N-4/A 1 dn4a.txt PALAC ASAP 2008 Filed with the Securities and Exchange Commission on May 2, 2008 Registration No. 333-148265 Investment Company Act No. 811-5438 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. 1 And REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 Amendment No. 168 PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B (Exact Name of Registrant) PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION (Name of Depositor) ONE CORPORATE DRIVE, SHELTON, CONNECTICUT 06484 (Address of Depositor's Principal Executive Offices) (203) 926-1888 (Depositor's Telephone Number) JOSEPH D. EMANUEL, CHIEF LEGAL OFFICER One Corporate Drive, Shelton, Connecticut 06484 (Name and Address of Agent for Service of Process) Copy To: C. CHRISTOPHER SPRAGUE, ESQ. VICE PRESIDENT AND CORPORATE COUNSEL One Corporate Drive, Shelton, Connecticut 06484 (203) 402-1233 Approximate Date of Proposed Offering: Continuous. The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. Title of Securities Being Offered: Units of interest in the Separate Accounts under variable annuity contracts. -------------------------------------------------------------------------------- ASAP 2008 PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION A Prudential Financial Company One Corporate Drive, Shelton, Connecticut 06484 ADVANCED SERIES ADVISOR PLAN 2008/SM/ ("ASAP 2008") Flexible Premium Deferred Annuities PROSPECTUS: , 2008 This prospectus describes a flexible premium deferred annuity (the "Annuity") offered by Prudential Annuities Life Assurance Corporation ("Prudential Annuities", "we", "our", or "us"). The Annuity may be offered as an individual annuity contract or as an interest in a group annuity. The Annuity has features and benefits that may be appropriate for you based on your financial situation, your age and how you intend to use the Annuity. This Prospectus describes the important features of the Annuity and what you should consider before purchasing an Annuity. The Prospectus also describes the fees and charges you pay, product features and basic death benefit protection. In addition, selling broker-dealer firms through which the Annuity is sold may decline to make available to their customers certain of the optional features and investment options offered generally under the Annuity. Alternatively, such firms may restrict the optional benefits that they do make available to their customers (e.g., by imposing a lower maximum issue age for certain optional benefits than what is prescribed generally under the Annuity). Please speak to your Financial Professional for further details. Certain of the Annuity's investment options and/or features may not be available in all states. Various rights, benefits and certain fees may differ among states to meet applicable laws and/or regulations. For more information about variations applicable to your state, please refer to your Annuity contract or consult your Financial Professional. Certain terms are capitalized in this Prospectus. Those terms are either defined in the Glossary of Terms or in the context of the particular section. This Annuity will be offered in connection with one or more exchange programs operated by Prudential Annuities Life Assurance Corporation or its affiliated insurers. The terms of such exchange programs will be set forth in the offering materials used for the program. THE SUB-ACCOUNTS Each Sub-account of Prudential Annuities Life Assurance Corporation Variable Account B invests in an underlying mutual fund portfolio. Currently, portfolios of the following underlying mutual funds are being offered: INVESCO AIM Advisors, Inc., Advanced Series Trust, Evergreen Variable Annuity Trust, First Defined Portfolio Fund LLC, Nationwide Variable Insurance Trust, ProFunds VP, The Prudential Series Fund, Franklin Templeton Variable Insurance Products Trust and Wells Fargo Variable Trust. See the following page for the complete list of Sub-accounts. PLEASE READ THIS PROSPECTUS Please read this Prospectus and the current prospectus for the underlying mutual funds. Keep them for future reference. If you are purchasing an Annuity as a replacement for an existing variable annuity or variable life coverage or a fixed insurance policy, you should consider any surrender or penalty charges you may incur when replacing your existing coverage and that this Annuity may be subject to a contingent deferred sales charge if you elect to surrender the Annuity or take a partial withdrawal. You should consider your need to access the Annuity's Account Value and whether the Annuity's liquidity features will satisfy that need. AVAILABLE INFORMATION We have also filed a Statement of Additional Information that is available from us, without charge, upon your request. The contents of the Statement of Additional Information are described below -- see Table of Contents. The Statement of Additional Information is incorporated by reference into this Prospectus. This Prospectus is part of the registration statement we filed with the SEC regarding this offering. Additional information on us and this offering is available in the registration statement and the exhibits thereto. We will supply any of these materials to you, free of charge, upon request. You also may review and obtain copies of these materials at the prescribed rates from the SEC's Public Reference Section, 100 F Street N.E., Washington, D.C., 20549. (See SEC file number 333-148265). These documents, as well as documents incorporated by reference, may also be obtained through the SEC's Internet Website (http://www.sec.gov) for this registration statement as well as for other registrants that file electronically with the SEC. This annuity is NOT a deposit or obligation of, or issued, guaranteed or endorsed by, any bank, is NOT insured or guaranteed by the U.S. government, the Federal Deposit Insurance Corporation (FDIC), the Federal Reserve Board or any other agency. An investment in an annuity involves investment risks, including possible loss of value, even with respect to amounts allocated to the AST Money Market Sub-account. -------------------------------------------------------------------------------- THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ASAP 2008/SM/ AND PRUDENTIAL ARE SERVICE MARKS OR REGISTERED TRADEMARKS OF THE PRUDENTIAL INSURANCE COMPANY OF AMERICA AND ARE USED UNDER LICENSE BY ITS AFFILIATES. -------------------------------------------------------------------------------- FOR FURTHER INFORMATION CALL: 1-800-752-6342 Prospectus Dated: Statement of Additional , 2008 Information Dated: , 2008 PLEASE SEE OUR PRIVACY POLICY AND OUR IRA, ROTH IRA AND FINANCIAL DISCLOSURE STATEMENTS ATTACHED TO THE BACK COVER OF THIS PROSPECTUS. INVESTMENT OPTIONS Advanced Series Trust AST Advanced Strategies AST Aggressive Asset Allocation AST AllianceBernstein Core Value AST AllianceBernstein Growth & Income AST American Century Income & Growth AST American Century Strategic Allocation AST Balanced Asset Allocation AST Bond Portfolio 2015 AST Bond Portfolio 2018 AST Bond Portfolio 2019 AST Capital Growth Asset Allocation AST CLS Growth Asset Allocation AST CLS Moderate Asset Allocation AST Cohen & Steers Realty AST Conservative Asset Allocation AST DeAM Large-Cap Value AST DeAM Small-Cap Value AST Federated Aggressive Growth AST First Trust Balanced Target AST First Trust Capital Appreciation Target AST Goldman Sachs Concentrated Growth AST Goldman Sachs Mid-Cap Growth AST High Yield AST Horizon Growth Asset Allocation AST Horizon Moderate Asset Allocation AST International Growth AST International Value AST Investment Grade Bond AST JPMorgan International Equity AST Large-Cap Value AST Lord Abbett Bond Debenture AST Marsico Capital Growth AST MFS Global Equity AST MFS Growth AST Mid-Cap Value AST Money Market AST Neuberger Berman Mid-Cap Growth AST Neuberger Berman Mid-Cap Value AST Neuberger Berman Small-Cap Growth AST Niemann Capital Growth Asset Allocation AST PIMCO Limited Maturity Bond AST PIMCO Total Return Bond AST Preservation Asset Allocation AST QMA US Equity Alpha AST Small-Cap Growth AST Small-Cap Value AST T. Rowe Price Asset Allocation AST T. Rowe Price Global Bond AST T. Rowe Price Large-Cap Growth AST T. Rowe Price Natural Resources AST UBS Dynamic Alpha Strategy AST Western Asset Core Plus Bond INVESCO AIM Advisors, Inc. AIM V.I. Dynamics Fund -- Series I shares AIM V.I. Financial Services Fund -- Series I shares AIM V.I. Global Health Care Fund -- Series I shares AIM V.I. Technology Fund -- Series I shares Evergreen Variable Annuity Trust Growth International Equity Omega First Defined Portfolio Fund, LLC First Trust(R) Target Focus Four Global Dividend Target 15 NASDAQ(R) Target 15 S&P(R) Target 24 Target Managed VIP The Dow Target Dividend The Dow DART 10 Value Line(R) Target 25 Franklin Templeton Variable Insurance Product Trust Franklin Templeton VIP Founding Funds Allocation Fund Nationwide Variable Insurance Trust Gartmore NVIT Developing Markets Fund ProFund VP Access VP High Yield Asia 30 Banks Basic Materials Bear Biotechnology Bull Consumer Goods Consumer Services Europe 30 Financials Health Care Industrials Internet Japan Large-Cap Growth Large-Cap Value Mid-Cap Growth Mid-Cap Value NASDAQ-100 Oil & Gas Pharmaceuticals Precious Metals Real Estate Rising Rates Opportunity Semiconductor Short Mid-Cap Short NASDAQ-100 Short Small-Cap Small-Cap Growth Small-Cap Value Technology Telecommunications U.S. Government Plus UltraBull UltraMid-Cap UltraNASDAQ-100 UltraSmall-Cap Utilities Wells Fargo Variable Trust Wells Fargo Advantage VT Equity Income CONTENTS INTRODUCTION.............................................................................. 1 WHY WOULD I CHOOSE TO PURCHASE THE ANNUITY?............................................. 1 WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY?....................................... 1 HOW DO I PURCHASE THE ANNUITY?.......................................................... 2 GLOSSARY OF TERMS......................................................................... 3 SUMMARY OF CONTRACT FEES AND CHARGES...................................................... 5 EXPENSE EXAMPLES.......................................................................... 12 INVESTMENT OPTIONS........................................................................ 13 WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS?...................... 13 FEES AND CHARGES.......................................................................... 35 WHAT ARE THE CONTRACT FEES AND CHARGES?................................................. 35 WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYMENT OPTION?............................... 36 EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES............................................... 36 PURCHASING YOUR ANNUITY................................................................... 37 WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY?................................... 37 MANAGING YOUR ANNUITY..................................................................... 38 MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS?......................... 38 MAY I RETURN MY ANNUITY IF I CHANGE MY MIND?............................................ 38 MAY I MAKE ADDITIONAL PURCHASE PAYMENTS?................................................ 39 MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT?............................ 39 MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM?........................ 39 MANAGING YOUR ACCOUNT VALUE............................................................... 