$	12,262	2.22%	0.60%		to	0.60%	17.38%	to	17.38%
December 31, 2006	5,021	$ 1.74236		to	$ 1.74236	$	8,748	0.84%	0.60%		to	0.60%	28.32%	to	28.32%
December 31, 2005	2,052	$ 1.35783		to	$ 1.35783	$	2,786	0.36%	0.60%		to	0.60%	13.08%	to	13.08%

	AST T. Rowe Price Large-Cap Growth Portfolio (available May 1, 2008)

December 31, 2009	764	$ 9.55383		to	$ 9.55383	$	7,296	0.00%	0.60%		to	0.60%	52.46%	to	52.46%
December 31, 2008	556	$ 6.26653		to	$ 6.26653	$	3,485	0.05%	0.60%		to	0.60%	-38.44%	to	-38.44%

	AST Large-Cap Value Portfolio (available May 1, 2008)

December 31, 2009	342	$ 7.30001		to	$ 7.30001	$	2,496	3.05%	0.60%		to	0.60%	18.72%	to	18.72%
December 31, 2008	395	$ 6.14877		to	$ 6.14877	$	2,429	1.70%	0.60%		to	0.60%	-39.60%	to	-39.60%

	AST Marsico Capital Growth Portfolio (available May 1, 2008)

December 31, 2009	569	$ 7.87198		to	$ 7.87198	$	4,481	0.86%	0.60%		to	0.60%	28.98%	to	28.98%
December 31, 2008	542	$ 6.10302		to	$ 6.10302	$	3,309	0.23%	0.60%		to	0.60%	-39.61%	to	-39.61%

	AST Small-Cap Growth Portfolio (available May 1, 2008)

December 31, 2009	353	$ 9.04834		to	$ 9.04834	$	3,197	0.05%	0.60%		to	0.60%	33.11%	to	33.11%
December 31, 2008	366	$ 6.79773		to	$ 6.79773	$	2,486	0.00%	0.60%		to	0.60%	-33.00%	to	-33.00%

	AST PIMCO Total Return Bond Portfolio (available December 4, 2009)

December 31, 2009	2,321	$ 9.93597		to	$ 9.93597	$	23,066	0.00%	0.60%		to	0.60%	-0.55%	to	-0.55%

	AST Aggressive Asset Allocation Portfolio (available November 13, 2009)

December 31, 2009	570	$ 10.21653		to	$ 10.21653	$	5,820	0.00%	0.60%		to	0.60%	0.05%	to	0.05%

	AST Balanced Asset Allocation Portfolio (available November 13, 2009)

December 31, 2009	833	$ 10.12386		to	$ 10.12386	$	8,433	0.00%	0.60%		to	0.60%	-0.17%	to	-0.17%

	AST Preservation Asset Allocation Portfolio (available November 20, 2009)

December 31, 2009	1,772	$ 10.02101		to	$ 10.02101	$	17,758	0.00%	0.60%		to	0.60%	-0.15%	to	-0.15%

A35

Note 7:

Financial Highlights (continued)

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

**These ratios represent the annualized contract expenses of the separate account, net of reimbursement of excess expenses, consisting primarily of mortality and expense charges net of reimbursement of excess expenses, for each period indicated. The ratios include only those expenses that result in a direct reduction to unit values. Charges made directly to contract owner accounts through the redemption of units and expenses of the underlying fund are excluded.

***These amounts represent the total return for the periods indicated, including changes in the value of the underlying fund, and reflect deductions for all items included in the expense ratio. The total return does not include any expenses assessed through the redemption of units; inclusion of these expenses in the calculation would result in a reduction in the total return presented. 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, 2009 or from the effective date of the subaccount through the end of the reporting period.

Charges and Expenses

A. Mortality Risk and Expense Risk Charges

The mortality risk and expense risk charges, at an effective annual rate of up to 0.60% for VAL contracts, and 0.90% for VUL contracts are applied daily against the net assets held in each subaccount. Mortality risk is that contract owners may not live as long as estimated and expense risk is that the cost of issuing and administering the policies may exceed related charges by Pruco Life. Pruco Life intends to charge only 0.60% on VUL contracts but reserves the right to make the full 0.90% charge. The mortality risk and expense risk charges are assessed through reduction in unit values.

B. Deferred Sales Charge

A deferred sales charge is imposed upon the surrender of certain variable life insurance contracts to compensate Pruco Life for sales and other marketing expenses. The amount of any sales charge will depend on the number of years that have elapsed since the contract was issued but will not exceed 45% of one scheduled annual premium payment for VAL contracts and 26% of the lesser of (a) the target level premium for the contract and (b) the actual premiums paid for VUL contracts. No sales charge will be imposed after the tenth year of the contract. No sales charge will be imposed on death benefits. The deferred sales charge is assessed through the redemption of units.

C. Partial Withdrawal Charge

A charge is imposed by Pruco Life on partial withdrawals of the cash surrender value. A charge equal to the lesser of $15 or 2% and $25 or 2% will be made in connection with each partial withdrawal of the cash surrender value of VAL or VUL contract, respectively. The range for withdrawal charges is 0% - 2%. This charge is assessed through the redemption of units.

A36

Note 7:

Financial Highlights (continued)

D. Expense Reimbursement

The Account is reimbursed by Pruco Life for expenses in excess of 0.40% of VAL’s average daily net assets incurred by the Money Market, Diversifed Bond, Equity, Flexible Managed, and the Conservative Balanced Portfolios of the Series Fund. This reimbursement is applied through an increase in unit values.

E. Cost of Insurance and Other Related Charges

Contract owners contributions are subject to certain deductions prior to being invested in the Account. The deductions are for (1) transaction costs which are deducted from each premium payment to cover premium collection and processing costs; (2) state premium taxes; (3) sales charges of up to 5% from each premium payment for VAL contracts and 4% of premiums paid in each contract year up to the amount of the target premium for VUL contracts, which are deducted in order to compensate Pruco Life for the cost of selling the contract. Contracts are also subject to monthly charges for the costs of administering the contract and to compensate Pruco Life for the guaranteed minimum death benefit risk. These charges are assessed through the redemption of units.

Note 8:

Other

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

Policy loans - represent amounts borrowed by contractholders using the policy as the security for the loan.

Policy loan repayments and interest - represent payments made by contractholders to reduce the total outstanding policy loan balance.

Surrenders, withdrawals, and death benefits - are payments to contract owners and beneficiaries made under the terms of the Variable Life Policies, and amounts that contract owners have requested to be withdrawn or paid to them.

Net transfers between other subaccounts or fixed rate options - are amounts that contract owners have directed to be moved among subaccounts, including permitted transfers to and from the Guaranteed Interest Account and Market Value Adjustment.

A37

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Contract Owners of

Pruco Life Variable Appreciable Account

and the Board of Directors of

Pruco Life Insurance Company

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 sub-accounts listed in Note 1 of Pruco Life Variable Appreciable Account at December 31, 2009, 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 Pruco Life Insurance Company. 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, 2009 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 1, 2010

A38

PRUCO LIFE INSURANCE COMPANY

CONSOLIDATED FINANCIAL STATEMENTS


Consolidated Statements of Financial Position		B-1


Consolidated Statements of Operations and Comprehensive Income		B-2


Consolidated Statements of Stockholder’s Equity		B-3


Consolidated Statements of Cash Flows		B-4


Notes to Consolidated Financial Statements		B-5


Report of Independent Registered Public Accounting Firm		B-65

Pruco Life Insurance Company

Consolidated Statements of Financial Position

As of December 31, 2009 and 2008 (in thousands, except share amounts)


	2009		2008

ASSETS
Fixed maturities available for sale, at fair value (amortized cost, 2009 - $5,669,377; 2008 - $4,865,526)	$	5,854,073	$	4,544,162
Equity securities available for sale, at fair value (cost, 2009 - $27,332; 2008: $28,015)		27,642		16,872
Trading account assets at fair value (cost, 2009 - $25,027; 2008: $11,280)		26,937		9,967
Policy loans		1,012,014		1,001,518
Short-term investments		172,913		76,195
Commercial mortgage loans		1,048,346		881,638
Other long-term investments		73,671		86,833

Total investments		8,215,596		6,617,185
Cash and cash equivalents		143,111		595,045
Deferred policy acquisition costs		2,483,494		2,602,085
Accrued investment income		90,120		79,161
Reinsurance recoverables		2,396,095		3,043,662
Receivables from parent and affiliates		263,268		190,576
Deferred sales inducements		296,341		269,310
Other assets		31,730		24,005
Separate account assets		25,163,277		17,574,530

TOTAL ASSETS	$	39,083,032	$	30,995,559


LIABILITIES AND EQUITY
LIABILITIES
Policyholders’ account balances	$	6,794,721	$	6,322,008
Future policy benefits and other policyholder liabilities		3,145,520		3,518,081
Cash collateral for loaned securities		196,166		109,342
Securities sold under agreement to repurchase		11,540		44,371
Income taxes payable		514,762		477,591
Short-term debt to affiliates		-		100
Payables to parent and affiliates		34,156		75,653
Other liabilities		315,308		146,142
Separate account liabilities		25,163,277		17,574,530

Total liabilities	$	36,175,450	$	28,267,818


COMMITMENTS AND CONTINGENT LIABILITIES (See Note 12)

EQUITY

Common stock, ($10 par value; 1,000,000 shares, authorized; 250,000 shares, issued and outstanding)		2,500		2,500

Additional paid-in capital		828,858		815,664

Retained earnings		2,000,457		2,046,712

Accumulated other comprehensive income (loss)		75,767		(137,135	)

Total equity		2,907,582		2,727,741

TOTAL LIABILITIES AND EQUITY	$	39,083,032	$	30,995,559

See Notes to Consolidated Financial Statements

B-1

Pruco Life Insurance Company

Consolidated Statements of Operations and Comprehensive Income

Years Ended December 31, 2009, 2008 and 2007 (in thousands)


	2009			2008			2007

REVENUES

Premiums	$	71,593		$	76,794		$	61,469
Policy charges and fee income		653,134			686,149			688,477
Net investment income		406,040			363,751			381,394
Asset administration fees		34,004			24,903			24,439
Other income		45,841			28,783			24,928
Realized investment gains/(losses), net;
Other-than-temporary impairments on fixed maturity securities		(97,552	)		(57,790	)		(2,889	)
Other-than-temporary impairments on fixed maturity securities transferred to Other Comprehensive Income		65,656			-			-
Other realized investment gains (losses), net		(437,288	)		263,996			(17,794	)

Total realized investment gains (losses), net		(469,184	)		206,206			(20,683	)

Total revenues		741,428			1,386,586			1,160,024


BENEFITS AND EXPENSES

Policyholders’ benefits		160,333			339,148			111,034
Interest credited to policyholders’ account balances		271,379			213,371			208,768
Amortization of deferred policy acquisition costs		294,286			308,617			285,443
General, administrative and other expenses		217,181			211,121			243,033

Total benefits and expenses		943,179			1,072,257			848,278


Income (Loss) from operations before income taxes		(201,751	)		314,329			311,746

Income taxes:
Current		93,658			(126,180)			8,570
Deferred		(229,618	)		191,184			55,842

Income tax expense (benefit)		(135,960	)		65,004			64,412

NET (LOSS)/ INCOME		(65,791	)		249,325			247,334


Change in net unrealized investment gains/(losses) and changes in foreign currency translation, net of taxes		232,438			(155,000	)		(7,397	)

COMPREHENSIVE INCOME	$	166,647		$	94,325		$	239,937

See Notes to Consolidated Financial Statements

B-2

Pruco Life Insurance Company

Consolidated Statements of Stockholder’s Equity

Years Ended December 31, 2009, 2008 and 2007 (in thousands)


								Accumulated Other Comprehensive Income (Loss)
	Common Stock		Additional Paid-in- Capital		Retained Earnings			Foreign Currency Translation Adjustments			Net Unrealized Investment Gain (Loss)			Total Accumulated Other Comprehensive Income (Loss)			Total Equity

Balance, December 31, 2006	$	2,500	$	454,527	$	1,853,233		$	167		$	25,095		$	25,262		$	2,335,522

Net Income						247,334												247,334
Contributed Capital		-		1,137		-			-			-			-			1,137
Dividend to Parent		-		-		(300,000	)		-			-			-			(300,000	)
Cumulative effect of changes in accounting principles, net of taxes		-		-		(3,180	)		-			-			-			(3,180	)
Change in foreign currency translation adjustments, net of taxes		-		-		-			462			-			462			462
Change in net unrealized investment (losses), net of taxes		-		-		-			-			(7,859	)		(7,859	)		(7,859	)

Balance, December 31, 2007	$	2,500	$	455,664	$	1,797,387		$	629		$	17,236		$	17,865		$	2,273,416


Net income						249,325												249,325
Contributed Capital		-		360,000		-			-			-			-			360,000
Change in foreign currency translation adjustments, net of taxes		-		-		-			(477	)		-			(477	)		(477	)
Change in net unrealized investment (losses), net of taxes		-		-		-			-			(154,523	)		(154,523	)		(154,523	)

Balance, December 31, 2008	$	2,500	$	815,664	$	2,046,712		$	152		$	(137,287	)	$	(137,135	)	$	2,727,741


Net loss						(65,791	)											(65,791	)
Contributed Capital		-		13,194		-			-			-			-			13,194
Change in foreign currency translation adjustments, net of taxes		-		-		-			227			-			227			227
Impact of adoption of new guidance for other-than-temporary impairments of debt securities, net of taxes						19,536						(19,536	)		(19,536	)		-
Change in net unrealized investment gains/(losses), net of taxes		-		-		-			-			232,211			232,211			232,211

Balance, December 31, 2009	$	2,500	$	828,858	$	2,000,457		$	379		$	75,388		$	75,767		$	2,907,582

See Notes to Consolidated Financial Statements

B-3

Pruco Life Insurance Company

Consolidated Statements of Cash Flows

Years Ended December 31, 2009, 2008 and 2007 (in thousands)


	2009			2008			2007

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net (Loss)/Income	$	(65,791	)	$	249,325		$	247,334
Adjustments to reconcile net income to net cash from (used in) operating activities:
Policy charges and fee income		(266,769	)		(207,498	)		(212,764	)
Interest credited to policyholders’ account balances		271,379			213,371			208,768
Realized investment (gains)/losses, net		469,184			(206,206	)		20,683
Amortization and other non-cash items		(10,451	)		(5,505	)		(1,786	)
Change in:
Future policy benefits and other insurance liabilities		(335,236	)		1,331,959			410,521
Reinsurance recoverable		277,997			(1,104,127	)		(378,931	)
Accrued investment income		(10,959	)		(5,193	)		(379	)
Receivables from parent and affiliates		94,287			(30,500	)		(12,663	)
Payables to parent and affiliates		(41,496	)		15,446			30,780
Deferred policy acquisition costs		(251,131	)		(163,154	)		(204,979	)
Income taxes payable		(67,851	)		76,532			34,505
Deferred sales inducements		(94,526	)		(71,899	)		(57,253	)
Other, net		(16,925	)		(125,324	)		(135,666	)

CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES		(48,288	)		(32,773	)		(51,830	)

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Proceeds from the sale/maturity/prepayment of:
Fixed maturities available for sale		1,673,613			1,485,142			2,051,195
Policy loans		150,744			110,856			105,043
Commercial mortgage loans		46,286			20,553			30,954
Equity securities, available for sale		19,541			(47	)		541
Trading account assets, available for sale		5			-			-
Payments for the purchase of:
Fixed maturities available for sale		(2,443,789	)		(2,019,688	)		(1,668,443	)
Policy loans		(117,727	)		(109,096	)		(110,683	)
Commercial mortgage loans		(230,550	)		(126,892	)		(269,135	)
Equity securities, available for sale		(19,636	)		-			(983	)
Trading account assets, available for sale		(13,301	)		(8,803	)		(1,164	)
Notes receivable from parent and affiliates, net		(143,419	)		(8,687	)		(34,801	)
Other long term investments, net		2,325			(9,343	)		(32,783	)
Short term investments, net		(96,775	)		43,490			(22,550	)

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES		(1,172,683	)		(622,515	)		47,191

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Policyholders’ account deposits		1,937,462			2,243,781			1,671,617
Policyholders’ account withdrawals		(1,223,565	)		(1,126,295	)		(2,051,550	)
Net change in securities sold under agreement to repurchase and cash collateral for loaned securities		53,994			(261,770	)		267,275
Dividend to parent		-			-			(300,000	)
Contributed capital		-			360,000			-
Net change in financing arrangements (maturities 90 days or less)		1,146			(58,347	)		25,062

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES		769,037			1,157,369			(387,596	)

Net increase (decrease) in cash and cash equivalents		(451,934	)		502,081			(392,235	)
Cash and cash equivalents, beginning of year		595,045			92,964			485,199

CASH AND CASH EQUIVALENTS, END OF YEAR	$	143,111		$	595,045		$	92,964

SUPPLEMENTAL CASH FLOW INFORMATION
Income taxes (refunded) paid	$	(68,108	)	$	(11,525	)	$	29,905
Interest paid	$	8		$	573		$	590

See Notes to Consolidated Financial Statements

B-4

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

1. BUSINESS AND BASIS OF PRESENTATION

Pruco Life Insurance Company, or the “Company,” is a wholly owned subsidiary of The Prudential Insurance Company of America, or “Prudential Insurance,” which in turn is an indirect wholly owned subsidiary of Prudential Financial, Inc., or “Prudential Financial.”