40 HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED?............................................ 40 ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?.............. 40 DO YOU OFFER DOLLAR COST AVERAGING?..................................................... 41 DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS?........................................ 42 ARE ANY ASSET ALLOCATION PROGRAMS AVAILABLE?............................................ 42 DO YOU OFFER PROGRAMS DESIGNED TO GUARANTEE A "RETURN OF PREMIUM" AT A FUTURE DATE?..... MAY I GIVE MY FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION INSTRUCTIONS?.... 42 MAY I AUTHORIZE MY THIRD PARTY INVESTMENT ADVISOR TO MANAGE MY ACCOUNT?................. 42 ACCESS TO ACCOUNT VALUE................................................................... 44 WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME?........................................ 44 ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS?........................................... 44 CAN I WITHDRAW A PORTION OF MY ANNUITY?................................................. 44 HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL?........................................... 44 CAN I MAKE PERIODIC WITHDRAWALS FROM MY ANNUITY DURING THE ACCUMULATION PERIOD?......... 45 DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTIONS 72(t) OF THE INTERNAL REVENUE CODE?.................................................................................. 45 WHAT ARE REQUIRED MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM?............. 45 CAN I SURRENDER MY ANNUITY FOR ITS VALUE?............................................... 45 WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY?............................. 46 WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE?............................................ 46 HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION?.................................... 47 HOW ARE ANNUITY PAYMENTS CALCULATED?.................................................... 47 LIVING BENEFIT PROGRAMS................................................................... 48 DO YOU OFFER PROGRAMS DESIGNED TO PROVIDE INVESTMENT PROTECTION FOR OWNERS WHILE THEY ARE ALIVE?............................................................................. 48 GUARANTEED RETURN OPTION PLUS 2008 (GRO PLUS 2008)...................................... 48 HIGHEST DAILY GUARANTEED RETURN OPTION (HD GRO)......................................... 52 GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB)............................................ 55 GUARANTEED MINIMUM INCOME BENEFIT (GMIB)................................................ 58
(i) LIFETIME FIVE/SM/ INCOME BENEFIT (LIFETIME FIVE)........................................ 62 SPOUSAL LIFETIME FIVE INCOME BENEFIT (SPOUSAL LIFETIME FIVE)............................ 67 HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT (HD7)....................................... 70 SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT (SHD7).............................. 79 DEATH BENEFIT............................................................................. 88 WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT?........................................... 88 BASIC DEATH BENEFIT..................................................................... 88 OPTIONAL DEATH BENEFITS................................................................. 88 PRUDENTIAL ANNUITIES' ANNUITY REWARDS................................................... 92 PAYMENT OF DEATH BENEFITS............................................................... 92 VALUING YOUR INVESTMENT................................................................... 95 HOW IS MY ACCOUNT VALUE DETERMINED?..................................................... 95 WHAT IS THE SURRENDER VALUE OF MY ANNUITY?.............................................. 95 HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS?............................................. 95 WHEN DO YOU PROCESS AND VALUE TRANSACTIONS?............................................. 95 TAX CONSIDERATIONS........................................................................ 97 GENERAL INFORMATION....................................................................... 105 HOW WILL I RECEIVE STATEMENTS AND REPORTS?.............................................. 105 WHO IS PRUDENTIAL ANNUITIES?............................................................ 105 WHAT ARE SEPARATE ACCOUNTS?............................................................. 106 WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS?.................................... 106 WHO DISTRIBUTES ANNUITIES OFFERED BY PRUDENTIAL ANNUITIES?.............................. 107 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE......................................... 110 FINANCIAL STATEMENTS.................................................................... 110 HOW TO CONTACT US....................................................................... 110 INDEMNIFICATION......................................................................... 111 LEGAL PROCEEDINGS....................................................................... 111 CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION..................................... 112 APPENDIX A - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B..................... A-1 APPENDIX B - CALCULATION OF OPTIONAL DEATH BENEFITS....................................... B-1 APPENDIX C - ADDITIONAL INFORMATION ON ASSET ALLOCATION PROGRAMS.......................... C-1 APPENDIX D - ASSET TRANSFER FORMULA UNDER GRO PLUS 2008 AND HIGHEST DAILY GRO............. D-1 APPENDIX E - ASSET TRANSFER FORMULA UNDER HIGHEST DAILY LIFETIME SEVEN AND SPOUSAL HIGHEST DAILY LIFETIME SEVEN.................................................... E-1
(ii) INTRODUCTION WHY WOULD I CHOOSE TO PURCHASE AN ANNUITY? The Annuity is frequently used for retirement planning because it allows you to accumulate retirement savings and also offer annuity payment options when you are ready to begin receiving income. The Annuity also offers a choice of different optional benefits, for an additional charge, that can provide principal protection or guaranteed minimum income protection for Owners while they are alive and one or more Death Benefits that can protect your retirement savings if you die during a period of declining markets. The Annuity may be used as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Roth IRA, Section 401(a) plans (defined benefit plans and defined contribution plans such as 401(k), profit sharing and money purchase plans) or Tax Sheltered annuities (or 403(b)). The Annuity may also be used as an investment vehicle for "non-qualified" investments. The Annuity allows you to invest your money in a number of Sub-accounts. When an Annuity is purchased as a "non-qualified" investment, you generally are not taxed on any investment gains the Annuity earns until you make a withdrawal or begin to receive annuity payments. This feature, referred to as "tax-deferral", can be beneficial to the growth of your Account Value because money that would otherwise be needed to pay taxes on investment gains each year remains invested and can earn additional money. However, because the Annuity is designed for long-term retirement savings, a 10% penalty tax may be applied on withdrawals you make before you reach age 59 1/2. Annuities purchased as a non-qualified investment are not subject to the maximum contribution limits that may apply to a qualified investment, and are not subject to required minimum distributions after age 70 1/2. When an Annuity is purchased as a "qualified" investment, you should consider that the Annuity does not provide any tax advantages in addition to the preferential treatment already available through your retirement plan under the Internal Revenue Code. In other words, you need not invest in an Annuity to gain the preferential tax treatment provided by your retirement plan. An Annuity, however, may offer features and benefits in addition to providing tax deferral that other investment vehicles may not offer, including Death Benefit protection for your beneficiaries, lifetime income options and the ability to make transfers between numerous variable investment options offered under the Annuity. You should consult with your Financial Professional as to whether the overall benefits and costs of the Annuity are appropriate considering your overall financial plan. WHAT ARE SOME OF THE KEY FEATURES OF THE ANNUITY? . The Annuity is a "flexible premium deferred annuity." It is called "flexible premium" because you have considerable flexibility in the timing and amount of Purchase Payments. Generally, investors "defer" receiving annuity payments until after an accumulation period. . The Annuity offers Sub-accounts. If you allocate your Account Value to Sub-accounts, the value of your Annuity will vary daily to reflect the investment performance of the underlying investment options. . The Annuity features two distinct periods - the accumulation period and the payout period. During the accumulation period your Account Value is allocated to one or more investment options. . During the payout period, commonly called "annuitization," you can elect to receive annuity payments (1) for life; (2) for life with a guaranteed minimum number of payments; (3) based on joint lives; or (4) for a guaranteed number of payments. We currently make annuity payments available on a fixed basis only. . The Annuity offers optional income benefits, for an additional charge, that can provide principal protection or guaranteed minimum income protection for Owners while they are alive. . The Annuity offers a basic Death Benefit. It also offers optional Death Benefits that provide an enhanced level of protection for your beneficiary(ies) for an additional charge. . You are allowed to withdraw a limited amount of money from the Annuity on an annual basis without any charges, although any optional guaranteed benefit you elect may be reduced. Other product features allow you to access your Account Value as necessary, although a charge may apply. . Transfers between investment options are tax-free. Currently, you may make twenty transfers each year free of charge. We also offer several programs that enable you to manage your Account Value as your financial needs and investment performance change. In the Summary Of Contract Fees And Charges appearing later in this prospectus, we set out the charges under this Annuity. In general, these charges consist of (a) asset-based charges that are assessed daily (e.g., the mortality and expense risk charge) (b) charges that we impose upon certain transactions that you initiate (e.g., the sales charge that may be imposed if you take a 1 withdrawal) (c) charges for optional benefits, that are computed either as an asset-based charge or as a charge against the protected value under the benefit. By looking at the Expense Examples section, you can see the cost, in dollar terms, of the most expensive combination of these charges. We offer many optional benefits under this Annuity. You are not required to select any of these benefits. Broadly speaking, these optional benefits fall into the following categories: . Guaranteed Minimum Accumulation Benefits (GRO Plus 2008 and Highest Daily GRO). These benefits guarantee your Account Value at specified points in the future. Thus, these benefits may be worthwhile if you need to assure that a specified Account Value will be present several years later. . Guaranteed Minimum Withdrawal Benefits (GMWB, Lifetime Five, Spousal Lifetime Five, Highest Daily Lifetime Seven, and Spousal Highest Daily Lifetime Seven). Under each of these benefits, we guarantee a specified "protected withdrawal value" that is available for withdrawals even if your Account Value has declined to less than the protected withdrawal value. Under the "lifetime" withdrawal benefits, we guarantee that you can withdraw the specified amount over a lifetime. These benefits may appeal to those anticipating withdrawals from their Annuity and wishing to assure certain withdrawal amounts. . Guaranteed Minimum Income Benefit (GMIB). Under GM1B, we guarantee that the amount you apply towards annuitization will be no less than a specified amount. GMIB thus may be desirable if you want to lock in a certain level of annuity payments. . Optional Death Benefits (Highest Daily Value, Highest Anniversary Value, Combination 5 percent roll-up/HAV, EBP). These options guarantee a certain death benefit amount, even if Account Value has declined by the date of death. HOW DO I PURCHASE THE ANNUITY? We sell the Annuity through licensed, registered Financial Professionals. Unless we agree otherwise and subject to our rules, the Annuity has a minimum initial Purchase Payment of $10,000. We may allow you to make a lower initial Purchase Payment provided you establish an electronic funds transfer under which Purchase Payments received in the first Annuity Year total at least the minimum initial Purchase Payment for the Annuity purchased. Unless we agree otherwise and subject to our rules, if the Annuity is owned by an individual or individuals, the oldest of those Owners must not be older than a maximum issue age of 85 as of the Issue Date of the Annuity. If the Annuity is owned by an entity, the annuitant must not be older than the maximum issue age, as of the Issue Date of the Annuity unless we agree otherwise. The availability and level of protection of certain optional benefits may vary based on the age of the Owner or Annuitant on the Issue Date of the Annuity, the date the benefit is elected, or the date of the Owner's death. 2 GLOSSARY OF TERMS Many terms used within this Prospectus are described within the text where they appear. The description of those terms are not repeated in this Glossary of Terms. Account Value: The value of each allocation to a Sub-account (also referred to as a "variable investment option"), plus any earnings, and/or less any losses, distributions and charges. The Account Value is calculated before we assess any applicable Contingent Deferred Sales Charge ("CDSC" or "surrender charge") and/or, other than on an annuity anniversary, any fee that is deducted from the Annuity annually in arrears. The Account Value is determined separately for each Sub-account, and then totaled to determine the Account Value for your entire Annuity. Annuitization: The application of Account Value to one of the available annuity options for the Owner to begin receiving periodic payments for life (or joint lives), for a guaranteed minimum number of payments or for life with a guaranteed minimum number of payments. Annuity Date: The date you choose for annuity payments to commence. Unless we agree otherwise, the Annuity Date must be no later than the first day of the calendar month coinciding with or next following the later of: (a) the oldest Owner's or Annuitant's 95/th/ birthday, whichever occurs first, and (b) the fifth anniversary of the Issue Date. Annuity Year: A 12-month period commencing on the Issue Date of the Annuity and each successive 12-month period thereafter. Code: The Internal Revenue Code of 1986, as amended from time to time. Combination 5% Roll-Up and HAV Death Benefit: We offer an optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing the greater of the Highest Anniversary Value Death Benefit and a 5% annual increase on Purchase Payments adjusted for withdrawals. Contingent Deferred Sales Charge (CDSC): This is a sales charge that may be deducted when you make a full or partial withdrawal under your Annuity. We refer to this as a "contingent" charge because it is imposed only if you make a withdrawal. The charge is a percentage of each applicable Purchase Payment that is being withdrawn. The period during which a particular percentage applies is measured from the Issue Date of the Annuity. See "Summary of Contract Fees and Charges" for details on the CDSC. Enhanced Beneficiary Protection Death Benefit: We offer an Optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing amounts in addition to the basic Death Benefit that can be used to offset federal and state taxes payable on any taxable gains in your Annuity at the time of your death. Free Look: Under state insurance laws, you have the right, during a limited period of time, to examine your Annuity and decide if you want to keep it or cancel it. This right is referred to as your "free look" right. The length of this time period depends on the law of your state, and may vary depending on whether your purchase is a replacement or not. Check your Annuity contract for more details about your free look right. Guaranteed Minimum Income Benefit (GMIB): We offer an optional benefit that, for an additional cost, after a seven-year waiting period, guarantees your ability to begin receiving income from your Annuity in the form of annuity payments based on your total Purchase Payments and an annual increase of 5% on such Purchase Payments adjusted for withdrawals (called the "Protected Income Value"), regardless of the impact of market performance on your Account Value. Guaranteed Minimum Withdrawal Benefit (GMWB): We offer an optional benefit that, for an additional cost, guarantees your ability to withdraw amounts over time equal to an initial principal value, regardless of the impact of market performance on your Account Value. Guaranteed Return Option 2008 (GRO 2008)/Highest Daily Guaranteed Return Option (Highest Daily GRO): Each of GRO 2008 and Highest Daily GRO is a separate optional benefit that, for an additional cost, guarantees a minimum Account Value at one or more future dates and that requires your participation in an asset transfer program. Highest Anniversary Value Death Benefit ("HAV"): We offer an optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing a death benefit equal to the greater of the basic Death Benefit and the Highest Anniversary Value, less proportional withdrawals. 3 Highest Daily Lifetime Seven Income Benefit: An optional feature available for an additional charge that guarantees your ability to withdraw amounts equal to a percentage of a principal value called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. Highest Daily Value Death Benefit ("HDV"): We offer an optional Death Benefit that, for an additional cost, provides an enhanced level of protection for your beneficiary(ies) by providing a death benefit equal to the greater of the basic Death Benefit and the Highest Daily Value, less proportional withdrawals. Issue Date: The effective date of your Annuity. Lifetime Five Income Benefit: We offer an optional benefit that, for an additional cost, guarantees your ability to withdraw an annual amount equal to a percentage of an initial principal value called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. Owner: With an Annuity issued as an individual annuity contract, the Owner is either an eligible entity or person named as having ownership rights in relation to the Annuity. With an Annuity issued as a certificate under a group annuity contract, the "Owner" refers to the person or entity who has the rights and benefits designated as to the "Participant" in the certificate. Spousal Highest Daily Lifetime Seven Income Benefit: The spousal version of the Highest Daily Lifetime Seven Income Benefit. Spousal Highest Daily Lifetime Seven is the same class of optional benefit as our Spousal Lifetime Five Income Benefit, but differs (among other things) with respect to how the Protected Withdrawal Value is calculated and how the lifetime withdrawals are calculated. Spousal Lifetime Five Income Benefit: We offer an optional benefit that, for an additional cost, guarantees until the later death of two Designated Lives (as defined in this Prospectus) the ability to withdraw an annual amount equal to a percentage of an initial principal value called the Protected Withdrawal Value. Subject to our rules regarding the timing and amount of withdrawals, we guarantee these withdrawal amounts, regardless of the impact of market performance on your Account Value. Sub-Account: We issue your Annuity through our separate account. See "What is the Separate Account?" under the General Information section. The separate account invests in underlying mutual fund portfolios. From an accounting perspective, we divide the separate account into a number of sections, each of which corresponds to a particular underlying mutual fund portfolio. We refer to each such section of our separate account as a "Sub-account". Surrender Value: The value of your Annuity available upon surrender prior to the Annuity Date. It equals the Account Value as of the date we price the surrender minus any applicable CDSC, Annual Maintenance Fee, Tax Charge and the charge for any optional benefits and any additional amounts we applied to your Purchase Payments that we may be entitled to recover under certain circumstances. Unit: A measure used to calculate your Account Value in a Sub-account during the accumulation period. Valuation Day: Every day the New York Stock Exchange is open for trading or any other day the Securities and Exchange Commission requires mutual funds or unit investment trusts to be valued. 4 SUMMARY OF CONTRACT FEES AND CHARGES Below is a summary of the fees and charges for the Annuity. Some fees and charges are assessed against the Annuity while others are assessed against assets allocated to the Sub-accounts. The fees and charges that are assessed against an Annuity include any applicable Contingent Deferred Sales Charge, Transfer Fee, Tax Charge and Annual Maintenance Fee. The charges that are assessed against the Sub-accounts are the Mortality and Expense Risk charge, the charge for Administration of the Annuity, and the charge for certain optional benefits you elect, other than the Guaranteed Minimum Income Benefit, Highest Daily Lifetime Seven and Spousal Highest Daily Lifetime Seven, which are assessed against the Protected Income Value and Protected Withdrawal Value, respectively. Each underlying mutual fund portfolio assesses a fee for investment management, other expenses and, with some mutual funds, a 12b-1 fee. The prospectus for each underlying mutual fund provides more detailed information about the expenses for the underlying mutual funds. The following tables provide a summary of the fees and charges you will pay if you surrender your Annuity or transfer Account Value among investment options. These fees and charges are described in more detail within this Prospectus. CONTINGENT DEFERRED SALES CHARGES FOR THE ANNUITY /1/ Yr. 1 Yr. 2 Yr. 3 Yr. 4 Yr. 5 Yr. 6 Yr. 7 Yr. 8+ ------------------------------------------------ 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% ------------------------------------------------ 1 The Contingent Deferred Sales Charges are assessed upon surrender or withdrawal. The charge is a percentage of each applicable Purchase Payment deducted upon surrender or withdrawal. The period during which a particular percentage applies is measured from the Issue Date of the Annuity.