The Company has three subsidiaries, including one wholly owned life subsidiary, Pruco Life Insurance Company of New Jersey, or “PLNJ” and two subsidiaries formed in 2003 for the purpose of acquiring fixed income investment, these two subsidiaries were liquidated in 2009. Pruco Life Insurance Company and its subsidiaries are together referred to as the Company and all financial information is shown on a consolidated basis.

PLNJ is a stock life insurance company organized in 1982 under the laws of the state of New Jersey. It is licensed to sell individual life insurance, variable life insurance, term life insurance, fixed and variable annuities only in New Jersey and New York.

Basis of Presentation

The Consolidated Financial Statements include the accounts of Pruco Life Insurance Company and its subsidiaries. The Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The Company has extensive transactions and relationships with Prudential Insurance and other affiliates, (as more fully described in Note 13 to the Consolidated Financial Statements). Due to these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

The most significant estimates include those used in determining deferred policy acquisition costs and related amortization; amortization of sales inducements; valuation of investments including derivatives and the recognition of other-than-temporary impairments; future policy benefits including guarantees; provision for income taxes and valuation of deferred tax assets; and reserves for contingent liabilities, including reserves for losses in connection with unresolved legal matters.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Investments and Investment-Related Liabilities

The Company’s principal investment are fixed maturities; trading account assets; equity securities; commercial mortgage loans; policy loans; other long-term investments, including joint ventures (other than operating joint ventures), limited partnerships, and short-term investments. Investments and investment-related liabilities also include securities repurchase and resale agreements and securities lending transactions. The accounting policies related to each are as follows:

Fixed maturities are comprised of bonds, notes and redeemable preferred stock. Fixed maturities classified as “available for sale” are carried at fair value. See Note 10 for additional information regarding the determination

B-5

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 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, 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, includes invested assets that support certain products carried at fair value 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 in “Asset administration fees and 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, and non-redeemable preferred stock, and are carried at fair value. The associated unrealized gains and losses, net of tax, and the effect on deferred policy acquisition costs, 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)”. 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 in “Net investment income” when declared.

Commercial mortgage loans are carried at unpaid principal balance, net of unamortized premiums or discounts and an allowance for losses. Interest income, as well as prepayment fees and the amortization of related premiums or discounts, is included in “Net investment income.” The allowance for losses includes a loan specific reserve for non-performing loans and a portfolio reserve for probable incurred but not specifically identified losses. 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. The allowances for losses on these loans are determined based on the present value of expected future cash flows discounted at the loan’s effective interest rate, or at the fair value of the collateral if the loan is collateral dependent. Interest received on non-performing loans, including loans that were previously modified in a troubled debt restructuring, is either applied against the principal or reported as net investment income, based on the Company’s assessment as to the collectability of

B-6

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

principal. The Company discontinues accruing interest on non-performing loans after the loans are 90 days delinquent as to principal or interest, or earlier when the Company has doubts about collectability. When a loan is recognized as non-performing, any accrued but uncollectible interest is charged to interest income in the period the loan is deemed non-performing. Generally, a loan is restored to accrual status only after all delinquent interest and principal are brought current and, in the case of loans where the payment of interest has been interrupted for a substantial period, a regular payment performance has been established. The portfolio reserve for incurred but not specifically identified losses, considers the current credit composition of the portfolio, based on an internal quality ratings, as well as, property type diversification, the Company’s past loan experience and other relevant factors. Together with historical credit migration and default statistics, the internal quality ratings are used to determine a default probability by loan. Historical loss severity statistics by property type are then applied to arrive at an estimate for incurred but not specifically identified losses. Historical credit migration, default and loss severity statistics 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 can increase or decrease from period to period based on these factors. The gains and losses from the sale of loans, which are recognized when the Company relinquishes control over the loans, as well as changes in the allowance for loan losses, are reported in “Realized investment gains (losses), net.”

Policy loans are carried at unpaid principal balances. Interest income on policy loans is recognized in net investment income at the contract interest rate when earned.

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 loan transactions the Company transfers U.S. government and government agency securities and receives cash as collateral. As part of securities resale agreements, the Company 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 subsidiary 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 in “General and administrative expenses”).

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

B-7

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

transactions are with large brokerage firms. Income and expenses associated with securities loaned transactions used to earn spread income are generally reported as “Net investment income;” however, for securities loaned transactions used for funding purposes the associated rebate is reported as interest expense (included in “General and administrative expenses”).

Other long term investments consist of the Company’s investments in joint ventures and limited partnerships in which the Company does not exercise control, as well as investments in the Company’s own separate accounts, which are carried at fair value, and investment real estate. Joint venture and partnership interests are generally accounted for using the equity method of accounting, except in instances in which the Company’s interest is so minor that it exercises virtually no influence over operating and financial policies. In such instances, the Company applies the cost method of accounting. The Company’s share of net income from investments in joint ventures and partnerships is generally included in “Net investment income.”

Short term investments consist of highly liquid debt instruments with a maturity of greater than three months and less than twelve months when purchased. These investments are generally carried at fair value.

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, provisions for losses on commercial mortgage and other loans, fair value changes on commercial mortgage loans carried at fair value and fair value changes on embedded derivatives and derivatives that do not qualify for hedge accounting treatment.

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. This 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. 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. 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

B-8

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 recorded.

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 including prepayment assumptions, are 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, recoveries and changes in value. 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.

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 based on prospective changes in cash flow estimates, to reflect adjustments to the effective yield.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, amounts due from banks, certain money market investments, and other debt issues with maturities of three months or less when purchased. The Company also engages in overnight borrowing and lending of funds with Prudential Financial and affiliates which are considered cash and cash equivalents.

B-9

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Deferred Policy Acquisition Costs

Costs that vary with and that are related primarily to the production of new insurance and annuity products 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. DAC is subject to recoverability testing at the end of each reporting period to ensure that the capitalized amounts do not exceed the present value of anticipated gross profits 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 in “Accumulated other comprehensive income (loss).”

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 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, surrender charges and the performance of hedging programs for embedded derivative features, based on historical and anticipated future experience, which is updated periodically. The Company uses a reversion to the mean approach to derive the future rate of return assumptions. However, if the projected future rate of return calculated using this approach is greater than the maximum future rate of return assumption, the maximum future rate of return is utilized. The effect of changes to estimated gross profits on unamortized deferred acquisition costs is reflected in 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 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, which are invested for certain policyholders and other customers. The assets consist primarily of equity securities, fixed maturities, real estate related investments, real estate mortgage loans and 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 7 to the Consolidated Financial Statements for additional information regarding separate account arrangements with contractual guarantees. The investment income and realized investment gains or losses from separate accounts generally accrue to the policyholders and are not included in the Consolidated Statements of Operations. Mortality, policy administration and surrender charges

B-10

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

assessed against the accounts are included in “Policy charges and fee income.” Asset administration fees charged to the accounts are included in “Asset administration fees.”

Other Assets and Other Liabilities

Other assets consist primarily of premiums due, certain restricted assets, and receivables resulting from sales of securities that had not yet settled at the balance sheet date. Other liabilities consist primarily of accrued expenses, technical overdrafts, and payables resulting from purchases of securities that had not yet been settled at the balance sheet date.

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 life insurance, and annuity 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 on our term life products. 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 products 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. 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 7, 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 policyholders’ withdrawals and other charges assessed against the account balance. These policyholders’ account balances also include provision for benefits under non-life contingent payout annuities and certain unearned revenues.

Contingent Liabilities

Amounts related to contingent liabilities are accrued if it is probable that a liability has been incurred and an amount is reasonably estimable. Management evaluates whether there are incremental legal or other costs directly associated with the ultimate resolution of the matter that are reasonably estimable and, if so, they are included in the accrual.

Insurance Revenue and Expense Recognition

Premiums from individual life products, other than interest-sensitive life contracts, 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 premium method.

B-11

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 7. The Company also provides contracts with certain living benefits which are considered embedded derivatives. These contracts are discussed in further detail in Note 7.

Amounts received as payment for interest-sensitive individual life contracts, 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. Premiums, benefits and expenses are stated net of reinsurance ceded to other companies. Estimated reinsurance recoverables and the cost of reinsurance are recognized over the life of the reinsured policies using assumptions consistent with those used to account for the underlying policies.

Asset Administration Fees

The Company receives asset administration fee income from policyholders’ account balances invested in The Prudential Series Funds or, “PSF,” which are a portfolio of mutual fund investments related to the Company’s separate account products. Also the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series Trust Funds (see Note 13 to the Consolidated Financial Statements). In addition, the Company receives fees from policyholders’ account balances invested in funds managed by companies other than affiliates of Prudential Insurance. Asset administration fees are recognized as income when earned.

Derivative Financial Instruments

Derivatives are financial instruments whose values are derived from interest rates, financial indices, or the value of securities. Derivative financial instruments generally used by the Company include swaps and futures, and may be exchange-traded or contracted in the over-the-counter market. Derivative positions are carried at fair value, generally by obtaining quoted market prices or through the use of valuation models.

Values can be affected by changes in interest rates, foreign exchange rates, credit spreads, market volatility and liquidity. Values can also be affected by changes in estimates and assumptions, including those related to counterparty behavior and non performance risk, used in valuation models.

Derivatives are used to manage the characteristics of the Company’s asset/liability mix and to manage the interest rate and currency characteristics of assets or liabilities. Additionally, derivatives may be used to seek to reduce exposure to interest rate and foreign currency risks associated with assets held or expected to be purchased or sold, and liabilities incurred or expected to be incurred.

Derivatives are recorded as assets, within “Other long-term investments,” or as liabilities, within “Other liabilities,” in the Statements of Financial Position, except for embedded derivatives, which are recorded in the Statements of Financial Position with the associated host contract. The Company nets the fair value of all

B-12

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

derivative financial instruments with counterparties for which a master netting arrangement has been executed. As discussed in detail below and in Note 11, all realized and unrealized changes in fair value of derivatives, with the exception of the effective portion of cash flow hedges, are recorded in current earnings. Cash flows from these derivatives are reported in the operating and investing activities section in the Statements of Cash Flows.

The Company designates derivatives as either (1) a hedge of the fair value of a recognized asset or liability or unrecognized firm commitment (“fair value” hedge), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (“cash flow” hedge), (3) a foreign currency fair value or cash flow hedge (“foreign currency” hedge), (4) a hedge of a net investment in a foreign operation, or (5) a derivative entered into as an economic hedge that does not qualify for hedge accounting. If a derivative does not qualify for hedge accounting, all changes in its fair value, including net receipts and payments, are included in “Realized investment (losses), net” without considering changes in the fair value of the economically associated assets or liabilities.

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 in “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.

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.

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.

B-13

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

The Company is a party to financial instruments that contain derivative instruments that are “embedded” in the financial instruments, the identification of which involves judgment. At inception, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and changes in its fair value are included in “Realized investment gains (losses), net.” For certain financial instruments that contain an embedded derivative that otherwise would need to be bifurcated and reported at fair value, the Company may elect to classify the entire instrument as a trading account asset and report it within “Trading account assets,” at fair value.

The Company has entered into reinsurance agreements to transfer the risk related to the embedded derivatives to affiliates. These reinsurance agreements are derivatives and have been accounted in the same manner as the embedded derivative.

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 9 for additional information regarding income taxes.

Adoption of New Accounting Pronouncements

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 investments such as hedge funds, private equity funds, and venture capital funds. This guidance allows companies to determine the fair value of such investments using net asset value (“NAV”) as a practical expedient 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

B-14

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

of alternative investments. 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 and 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 when 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 CodificationTM 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 interim reporting period ending September 30, 2009 impacted the way the Company references U.S. GAAP accounting standards in the financial statements.

In April 2009, the FASB revised the authoritative guidance for disclosures about fair value of financial instruments. This new guidance requires disclosures about fair value of financial instruments for interim reporting periods similar to those included in annual financial statements. This guidance is effective for interim reporting periods ending after June 15, 2009. The Company adopted this guidance effective with the interim period ending June 30, 2009.

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 $19.6 million. The disclosures required by this new guidance are provided in Note 3. 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

B-15

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Company’s consolidated financial position or results of operations. The disclosures required by this revised guidance are provided in Note 10.

In October 2008, the FASB revised the authoritative guidance on determining the fair value of a financial asset when the market for that asset is not active. This guidance clarifies the application of fair value measurements in a market that is not active and applies to financial assets within the scope of accounting pronouncements that require or permit fair value measurements. The guidance was effective upon issuance, including prior periods for which financial statements had not been issued. The Company’s adoption of this guidance effective September 30, 2008 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 11.

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 or results of operations.

In February 2008, the FASB revised the authoritative guidance which delays the effective date of the authoritative guidance 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 January 2008, the FASB issued authoritative guidance for application of the shortcut method to hedge accounting with respect to the conditions that must be met to apply the shortcut method for assessing hedge effectiveness. This new 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 February 2007, the FASB issued authoritative guidance on the fair value option for financial assets and financial liabilities. This guidance 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 Consolidated Statements of Operations. The Company adopted this guidance effective January 1, 2008.

B-16

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

In September 2006, the FASB issued authoritative guidance on fair value measurements. This guidance defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance does not change which assets and liabilities are required to be recorded at fair value, but the application of this guidance could change practices in determining fair value. The Company adopted this guidance effective January 1, 2008. See Note 10 for more information on fair value measurements guidance.

In June 2006, the FASB revised the authoritative guidance for accounting for uncertainty in income taxes. See Note 9 for details regarding the adoption of this new guidance on January 1, 2007.

In February 2006, the FASB issued authoritative guidance on accounting for certain hybrid instruments. This guidance eliminates an exception from the requirement to bifurcate an embedded derivative feature from beneficial interests in securitized financial assets. The Company has used this exception for investments the Company has made in securitized financial assets in the normal course of operations, and thus previous to the adoption of this standard has not had to consider whether such investments contain an embedded derivative. The new requirement to identify embedded derivatives in beneficial interests will be applied on a prospective basis only to beneficial interests acquired, issued, or subject to certain remeasurement conditions after the adoption of the guidance. This statement also provides an election, on an instrument by instrument basis, to measure at fair value an entire hybrid financial instrument that contains an embedded derivative requiring bifurcation, rather than measuring only the embedded derivative on a fair value basis. If the fair value election is chosen, changes in unrealized gains and losses are reflected in the Consolidated Statements of Operations. The Company’s adoption of this guidance effective January 1, 2007 did not have a material effect on the Company’s consolidated financial position or results of operations.

In September 2005, the Accounting Standards Executive Committee (“AcSEC”) of the American Institute of Certified Public Accountants issued authoritative guidance on accounting by insurance enterprises for deferred acquisition costs in connection with modifications or exchanges of insurance contracts. This guidance tells insurance enterprises how to account for deferred acquisition costs, including deferred policy acquisition costs, and deferred sales inducements, on certain internal replacements of certain insurance and investment contracts. The guidance defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract, and was effective for internal replacements occurring in fiscal years beginning after December 15, 2006. The Company adopted this guidance on January 1, 2007, which resulted in a net after-tax reduction to retained earnings of $2.5 million.

Future Adoption of New Accounting Pronouncements

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 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 requiring 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. The Company’s adoption of this guidance effective January 1, 2010 is not expected to have a material effect on the Company’s consolidated financial position, results of operations and financial statement disclosures.

B-17

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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 qualifying special-purpose entity (“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. Disclosure provisions will be applied to transfers that occurred both before and after January 1, 2010. The Company adoption of this guidance effective January 1, 2010 is not expected to have a material effect on the Company’s consolidated financial position, results of operations and financial statement disclosures.