---------------------------------- OTHER TRANSACTION FEES AND CHARGES (assessed against the Annuity) ---------------------------------- FEE/CHARGE ASAP 2008 ---------------------------------- Transfer Fee /1/ $15.00 maximum currently, $10.00 ---------------------------------- Tax Charge /2/ 0% to 3.5% ----------------------------------
1 Currently, we deduct the fee after the 20th transfer each Annuity Year. We guarantee that the number of charge free transfers per Annuity Year will never be less than 8. 2 This charge is deducted generally at the time you annuitize your Annuity. The following table provides a summary of the periodic fees and charges you will pay while you own your Annuity, excluding the underlying mutual fund Portfolio annual expenses. These fees and charges are described in more detail within this Prospectus.
--------------------------------------------------------------------------------- PERIODIC FEES AND CHARGES (assessed against the Annuity) --------------------------------------------------------------------------------- FEE/CHARGE ASAP 2008 Annual Maintenance Fee /1/ Lesser of $35 or 2% of Account Value/ 2/ ---------------------------------------- Beneficiary Continuation Option Only Lesser of $30 or 2% --------------------------------------------------------------------------------- ANNUAL FEES/CHARGES OF THE SUB-ACCOUNTS/ 3/ (assessed as a percentage of the daily net assets of the Sub-accounts) --------------------------------------------------------------------------------- FEE/CHARGE Mortality & Expense Risk Charge /4/ 0.80% --------------------------------------------------------------------------------- Administration Charge /4/ 0.15% --------------------------------------------------------------------------------- Settlement Service Charge /5/ 1.40% (qualified); 1.00% (non-qualified) --------------------------------------------------------------------------------- Total Annual Charges of the Sub-accounts .95% ---------------------------------------------------------------------------------
1. Assessed annually on the Annuity's anniversary date or upon surrender. For beneficiaries who elect the non-qualified Beneficiary Continuation Option, the fee is only applicable if Account Value is less than $25,000. 2. Only applicable if Account Value is less than $100,000. 3. These charges are deducted daily and apply to the Sub-accounts only. 4. The combination of the Mortality and Expense Risk Charge and Administration Charge is referred to as the "Insurance Charge" elsewhere in this Prospectus. 5 5. The Mortality & Expense Risk Charge and the Administration Charge do not apply if you are a beneficiary under the Beneficiary Continuation Option. The Settlement Service Charge applies only if your beneficiary elects the Beneficiary Continuation Option. The 1.00% and 1.40% charges set forth above are annual charges that are assessed against the Account Value in the Sub-accounts. The following table sets forth the charge for each optional benefit under the Annuity. These fees would be in addition to the periodic fees and transaction fees set forth in the tables above.
------------------------------------------------------------------ YOUR OPTIONAL BENEFIT FEES AND CHARGES ------------------------------------------------------------------ OPTIONAL BENEFIT OPTIONAL TOTAL BENEFIT FEE/ ANNUAL CHARGE CHARGE/ 1/ ------------------------------------------------------------------ GUARANTEED RETURN OPTION PLUS 2008 0.75% maximum 1.30% (GRO Plus) charge/ 2/ 0.35% current charge ------------------------------------------------------------------ HIGHEST DAILY GUARANTEED RETURN 0.75% maximum 1.30% OPTION (HD GRO) charge/ 2/ 0.35% current charge ------------------------------------------------------------------ GUARANTEED MINIMUM WITHDRAWAL BENEFIT 1.00% maximum 1.30% (GMWB) charge/ 2/ 0.35% current charge ------------------------------------------------------------------ GUARANTEED MINIMUM INCOME BENEFIT 1.00% maximum 0.95% + (GMIB) charge/ 2/ 0.50% of 0.50% current PIV charge ------------------------------------------------------------------ LIFETIME FIVE/SM /INCOME BENEFIT 1.50% maximum 1.55% charge/ 2/ 0.60% current charge ------------------------------------------------------------------ SPOUSAL LIFETIME FIVE INCOME BENEFIT 1.50% maximum 1.70% charge/ 2/ 0.75% current charge ------------------------------------------------------------------ HIGHEST DAILY LIFETIME SEVEN INCOME 1.50% maximum 0.95% + BENEFIT charge/ 2/ 0.60% of 0.60% current PWV charge ------------------------------------------------------------------ HIGHEST DAILY LIFETIME SEVEN 2.00% maximum/2/ 0.95% + W/BENEFICIARY INCOME OPTION 0.95% current 0.95% of charge PWV ------------------------------------------------------------------ SPOUSAL HIGHEST DAILY LIFETIME SEVEN 2.00% maximum/2/ 0.95% + W/BENEFICIARY INCOME OPTION 0.95% current 0.95% of charge PWV ------------------------------------------------------------------ HIGHEST DAILY LIFETIME SEVEN 2.00% maximum/2 0.95% + W/LIFETIME INCOME ACCELERATOR /0.95% current 0.95% of charge PWV ------------------------------------------------------------------ SPOUSAL HIGHEST DAILY LIFETIME SEVEN 1.50% maximum 0.95% + INCOME BENEFIT charge/ 2/ 0.75% of 0.75% current PWV charge ------------------------------------------------------------------ ENHANCED BENEFICIARY PROTECTION DEATH 0.25% 1.20% BENEFIT ------------------------------------------------------------------ HIGHEST ANNIVERSARY VALUE DEATH 0.25% 1.20% BENEFIT (HAV) ------------------------------------------------------------------ COMBINATION 5% ROLL-UP AND HAV DEATH 0.50% 1.45% BENEFIT ------------------------------------------------------------------ HIGHEST DAILY VALUE DEATH BENEFIT 0.50% 1.45% (HDV) ------------------------------------------------------------------ LIFETIME FIVE, HIGHEST DAILY VALUE 1.35% current DEATH BENEFIT, EBP DEATH BENEFIT charge (MAXIMUM COMBINATION OF CHARGES) ------------------------------------------------------------------
1 The Total Annual Charge includes the Insurance Charge assessed against the average daily net assets allocated to the Sub-accounts. If you elect more than one optional benefit, the Total Annual Charge would be increased to include the charge for each optional benefit. With respect to GMIB, the 0.50% current 6 charge is assessed against the average GMIB Protected Income Value. With respect to each of Highest Daily Lifetime Seven, Spousal Highest Daily Lifetime Seven, Highest Daily Lifetime Seven with Beneficiary Income Option, Spousal Highest Daily Lifetime Seven with Beneficiary Income Option and Highest Daily Lifetime Seven with Lifetime Income Accelerator, the charge is assessed against the Protected Withdrawal Value and one-fourth of the annual charge is deducted at the end of each quarter, where the quarters are part of years that have as their anniversary the date that the benefit was elected. These optional benefits are not available under the Beneficiary Continuation Option. Highest Daily GRO: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 1.30%. Guaranteed Minimum Withdrawal Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 1.30%. Guaranteed Minimum Income Benefit: Charge for this benefit is assessed against the GMIB Protected Income Value ("PIV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts and the Fixed Allocations. The charge is 0.50% of PIV for GMIB and is in addition to 0.95% annual charge. Lifetime Five Income Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 1.55%. Spousal Lifetime Five Income Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 1.70%. Highest Daily Lifetime Seven: Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. The charge is 0.60% of PWV and is in addition to 0.95% annual charge. Highest Daily Lifetime Seven With Beneficiary Income Option. Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. The charge is 0.95% of PWV and is in addition to 0.95% annual charge. Highest Daily Lifetime Seven With Lifetime Income Accelerator. Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. The charge is 0.95% of PWV and is in addition to 0.95% annual charge. Spousal Highest Daily Lifetime Seven: Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. The charge is 0.75% of PWV and is in addition to 0.95% annual charge. Spousal Highest Daily Lifetime Seven With Beneficiary Income Option. Charge for this benefit is assessed against the Protected Withdrawal Value ("PWV"). As discussed in the description of the benefit, the charge is taken out of the Sub-accounts. The charge is 0.95% of PWV and is in addition to 0.95% annual charge. Enhanced Beneficiary Protection Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 1.20%. Highest Anniversary Value Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 1.20%. Combination 5% roll-up and HAV Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 1.45%. Highest Daily Value Death Benefit: Charge for this benefit is assessed against the average daily net assets of the Sub-accounts. The total annual charge is 1.45%. 2 We reserve the right to increase the charge to the maximum charge indicated, upon any step-up or reset under the benefit, or new election of the benefit. However, we have no present intention of doing so. The following table provides the range (minimum and maximum) of the total annual expenses for the underlying mutual funds ("Portfolios") as of December 31, 2007. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets.