Reclassifications

Certain amounts in prior periods have been reclassified to conform to the current period presentation.

3. INVESTMENTS

Fixed Maturities and Equity Securities

The following tables provide information relating to fixed maturities and equity securities (excluding investments classified as trading) as of the dates indicated:


	December 31, 2009

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Other-than- temporary impairments in AOCI(3)

	(in thousands)
Fixed maturities, available for sale

U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	169,849	$	2,270	$	459	$	171,660	$	-

Obligations of U.S. states and their political subdivisions		16,924		-		922		16,002		-

Foreign government bonds		39,405		5,157		287		44,275		-

Corporate securities		3,802,403		181,748		26,354		3,957,797		(2,635	)

Asset-backed securities(1)		468,747		21,638		39,604		450,781		(45,134	)

Commercial mortgage-backed securities		494,023		12,224		4,631		501,616		-

Residential mortgage-backed securities(2)		678,026		35,559		1,643		711,942		(1,826	)

Total fixed maturities, available for sale	$	5,669,377	$	258,596	$	73,900	$	5,854,073	$	(49,595	)

Equity securities, available for sale	$	27,332	$	1,663	$	1,353	$	27,642	$	-

(1)

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

B-18

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

3. INVESTMENTS (continued)

(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, from January 1, 2009, were not included in earnings under new authoritative accounting guidance. Amount excludes $(24) million of net unrealized gains (losses) on impaired securities relating to changes in the value of such securities subsequent to the impairment measurement date.


	December 31, 2008

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value

	(in thousands)
Fixed maturities, available for sale

U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	147,879	$	7,848	$	101	$	155,626

Obligations of U.S. states and their political subdivisions		114,375		3,449		352		117,472

Foreign government bonds		30,633		3,156		204		33,585

Corporate securities		2,658,859		25,771		230,154		2,454,476

Asset-backed securities		696,441		14,357		83,242		627,556

Commercial mortgage-backed securities		525,257		193		88,187		437,263

Residential mortgage-backed securities		692,082		29,970		3,868		718,184

Total fixed maturities, available for sale	$	4,865,526	$	84,744	$	406,108	$	4,544,162

Equity securities, available for sale	$	28,015	$	11	$	11,154	$	16,872

The amortized cost and fair value of fixed maturities by contractual maturities at December 31, 2009, are as follows:


	Available for Sale

	Amortized Cost		Fair Value

	(in thousands)
Due in one year or less	$	324,330	$	329,937
Due after one year through five years		1,854,630		1,933,764
Due after five years through ten years		1,395,529		1,455,253
Due after ten years		454,092		470,780
Asset-backed securities		468,747		450,781
Commercial mortgage-backed securities		494,023		501,616
Residential mortgage-backed securities		678,026		711,942

Total	$	5,669,377	$	5,854,073

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.

B-19

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

3. INVESTMENTS (continued)

Other Long term Investments

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


	2009		2008

	(in thousands)
Company’s investment in Separate accounts	$	34,558	$	41,982
Joint ventures and limited partnerships		39,113		39,671
Derivatives		-		5,180

Total other long- term investments	$	73,671	$	86,833

Trading Account Assets

The following table provides information relating to trading account assets at December 31:


	2009				2008

	Amortized Cost		Fair Value		Amortized Cost		Fair Value

	(in thousands)				(in thousands)
Fixed maturities:
Corporate securities	$	1,200	$	1,182	$	1,200	$	1,088
Commercial mortgage-backed securities		4,924		5,108		4,901		3,822
Asset-backed securities		18,903		20,647		5,179		5,057

Total fixed maturities		25,027		26,937		11,280		9,967

Total trading account assets	$	25,027	$	26,937	$	11,280	$	9,967

The net change in unrealized gains (losses) from trading account assets still held at period end, recorded within “Asset administration fees” were $3 million and ($1) million during year ended December 31, 2009 and 2008 respectively.

B-20

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

3. INVESTMENTS (continued)

Commercial Mortgage Loans

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


	2009					2008

	Amount (in thousands)			% of Total		Amount (in thousands)			% of Total

Commercial mortgage loans by property type
Industrial buildings	$	200,168		18.6	%	$	199,366		22.6	%
Retail stores		336,699		31.3	%		163,289		18.5	%
Apartment complexes		159,669		14.9	%		147,744		16.8	%
Office buildings		164,412		15.3	%		159,606		18.1	%
Agricultural properties		68,697		6.4	%		66,518		7.5	%
Hospitality		58,714		5.5	%		-		-	%
Other		85,729		8.0	%		145,198		16.5	%

Total collateralized loans		1,074,088		100.0	%		881,721		100.0	%

Valuation allowance		(25,742	)				(8,173	)

Total net commercial mortgage loans		1,048,346					873,548

Total other uncollaterized loans		-					8,090
Total commercial mortgage and other loans	$	1,048,346				$	881,638

The commercial loans are geographically dispersed throughout the United States with the largest concentrations in California (21%) and New Jersey (10%) at December 31, 2009.

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


	2009		2008

	(in thousands)
Allowance for losses, beginning of year	$	8,173	$	4,517
Addition to allowance for losses		17,569		3,656

Allowance for losses, end of year	$	25,742	$	8,173

Non-performing commercial mortgage identified in management’s specific review of probable loan losses and the related allowance for losses at December 31, are as follows:


	2009			2008

	(in thousands)
Non-performing commercial mortgage and other loans with allowance for losses	$	48,151		$	-
Non-performing commercial mortgage and other loans with no allowance for losses		-			19,243
Allowance for losses, end of year		(12,808	)		-

Net carrying value of non-performing commercial mortgage and other loans	$	35,343		$	19,243

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 $24 million and, $10 million for 2009 and 2008, respectively. Net investment income recognized on these loans totaled $2 million and $1 million for the years ended December 31, 2009 and 2008, respectively. See Note 2 for information regarding the Company’s accounting policies for non-performing loans.

B-21

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

3. INVESTMENTS (continued)

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


	2009			2008			2007

	(in thousands)
Fixed maturities, available for sale:
Proceeds from sales	$	572,902		$	1,070,088		$	1,488,457
Proceeds from maturities/repayments		1,100,012			416,196			553,716
Gross investment gains from sales, prepayments and maturities		17,375			13,949			13,755
Gross investment losses from sales and maturities		(19,291	)		(6,516	)		(5,707	)

Fixed maturity and equity security impairments:

Net writedowns for other-than-temporary impairment losses on fixed maturities recognized in earnings(1)	$	(31,896	)	$	(57,790	)	$	(2,889	)

Writedowns for other-than-temporary impairment losses on equity securities	$	(2,259	)	$	(22	)	$	-

Effective with the adoption of new authoritative guidance January 1, 2009, 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 in “Other comprehensive income (loss)” (“OCI”). 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 tables set 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 for the periods indicated.


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, 2009
	(in thousands)
Balance, beginning of period	$	-
Credit losses remaining in retained earnings related to adoption of new authoritative guidance on January 1, 2009		21,827
Credit loss impairments previously recognized on securities which matured, paid down, prepaid or were sold during the period		(10,181	)
Credit loss impairments previously recognized on securities impaired to fair value during the period(1)		-
Credit loss impairment recognized in the current period on securities not previously impaired		19,090
Additional credit loss impairments recognized in the current period on securities previously impaired		11,479
Increases due to the passage of time on previously recorded credit losses		1,589
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected		(861	)

Balance, December 31, 2009	$	42,943

(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.

B-22

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

3. INVESTMENTS (continued)

Net Investment Income

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


	2009			2008			2007

	(in thousands)
Fixed maturities, available for sale	$	306,535		$	269,498		$	283,526
Equity securities, available for sale		1,966			2,230			2,248
Trading account assets		1,086			283			60
Commercial mortgage loans		60,575			49,786			37,174
Policy loans		53,934			53,073			50,776
Short-term investments and cash equivalents		2,407			10,142			25,064
Other long-term investments		(6,700	)		(3,694	)		4,905

Gross investment income		419,803			381,318			403,753
Less investment expenses		(13,763	)		(17,567	)		(22,359	)

Net investment income	$	406,040		$	363,751		$	381,394

Carrying value for non-income producing assets included in fixed maturities totaled $15.5 million as of December 31, 2009. Non-income producing assets represent investments that have not produced income for the twelve months preceding December 31, 2009.

Realized Investment Gains (Losses), Net

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


	2009			2008			2007

	(in thousands)
Fixed maturities		(33,813	)		(50,358	)		5,159
Equity securities		(837	)		(22	)		159
Commercial mortgage loans		(17,568	)		(3,656	)		(1,078	)
Joint ventures and limited partnerships		(731	)		-			-
Derivatives(1)		(416,318	)		260,027			(24,926	)
Other		83			215			3

Realized investment (losses), net	$	(469,184	)	$	206,206		$	(20,683	)

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-23

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

3. INVESTMENTS (continued)

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 and Other Costs		Policy Holder Account Balances			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)

	(in thousands)
Balance, December 31, 2008	$	-		$	-	$	-		$	-		$	-
Cumulative impact of the adoption of new authoritative guidance on January 1, 2009		(19,184	)		1,446		-			6,208			(11,530	)
Net investment gains (losses) on investments arising during the period		26,718			-		-			(9,431	)		17,287
Reclassification adjustment for OTTI losses included in net income		9,704			-		-			(3,426	)		6,278
Reclassification adjustment for OTTI losses excluded from net income(1)		(43,123	)		-		-			15,222			(27,901	)
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs		-			17,429		-			(6,152	)		11,277
Impact of net unrealized investment (gains) losses on Policyholder account balance		-			-		(8,037	)		2,837			(5,200	)

Balance, December 31, 2009	$	(25,885	)	$	18,875	$	(8,037	)	$	5,258		$	(9,789	)

(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.

All Other Net Unrealized Investment Gains and Losses in AOCI


	Net Unrealized Gains (Losses) On Investments(1)			Deferred Policy Acquisition Costs and Other Costs			Policy Holder Account Balances			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)

	(in thousands)
Balance, December 31, 2006	$	64,014		$	(38,090	)	$	14,540		$	(15,369	)	$	25,095

Net investment (losses) on investments arising during the period		(25,373	)		-			-			8,279			(17,094	)
Reclassification adjustment for (losses) included in net income		5,319			-			-			(1,862	)		3,457
Impact of net unrealized investment gains on deferred policy acquisition costs		-			13,071			-			(4,575	)		8,496
Impact of net unrealized investment gains on policyholders’ account balances		-			-			(4,182	)		1,464			(2,718	)

Balance, December 31, 2007	$	43,960		$	(25,019	)	$	10,358		$	(12,063	)	$	17,236

B-24

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

3. INVESTMENTS (continued)


	Net Unrealized Gains (Losses) On Investments(1)			Deferred Policy Acquisition Costs and Other Costs			Policy Holder Account Balances			Deferred Income Tax (Liability) Benefit			Accumulated Other Comprehensive Income (Loss) Related To Net Unrealized Investment Gains (Losses)

	(in thousands)
Net investment gains (losses) on investments arising during the period	$	(325,480	)	$	-		$	-		$	113,648		$	(211,832	)
Reclassification adjustment for gains (losses) included in net income		(50,380	)		-			-			17,633			(32,747	)
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs		-			264,616			-			(92,616	)		172,000
Impact of net unrealized investment (gains) losses on policyholders’ account balances		-			-			(126,068	)		44,124			(81,944	)

Balance, December 31, 2008	$	(331,900	)	$	239,597		$	(115,710	)	$	70,726		$	(137,287	)

Cumulative impact of the adoption of new authoritative guidance on January 1, 2009		(12,856	)		538			-			4,311			(8,007	)
Net investment gains (losses) on investments arising during the period		513,845			-			-			(179,846	)		333,999
Reclassification adjustment for (gains) losses included in net income		24,946			-			-			(8,731	)		16,215
Reclassification adjustment for OTTI losses excluded from net income(2)		43,123			-			-			(15,093	)		28,030
Impact of net unrealized investment (gains) losses on deferred policy acquisition costs		-			(407,199	)		-			144,673			(262,526	)
Impact of net unrealized investment (gains) losses on policyholders’ account balances		-			-			176,541			(61,788	)		114,753

Balance, December 31, 2009	$	237,158		$	(167,064	)	$	60,831		$	(45,748	)	$	85,177

(1)

Includes cash flow hedges. See Note 11 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.

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


	2009			2008

	(in thousands)
Fixed maturity securities on which an OTTI loss has been recognized	$	(25,885	)	$	-
Fixed maturity securities, available for sale – all other		210,581			(321,364	)
Equity securities, available for sale		310			(11,142	)
Derivatives designated as cash flow hedges(1)		(2,974	)		(672	)
Other investments		29,241			1,278

Net unrealized losses on investments	$	211,273		$	(331,900	)

(1)

See Note 11 for more information on cash flow hedges.

B-25

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

3. INVESTMENTS (continued)

Duration of Gross Unrealized Loss Positions for Fixed Maturities and Equity Securities

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


	December 31, 2009

	Less than twelve months(1)				Twelve months or more(1)				Total

	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

	(in thousands)
Fixed maturities, available for sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	20,888	$	459	$	-	$	-	$	20,888	$	459
Obligations of U.S. states and their political subdivisions		15,752		922		-		-		15,752		922
Foreign government bonds		6,719		272		85		15		6,804		287
Corporate securities		521,900		9,918		218,362		16,436		740,262		26,354
Commercial mortgage-backed securities		120,153		1,639		76,082		2,992		196,235		4,631
Asset-backed securities		32,045		7,055		113,323		32,549		145,368		39,604
Residential mortgage-backed securities		42,560		1,097		6,819		546		49,379		1,643

Total	$	760,017	$	21,362	$	414,671	$	52,538	$	1,174,688	$	73,900

Equity Securities, available for sale	$	6,728	$	521	$	5,839	$	832	$	12,567	$	1,353

(1)

The month count for aging of unrealized losses was reset back to historical unrealized loss month counts for securities impacted by the adoption of new authoritative guidance related to other-than-temporary impairments of debt securities on January 1, 2009.

B-26

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

3. INVESTMENTS (continued)


	December 31, 2008

	Less than twelve months				Twelve months or more				Total

	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

	(in thousands)
Fixed maturities, available for sale
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	22,796	$	101	$	-	$	-	$	22,796	$	101
Obligations of U.S. states and their political subdivisions		23,989		352		-		-		23,989		352
Foreign government bonds		4,891		204		-		-		4,891		204
Corporate securities		1,467,078		154,683		258,113		75,471		1,725,191		230,154
Commercial mortgage-backed securities		321,414		55,557		111,996		32,630		433,410		88,187
Asset-backed securities		425,154		54,640		111,181		28,602		536,335		83,242
Residential mortgage-backed securities		13,575		1,446		9,732		2,422		23,307		3,868

Total	$	2,278,897	$	266,983	$	491,022	$	139,125	$	2,769,919	$	406,108

Equity Securities, available for sale	$	15,842	$	11,154	$	-	$	-	$	15,842	$	11,154

The gross unrealized losses at December 31, 2009 and 2008 are composed of $28 million and $291 million related high or highest quality securities based on NAIC or equivalent rating and $46 million and $115 million related to other than high or highest quality securities based on NAIC or equivalent rating, respectively. At December 31, 2009, $39 million of the gross unrealized losses represented declines in value of greater than 20%, $4 million of which had been in that position for less than six months, as compared to $229 million at December 31, 2008 that represented declines in value of greater than 20%, $223 million of which had been in that position for less than six months. At December 31, 2009, the $53 million of gross unrealized losses of twelve months or more were concentrated in asset backed securities, and in the manufacturing and utilities sectors of the Company’s corporate securities. At December 31, 2008, the $139 million of gross unrealized losses of twelve months or more were concentrated in asset backed securities, and in the manufacturing and utilities 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, 2009 or 2008. 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, 2009, 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.

As of December 31, 2009 securities with a fair value of $6 million and gross unrealized losses of $0.8 million that have been in a continuous unrealized loss position for twelve months or more represent perpetual preferred securities, which 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, 2009 and 2008. 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, 2009 or 2008.

B-27

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

3. INVESTMENTS (continued)

Securities Pledged 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 and future contracts. At December 31, the carrying value of investments pledged to third parties as reported in the Consolidated Statements of Financial Position included the following:


	2009		2008

	( in thousands)
Fixed maturity securities, available for sale – all other		199,852		153,713

Total securities pledged	$	199,852	$	153,713

As of December 31, 2009, the carrying amount of the associated liabilities supported by the pledged collateral was $208 million. Of this amount, $12 million was “Securities sold under agreements to repurchase” and $196 million was “Cash collateral for loaned securities. As of December 31, 2008, the carrying amount of the associated liabilities supported by the pledged collateral was $154 million. Of this amount, $45 million was “Securities sold under agreements to repurchase” and $109 million was “Cash collateral for loaned securities.”