------------------------------------------------- TOTAL ANNUAL PORTFOLIO OPERATING EXPENSES ------------------------------------------------- MINIMUM MAXIMUM ------------------------------------------------- Total Portfolio Operating Expense 0.59% 2.11% -------------------------------------------------
The following are the total annual expenses for each underlying mutual fund ("Portfolio") as of December 31, 2007, except as noted. The "Total Annual Portfolio Operating Expenses" reflect the combination of the underlying Portfolio's investment management fee, other expenses and any 12b-1 fees. Each figure is stated as a percentage of the underlying Portfolio's average daily net assets. There is no guarantee that actual expenses will be the same as those shown in the table. For certain of the underlying Portfolios, a portion of the management fee has been waived and/or other expenses have been partially reimbursed. The existence of any such fee waivers and/or reimbursements have been reflected in the footnotes. The following expenses are deducted by the underlying Portfolio before it provides Prudential Annuities with the daily net asset value. The underlying Portfolio information was provided by the underlying mutual funds and has not been independently verified by us. See the prospectuses or statements of additional information of the underlying Portfolios for further details. The current prospectus and statement of additional information for the underlying Portfolios can be obtained by calling 1-800-752-6342. 7
------------------------------------------------------------------------------------------------------- UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES (as a percentage of the average net assets of the underlying Portfolios) ------------------------------------------------------------------------------------------------------- For the year ended December 31, 2007 --------------------------------------------------- UNDERLYING PORTFOLIO Acquired Total Portfolio Annual Management Other Fees & Portfolio Fee /4/ Expenses 12b-1 Fee Expenses /6/ Expenses ------------------------------------------------------------------------------------------------------- Advanced Series Trust /1,3/ AST Advanced Strategies 0.85% 0.15% 0.00% 0.04% 1.04% AST Aggressive Asset Allocation /2/ 0.15% 0.03% 0.00% 0.96% 1.14% AST AllianceBernstein Core Value 0.75% 0.11% 0.00% 0.00% 0.86% AST AllianceBernstein Growth & Income 0.75% 0.08% 0.00% 0.00% 0.83% AST American Century Income & Growth 0.75% 0.11% 0.00% 0.00% 0.86% AST American Century Strategic Allocation 0.85% 0.25% 0.00% 0.00% 1.10% AST Balanced Asset Allocation /2/ 0.15% 0.01% 0.00% 0.90% 1.06% AST Bond Portfolio 2015 /5/ 0.65% 0.99% 0.00% 0.00% 1.64% AST Bond Portfolio 2018 /5/ 0.65% 0.99% 0.00% 0.00% 1.64% AST Bond Portfolio 2019 /5/ 0.65% 0.99% 0.00% 0.00% 1.64% AST Capital Growth Asset Allocation /2/ 0.15% 0.01% 0.00% 0.93% 1.09% AST CLS Growth Asset Allocation /2,5/ 0.30% 0.36% 0.00% 0.99% 1.65% AST CLS Moderate Asset Allocation /2,5/ 0.30% 0.36% 0.00% 0.91% 1.57% AST Cohen & Steers Realty Portfolio 1.00% 0.12% 0.00% 0.00% 1.12% AST Conservative Asset Allocation /2/ 0.15% 0.02% 0.00% 0.87% 1.04% AST DeAM Large-Cap Value 0.85% 0.11% 0.00% 0.00% 0.96% AST DeAM Small-Cap Value 0.95% 0.18% 0.00% 0.00% 1.13% AST Federated Aggressive Growth 0.95% 0.11% 0.00% 0.00% 1.06% AST First Trust Balanced Target 0.85% 0.11% 0.00% 0.00% 0.96% AST First Trust Capital Appreciation Target 0.85% 0.11% 0.00% 0.00% 0.96% AST Goldman Sachs Concentrated Growth 0.90% 0.10% 0.00% 0.00% 1.00% AST Goldman Sachs Mid-Cap Growth 1.00% 0.12% 0.00% 0.00% 1.12% AST High Yield 0.75% 0.12% 0.00% 0.00% 0.87% AST Horizon Growth Asset Allocation /2,5/ 0.30% 0.84% 0.00% 0.97% 2.11% AST Horizon Moderate Asset Allocation /2,5/ 0.30% 0.57% 0.00% 0.90% 1.77% AST International Growth 1.00% 0.11% 0.00% 0.00% 1.11% AST International Value 1.00% 0.12% 0.00% 0.00% 1.12% AST Investment Grade Bond /5/ 0.65% 0.99% 0.00% 0.00% 1.64% AST JPMorgan International Equity 0.87% 0.13% 0.00% 0.00% 1.00% AST Large-Cap Value 0.75% 0.08% 0.00% 0.00% 0.83% AST Lord Abbett Bond-Debenture 0.80% 0.11% 0.00% 0.00% 0.91% AST Marsico Capital Growth 0.90% 0.08% 0.00% 0.00% 0.98% AST MFS Global Equity 1.00% 0.21% 0.00% 0.00% 1.21% AST MFS Growth 0.90% 0.12% 0.00% 0.00% 1.02% AST Mid-Cap Value 0.95% 0.14% 0.00% 0.00% 1.09% AST Money Market 0.50% 0.09% 0.00% 0.00% 0.59% AST Neuberger Berman Mid-Cap Growth 0.90% 0.10% 0.00% 0.00% 1.00% AST Neuberger Berman Mid-Cap Value 0.89% 0.10% 0.00% 0.00% 0.99% AST Neuberger Berman Small-Cap Growth 0.95% 0.12% 0.00% 0.00% 1.07% AST Niemann Capital Growth Asset Allocation /2,5/ 0.30% 0.50% 0.00% 0.96% 1.76% AST PIMCO Limited Maturity Bond 0.65% 0.11% 0.00% 0.00% 0.76% AST PIMCO Total Return Bond 0.65% 0.09% 0.00% 0.00% 0.74% AST Preservation Asset Allocation/ 2/ 0.15% 0.03% 0.00% 0.82% 1.00% AST QMA US Equity Alpha 1.00% 0.63% 0.00% 0.00% 1.63% AST Small-Cap Growth 0.90% 0.15% 0.00% 0.00% 1.05% AST Small-Cap Value 0.90% 0.10% 0.00% 0.00% 1.00% AST T. Rowe Price Asset Allocation 0.85% 0.12% 0.00% 0.00% 0.97% AST T. Rowe Price Global Bond 0.80% 0.13% 0.00% 0.00% 0.93% AST T. Rowe Price Large-Cap Growth 0.88% 0.08% 0.00% 0.00% 0.96% AST T. Rowe Price Natural Resources 0.90% 0.10% 0.00% 0.00% 1.00% AST UBS Dynamic Alpha Strategy 1.00% 0.13% 0.00% 0.02% 1.15% AST Western Asset Core Plus Bond /5/ 0.70% 0.10% 0.00% 0.02% 0.82%
8
---------------------------------------------------------------------------------------------------------------- UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES (as a percentage of the average net assets of the underlying Portfolios) ---------------------------------------------------------------------------------------------------------------- For the year ended December 31, 2007 --------------------------------------------------- UNDERLYING PORTFOLIO Acquired Total Portfolio Annual Management Other Fees & Portfolio Fee /4/ Expenses 12b-1 Fee Expenses /6/ Expenses ---------------------------------------------------------------------------------------------------------------- AIM Variable Insurance Funds /7,8,9/ AIM V.I. Dynamics Fund - Series I shares 0.75% 0.36% 0.00% 0.00% 1.11% AIM V.I. Financial Services Fund - Series I shares 0.75% 0.36% 0.00% 0.00% 1.11% AIM V.I. Global Health Care Fund - Series I shares 0.75% 0.32% 0.00% 0.01% 1.08% AIM V.I. Technology Fund - Series I shares 0.75% 0.35% 0.00% 0.01% 1.11% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Evergreen Variable Annuity Trust /10/ Growth 0.70% 0.20% 0.00% 0.01% 0.91% International Equity 0.39% 0.24% 0.00% 0.00% 0.63% Omega 0.52% 0.19% 0.00% 0.00% 0.71% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- First Defined Portfolio Fund, LLC First Trust(R) Target Focus Four /11/ 0.60% 1.07% 0.25% 0.00% 1.92% Global Dividend Target 15 0.60% 0.54% 0.25% 0.00% 1.39% NASDAQ(R) Target 15 0.60% 0.91% 0.25% 0.00% 1.76% S&P(R) Target 24 0.60% 0.70% 0.25% 0.00% 1.55% Target Managed VIP 0.60% 0.50% 0.25% 0.00% 1.35% The Dow(R) DART 10 0.60% 0.71% 0.25% 0.00% 1.56% The Dow(R) Target Dividend 0.60% 0.51% 0.25% 0.00% 1.36% Value Line(R) Target 25 0.60% 0.56% 0.25% 0.00% 1.41% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Franklin Templeton Variable Insurance Products Trust Franklin Templeton VIP Founding Funds Allocation Fund /12/ 0.00% 0.41% 0.35% 0.65% 1.41% Management and administration fee waivers/reductions: 0.28% Net expenses after fee reimbursement/expense waiver: 1.13% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- Nationwide Variable Insurance Trust Gartmore NVIT Developing Markets Fund /13/ 1.05% 0.35% 0.25% N/A 1.65% ---------------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------------- ProFund VP /14/ Access VP High Yield 0.75% 0.88% 0.25% 0.00% 1.88% Asia 30 0.75% 0.64% 0.25% 0.00% 1.64% Banks 0.75% 0.91% 0.25% 0.00% 1.91% Basic Materials 0.75% 0.71% 0.25% 0.00% 1.71% Bear 0.75% 0.70% 0.25% 0.00% 1.70% Biotechnology 0.75% 0.76% 0.25% 0.00% 1.76% Bull 0.75% 0.67% 0.25% 0.00% 1.67% Consumer Goods 0.75% 0.82% 0.25% 0.00% 1.82% Consumer Services 0.75% 1.07% 0.25% 0.00% 2.07% Europe 30 0.75% 0.66% 0.25% 0.00% 1.66% Financials 0.75% 0.74% 0.25% 0.00% 1.74% Health Care 0.75% 0.72% 0.25% 0.00% 1.72% Industrials 0.75% 0.84% 0.25% 0.00% 1.84% Internet 0.75% 0.75% 0.25% 0.00% 1.75% Japan 0.75% 0.68% 0.25% 0.00% 1.68% Large-Cap Growth 0.75% 0.70% 0.25% 0.00% 1.70% Large-Cap Value 0.75% 0.72% 0.25% 0.00% 1.72% Mid-Cap Growth 0.75% 0.70% 0.25% 0.00% 1.70% Mid-Cap Value 0.75% 0.72% 0.25% 0.00% 1.72% NASDAQ-100 0.75% 0.69% 0.25% 0.00% 1.69%
9
------------------------------------------------------------------------------------------------- UNDERLYING MUTUAL FUND PORTFOLIO ANNUAL EXPENSES (as a percentage of the average net assets of the underlying Portfolios) ------------------------------------------------------------------------------------------------- For the year ended December 31, 2007 --------------------------------------------------- UNDERLYING PORTFOLIO Acquired Total Portfolio Annual Management Other Fees & Portfolio Fee /4/ Expenses 12b-1 Fee Expenses /6/ Expenses ------------------------------------------------------------------------------------------------- ProFund VP /14/ continued Oil & Gas 0.75% 0.71% 0.25% 0.00% 1.71% Pharmaceuticals 0.75% 0.73% 0.25% 0.00% 1.73% Precious Metals 0.75% 0.70% 0.25% 0.00% 1.70% Real Estate 0.75% 0.73% 0.25% 0.00% 1.73% Rising Rates Opportunity 0.75% 0.62% 0.25% 0.00% 1.62% Semiconductor 0.75% 0.83% 0.25% 0.00% 1.83% Short Mid-Cap 0.75% 0.78% 0.25% 0.00% 1.78% Short NASDAQ-100 0.75% 0.71% 0.25% 0.00% 1.71% Short Small-Cap 0.75% 0.66% 0.25% 0.00% 1.66% Small-Cap Growth 0.75% 0.69% 0.25% 0.00% 1.69% Small-Cap Value 0.75% 0.76% 0.25% 0.00% 1.76% Technology 0.75% 0.72% 0.25% 0.00% 1.72% Telecommunications 0.75% 0.72% 0.25% 0.00% 1.72% U.S. Government Plus 0.50% 0.68% 0.25% 0.00% 1.43% UltraBull 0.75% 0.68% 0.25% 0.00% 1.68% UltraMid-Cap 0.75% 0.69% 0.25% 0.00% 1.69% UltraNASDAQ-100 0.75% 0.69% 0.25% 0.00% 1.69% UltraSmall-Cap 0.75% 0.73% 0.25% 0.00% 1.73% Utilities 0.75% 0.72% 0.25% 0.00% 1.72% ------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------- Wells Fargo Variable Trust Wells Fargo Advantage VT Equity Income Fund 0.55% 0.24% 0.25% 0.00% 1.04%
1 The Fund has entered into arrangements with the issuers of the variable insurance products offering the Portfolios under which the Fund compensates the issuers 0.10% for providing ongoing services to Portfolio shareholders in lieu of the Fund providing such services directly to shareholders. Amounts paid under these arrangements are included in "Other Expenses." Subject to the expense limitations set forth below, for each Portfolio of the Fund other than the Dynamic and Tactical Asset Allocation Portfolios, 0.03% of the 0.10% administrative services fee is voluntarily waived. The Dynamic and Tactical Asset Allocation Portfolios do not directly pay any portion of the 0.10% administrative service fee. The Acquired Portfolios in which the Dynamic and Tactical Asset Allocation Portfolios invest, however, are subject to the administrative services fee. With respect to the AST QMA US Equity Alpha Portfolio, "Other Expenses" includes dividend expenses on short sales and interest expenses on short sales. Our reference above to the Dynamic Asset Allocation Portfolios refers to these portfolios: AST Aggressive Asset Allocation, AST Balanced Asset Allocation, AST Capital Growth Asset Allocation, AST Conservative Asset Allocation, and AST Preservation Asset Allocation. Our reference to the Tactical Asset Allocation Portfolios refers to these portfolios: AST CLS Growth Asset Allocation, AST CLS Moderate Asset Allocation, AST Horizon Growth Asset Allocation, AST Horizon Moderate Asset Allocation, and AST Niemann Capital Growth Asset Allocation. 2 Some of the Portfolios invest in other investment companies (the Acquired Portfolios). For example, each Dynamic Asset Allocation Portfolio and Tactical Asset Allocation Portfolio invests primarily in shares of other Portfolios of Advanced Series Trust. Investors in a Portfolio indirectly bear the fees and expenses of the Acquired Portfolios. The expenses shown under "Acquired Portfolio Fees and Expenses" represent a weighted average of the expense ratios of the Acquired Portfolios in which each Portfolio invested during the year ended December 31, 2007. The Dynamic Asset Allocation Portfolios and Tactical Asset Allocation Portfolios do not pay any transaction fees when purchasing or redeeming shares of the Acquired Portfolios. Our reference above to the Dynamic Asset Allocation Portfolios refers to these portfolios: AST Aggressive Asset Allocation, AST Balanced Asset Allocation, AST Capital Growth Asset Allocation, AST Conservative Asset Allocation, and AST Preservation Asset Allocation. Our reference to the Tactical Asset Allocation Portfolios refers to these portfolios: AST CLS Growth Asset Allocation, AST CLS Moderate Asset Allocation, AST Horizon Growth Asset Allocation, AST Horizon Moderate Asset Allocation, and AST Niemann Capital Growth Asset Allocation. 3 Prudential Investments LLC and AST Investment Services, Inc. have voluntarily agreed to waive a portion of their management fee and/or limit total expenses (expressed as an annual percentage of average daily net assets) for certain Portfolios of the Fund. These arrangements, which are set forth as follows, may be discontinued or otherwise modified at any time. AST American Century Strategic Allocation: 1.25%; AST Cohen & Steers Realty: 1.45%; AST DeAM Small-Cap Value: 1.14%; AST Goldman Sachs Concentrated Growth: 0.86%; AST Goldman Sachs Mid-Cap Growth: 1.12%; AST High Yield: 0.88%; AST JPMorgan International Equity: 1.01%; AST International Value: 1.50%; AST Large-Cap Value: 1.20%; AST Lord Abbett Bond-Debenture: 0.88%; AST MFS Global Equity: 1.18%; AST MFS Growth: 1.35%; AST Marsico Capital Growth: 1.35%; AST Mid-Cap Value: 1.45%; AST Money Market: 0.56%; AST Neuberger Berman Mid-Cap Growth: 1.25%; AST Neuberger Berman Mid-Cap Value: 1.25%; AST PIMCO Total Return Bond: contractual Portfolio expense limit 1.05%, which can be discontinued or modified only by amending the contract; AST PIMCO Limited Maturity Bond: 1.05%; AST T. Rowe Price Asset Allocation: 1.25%; AST T. Rowe Price Natural Resources: 1.35%; AST International Growth: 1.75%. 4 The management fee rate shown in the "management fees" column represents the actual fee rate paid by the indicated Portfolio for the fiscal year ended December 31, 2007, except that the fee rate shown does not reflect the impact of any voluntary management fee waivers that may be applicable and which would result in a reduction in the fee rate paid by the Portfolio. The management fee rate for certain Portfolios may include "breakpoints" which are reduced fee rates that are applicable at specified levels of Portfolio assets; the effective fee rates shown in the table reflect and incorporate any fee "breakpoints" which may be applicable. 10 5 The Tactical Asset Allocation Portfolios and Western Asset Core Plus Bond Portfolio are based on estimated expenses for 2008 and current period average daily net assets. The AST Bond Portfolio 2015, AST Bond Portfolio 2018, AST Bond Portfolio 2019 and the AST Investment Grade Bond Portfolio are based on estimated expenses for 2008 at an estimated asset level. 6 Acquired Fund Fees and Expenses are not fees or expenses incurred by the fund directly but are expenses of the investment companies in which the fund invests. You incur these fees and expenses indirectly through the valuation of the fund's investment in those investment companies. As a result, the Total Annual Portfolio Operating Expenses listed above may exceed the expense limit numbers. The impact of the acquired fund fees and expenses are included in the total returns of the Fund. 7 The Fund's advisor has contractually agreed to waive advisory fees and/or reimburse expenses of Series I shares to the extent necessary to limit Total Annual Portfolio Operating Expenses (subject to certain exclusions) of Series I shares to 1.30% of average daily net assets. The expense limitation agreement is in effect through at least April 30, 2009. 8 Except as otherwise noted, figures shown in the table are for the year ended December 31, 2007 and are expressed as a percentage of the Fund's average daily net assets. There is no guarantee that actual expenses will be the same as those shown in the table. 9 Effective July 1, 2007, AIM contractually agreed to waive 100% of the advisory fee AIM receives from affiliated money market funds on investments by the fund in such affiliated money market funds. The fee waivers reflect this agreement. This waiver agreement is in effect through at least April 30, 2009. 10 The Total Annual Portfolio Operating Expenses excludes expense reductions. 11 Effective on or about November 19, 2007, the Portfolio changed its name from First Trust 10 Uncommon Values Portfolio to First Trust Target Focus Four Portfolio. The Portfolio's investment strategy was also changed. The above fees and expenses include the Portfolio's fees and expenses prior to the name change and change in investment strategy. 