Fixed maturities of $4 million at December 31, 2009 and 2008 were on deposit with governmental authorities or trustees as required by certain insurance laws.

4. 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:


	2009			2008			2007

	(in thousands)
Balance, beginning of year	$	2,602,085		$	2,174,315		$	1,959,431
Capitalization of commissions, sales and issue expenses		545,418			471,771			490,422
Amortization		(294,286	)		(308,617	)		(285,443	)
Change in unrealized investment gains/(losses)		(369,723	)		264,616			13,071
Impact of adoption of guidance on accounting for deferred acquisition costs in connection with modifications or exchanges of insurance contracts		-			-			(3,166	)

Balance, end of year	$	2,483,494		$	2,602,085		$	2,174,315

Deferred acquisition costs include reductions in capitalization and amortization related to the reinsurance expense allowances resulting from the coinsurance treaty with Prudential Arizona Reinsurance Captive Company, or “PARCC,” and Prudential Arizona Reinsurance III Company, or “PAR III” discussed in Note 13 to the Consolidated Financial Statements.

Ceded capitalization in the above table amounted to $220 million, $126 million and $123 million in 2009, 2008 and 2007 respectively. Ceded amortization amounted to $53 million, $22 million and $16 million in 2009, 2008 and 2007 respectively.

B-28

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

5. POLICYHOLDERS’ LIABILITIES

Future Policy Benefits

Future policy benefits at December 31, are as follows:


	2009		2008

	(in thousands)
Life insurance – domestic	$	2,195,902	$	1,757,415
Life insurance – Taiwan		786,044		701,160
Individual and group annuities		54,241		51,366
Policy claims and other contract liabilities		109,333		1,008,140

Total future policy benefits	$	3,145,520	$	3,518,081

Life insurance liabilities include reserves for death benefits and other policy benefits. Individual and Group annuity liabilities include reserves for annuities with life contingencies that are in payout status.

Future policy benefits for domestic and Taiwan individual non-participating traditional life 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 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 range from 2.50% to 8.25% for setting domestic insurance reserves and 6.18% to 7.43% for setting Taiwan reserves.

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 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 present values range from 1.06% to 14.75%, with approximately 17.43% of the reserves based on an interest rate in excess of 8.00%. The interest rate used in the determination of group annuities reserves is 14.75%.

Future policy benefits for other contract liabilities are generally equal to the present value of expected future payments based on the Company’s experience. The interest rates used in the determination of the present values range from 1.13% to 6.32%.

Policyholders’ Account Balances

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


	2009		2008

	(in thousands)
Interest-sensitive life contracts	$	3,954,459	$	3,689,624
Individual annuities		2,172,332		2,085,002
Guaranteed interest accounts		274,434		272,934
Other		393,496		274,448

Total policyholders’ account balances	$	6,794,721	$	6,322,008

Policyholders’ account balances represent an accumulation of account deposits plus credited interest less withdrawals, expenses and mortality charges, if applicable. Interest crediting rates range from 3.00% to 5.30% for interest-sensitive life contracts. Interest crediting rates for individual annuities range from 1.00% to 11.00%

B-29

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

5. POLICYHOLDERS’ LIABILITIES (continued)

with less than 1.00% of policyholders’ account balances with interest crediting rates in excess of 8.00%. Interest crediting rates for guaranteed interest accounts range from 3.00% to 6.25%. Interest crediting rates range from 1.00% to 6.23% for other.

6. REINSURANCE

The Company participates in reinsurance, with Prudential Insurance, Prudential of Taiwan, Prudential Arizona Reinsurance Captive Company, or “PARCC”, Universal Prudential Arizona Reinsurance Company, or “UPARC”, Pruco Re and Prudential Arizona Reinsurance III Company, or “PAR III”, in order to provide risk diversification, additional capacity for future growth and limit the maximum net loss potential arising from large risks. Life reinsurance is accomplished through various plans of reinsurance, primarily yearly renewable term and coinsurance. 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. The likelihood of a material reinsurance liability resulting from such inability of reinsurers to meet their obligation is considered to be remote.

Effective December 31, 2008 the Company, excluding its subsidiaries, entered into a coinsurance agreement with an affiliate, PAR III, providing for the 90% reinsurance of its Return of Premium (“ROP”) Term Life policies issued on or after January 1, 2009.

The Company has entered into various reinsurance agreements with an affiliate, Pruco Re, to reinsure its living benefit features sold on certain of its annuities as part of its risk management and capital management strategies. For additional details on these agreements, see Note 13.

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. Amounts recoverable from reinsurers, for long duration reinsurance arrangements, are estimated in a manner consistent with the claim liabilities and policy benefits associated with the reinsured policies. The affiliated reinsurance agreements, including the Company’s reinsurance of all its Taiwan business as of February 1, 2001, are described further in Note 13 of the Consolidated Financial Statements.

Reinsurance amounts included in the Consolidated Statements of Operations and Comprehensive Income for the years December 31, are as follows:


	2009			2008			2007

				(in thousands)
Gross premiums and policy charges and fee income	$	1,896,683		$	1,717,526		$	1,604,200
Reinsurance ceded		(1,171,957	)		(954,583	)		(854,254	)

Net premiums and policy charges and fee income	$	724,726		$	762,943		$	749,946

Policyholders’ benefits ceded	$	515,539		$	496,280		$	434,522
Realized capital (losses)/gains net, associated with derivatives	$	(1,183,687	)	$	1,059,476		$	35,557

Reinsurance premiums ceded for interest-sensitive life products are accounted for as a reduction of policy charges and fee income.

B-30

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

6. REINSURANCE (continued)

Reinsurance premiums ceded for term insurance products are accounted for as a reduction of premiums.

In 2009, reinsurance ceded included a $17 million expense due to an underpayment to an affiliate in prior periods and in 2008 reinsurance ceded included a $49 million benefit from an adjustment due to an overpayment to an affiliate in prior periods,

Realized investment gains and losses include the reinsurance of certain of the Company’s embedded derivatives. Changes in the fair value of the embedded derivatives are recognized through “Realized investment gains”. The Company has entered into reinsurance agreements to transfer the risk related to certain living benefit options on variable annuities to Pruco Re. The Company also sells certain universal life products that contain a no lapse guarantee provision. The Company entered into an agreement with UPARC (See Note 13 to the Consolidated Financial Statements) to reinsure these guarantees. These reinsurance agreements are derivatives and have been accounted for in the same manner as an embedded derivative.

Reinsurance recoverables included in the Company’s Consolidated Statements of Financial Position at December 31, were as follows:


	2009		2008

	(in thousands)
Domestic life insurance – affiliated	$	1,606,000	$	2,340,962
Domestic life insurance – unaffiliated		4,050		1,540
Taiwan life insurance – affiliated		786,045		701,160

	$	2,396,095	$	3,043,662

Substantially all reinsurance contracts are with affiliates as of December 31, 2009 and 2008. These contracts are described further in Note 13 of the Consolidated Financial Statements.

The gross and net amounts of life insurance in-force as December 31, were as follows:


	2009			2008			2007

	(in thousands)
Gross life insurance in force	$	517,012,733		$	450,675,048		$	388,072,515
Reinsurance ceded		(465,245,943	)		(405,820,776	)		(346,204,265	)

Net life insurance in force	$	51,766,790		$	44,854,272		$	41,868,250

7. 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, which arise upon election of the applicable optional living benefit or optional death benefit, include benefits that are payable in the event of death, annuitization or at specified dates during the accumulation period including withdrawal and living benefits

B-31

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

7. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)

payable during specified periods. The Company also offers an enhanced withdrawal benefit should a contractholder not be able to perform normal activities of daily living.

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 similar to variable annuities.

The assets supporting the variable portion of both traditional variable annuities and certain variable contracts with guarantees are carried at fair value and reported as “Separate account assets” with an equivalent amount reported as “Separate account liabilities.” Amounts assessed against the contractholders for mortality, administration, and other services are included within revenue in “Policy charges and fee income” and changes in liabilities for minimum guarantees are generally included in “Policyholders’ benefits.” In 2009, 2008 and 2007 there were no gains or losses on transfers of assets from the general account to a separate account.

For those guarantees of benefits that are payable in the event of death, the net amount at risk is generally defined as the current guaranteed minimum death benefit in excess of the current account balance at the balance sheet date. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, contract lapses and contractholder mortality.

For guarantees of benefits that are payable at annuitization, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, timing of annuitization, contract lapses and contractholder mortality.

For guarantees of benefits that are payable at withdrawal, the net amount at risk is generally defined as the present value of the minimum guaranteed withdrawal payments available to the contractholder determined in accordance with the terms of the contract in excess of the current account balance. For guarantees of accumulation balances, the net amount at risk is generally defined as the guaranteed minimum accumulation balance minus the current account balance. The Company’s primary risk exposures for these contracts relates to actual deviations from, or changes to, the assumptions used in the original pricing of these products, including equity market returns, interest rates, market volatility or contractholder behavior used in the original pricing of these products.

B-32

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

7. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)

The Company’s contracts with guarantees may offer more than one type of guarantee in each contract; therefore, the amounts listed may not be mutually exclusive. As of December 31, 2009 and 2008, the Company had the following guarantees associated with these contracts, by product and guarantee type:


	December 31, 2009				December 31, 2008

	In the Event of Death		At Annuitization/ Accumulation(1)		In the Event of Death		At Annuitization/ Accumulation(1)

	(in thousands)				(in thousands)
Variable Annuity Contracts

Return of net deposits
Account value	$	9,277,670		N/A	$	4,851,040		N/A
Net amount at risk	$	275,876		N/A	$	812,387		N/A
Average attained age of contractholders		61 years		N/A		62 years		N/A

Minimum return or contract value
Account value	$	9,397,969	$	12,015,386	$	7,786,709	$	6,509,124
Net amount at risk	$	2,255,244	$	773,487	$	3,648,143	$	1,288,590
Average attained age of contractholders		66 years		62 years		66 years		62 years
Average period remaining until earliest expected annuitization		N/A		2.21 years		N/A		3.2 years
(1) Includes income and withdrawal benefits as described herein
	Unadjusted Value		Adjusted Value		Unadjusted Value		Adjusted Value

Market value adjusted annuities
Account value	$	180,099	$	187,867	$	205,546	$	206,669


	December 31, 2009		December 31, 2008

	In the Event of Death

	(in thousands)
Variable Life, Variable Universal Life and Universal Life Contracts

No Lapse Guarantees
Separate account value	$	2,157,765	$	1,602,802
General account value	$	1,517,912	$	1,216,324
Net amount at risk	$	49,987,909	$	45,408,328
Average attained age of contractholders		50 years		50 years

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


	December 31, 2009		December 31, 2008

	(in thousands)
Equity funds	$	5,100,008	$	5,241,841
Bond funds		1,662,669		1,281,743
Balanced funds		9,216,382		3,413,707
Money market funds		323,689		481,372
Specialty funds		151,380		66,501

Total	$	16,454,128	$	10,485,164

In addition to the above mentioned amounts invested in separate account investment options, $2.222 billion and $2.153 billion of account balances of variable annuity contracts with guarantees, inclusive of contracts with MVA feature, were invested in general account investment options in 2009 and 2008, respectively.

B-33

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

7. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)

Liabilities for Guaranteed Benefits

The table below summarizes the changes in general account liabilities for guarantees on variable contracts. The liabilities for guaranteed minimum death benefits (“GMDB”) and guaranteed minimum income benefits (“GMIB”) are included in “Future policy benefits” and the related changes in the liabilities are included in “Policyholders’ benefits.” Guaranteed minimum income and withdrawal benefits (“GMIWB”) and guaranteed minimum accumulation benefits (“GMAB”) features are considered to be bifurcated embedded derivatives are recorded at fair value. Changes in the fair value of these embedded derivatives, along with any fees attributed or payments made relating to the embedded derivative are recorded in “Realized investment gains (losses), net.” The liabilities for GMAB and GMIWB are included in “Future policy benefits.”


	GMDB						GMIB			GMIWB - GMAB			Total

	Variable Annuity			Variable Life, Variable Universal Life & Universal Life			Variable Annuity
	(in thousands)
Balance as of January 1, 2007	$	42,622		$	26,426		$	17,736		$	(8,336	)	$	78,448
Incurred guarantee benefits(1)		4,247			28,758			(8,831	)		43,569			67,743
Paid guarantee benefits		(11,198	)		-			-			-			(11,198	)

Balance as of December 31, 2007	$	35,671		$	55,184		$	8,905		$	35,233		$	134,993
Incurred guarantee benefits(1)		162,244			32,311			32,112			759,407			986,074
Paid guarantee benefits		(35,346	)		(756	)		-			-			(36,102	)

Balance as of December 31, 2008	$	162,569		$	86,739		$	41,017		$	794,640		$	1,084,965
Incurred guarantee benefits(1)		(13,709	)		63,694			(14,478	)		(812,179	)		(776,672	)
Paid guarantee benefits		(68,937	)		(7,262	)		-			-			(76,199	)

Balance as of December 31, 2009	$	79,923		$	143,171		$	26,539		$	(17,539	)	$	232,094

(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 embedded derivatives.

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

The GMAB features provide the contractholder with a guaranteed return of initial account value or an enhanced value if applicable. The most significant of the Company’s GMAB features are the guaranteed return option (“GRO”) features, which includes an automatic investment rebalancing element that reduces the Company’s exposure to these guarantees. The GMAB liability is calculated as the present value of future expected payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature.

B-34

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

7. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued)

The GMIWB features, taken collectively, provides a contractholder two optional methods to receive guaranteed minimum payments over time, a “withdrawal” option or an “income” option. The withdrawal option (which is available under only one of the Company’s GMIWBs) guarantees that a contract holder can withdraw an amount each year until the cumulative withdrawals reach a total guaranteed balance. The income option (which varies among the Company’s GMIWBs) in general guarantees the contract holder the ability to withdraw an amount each year for life (or for joint lives, in the case of any spousal version of the benefit) where such amount is equal to a percentage of a protected value under the benefit. The contractholder also has the potential to increase this annual amount, based on certain subsequent increases in account value that may occur. Certain GMIWB features include an automatic rebalancing element that reduces the Company’s exposure to these guarantees. The GMIWB liability is calculated as the present value of future expected payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature.

As part of risk management strategy in addition to reinsurance, Pruco Re. hedges or limits exposure to these risks 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 swaps. The automatic rebalancing element included in the design of certain variable annuity products transfers assets between contractholder sub-accounts depending on a number of factors, including the investment performance of the sub-accounts. Negative investment performance may result in transfers to either a fixed-rate general account option or a separate account bond portfolio. In certain situations, assets may transfer back when investment performance improves. Other product design elements we utilize for certain products to manage these risks include asset allocation and minimum purchase age requirements. For risk management purposes the Company segregates the variable annuity living benefit features into three broad categories, (1) those that utilize both an automatic rebalancing element and capital markets hedging, such as for certain GMIWB riders; (2) those that utilize only capital markets hedging, such as for certain legacy GMIWB and GMAB riders; and (3) those with risks we have deemed suitable to retain, such as for GMDB and GMIB riders. Riders in category 1 from above also include GMDB riders, and as such the GMDB risk in these riders benefits from the automatic rebalancing element.

Sales Inducements

The Company defers sales inducements and amortizes them over the anticipated life of the annuity using the same methodology and assumptions use to amortize deferred policy acquisition costs. The Company offers certain sales inducements. These inducements include a bonus, whereby (subject to certain limitations) each purchase payment submitted by a contractholder is increased by an amount equal to a specified percentage of the purchase payment. Changes in deferred sales inducements are as follows:


	2009			2008			2007

	(in thousands)
Balance, beginning of year	$	269,310		$	215,057		$	182,578
Capitalization		94,526			71,899			57,253
Amortization		(47,565	)		(17,646	)		(24,774	)
Change in unrealized investment gains and (losses)		(19,930	)		-			-

Balance, end of year	$	296,341		$	269,310		$	215,057

B-35

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

8. STATUTORY NET INCOME AND SURPLUS AND DIVIDEND RESTRICTIONS

The Company is required to prepare statutory financial statements in accordance with accounting practices prescribed or permitted by the Arizona Department of Insurance. Statutory accounting practices primarily differ from GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions and valuing investments, deferred taxes, and certain assets on a different basis.

Statutory net income (loss) for the Company amounted to $106 million, $(566) million, and $61 million for the years ended December 31, 2009, 2008, and 2007, respectively. Statutory surplus of the Company amounted to $875 million and $601 million at December 31, 2009 and 2008, respectively.

The Company prepares its statutory financial statements in accordance with accounting practices prescribed or permitted by the Arizona Department of Insurance. Prescribed statutory accounting practices include publications of the NAIC, state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all accounting practices not so prescribed.

The Company is subject to Arizona law, which limits the amount of dividends that insurance companies can pay to stockholders without approval of the Arizona Department of Insurance. The maximum dividend, which may be paid in any twelve-month period without notification or approval, is limited to the lesser of 10% of statutory surplus as of December 31 of the preceding year or the net gain from operations of the preceding calendar year. Cash dividends may only be paid out of surplus derived from realized net profits. Based on these limitations, there is $87 million capacity to pay a dividend in 2010 without prior approval. The Company paid a dividend of $102 million, and returned capital of $198 million, to its parent company in 2007. In 2008 and 2009, there were no dividends nor any returns of capital paid to the parent company.

9. INCOME TAXES

The components of income tax expense (benefit) for the years ended December 31, were as follows:


	2009			2008			2007

	(in thousands)
Current tax expense (benefit):
U.S.	$	93,658		$	(126,180	)	$	8,570

Total		93,658			(126,180	)		8,570

Deferred tax expense (benefit):
U.S.		(229,618	)		191,184			55,842

Total		(229,618	)		191,184			55,842

Total income tax expense (benefit) on income from operations	$	(135,960	)	$	65,004		$	64,412
Other comprehensive (loss) income		111,335			(83,046	)		(3,062	)
Cumulative effect of changes in accounting policy		10,637			-			(693	)

Total income tax expense (benefit) on continuing operations	$	(13,988	)	$	(18,042	)	$	60,657

The Company’s income (loss) from continuing operations before income taxes includes income (loss) from domestic operations of ($201.8) million, $314.3 million and $311.7 million, and no income from foreign operations for the years ended December 31, 2009, 2008 and 2007, respectively.

B-36

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

9. INCOME TAXES (continued)

The Company’s actual income tax expense 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 cumulative effect of accounting change for the following reasons:


	2009			2008			2007

	(in thousands)
Expected federal income tax expense (benefit)	$	(70,612	)	$	110,015		$	109,111
Non-taxable investment income		(35,900	)		(43,914	)		(45,952	)
Tax credits		(2,270	)		(4,974	)		(5,203	)
Expiration of statute of limitations and related interest		(33,812	)		-			-
Other		6,634			3,877			6,456

Total income tax expense (benefit) on continuing operations	$	(135,960	)	$	65,004		$	64,412

Deferred tax assets and liabilities at December 31, resulted from the items listed in the following table:


	2009			2008

	(in thousands)
Deferred tax assets
Insurance reserves	$	101,831		$	202,239
Net unrealized investment losses on securities		-			113,853
Investments		149,767			-
Other		-			29,930

Deferred tax assets		251,598			346,022

Deferred tax liabilities
Insurance reserves		0			-
Deferred acquisition costs		627,253			710,583
Investments		-			195,900
Net unrealized gains on securities		74,916			-
Other		2,242			-

Deferred tax liabilities		704,411			906,482


Net deferred tax asset (liability)	$	(452,813	)	$	(560,460	)

As of December 31, 2009, the Company had no ordinary or capital losses or tax credits that are attributed to reduce taxes in future years.

The application of U.S. GAAP requires the Company to evaluate the recoverability of deferred tax assets and establish a valuation allowance if necessary to reduce the deferred tax asset to an amount that is more likely than not to be realized. Considerable judgment is required in determining whether a valuation allowance is necessary, and if so, the amount of such valuation allowance. In evaluating the need for a valuation allowance the Company considers many factors, including: (1) the nature of the deferred tax assets and liabilities; (2) whether they are ordinary or capital; (3) in which tax jurisdictions they were generated and the timing of their reversal; (4) taxable income in prior carryback years as well as projected taxable earnings exclusive of reversing temporary differences and carryforwards; (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

B-37

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

9. INCOME TAXES (continued)

assets, net of valuation allowances, will be realized. The Company had no valuation allowance as of December 31, 2009, 2008 and 2007.

Management believes that based on its historical pattern of taxable income, the Company and its subsidiaries will produce sufficient income in the future to realize its deferred tax assets. Adjustments to the valuation allowance will be made if there is a change in management’s assessment of the amount of the deferred tax asset that is realizable.

On January 1, 2007, the Company adopted the revised authoritative guidance for accounting for uncertainty in income taxes which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that a company has taken or expects to take on tax returns. Adoption of this new guidance resulted in an increase to the Company’s income tax liability and a decrease to retained earnings of $0.7 million as of January 1, 2007.

The Company’s unrecognized tax benefits as of January 1, 2007 and as of December 31, 2007, 2008 and 2009 are as follows:


	Unrecognized tax benefits prior to 2002			Unrecognized tax benefits 2002 and forward			Total unrecognized tax benefits all years

	(in thousands)
Amounts as of January 1, 2007	$	45,118		$	6,608		$	51,726
Increases in unrecognized tax benefits taken in prior period		-			-			-
(Decreases) in unrecognized tax benefits taken in prior period		-			(826	)		(826	)

Amounts as of December 31, 2007	$	45,118		$	5,782		$	50,900
Increases in unrecognized tax benefits taken in prior period		-			297			297
(Decreases) in unrecognized tax benefits taken in prior period		-			-			-

Amounts as of December 31, 2008	$	45,118		$	6,079		$	51,197
Increases in unrecognized tax benefits taken in prior period		-			-			-
(Decreases) in unrecognized tax benefits taken in prior period		-			(826	)		(826	)
Settlements with parent		(17,197	)		-			(17,197	)
Settlements with taxing authorities		-			-			-
(Decreases) in unrecognized tax benefits as a result of lapse of the applicable statute of limitations		(26,431	)		-			(26,431	)

Amounts as of December 31, 2009	$	1,490			5,253			6,743

Unrecognized tax benefits that, if recognized, would favorably impact the effective rate as of December 31, 2007	$	45,118		$	-		$	45,118

Unrecognized tax benefits that, if recognized, would favorably impact the effective rate as of December 31, 2008	$	45,118		$	-		$	45,118

Unrecognized tax benefits that, if recognized, would favorably impact the effective rate as of December 31, 2009	$	1,490		$	-		$	1,490

The Company classifies all interest and penalties related to tax uncertainties as income tax expense (benefit). In 2009, 2008, and 2007, respectively, the Company recognized $(4.9), $1.2, and $0.7 million in the consolidated statement of operations and recognized $1.3, $6.0 and $4.8 million in liabilities in the consolidated statement of financial position for tax-related interest and penalties.

B-38

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

9. INCOME TAXES (continued)

During 2009, in accordance with the terms of the tax sharing agreement with its parent, Prudential Financial, the Company settled $17 million of its contingent tax liability with PFI 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 an increase to additional paid-in capital.

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 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 statute of limitations for the 2002 tax year expired on April 30, 2009. The statute of limitations for the 2003 tax year expired on July 31, 2009. The statute of limitations for the 2004 and 2005 tax years is set to expire in June 2010. Tax years 2006 through 2008 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.

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 interest of $34 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, and related interest.

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 2008, 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 1, 2010, 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 2007, 2008 or 2009 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

B-39

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

9. INCOME TAXES (continued)

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 has 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 has taken no exception to the conclusions reached by the IRS. Accordingly, the final report was processed and a refund was received in February 2009. The Company believes that its return position with respect to the calculation of the DRD is technically correct. Therefore, the Company filed protective refund claims on October 1, 2009 to recover the taxes associated with the agreed upon adjustment and to pursue such other actions as appropriate. These activities had no impact on the Company’s 2007, 2008 or 2009 results.

In January 2007, the IRS began an examination of tax years 2004 through 2006. For tax years 2007, 2008 and 2009, the Company participated 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.

10. FAIR VALUE OF ASSETS AND LIABILITIES

Fair Value Measurement – Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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 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. Active markets are defined as having the following for the measured asset/liability: (i) many transactions, (ii) current prices, (iii) price quotes not varying substantially among market makers, (iv) narrow bid/ask spreads and (v) most information publicly available. 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.),

B-40

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)

certain equity securities, 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 assumptions market participants would use in pricing the asset or liability. The Company’s Level 3 assets and liabilities primarily include: certain asset-backed securities collateralized by sub-prime mortgages as discussed below, certain private fixed maturities and equity securities, certain manually priced public equity securities and fixed maturities, certain highly structured over-the-counter derivative contracts, certain commercial mortgage loans, certain consolidated real estate funds for which the Company is the general partner, 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, 2009 and December 31, 2008 these over-rides on a net basis were not material.

Inactive Markets – During 2009, 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, which experienced an increase in the level of activity beginning in the second quarter of 2009. The 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 our 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 in the second and third quarter of 2009. Based on this information, the Company concluded as of June 30, 2009 and continuing through December 31, 2009 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.

Based on this conclusion, in determining the fair value of certain asset-backed securities collateralized by sub-prime mortgages, the Company considered both third-party pricing information, and an internally developed price, based on a discounted cash flow model. The discount rate used in the model was based on observed spreads for other similarly structured credit markets which were active and dominated by observable orderly transactions. The Company also applied additional risk premiums to the discount rate to reflect the relative illiquidity and asset specific cash flow uncertainty associated with asset-backed securities collateralized by sub-prime mortgages. This combined security specific additional spread reflects the Company’s judgment of what an investor would demand for taking on such risks in an orderly transaction under current market conditions, and is significantly higher than would be indicative of historical spread differences between

B-41

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)

structured credit asset classes when all asset classes had active markets dominated with orderly transactions. The Company believes these estimated spreads are reflective of current market conditions in the sub-prime mortgage market and these spread estimates are further supported by their relationship to recent observations of limited transactions in sub-prime securities. Using this discount rate, valuations were developed based on the expected future cash flows of the assets. In determining how much weight to place on the third-party pricing information versus our discounted cash flow valuation, the Company considered the level of inactivity and the amount of observable information. The Company weighted third-party pricing information as little as 30% where it had little observable market information, and as much as 100% where more observable information was available. As a result, as of December 31,2009, the Company reported fair values for these sub-prime securities which were net $15 million higher than the estimated fair values received from independent third party pricing services or brokers. The adjusted fair value of these securities was $95 million, which was reflected within Level 3 in the fair value hierarchy as of December 31, 2009, based on the unobservable inputs used in the discounted cash flow model and the limited observable market activity.

Assets and Liabilities by Hierarchy Level – The table below presents the balances of assets and liabilities measured at fair value on a recurring basis, as of December 31, 2009.


	Level 1		Level 2			Level 3			Total

	(in thousands)
Fixed maturities, available for sale:
U.S. Treasury securities and obligations of U.S. government authorities and agencies	$	-	$	171,660		$	-		$	171,660
Obligations of U.S. states and their political subdivisions		-		16,002			-			16,002
Foreign government bonds		-		43,193			1,082			44,275
Corporate securities		-		3,925,335			32,462			3,957,797
Asset-backed securities		-		315,315			135,466			450,781
Commercial mortgage-backed securities		-		501,616			-			501,616
Residential mortgage-backed securities		-		711,942			-			711,942

Sub-total		-		5,685,063			169,010			5,854,073
Other trading account assets:
Asset-backed securities		-		20,648			1,182			21,830
Commercial mortgage-backed securities		-		5,107			-			5,107

Sub-total		-		25,755			1,182			26,937
Equity securities, available for sale		6,929		16,880			3,833			27,642
Short term investments		20,083		152,830			-			172,913
Cash and cash equivalents		-		139,589			-			139,589
Other assets		-		49,552			159,618			209,170

Sub-total excluding separate account assets		27,012		6,069,669			333,643			6,430,324
Separate account assets(1)		17,970,733		7,039,869			152,675			25,163,277

Total assets	$	17,997,745	$	13,109,538		$	486,318		$	31,593,601

Future policy benefits		-		-			(17,539	)		(17,539	)
Other liabilities		264		(19,736	)		(960	)		(20,432	)

Total liabilities	$	264	$	(19,736	)	$	(18,499	)	$	(37,971	)

(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

B-42

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)

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.

The table below presents the balances of assets and liabilities measured at fair value on a recurring basis, as of December 31, 2008.


	Level 1		Level 2		Level 3			Total

	(in thousands)
Fixed maturities, available for sale	$	-	$	4,479,986	$	64,176		$	4,544,162
Other trading account assets		-		8,878		1,089			9,967
Equity securities, available for sale		181		15,723		968			16,872
Other long-term investments		-		22,347		(17,167	)		5,180
Short-term investments		26,691		49,504		-			76,195
Cash and cash equivalents		-		594,262		-			594,262
Other assets		-		13,699		1,157,884			1,171,583

Sub-total excluding separate account assets		26,872		5,184,399		1,206,950			6,418,221
Separate account assets(1)		11,109,765		6,310,449		154,316			17,574,530

Total assets	$	11,136,637	$	11,494,848	$	1,361,266		$	23,992,751

Future policy benefits		-		-		794,640			794,640

Total liabilities	$	-	$	-	$	794,640		$	794,640

(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 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.

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 as follows:

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. In order to validate reasonability, prices are reviewed by internal asset managers through comparison with directly observed recent market trades and internal estimates of current fair value, developed using market observable inputs and economic indicators. Consistent with the fair value hierarchy described above, securities with validated quotes from pricing services are generally reflected within Level 2. 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-43

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)

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, 2009 and 2008 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. Accordingly, these securities have been reflected within Level 3. Significant unobservable inputs used include: issue specific credit adjustments, material non-public financial information, management judgment, estimation of future earnings and cash flows, default rate assumptions, and liquidity assumptions. These inputs are usually considered unobservable, as not all market participants will have access to this data.

Private fixed maturities also include debt investments in funds that, in addition to a stated coupon, pay a return based upon the results of the underlying portfolios. The fair values of these securities are determined by reference to the funds’ net asset value (NAV). Any restrictions on the ability to redeem interests in these funds at NAV are considered to have a de minimis effect on the fair value. 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 – consist principally of public bonds whose fair values are determined consistent with similar instruments described above under “Fixed Maturity 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

B-44

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)

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.

Derivative Instruments – Derivatives are recorded at fair value either as assets, within “Other long-term investments,” or as liabilities, within “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, 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.

The majority of the Company’s derivative positions is traded in the over-the-counter (OTC) derivative market and is classified within Level 2 in the fair value hierarchy. OTC derivatives classified within Level 2 are valued using models generally accepted in the financial services industry that use actively quoted or observable market input values from external market data providers, non-binding broker-dealer quotations, third-party pricing vendors and/or recent trading activity. The fair values of most OTC derivatives, including interest rate and cross currency swaps, are determined using discounted cash flow models. These models’ key assumptions include the contractual terms of the respective contract, along with significant observable inputs, including interest rates, currency rates, credit spreads, yield curves, index dividend yields, non-performance risk and volatility.

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 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 non-performance risk, the Company incorporates an additional spread over London Interbank Offered Rate (“LIBOR”) into the discount rate used in determining the fair value of OTC derivative assets and liabilities, after consideration of the impacts of two-way collateral posting. Most OTC derivative contracts 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.

Level 3 includes OTC derivatives where the bid ask spreads are generally wider than derivatives classified within Level 2 thus requiring more judgment in estimating the mid-market price of such derivatives. Derivatives classified as Level 3 include first-to-default credit basket swaps and other structured products. These derivatives are valued based upon models with some significant unobservable market inputs or inputs values 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. Level 3 methodologies are validated through periodic comparison of the Company’s fair values to broker-dealer values.

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

B-45

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)

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 – other assets carried at fair value include reinsurance recoverables related to the reinsurance of our living benefit guarantees on certain of our variable annuities. These guarantees are described further below in “Future Policy Benefits”. Also included in other assets are certain universal life products that contain a no lapse guarantee provision. The reinsurance agreements covering these guarantees are derivatives and are accounted for in the same manner as an embedded derivative.