12 Operating expenses are estimates based on Class 1 expenses for fiscal year ended December 31, 2007, except for 12b-1 fees which are based on the Class 4 maximum contractual amounts. The Fund does not pay management fees but will indirectly bear its proportionate share of any management fees and other expenses paid by the underlying funds (or "acquired funds") in which it will invest. Acquired funds' estimated fees and expenses are based on the acquired funds' expenses for the fiscal year ended December 31, 2007. Effective December 1, 2007, the administrator has contractually agreed to waive or limit its fee to assume as its own expense certain expenses otherwise payable by the Portfolio, excluding the portfolios' fees and expenses, so that direct operating expenses of the Portfolio do not exceed 0.13% (other than certain non-routine expenses or costs, including those relating to litigation, indemnification, reorganizations, and liquidations) until April 30, 2009. 13 The Trust and the Adviser have entered into a written contract limiting operating expenses to 1.40% for all share classes until May 1, 2009. 14 ProFund Advisors LLC has contractually agreed to waive Investment Advisory and Management Services Fees and to reimburse other expenses to the extent Total Annual Portfolio Operating Expenses, as a percentage of average daily net assets, exceed 1.63% (1.33% for ProFund VP U.S. Government Plus) through April 30, 2009. After such date, any of the expense limitations may be terminated or revised. Amounts waived or reimbursed in a particular fiscal year may be repaid to ProFund Advisors LLC within three years of the waiver or reimbursement to the extent that recoupment will not cause the Portfolio's expenses to exceed any expense limitation in place at that time. A waiver or reimbursement lowers the expense ratio and increases overall returns to investors. 11 EXPENSE EXAMPLES These examples are intended to help you compare the cost of investing in this Annuity with the cost of investing in other variable annuities. Below are examples for the Annuity showing what you would pay in expenses at the end of the stated time periods had you invested $10,000 in the Annuity and your investment has a 5% return each year. The examples reflect the following fees and charges for the Annuity as described in "Summary of Contract Fees and Charges": . Insurance Charge . Contingent Deferred Sales Charge (when and if applicable) . Annual Maintenance Fee . The maximum combination of optional benefit charges The examples also assume the following for the period shown: . You allocate all of your Account Value to the Sub-account with the maximum total annual operating expenses, and those expenses remain the same each year* . For each charge, we deduct the maximum charge rather than the current charge . You make no withdrawals of Account Value . You make no transfers, or other transactions for which we charge a fee . No tax charge applies . You elect the Lifetime Five Income Benefit, the Highest Daily Value Death Benefit and the Enhanced Beneficiary Protection Death Benefit (which are the maximum combination of optional benefit charges) Amounts shown in the examples are rounded to the nearest dollar. * Note: Not all portfolios offered as Sub-accounts may be available depending on optional benefit selection, the applicable jurisdiction and selling firm. THE EXAMPLES ARE ILLUSTRATIVE ONLY - THEY SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES OF THE UNDERLYING MUTUAL FUNDS OR THEIR PORTFOLIOS - ACTUAL EXPENSES WILL BE LESS THAN THOSE SHOWN IF YOU ELECT A DIFFERENT COMBINATION OF OPTIONAL BENEFITS THAN INDICATED IN THE EXAMPLES OR IF YOU ALLOCATE ACCOUNT VALUE TO ANY OTHER AVAILABLE SUB-ACCOUNTS. Expense Examples are provided as follows: 1) if you surrender the Annuity at the end of the stated time period; 2) if you annuitize at the end of the stated time period; and 3) if you do not surrender your Annuity. If you surrender your entire contract at the end of the applicable time period: 1 Year 3 Years 5 Years 10 Years ------------------------------- $1,194 $2,131 $3,054 $5,477 ------------------------------- If you annuitize at the end of the applicable time period: 1 Year 3 Years 5 Years 10 Years ------------------------------- N/A $1,681 $2,784 $5,477 ------------------------------- If you do not surrender your contract at the end of the applicable time period: 1 Year 3 Years 5 Years 10 Years ------------------------------- $564 $1,681 $2,784 $5,477 ------------------------------- 12 INVESTMENT OPTIONS WHAT ARE THE INVESTMENT OBJECTIVES AND POLICIES OF THE PORTFOLIOS? Each variable investment option is a Sub-account of Prudential Annuities Life Assurance Corporation Variable Account B (see "What are Separate Accounts" for more detailed information). Each Sub-account invests exclusively in one Portfolio. You should carefully read the prospectus for any Portfolio in which you are interested. The following chart classifies each of the Portfolios based on our assessment of their investment style (as of the date of this Prospectus). The chart also provides a description of each Portfolio's investment objective (in italics) and a short, summary description of their key policies to assist you in determining which Portfolios may be of interest to you. There is no guarantee that any underlying Portfolio will meet its investment objective. Not all portfolios offered as Sub-accounts may be available depending on optional benefit selection, the applicable jurisdiction and selling firm. The Portfolios that you select are your choice - we do not provide investment advice, and we do not recommend or endorse any particular Portfolio. Please see the General Information section of this prospectus, under the heading concerning "service fees" for a discussion of fees that we may receive from underlying mutual funds and/or their affiliates. The name of the advisor/sub-advisor for each Portfolio appears next to the description. Those Portfolios whose name includes the prefix "AST" are Portfolios of Advanced Series Trust. The investment managers for AST are AST Investment Services, Inc., a Prudential Financial Company, and Prudential Investments LLC, both of which are affiliated companies of Prudential Annuities. However, a sub-advisor, as noted below, is engaged to conduct day-to-day management. The Portfolios are not publicly traded mutual funds. They are only available as investment options in variable annuity contracts and variable life insurance policies issued by insurance companies, or in some cases, to participants in certain qualified retirement plans. However, some of the Portfolios available as Sub-accounts under the Annuities are managed by the same portfolio advisor or sub-advisor as a retail mutual fund of the same or similar name that the Portfolio may have been modeled after at its inception. Certain retail mutual funds may also have been modeled after a Portfolio. While the investment objective and policies of the retail mutual funds and the Portfolios may be substantially similar, the actual investments will differ to varying degrees. Differences in the performance of the funds can be expected, and in some cases could be substantial. You should not compare the performance of a publicly traded mutual fund with the performance of any similarly named Portfolio offered as a Sub-account. Details about the investment objectives, policies, risks, costs and management of the Portfolios are found in the prospectuses for the underlying mutual funds. The current prospectus and statement of additional information for the underlying Portfolios can be obtained by calling 1-800-752-6342. 