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”) and guaranteed minimum income and withdrawal benefits (“GMIWB”), accounted for as embedded derivatives. The fair values of the GMAB 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. 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 its own risk of non-performance in the valuation of the embedded derivatives associated with its optional living benefit features and no lapse feature on certain universal life products. Since insurance liabilities are senior to debt, the Company believes that reflecting the claims-paying ratings of the Company in the valuation of the liability appropriately takes into consideration the Company’s own risk of non-performance. Historically, the expected cash flows were discounted using forward LIBOR interest rates, which were commonly viewed as being consistent with AA quality claims-paying ratings. However, in light of first quarter of 2009 developments, including rating agency downgrades to the claims-paying ratings of the Company’s insurance subsidiaries, the Company determined that forward LIBOR interest rates were no longer indicative of a market participant’s view of the Company’s claims-paying ability. As a result, beginning in the first quarter of 2009, to reflect the market’s perception of its non-performance risk, the Company incorporated an additional spread over LIBOR into the discount rate used in the valuations of the embedded derivatives associated with its optional living benefit features, thereby increasing the discount rate and reducing the fair value of the embedded derivative liabilities. The additional spread over LIBOR is determined taking into consideration publicly available information relating to the claims-paying ability of the Company’s insurance subsidiaries, as indicated by the credit spreads associated with funding agreements issued by these affiliated companies. 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, 2009 generally ranged from 75 to 150 basis points for the portion of the interest rate curve most relevant to these liabilities.

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

B-46

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)

liability valuation, the liability included in future policy benefits has been reflected within Level 3 in the fair value hierarchy.

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			Equity Securities, Available for Sale

	(in thousands)
Fair value, beginning of period	$	867		$	13,357		$	43,642		$	6,309		$	968
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net:		-			(2,344	)		(10,559	)		-			(2	)
Asset management fees and other income		-			-			-			-			-
Included in other comprehensive income (loss)		217			3,991			42,357			43			2,864
Net investment income		(2	)		916			1,004			-			-
Purchases, sales, issuances, and settlements		-			(4,636	)		(20,381	)		(1,252	)		-
Foreign currency translation		-			-			-			-			-
Transfers into Level 3(2)		-			28,257			89,358			-			49
Transfers out of Level 3(2)		-			(7,079	)		(9,955	)		(5,100	)		(46	)

Fair value, end of period	$	1,082		$	32,462		$	135,466		$	-		$	3,833

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:	$	-		$	(2,904	)	$	(10,020	)	$	-		$	(2	)
Asset management fees and other income	$	-		$	-		$	-		$	-		$	-
Interest credited to policyholder account	$	-		$	-		$	-		$	-		$	-
Included in other comprehensive income (loss)	$	217		$	3,986		$	42,587		$	-		$	2,864

B-47

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)


	Year Ended December 31, 2009

	Other Trading Account Asset- Backed Securities		Other Assets			Separate Account Assets(1)			Other Liabilities			Future Policy Benefits

	(in thousands)
Fair value, beginning of period	$	1,089	$	1,157,884		$	154,316		$	(17,167	)	$	(794,640	)
Total gains or (losses) (realized/unrealized):
Included in earnings:
Realized investment gains (losses), net		-		(1,157,338	)		(3,608	)		16,207			848,282
Asset management fees and other income		93		-			-			-			-
Interest credited to policyholder account		-		-			(10,140	)		-			-
Included in other comprehensive income (loss)		-		22,282			-			-			-
Net investment income		-		-			-			-			-
Purchases, sales, issuances, and settlements		-		136,790			17,545			-			(36,103	)
Foreign currency translation		-		-			-			-			-
Transfers into Level 3(2)		-		-			-			-			-
Transfers out of Level 3(2)		-		-			(5,438	)		-			-

Fair value, end of period	$	1,182	$	159,618		$	152,675		$	(960	)	$	17,539

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	$	-	$	(788,470	)	$	-		$	16,215		$	830,739
Asset management fees and other income	$	93	$	-		$	-		$	-		$	-
Interest credited to policyholder account	$	-	$	-		$	(10,141	)	$	-		$	-
Included in other comprehensive income (loss)	$	-	$	-		$	-		$	-		$	-

(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 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.

(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.

B-48

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)

Transfers – Transfers into Level 3 for Fixed Maturities Available for Sale totaled $118 million during 2009. Transfers into Level 3 for these investments were primarily the result of unobservable inputs utilized within valuation methodologies and the use of broker quotes (that could not be validated) when information from third party pricing services or models with observable inputs were utilized. Transfers out of Level 3 for Fixed Maturities Available for Sale were primarily 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 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			Equity Securities, Available for Sale			Other Trading Account Assets			Other Long- term Investments

	(in thousands)
Fair value, beginning of period	$	107,063		$	4,703		$	1,164		$	(4,768	)
Total gains or (losses) (realized/unrealized):		-			-			-			-
Included in earnings:		-			-			-			-
Realized investment gains (losses), net		(7,165	)		(19	)		-			(12,399	)
Asset management fees and other income		-			-			(75	)		-
Interest credited to policyholder account		-			-			-			-
Included in other comprehensive income (loss)		(20,006	)		(2,365	)		-			-
Net investment income		(329	)		-			-			-
Purchases, sales, issuances, and settlements		41,319			-			-			-
Transfers into (out of) Level 3(2)		(56,706	)		(1,351	)		-			-

Fair value, end of period	$	64,176		$	968		$	1,089		$	(17,167	)

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	$	(5,390	)	$	(19	)	$	-		$	(12,394	)
Asset management fees and other income	$	-		$	-		$	(75	)	$	-
Interest credited to policyholder account	$	-		$	-		$	-		$	-
Included in other comprehensive income (loss)	$	(20,261	)	$	(2,366	)	$	-		$	-

B-49

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)


	Other Assets			Separate Account Assets(1)			Future Policy Benefits

	(in thousands)
Fair value, beginning of period	$	48,024		$	172,226		$	(35,232	)
Total gains or (losses) (realized/unrealized):		-			-			-
Included in earnings:		-			-			-
Realized investment gains (losses), net		1,066,865			-			(739,407	)
Asset management fees and other income		-			-			-
Interest credited to policyholder account		-			(36,648	)		-
Included in other comprehensive income		(1,393	)		-			-
Net investment income		-			-			-
Purchases, sales, issuances, and settlements		17,899			18,738			(20,001	)
Transfers into (out of) Level 3(2)		26,489			-			-
Other		-			-			-

Fair value, end of period	$	1,157,884		$	154,316		$	(794,640	)

Unrealized gains (losses) for the period ending 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	$	1,067,417		$	-		$	(739,961	)
Asset management fees and other income	$	-		$	-		$	-
Interest credited to policyholder account	$	-		$	(36,648	)	$	-
Included in other comprehensive income (loss)	$	(1,393	)	$	-		$	-

(1)

(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.

Transfers – Net transfers out of Level 3 for Fixed Maturities Available for Sale totaled $57 million for the year ended December 31, 2008. Transfers into Level 3 for these investments were primarily the result of unobservable inputs utilized within valuation methodologies and the use of broker quotes when 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.

B-50

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

10. FAIR VALUE OF ASSETS AND LIABILITIES (continued)

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, equity securities, securities purchased under agreements to resell, short-term investments, cash and cash equivalents, accrued investment income, separate account assets, 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 11 for a discussion of derivative instruments.

Commercial mortgage loans

The fair value of commercial mortgage loans are 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 policy loans is calculated using a discounted cash flow model based upon current U.S. Treasury rates and historical loan repayment patterns.

Investment Contracts – Policyholders’ Account Balances

Only the portion of policyholders’ account balances and separate account liabilities related to products that are investment contracts (those without significant mortality or morbidity risk) are reflected in the table below. For fixed deferred annuities, 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 claims paying ratings, and hence reflect the Company’s own nonperformance risk. 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.

The following table discloses the Company’s financial instruments where the carrying amounts and fair values may differ:


	December 31, 2009				December 31, 2008

	Carrying Amount		Fair Value		Carrying Amount		Fair Value

	(in thousands)

Assets:
Commercial mortgage loans	$	1,048,346	$	1,038,323	$	881,638	$	776,059
Policy loans		1,012,014		1,144,641		1,001,518		1,297,852
Liabilities:
Policyholder account balances – Investment contracts		507,386		502,033		393,998		396,778

11. DERIVATIVE INSTRUMENTS

Types of Derivative Instruments and Derivative Strategies

Interest rate swaps are used by the Company to manage interest rate exposures arising from mismatches between assets and liabilities (including duration mismatches) and to hedge against changes in the value of assets it

B-51

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

11. DERIVATIVE INSTRUMENTS (continued)

anticipates acquiring and other anticipated transactions and commitments. Swaps may be attributed to specific assets or liabilities or may be used on a portfolio basis. Under interest rate swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between fixed rate and floating rate interest amounts calculated by reference to an agreed upon notional principal amount. Generally, no cash is exchanged at the outset of the contract and no principal payments are made by either party. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty at each due date.

Exchange-traded futures are used by the Company to reduce risks from changes in interest rates, to alter mismatches between the duration of assets in a portfolio and the duration of liabilities supported by those assets, and to hedge against changes in the value of securities it owns or anticipates acquiring or selling. In exchange-traded futures transactions, the Company agrees to purchase or sell a specified number of contracts, the values of which are determined by the values of underlying referenced securities, 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 commissions merchants who are members of a trading exchange.

Currency derivatives, including currency swaps, are used by the Company to reduce risks from changes in currency exchange rates with respect to investments denominated in foreign currencies that the Company either holds or intends to acquire or sell.

Under currency swaps, the Company agrees with other parties to exchange, at specified intervals, the difference between one currency and another at an exchange rate and calculated by reference to an agreed principal amount. Generally, the principal amount of each currency is exchanged at the beginning and termination of the currency swap by each party. These transactions are entered into pursuant to master agreements that provide for a single net payment to be made by one counterparty for payments made in the same currency at each due date.

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 can sell credit protection on an identified name, or a basket of names in a first to default structure, and in return receive a quarterly premium. 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. In addition to selling credit protection, the Company may purchase credit protection using credit derivatives in order to hedge specific credit exposures in the Company’s investment portfolio.

Embedded Derivatives

The Company sells variable annuity products, which contain embedded derivatives. The Company has reinsurance agreements to transfer the risk related to some of these embedded derivatives to affiliates. These embedded derivatives are marked to market through “Realized investment gains (losses), net” based on the change in value of the underlying contractual guarantees, which are determined using valuation models. In the affiliates, the Company maintains a portfolio of derivative instruments that is intended to economically hedge the risks related to the above reinsured 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. Also, some variable

B-52

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

11. DERIVATIVE INSTRUMENTS (continued)

annuity products feature an automatic rebalancing element to minimize risks inherent in the Company’s guarantees which reduces the need for hedges. In addition to the hedging of guaranteed risks by Pruco Re, the Company started hedging a portion of the market exposure related to the overall capital position of our variable annuity products.

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.

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, 2009								December 31, 2008

	Notional Amount		Fair Value						Notional Amount		Fair Value
	Notional Amount								Notional Amount
		Assets			Liabilities				Assets		Liabilities

	(in thousands)
Qualifying Hedge Relationships
Currency/Interest Rate		39,635		-			(1,626	)		16,289		649		-

Total Qualifying Hedge Relationships	$	39,635	$	-		$	(1,626	)	$	16,289	$	649	$	-

Non-qualifying Hedge Relationships
Interest Rate	$	695,100	$	10,901		$	(24,084	)	$	103,000	$	11,649	$	-
Currency		2,670		10			-			2,968		150		-
Credit		112,085		11,173			(4,500	)		173,947		10,126		(17,584	)
Currency/Interest Rate		77,586		-			(3,898	)		15,800		512		(409	)
Equity		355,004		2,300			(10,706	)		4		87		-

Total Non-qualifying Hedge Relationships	$	1,242,445	$	24,384		$	(43,188	)	$	295,719	$	22,524	$	(17,993	)

Total Derivatives(1)	$	1,282,080	$	24,384		$	(44,814	)	$	312,008	$	23,173	$	(17,993	)

(1)

Excludes embedded derivatives which contain multiple underlyings. The fair value of these embedded derivatives was a liability of $52 million as of December 31, 2009 and a liability of $852 million as of December 31, 2008 included in Future policy benefits.

Cash Flow Hedges

The Company uses currency swaps in its cash flow hedge accounting relationships. This instrument is only designated for hedge accounting in instances where the appropriate criteria are met. The Company does not use futures, options, credit, and equity or embedded derivatives in any of its cash flow hedge accounting relationships.

B-53

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

11. DERIVATIVE INSTRUMENTS (continued)

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,

	2009			2008			2007

Cash flow hedges
Currency/ Interest Rate
Net investment income	$	170		$	-		$	-
Other Income		(22	)		14			(52	)
Accumulated Other Comprehensive Income (Loss)(1)	$	(2,302	)	$	1,063		$	(1,521	)

Total cash flow hedges	$	(2,154	)	$	1,077		$	(1,573	)


Non-qualifying hedges
Realized investment gains (losses)
Interest Rate	$	(29,765	)	$	(13,247	)	$	(15,150	)
Currency		(91	)		2,385			(1,401	)
Currency/Interest Rate		(6,537	)		-			-
Credit		9,885			(4,303	)		(4,376	)
Equity		(76,567	)		(45	)		49
Embedded Derivatives		870,445			(784,260	)		(38,613	)

Total non-qualifying hedges	$	767,370		$	(799,470	)	$	(59,451	)

Total Derivative Impact	$	765,216		$	(798,393	)	$	(61,024	)

(1)

Amounts deferred in Equity

For the year ended December 31, 2009, 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.

Presented below is a roll forward of current period cash flow hedges in “Accumulated other comprehensive income (loss)” before taxes:


	(in thousands)


Balance, December 31, 2008	$	(672	)
Net deferred losses on cash flow hedges from January 1 to December 31, 2009		(2,472	)
Amount reclassified into current period earnings		170

Balance, December 31, 2009	$	(2,974	)

As of December 31, 2009, 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 7 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 Consolidated Statements of Stockholders’ Equity.

B-54

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

11. DERIVATIVE INSTRUMENTS (continued)

Credit Derivatives Written

The following tables set forth 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 the dates indicated.


	December 31, 2009

	First to Default Basket

NAIC Designation(1)	Notional		Fair Value

	(in millions)
1	$	-	$	-
2		52		(1	)

		52		(1	)
3		7		-
4		-		-
5		5		-
6		-		-

Total	$	64	$	(1	)


	December 31, 2008

	First to Default Basket

NAIC Designation(1)	Notional		Fair Value

	(in millions)
1	$	5	$	(1	)
2		92		(15	)

		97		(16	)
3		1		-
4		-		-
5		6		(1	)
6		-		-

Total	$	104	$	(17	)

(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.

B-55

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

11. DERIVATIVE INSTRUMENTS (continued)

The following table sets forth the composition of credit derivatives where the Company has written credit protection excluding embedded derivatives contained in externally-managed investments in European markets, by industry category as of the dates indicated.


	December 31, 2009					December 31, 2008

Industry	Notional		Fair Value			Notional		Fair Value

	(in millions)
Corporate Securities:
First to Default Baskets(1)		64		(1	)		104		(17	)

Total Credit Derivatives	$	64	$	(1	)	$	104	$	(17	)

(1)

Credit default baskets may include various industry categories.

The Company writes credit derivatives under which the Company is obligated to pay the counterparty the referenced amount of the contract and receive in return the defaulted security or similar security. The Company’s maximum amount at risk under these credit derivatives, assuming the value of the underlying referenced securities become worthless, is $64 and $104 million notional of credit default swap (“CDS”) selling protection at December 31, 2009 and December 31, 2008. These credit derivatives generally have maturities of five years or less.

The Company holds certain externally managed investments in the European market which contain embedded derivatives whose fair value are primarily driven by changes in credit spreads. These investments are medium term notes that are collateralized by investment portfolios primarily consisting of investment grade European fixed income securities, including corporate bonds and asset-backed securities, and derivatives, as well as varying degrees of leverage. The notes have a stated coupon and provide a return based on the performance of the underlying portfolios and the level of leverage. The Company invests in these notes to earn a coupon through maturity, consistent with its investment purpose for other debt securities. The notes are accounted for under U.S. GAAP as available for sale fixed maturity securities with bifurcated embedded derivatives (total return swaps). Changes in the value of the fixed maturity securities are reported in Stockholders’ Equity under the heading “Accumulated Other Comprehensive Income” and changes in the market value of the embedded total return swaps are included in current period earnings in “Realized investment gains (losses), net.” The Company’s maximum exposure to loss from these interests was $85 million and $63 million at December 31, 2009 and December 31, 2008, 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, 2009 the Company had $48 million of outstanding notional amounts, reported at fair value as an asset of $8 million.

Credit Risk

The Company is exposed to credit-related losses in the event of non-performance by counterparties to financial derivative transactions. Generally, 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 after taking into consideration the existence of netting agreements.

The Company manages credit risk by entering into over-the-counter derivative contracts with an affiliate Prudential Global Funding, LLC, see Note 8. The Company effects exchange-traded futures transactions through

B-56

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

11. DERIVATIVE INSTRUMENTS (continued)

regulated exchanges and these transactions are settled on a daily basis, thereby reducing credit risk exposure in the event of nonperformance by counterparties to such financial instruments.

The Company incorporates the market’s perception of non-performance risk in determining the fair value of its OTC derivative assets and liabilities. 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.

12. CONTINGENT LIABILITIES AND LITIGATION AND REGULATORY MATTERS

Contingent Liabilities

On an ongoing basis, the Company’s internal supervisory and control functions review the quality of our sales, marketing, administration and servicing, and other customer interface procedures and practices and may recommend modifications or enhancements. From time to time, this review process results in the discovery of 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 costs of such remediation, administrative costs and regulatory fines.

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 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 business. Pending legal and regulatory actions include proceedings relating to aspects of the Company’s business and operations that are specific to it and proceedings that are typical of the business in which it operates. In certain of these matters, the plaintiffs may seek 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.

Commencing in 2003, Prudential Financial received formal requests for information from the SEC and the New York Attorney General’s Office (“NYAG”) relating to market timing in variable annuities by certain American Skandia entities. In connection with these investigations, with the approval of Skandia Insurance Company Ltd. (publ) (“Skandia”), an offer was made by American Skandia to the SEC and NYAG, to settle these matters by paying restitution and a civil penalty. In April 2009, AST Investment Services, Inc., formerly named American Skandia Investment Services, Inc. (“ASISI”), reached a resolution of these investigations by the SEC and NYAG into market timing related misconduct involving certain variable annuities. The settlements relate to conduct that generally occurred between January 1998 and September 2003. ASISI is an affiliate of the Company and serves as investment manager for certain investment options under the Company’s variable life insurance and annuity products. Prudential Financial acquired ASISI from Skandia in May 2003. Subsequent to the acquisition, Prudential Financial implemented controls, procedures and measures designed to protect customers from the types of activities involved in these investigations. These settlements resolve the investigations by the above

B-57

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

12. CONTINGENT LIABILITIES AND LITIGATION AND REGULATORY MATTERS (continued)

named authorities into these matters, subject to the settlement terms. Under the terms of the settlements, ASISI paid a total of $34 million in disgorgement and an additional $34 million as a civil money penalty into a Fair Fund administered by the SEC to compensate those harmed by the market timing related activities. Pursuant to the settlements, ASISI has retained, at its ongoing cost and expense, the services of an Independent Distribution Consultant acceptable to the Staff of the SEC to develop a proposed distribution plan for the distribution of Fair Fund amounts according to a methodology developed in consultation with and acceptable to the Staff. As part of these settlements, ASISI hired an independent third party, which has conducted a compliance review and issued a report of its findings and recommendations to ASISI’s Board of Directors, the Audit Committee of the Advanced Series Trust Board of Trustees and the Staff of the SEC. In addition, ASISI has agreed, among other things, to continue to cooperate with the SEC and NYAG in any litigation, ongoing investigations or other proceedings relating to or arising from their investigations into these matters. Under the terms of the purchase agreement pursuant to which Prudential Financial acquired ASISI from Skandia, Prudential Financial was indemnified for the settlements.

The Company’s litigation and regulatory matters may be subject to many uncertainties, and as a result, their outcome cannot be predicted. It is possible that the Company’s results of operations or cash flow 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.

13. RELATED PARTY TRANSACTIONS

The Company has extensive transactions and relationships with Prudential Insurance and other affiliates. Although we seek to ensure that these transactions and relationships are fair and reasonable, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.

Expense Charges and Allocations

Many of the Company’s expenses are allocations or charges from Prudential Insurance or other affiliates. These expenses can be grouped into general and administrative expenses and agency distribution expenses.

The Company’s general and administrative expenses are charged to the Company using allocation methodologies based on business production 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. The Company reviews its allocation methodology periodically which it may adjust accordingly. General and administrative expenses also include allocations of stock compensation expenses related to a stock option program and a deferred compensation program issued by Prudential Financial. The expense charged to the Company for the stock option program was less than $1 million for the twelve months ended December 31, 2009, 2008 and 2007. The expense charged to the Company for the deferred compensation program was $3 million and $2 million for the twelve months ended December 31, 2009 and 2008, respectively.

B-58

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

13. RELATED PARTY TRANSACTIONS (continued)

The Company receives a charge to cover 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 final group earnings and length of service. While others are based on an account balance, which takes into consideration age, service and earnings during career.

Prudential Insurance sponsors voluntary savings plans for the Company’s employees (401(k) plans). The plans provide for salary reduction contributions by employees and matching contributions by the Company of up to 4% of annual salary. The Company’s expense for its share of the voluntary savings plan was $4.2 million, $3.5 million and $3.5 million in 2009, 2008 and 2007, respectively.

The Company’s share of net expense for the pension plans was $8.3 million, $7.7 million and $7.4 million in 2009, 2008 and 2007, respectively.

The Company is charged distribution expenses from Prudential Insurance’s agency network for both its domestic life and annuity products through a transfer pricing agreement, which is intended to reflect a market based pricing arrangement.

Affiliated Asset Administration Fee Income

Effective April 1, 2009, the Company amended an existing agreement to add AST Investment Services, Inc., formerly known as American Skandia Investment Services, Inc, as a party whereas 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 $13.8 million for the year ended December 31, 2009. These revenues are recorded as “Asset administration fees” in the Consolidated Statements of Operations and Comprehensive Income.

Effective April 15, 2009, PLNJ amended an existing agreement to add AST Investment Services, Inc., formerly known as American Skandia Investment Services, Inc, as a party whereas 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 $1.1 million for the year ended December 31, 2009. These revenues are recorded as “Asset administration fees” in the Consolidated Statements of Operations and Comprehensive Income.

The Company participates in a revenue sharing agreement with Prudential Investments LLC, whereby the Company receives fee income from policyholders’ account balances invested in PSF. Income received from Prudential Investments LLC, related to this agreement was $10 million for the year ended December 31, 2009. These revenues are recorded as “Asset administration fees” in the Consolidated Statements of Operations and Comprehensive Income.

Corporate Owned Life Insurance

The Company has sold four Corporate Owned Life Insurance or, “COLI,” policies to Prudential Insurance, and one to Prudential Financial. The cash surrender value included in separate accounts for these COLI policies was $1.772 billion at December 31, 2009 and $1.217 billion at December 31, 2008, respectively. Fees related to these COLI policies were $37 million, $32 million and $33 million for the years ending December 31, 2009, 2008 and 2007, respectively.

B-59

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

13. RELATED PARTY TRANSACTIONS (continued)

Reinsurance with Affiliates

UPARC

The Company, excluding its subsidiaries, reinsures its universal life policies having no lapse guarantees with an affiliated company, UPARC. UPARC reinsures 90% of the net amount of mortality at risk as well as 100% of the risk of uncollectible policy charges and fees associated with the no lapse guarantee provision of these policies. The Company is not relieved of its primary obligation to the policyholder as a result of these reinsurance transactions.

The portion of this reinsurance contract related to mortality is accounted for as reinsurance. Reinsurance recoverables related to the reinsurance agreement were $12 million and $366 million as of December 31, 2009 and December 31, 2008, respectively. Fees ceded to UPARC in 2009 and 2008 were $51 million and $39 million, respectively. Benefits ceded to UPARC in 2009, 2008 and 2007 were $48 million and $57 million and $30 million, respectively. The portion of this reinsurance contract related to the no lapse guarantee provision is accounted for as an embedded derivative. Realized losses were $370 billion for December 31, 2009, while realized gains were $340 billion December 31, 2008, respectively, primarily due to the change in non-performance risk in the valuation of embedded derivatives and actual activity related to premiums and benefits. The underlying asset is reflected as a reinsurance recoverable in the Company’s Consolidated Statements of Financial Position.

PARCC

The Company reinsures 90% of the risk under its term life insurance policies exclusive of those reinsured by PAR III (see below) through an automatic coinsurance agreement with PARCC. The Company is not relieved of its primary obligation to the policyholder as a result of this agreement. Reinsurance recoverables related to this agreement were $1.521 billion and $1.137 billion as of December 31, 2009 and December 31, 2008, respectively. Premiums ceded to PARCC in 2009, 2008 and 2007 were $799 million and $654 million and $528 million respectively. Benefits ceded in 2009, 2008 and 2007 were $295 million and $249 million and $197 million, respectively. Reinsurance expense allowances, net of capitalization and amortization were $174 million and $130 million and $105 million for the 2009, 2008 and 2007, respectively.

PAR III

The Company, excluding its subsidiaries, reinsures 90% of the risk under its ROP term life insurance policies issued on or after January 1, 2009 through an automatic coinsurance agreement with PAR III. The Company is not relieved of its primary obligation to the policyholder as a result of this agreement. Reinsurance recoverables related to this agreement were $3 million as of December 31, 2009. Premiums ceded to PAR III in 2009 were $2 million.

Prudential Insurance

The Company has a yearly renewable term reinsurance agreement with Prudential Insurance and reinsures the majority of all mortality risks not otherwise reinsured. Reinsurance recoverables related to this agreement were $53 million and $46 million as of December 31, 2009 and December 31, 2008. Premiums and fees ceded to Prudential Insurance in 2009, 2008 and 2007 were $240 million, $184 million and $203 million, respectively. Benefits ceded in 2009, 2008 and 2007 were $218 million and $172 million and $191, respectively. In addition, there are two yearly renewable term agreements which the Company can offer on any life in excess of the

B-60

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

13. RELATED PARTY TRANSACTIONS (continued)

Company’s maximum limit of retention. The Company is not relieved of its primary obligation to the policyholder as a result of these agreements.

The Company has reinsured a group annuity contract with Prudential Insurance, in consideration for a single premium payment by the Company, providing reinsurance equal to 100% of all payments due under the contract. The Company is not relieved of its primary obligation to the policyholders as a result of this agreement. Reinsurance recoverables related to this agreement were $8 million and $9 million as of December 31, 2009 and December 31, 2008, respectively. Benefits ceded were $2 million for December 31, 2009 and 2008, respectively.

Pruco Re

During 2009, the Company, excluding its subsidiaries, entered into new reinsurance agreements with an affiliate as part of its risk management and capital management strategies. Effective August 24, 2009, the Company entered into a coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Highest Daily Lifetime 6 Plus (“HD6 Plus”) and Spousal Highest Daily Lifetime 6 Plus (“SHD6 Plus”) benefit features sold on certain of its annuities. Fees ceded on this agreement were $0.2 million for December 31, 2009.

Effective June 30, 2009, the Company entered into a coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Highest Daily Lifetime 7 Plus (“HD7 Plus”) and Spousal Highest Daily Lifetime 7 Plus (“SHD7 Plus”) benefit features sold on certain of its annuities. Fees ceded on this agreement were $6.7 million for December 31, 2009.

During 2008, the Company, excluding its subsidiaries entered into two 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 Re providing for the 100% reinsurance of its HD7 and SHD7 benefit feature sold on certain of its annuities. Fees ceded on this agreement were $11.2 million and $4.2 million for December 31, 2009 and December 31, 2008, respectively.

Effective January 28, 2008, the Company, excluding its subsidiaries entered into a coinsurance agreement with Pruco Re providing for the 100% reinsurance of its HD GRO benefit feature sold on certain of its annuities. Fees ceded on this agreement were less than $1 million, for December 31, 2009 and December 31, 2008.

The Company reinsures 100% of the risk on its Lifetime Five (“LT5”), Highest Daily Lifetime Five benefit (“HDLT5”) and Spousal Lifetime Five benefit (“SLT5”) feature sold on certain of its annuities through an automatic coinsurance agreement with Pruco Re. Fees ceded on the LT5 agreement were $15.6 million and $22.5 million for December 31, 2009 and December 31, 2008, respectively.

Effective November 20, 2006, the Company entered into a new coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Highest Daily Lifetime Five benefit (“HDLT5”) feature. Fees ceded on this agreement were $4.8 million and $5.4 million for December 31, 2009 and December 31, 2008, respectively.

Effective March 20, 2006, the Company entered into a new coinsurance agreement with Pruco Re providing for the 100% reinsurance of its Spousal Lifetime Five benefit (“SLT5”) feature. Fees ceded on this agreement were $1.9 million and $2.3 million for December 31, 2009 and December 31, 2008, respectively.

The Company’s reinsurance recoverables related to the above product reinsurance agreements were $9 million and $784 million as of December 31, 2009 and December 31, 2008, respectively. Realized losses were $814

B-61

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

13. RELATED PARTY TRANSACTIONS (continued)

million for December 31, 2009, while realized gains were $720 million December 31, 2008, respectively, primarily due to the change in non-performance risk in the valuation of embedded derivatives and actual activity related to premiums and benefits. The underlying asset is reflected as a reinsurance recoverable in the Company’s Consolidated Statements of Financial Position.

Taiwan branch reinsurance agreement

On January 31, 2001, the Company transferred all of its assets and liabilities associated with the Company’s Taiwan branch including Taiwan’s insurance book of business to an affiliated Company, Prudential Life Insurance Company of Taiwan Inc. (“Prudential of Taiwan”), a wholly owned subsidiary of Prudential Financial.

The mechanism used to transfer this block of business in Taiwan is referred to as a “full acquisition and assumption” transaction. Under this mechanism, the Company is jointly liable with Prudential of Taiwan for two years from the giving of notice to all obliges for all matured obligations and for two years after the maturity date of not-yet-matured obligations. Prudential of Taiwan is also contractually liable, under indemnification provisions of the transaction, for any liabilities that may be asserted against the Company.

The transfer of the insurance related assets and liabilities was accounted for as a long-duration coinsurance transaction under accounting principles generally accepted in the United States. Under this accounting treatment, the insurance related liabilities remain on the books of the Company and an offsetting reinsurance recoverable is established.

Affiliated premiums ceded for the periods ended December 31, 2009, 2008 and 2007 from the Taiwan coinsurance agreement were $77 million, $77 million and $82 million, respectively. Affiliated benefits ceded for the periods ended December 31, 2009, 2008 and 2007 from the Taiwan coinsurance agreement were $21 million, $21 million and $17 million, respectively.

Reinsurance recoverable related to the Taiwan coinsurance agreement of $786 million and $701 million at December 31, 2009 and December 31, 2008, respectively.

Purchase of fixed maturities from an affiliate

During 2009, the Company purchased fixed maturities securities from an affiliated company, Prudential Insurance. The investments included public bonds. These securities were recorded at an amortized cost of $168 million and a fair value of $168 million.

During 2009, the Company purchased fixed maturities securities from an affiliated company, PARCC. The investments included public bonds. These securities were recorded at an amortized cost of $85 million and a fair value of $89 million. The net difference between historic amortized cost and the fair value, net of taxes was $4 million.

During 2007, the Company purchased fixed maturities securities from an affiliated company, Commerce Street. The investments included collateralized mortgage backed securities. These securities were recorded at an amortized cost of $136 million and a fair value of $135 million. The net difference between historic amortized cost and the fair value, net of taxes was $1 million.

During 2007, the Company purchased fixed maturities securities from Prudential Insurance. The investments included public and private placement bonds. These securities were recorded at an amortized cost of $64 million

B-62

Pruco Life Insurance Company

Notes to Consolidated Financial Statements

13. RELATED PARTY TRANSACTIONS (continued)

and a fair value of $64 million. The net difference between historic amortized cost and the fair value, net of taxes was less than $1 million.

Affiliated Loan Agreements

During 2009, the Company issued a loan for $105 million with an affiliate Prudential International Insurance Holdings.

Debt Agreements

The Company has an agreement with Prudential Funding, LLC, a wholly owned subsidiary of Prudential Insurance, which allows the Company to borrow funds for working capital and liquidity needs. The borrowings under this agreement are limited to $600 million. The Company had no borrowings outstanding and less than $1 million of borrowings outstanding under this agreement as of December 31, 2009 and December 31, 2008. Interest expense related to this debt was less than $1 million for 2009 and 2008. The related interest was charged at a variable rate ranging from 3.55% to 7.05% for 2009 and .31% to 4.31% for 2008.

Derivative Trades

In the 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.

14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The unaudited quarterly results of operations for the years ended December 31, 2009 and 2008 are summarized in the table below:


	Three months ended

	March 31			June 30			September 30			December 31

	(in thousands)
2009
Total revenues	$	(89,035	)	$	239,841		$	258,896		$	331,726
Total benefits and expenses		671,273			(71,911	)		128,146			215,671
Income/(Loss) from operations before income taxes		(760,308	)		311,752			130,750			116,055
Net income	$	(466,220	)	$	168,816		$	157,304		$	74,309


2008
Total revenues	$	259,712		$	285,789		$	234,086		$	606,999
Total benefits and expenses		210,453			212,439			237,546			411,819
Income from operations before income taxes		49,259			73,350			(3,460	)		195,180
Net income	$	40,914		$	64,659		$	15,560		$	128,192

B-63

Management’s Annual Report on Internal Control Over Financial Reporting

Management of Pruco Life Insurance Company (“the Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. Management conducted an assessment of the effectiveness, as of December 31, 2009, of the Company’s internal control over financial reporting, based on the framework established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on our assessment under that framework, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2009.

Our internal control over financial reporting is a process designed by or under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on our financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

This Annual Report does not include an attestation report of the Company’s registered public accounting firm, PricewaterhouseCoopers LLP, regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.

March 12, 2010

B-64

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholder of

Pruco Life Insurance Company:

In our opinion, the accompanying consolidated statements of financial position and the related statements of operations and comprehensive income, of stockholder’s equity and of cash flows present fairly, in all material respects, the financial position of Pruco Life Insurance Company (a wholly owned subsidiary of The Prudential Insurance Company of America) and its subsidiaries at December 31, 2009 and December 31, 2008, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2009 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 on January 1, 2009. Also, the Company adopted a framework for measuring fair value on January 1, 2008, and changed its method of accounting for uncertainty in income taxes, and for deferred acquisition costs in connection with modifications or exchanges of insurance contracts on January 1, 2007.

/s/ PricewaterhouseCoopers LLP

New York, New York

March 12, 2010

B-65

As filed with the SEC on April 14, 2010 .	Registration No. 2-89558


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________


FORM N-6

FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933

Post-Effective Amendment No. 41
_____________


PRUCO LIFE
VARIABLE APPRECIABLE ACCOUNT
(Exact Name of Registrant)

PRUCO LIFE INSURANCE COMPANY
(Name of Depositor)

213 Washington Street
Newark, New Jersey 07102
(800) 778-2255
(Address and telephone number of principal executive offices)
_____________


Thomas C. Castano
Chief Legal Officer
Pruco Life Insurance Company
213 Washington Street
Newark, New Jersey 07102
(Name and address of agent for service)

Copy to:
Christopher E. Palmer, Esq.
Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001
_____________


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

□ immediately upon filing pursuant to paragraph (b) of Rule 485
■ on May 1, 2010 pursuant to paragraph (b) of Rule 485
(date)

□ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
□ on pursuant to paragraph (a)(1) of Rule 485
(date)


■ This Post-Effective Amendment designates a new effective date for a previously filed Post-Effective Amendment.

Maximum Deferred Sales Load Percentages

For Contracts Surrendered During	The Deferred Sales Charge Will be the Following Percentage of One Scheduled Annual Premium	Which is Equal to the Following Percentage of the Scheduled Premiums Due to Date of Surrender

Entire Year 1 Entire Year 2 Entire Year 3 Entire Year 4 Entire Year 5 First 7 Months of Year 6 First Month of Year 7 First Month of Year 8 First Month of Year 9 First Month of Year 10 First Month of Year 11 and Thereafter	25% 30% 35% 40% 45% 45% 40% 30% 20% 10% 0%	25.00% 15.00% 11.67% 10.00% 9.00% 7.50% 5.71% 3.75% 2.22% 1.00% 0.00%

	$60,000 Face Amount		$100,000 Face Amount

	Preferred	Standard	Preferred	Standard

Male, age 35 at issue	$554.80	$669.40	$902.00	$1,093.00

Female, age 45 at issue	$698.80	$787.60	$1,142.00	$1,290.00

Male, age 55 at issue	$1,556.20	$1,832.20	$2,571.00	$3,031.00

	$60,000 Face Amount		$100,000 Face Amount

	Monthly	Annual	Monthly	Annual

Male, age 35 at issue	$50.00	$554.80	$80.00	$902.00

Female, age 45 at issue	$62.60	$698.80	$101.00	$1,142.00

Male, age 55 at issue	$136.40	$1,556.20	$224.00	$2,571.00

Male Attained Age	Net Single Premium	Increase in Insurance Amount Per $1 Increase in Contract Fund	Female Attained Age	Net Single Premium	Increase in Insurance Amount Per $1 Increase in Contract Fund

5 25 35 55 65	.09884 .18455 .25596 .47352 .60986	$10.12 $ 5.42 $ 3.91 $ 2.11 $ 1.64	5 25 35 55 65	.08198 .15687 .21874 .40746 .54017	$12.20 $ 6.37 $ 4.57 $ 2.45 $ 1.85

(a)	Board of Directors Resolution:
(i)		Resolution of Board of Directors of Pruco Life Insurance Company establishing the Pruco Life Variable Appreciable Account. (Note 5)

(b)	Not Applicable.

(c)	Underwriting Contracts:
(i)		Distribution Agreement between Pruco Securities, LLC and Pruco Life Insurance Company. (Note 1)
(ii)		Selling Agreement used from 11-2008 to current. (Note 6)
(iii)		Selling Agreement used from 1-2008 to 11-2008. (Note 6)
(iv)		Selling Agreement used from 11-2007 to 1-2008. (Note 6)
(v)		Selling Agreement used from 12-2006 to 11-2007. (Note 6)
(vi)		Selling Agreement used from 11-2005 to 12-2006. (Note 6)
(vii)		Selling Agreement used from 9-2003 to 11-2005. (Note 6)
(viii)		Selling Agreement used from 3-1999 to 9-2003. (Note 6)

(d)	Contracts:
(i)		Variable Appreciable Life Insurance Contracts with fixed Death Benefit (Note 5)
(ii)		Variable Appreciable Life Insurance Contracts with Variable Death Benefit (Note 5)
(iii)		Complaint Notice for use in Texas with Variable Appreciable Life Contracts. (Note 5)
(iv)		Notice giving information for Consumers for use in Illinois with Variable Appreciable Life Insurance Contracts. (Note 5)
(v)		Endorsement for Misstatement of Age and/or Sex for use in Pennsylvania with Variable Appreciable Life. (Note 5)
(vi)		Revised Contract with fixed death benefit. (Note 5)
(vii)		Revised Contract with variable death benefit. (Note 5)
(viii)		Rider for Insured's Waiver of Premium Benefit. (Note 5)
(ix)		Rider for Applicant's Waiver of Premium Benefit. (Note 5)
(x)		Rider for Insured's Accidental Death Benefit. (Note 5)
(xi)		Rider for Level Term Insurance Benefit on Life of Insured. (Note 5)
(xii)		Rider for Decreasing Term Insurance Benefit on Life of Insured. (Note 5)
(xiii)		Rider for Interim Term Insurance Benefit. (Note 5)
(xiv)		Rider for Option to Purchase Additional Insurance on Life of Insured. (Note 5)
(xv)		Rider for Decreasing Term Insurance Benefit on Life of Insured Spouse. (Note 5)
(xvi)		Rider for Level Term Insurance Benefit on Dependent Children. (Note 5)
(xvii)		Rider for Level Term Insurance Benefit on Dependent Children-from Term Conversions. (Note 5)
(xviii)		Rider for Level Term Insurance Benefit on Dependent Children-from Term Conversions or Attained Age Change. (Note 5)
(xix)		Rider covering lack of Evidence of Insurability on a Child. (Note 5)
(xx)		Rider modifying Waiver of Premium Benefit. (Note 5)
(xxi)		Rider to terminate a Supplementary Benefit. (Note 5)
(xxii)		Rider providing for election of Variable Reduced Paid-up Insurance. (Note 5)
(xxiii)		Rider to provide for exclusion of Aviation Risk. (Note 5)
(xxiv)		Rider to provide for exclusion of Military Aviation Risk. (Note 5)
(xxv)		Rider to provide for exclusion for War Risk. (Note 5)
(xxvi)		Endorsement for Contractual Conversion of a Term Policy. (Note 5)
(xxvii)		Endorsement for Conversion of a Dependent Child. (Note 5)
(xxviii)		Endorsement for Conversion of Level Term Insurance Benefit on a Child. (Note 5)
(xxix)		Endorsement providing for Variable Loan Interest rate. (Note 5)
(xxx)		Rider for Automatic Premium Loan for use in Maryland and Rhode Island. (Note 5)
(xxxi)		Certification guaranteeing Right to Convert for use in Virginia. (Note 5)
(xxxii)		Endorsement for Increase and Decrease in Face Amount. (Note 5)
(xxxiii)		Supplementary Monthly Renewable Non-Convertible One Month Term Insurance. (a) for use with fixed death benefit Contract. (Note 5) (b) for use with variable death benefit Contract. (Note 5)
(xxxiv)		Rider for Term Insurance Benefit on Life of Insured-Decreasing Amount After Three Years. (Note 5)
(xxxv)		Rider for Term Insurance Benefit on Life of Insured Spouse-Decreasing Amount After Three Years. (Note 5)
(xxxvi)		Endorsement for Contracts issued in connection with tax-qualified pension plans. (Note 5)
(xxxvii)		Appreciable Plus Rider. (Note 5)
(xxxiii)		Living Needs Benefit Rider: (a) for use in Florida. (Note 5) (b) for use in all approved jurisdictions except Florida. (Note 5)

(e)	Application:
(i)		Application for Variable Appreciable Life Insurance Contract. (Note 5)
(ii)		Supplement to the Application for Variable Appreciable Life Insurance Contract. (Note 5)

(f)	Depositor’s Certificate of Incorporation and By-Laws:
(i)		Articles of Incorporation of Pruco Life Insurance Company, as amended October 19, 1993. (Note 5)
(ii)		By-laws of Pruco Life Insurance Company, as amended May 6, 1997. (Note 5)

(g)	Reinsurance Agreements:.
(i)		Agreement between Pruco Life and Prudential. (Note 2)

(h)	Participation Agreements:
(i)		Form of 22c-2 Agreement (Note 3)

(i)	Administrative Contracts:
(i)		Service Agreement between Prudential and First Tennessee Bank National Association. (Note 4)
(ii)		Service Arrangement between Prudential, First Tennessee Bank National Association, and the Regulus Group. (Note 1)

(j)	Powers of Attorneys (Note 1):
		James J. Avery, Jr., Thomas J. Diemer, Robert M. Falzon, Bernard J. Jacob, Scott D. Kaplan, Tucker I. Marr, Stephen Pelletier, Richard F. Vaccaro

(k)	Opinion and Consent of Thomas C. Castano, Esq., as to the legality of the securities being registered. (Note 1)

(l)	Not Applicable.

(m)	Not Applicable.

(n)	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm. (Note 1)

(o)	None.

(p)	Not Applicable.

(q)	Redeemability Exemption:
(i)		Memorandum describing Pruco Life Insurance Company's issuance, transfer, and redemption procedures for the Contracts pursuant to Rule 6e-2(b)(12)(ii) and method of computing cash adjustment upon exercise of right to exchange for fixed-benefit insurance pursuant to Rule 6e-2(b)(13)(v)(B). (Note 3)

(Note 1)	Filed herewith.
(Note 2)	Incorporated by reference to Post-Effective Amendment No. 37 to this Registration Statement, filed April 20, 2006 on behalf of the Pruco Life Variable Appreciable Account.
(Note 3)	Incorporated by reference to Post-Effective Amendment No. 38 to this Registration Statement, filed April 13, 2007 on behalf of the Pruco Life Variable Appreciable Account.
(Note 4)	Incorporated by reference to Post-Effective Amendment No. 39 to this Registration Statement, filed April 14, 2008 on behalf of the Pruco Life Variable Appreciable Account.
(Note 5)	Incorporated by reference to Post-Effective Amendment No. 40 to this Registration Statement, filed April 21, 2009 on behalf of the Pruco Life Variable Appreciable Account.
(Note 6)	Incorporated by reference to Pre-Effective Amendment No. 1 to Form N-6, Registration No. 333-158634, filed July 6, 2009 on behalf of the Pruco Life Variable Universal Account.

(b)
MANAGERS AND OFFICERS OF PRUCO SECURITIES, LLC (“Prusec”)

Name and Principal Business Address --------------------------------------------------		Position and Office With Depositor ---------------------------------------------
John W. Greene (Note 1)		Chairman of the Board, Manager
John G. Gordon (Note 1)		President, Manager, Chief Operating Officer
Margaret R. Horn (Note 1)		Controller, Chief Financial Officer
Andrew M. Shainberg (Note 1)		Vice President, Chief Compliance Officer
Noreen M. Fierro (Note 2)		Vice President, Anti-Money Laundering Officer
Sandra Cassidy (Note 1)		Secretary, Chief Legal Officer
Charles E. Anderson (Note 8)		Vice President
Joan H. Cleveland (Note 1)		Vice President
Yolanda M. Doganay (Note 1)		Vice President
Margaret M. Foran (Note 2)		Vice President, Assistant Secretary
Mark A. Hug (Note 1)		Vice President, Manager
Patrick L. Hynes (Note 5)		Vice President
Charles M. Topp (Note 4)		Vice President
Michele Talafha (Note 4)		Assistant Vice President
Richard W. Kinville (Note 2)		Assistant Vice President
James J. Avery, Jr (Note 1)		Manager
Stephen Pelletier (Note 7)		Manager
Judy A. Rice (Note 3)		Manager
Matthew J. Voelker (Note 6)		Manager
David Campen (Note 1)		Assistant Controller
Robert Szuhany (Note 1)		Assistant Controller
Janice Pavlou (Note 1)		Assistant Controller
Mary E. Yourth (Note 1)		Assistant Controller
Robert M. Falzon (Note 2)		Treasurer
Paul F. Blinn (Note 1)		Assistant Treasurer
Kathleen C. Hoffman (Note 2)		Assistant Treasurer
Laura J. Delaney (Note 2)		Assistant Treasurer
John M. Cafiero (Note 2)		Assistant Secretary
Thomas C. Castano (Note 1)		Assistant Secretary
Patricia Christian (Note 1)		Assistant Secretary
Mary Jo Reich (Note 1)		Assistant Secretary

(Note 1) 213 Washington Street, Newark, NJ 07102
(Note 2) 751 Broad Street, Newark, NJ 07102
(Note 3) Three Gateway Center, Newark, NJ 07102
(Note 4) One New York Plaza, New York, NY 10292
(Note 5) 200 Wood Avenue South, Iselin, NJ 08830
(Note 6) 2998 Douglas Boulevard, Suite 220, Roseville, CA 95661
(Note 7) One Corporate Drive, Shelton, CT 06484
(Note 8) 13001 County Road 10, Plymouth, MN 55442

Compensation received by Prusec during the last fiscal year with respect to variable life insurance products.

Principal Underwriter	Gross Distribution Revenue*	Compensation on Events Occasioning the Deduction of a Deferred Sales Load	Brokerage Commissions**	Other Compensation

Prusec	$53,875,442	$-0-	$13,873,967	$-0-

Attest: /s/ Thomas C. Castano Thomas C. Castano Secretary		By: /s/ Scott D. Kaplan Scott D. Kaplan President and Chief Executive Officer

Signature and Title /s/ * Tucker I. Marr Vice President, Chief Financial Officer, and Chief Accounting Officer /s/ * James J. Avery, Jr. Director /s/ * Thomas J. Diemer Director /s/ * Robert M. Falzon Director /s/ * Bernard J. Jacob Director /s/ * Scott D. Kaplan Director /s/ * Stephen Pelletier Director /s/ * Richard F. Vaccaro Director		*By: /s/ Thomas C. Castano Thomas C. Castano (Attorney-in-Fact)

Item 26.


(c) Underwriting Contracts:	(i) Distribution Agreement between Pruco Securities, LLC and Pruco Life Insurance Company.	C-

(i) Administrative Contracts:	(ii) Service Arrangement between Prudential, First Tennessee Bank National Association, and the Regulus Group.	C-

(j) Powers of Attorney:	James J. Avery, Jr., Thomas J. Diemer, Robert M. Falzon, Bernard J. Jacob, Scott D. Kaplan, Tucker I. Marr, Stephen Pelletier, Richard F. Vaccaro	C-

(k) Legal Opinion and Consent:	Opinion and Consent of Thomas C. Castano, Esq. as to the legality of the securities being registered.	C-

(n) Auditor’s Consent:	Consent of PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm.	C-