13 As a condition of your participating in certain of our optional benefits, we limit the investment options to which you may allocate your Account Value. In the tables below, we describe the portfolios that are permitted (or disallowed) with respect to the optional living benefits and death benefits. Those who elect Highest Daily Lifetime Seven or Spousal Highest Daily Lifetime Seven must choose to participate in either the first group of portfolios below or the fourth group. The fourth group of portfolios is used in connection with the "Optional Allocation and Rebalancing Program." Participants in Highest Daily Lifetime Seven or Spousal Highest Daily Lifetime Seven who choose the Optional Allocation and Rebalancing Program (as opposed to the first group of portfolios) may not participate in a Dollar Cost Averaging Program or our Automatic Rebalancing Program. We may modify or terminate the Optional Allocation and Rebalancing Program at any time. Currently, participants in the Optional Allocation and Rebalancing Program are subject to the following: (a)you must allocate at least 20% of your Account Value to certain fixed income portfolios (currently, the AST PIMCO Total Return Bond Portfolio and the AST Western Asset Core Plus Bond Portfolio), and (b)you may allocate up to 80% in the equity and other portfolios listed in the table below, and (c)on each quarter (or the next Valuation Day, if the quarter-end is not a Valuation Day), we will automatically re-balance your Account Value, so that the percentages devoted to each Portfolio remain the same as those in effect on the immediately preceding quarter-end, and (d)between quarter-ends, you may re-allocate your Account Value among the investment options permitted within this category. If you reallocate, the next quarterly rebalancing will restore the percentages to those of your most recent reallocation. Optional Permitted Portfolios: Benefit Name* Lifetime Five AST Capital Growth Asset Allocation Portfolio Income Benefit AST Balanced Asset Allocation Portfolio Spousal AST Conservative Asset Allocation Portfolio Lifetime Five AST Preservation Asset Allocation Portfolio Income Benefit AST First Trust Balanced Target Portfolio Highest Daily AST First Trust Capital Appreciation Target Portfolio Lifetime Seven AST Advanced Strategies Portfolio Spousal AST T. Rowe Price Asset Allocation Portfolio Highest Daily AST UBS Dynamic Alpha Strategy Portfolio Lifetime Seven AST American Century Strategic Allocation Portfolio Highest Daily AST Niemann Capital Growth Asset Allocation Portfolio Value Death AST CLS Growth Asset Allocation Portfolio Benefit AST CLS Moderate Asset Allocation Portfolio AST Horizon Growth Asset Allocation Portfolio AST Horizon Moderate Asset Allocation Portfolio Franklin Templeton VIP Founding Funds Allocation Fund ----------------------------------------------------------------------------- Optional All Investment Options Permitted EXCEPT for the following: Benefit Name* Combo 5% ProFund VP UltraNASDAQ-100 Rollup & HAV ProFund VP UltraSmall Cap Death Benefit ProFund VP Semiconductor Guaranteed ProFund VP Internet Minimum Income ProFund VP UltraBull Benefit Value Line(R) Target 25 Guaranteed AIM VI Technology Minimum ProFund VP Technology Withdrawal NASDAQ(R) Target 15 Benefit ProFund VP Biotechnology GRO PLUS 2008 ProFund VP Short Small-Cap Highest Access VP High Yield Anniversary ProFund VP Short Mid-Cap Value Death Evergreen VA Growth Fund Benefit Highest Daily GRO ----------------------------------------------------------------------------- Optional Additional 5 investment options NOT permitted with GRO Benefit Name* Plus 2008 & Highest Daily GRO ProFund VP Ultra Mid-Cap ProFund VP Precious Metals GRO PLUS 2008 ProFund VP NASDAQ-100 Highest Daily ProFund VP Asia 30 GRO ProFund VP Short NASDAQ-100 ----------------------------------------------------------------------------- 14 Optional Permitted Portfolios: Benefit Name* Highest Daily AST Advanced Strategies Lifetime Seven AST Aggressive Asset Allocation Spousal AST AllianceBernstein Core Value Highest Daily AST AllianceBernstein Growth & Income Lifetime Seven AST American Century Income & Growth AST American Century Strategic Allocation AST Balanced Asset Allocation AST Capital Growth Asset Allocation AST CLS Growth Asset Allocation AST CLS Moderate Asset Allocation AST Cohen & Steers Realty AST Conservative Asset Allocation AST DeAM Large-Cap Value AST DeAM Small-Cap Value AST Federated Aggressive Growth AST First Trust Balanced Target AST First Trust Capital Appreciation Target AST Goldman Sachs Concentrated Growth AST Goldman Sachs Mid-Cap Growth AST High Yield AST Horizon Growth Asset Allocation AST Horizon Moderate Asset Allocation AST International Growth AST International Value AST JPMorgan International Equity AST Large-Cap Value AST Lord Abbett Bond-Debenture AST Marsico Capital Growth AST MFS Global Equity AST MFS Growth AST Mid-Cap Value AST Money Market AST Neuberger Berman Mid-Cap Growth AST Neuberger Berman Mid-Cap Value AST Neuberger Berman Small-Cap Growth AST Niemann Capital Growth Asset Allocation AST PIMCO Limited Maturity Bond AST PIMCO Total Return Bond AST Preservation Asset Allocation AST QMA US Equity Alpha AST Small-Cap Growth AST Small-Cap Value AST T. Rowe Price Asset Allocation AST T. Rowe Price Global Bond AST T. Rowe Price Large-Cap Growth AST T. Rowe Price Natural Resources AST UBS Dynamic Alpha Strategy AST Western Asset Core Plus Bond Franklin Templeton VIP Founding Funds Allocation Fund ProFund VP Consumer Goods ProFund VP Consumer Services ProFund VP Financials ProFund VP Health Care ProFund VP Industrials ProFund VP Large-Cap Growth ProFund VP Large-Cap Value ProFund VP Mid-Cap Growth ProFund VP Mid-Cap Value 15 Optional Benefit Name* Permitted Portfolios: ProFund VP Real Estate ProFund VP Small-Cap Growth ProFund VP Small-Cap Value ProFund VP Telecommunications ProFund VP Utilities -------------------------------------------------------- * Detailed Information regarding these optional benefits can be found in the "Living Benefits" and "Death Benefit" sections of this Prospectus. 16 ----------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ----------------------------------------------------------------------- ADVANCED SERIES TRUST ----------------------------------------------------------------------- ASSET AST Advanced Strategies Portfolio: LSV Asset ALLOCA seeks a high level of absolute Management; TION/ return. The Portfolio invests Marsico Capital BALANCED primarily in a diversified portfolio Management, LLC; of equity and fixed income Pacific Investment securities across different Management investment categories and investment Company LLC managers. The Portfolio pursues a (PIMCO); T. Rowe combination of traditional and Price Associates, non-traditional investment Inc.; William Blair strategies. & Company, LLC ----------------------------------------------------------------------- ASSET AST Aggressive Asset Allocation AST Investment ALLOCA Portfolio: seeks the highest Services, Inc. & TION/ potential total return consistent Prudential BALANCED with its specified level of risk Investments LLC/ tolerance. The Portfolio will invest Prudential its assets in several other Advanced Investments LLC Series Trust Portfolios. Under normal market conditions, the Portfolio will devote approximately 100% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 92.5% to 100%) and the remainder of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 0% - 7.5%). ----------------------------------------------------------------------- LARGE AST AllianceBernstein Core Value AllianceBernstein CAP Portfolio: seeks long-term capital L.P. VALUE growth by investing primarily in common stocks. The subadviser expects that the majority of the Portfolio's assets will be invested in the common stocks of large companies that appear to be undervalued. Among other things, the Portfolio seeks to identify compelling buying opportunities created when companies are undervalued on the basis of investor reactions to near-term problems or circumstances even though their long-term prospects remain sound. The subadviser seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. ----------------------------------------------------------------------- LARGE AST AllianceBernstein Growth & AllianceBernstein CAP Income Portfolio: seeks long-term L.P. VALUE growth of capital and income while attempting to avoid excessive fluctuations in market value. The Portfolio normally will invest in common stocks (and securities convertible into common stocks). The subadviser will take a value-oriented approach, in that it will try to keep the Portfolio's assets invested in securities that are selling at reasonable valuations in relation to their fundamental business prospects. ----------------------------------------------------------------------- LARGE AST American Century Income & Growth American Century CAP Portfolio: seeks capital growth with Investment VALUE current income as a secondary Management, Inc. objective. The Portfolio invests primarily in common stocks that offer potential for capital growth, and may, consistent with its investment objective, invest in stocks that offer potential for current income. The subadviser utilizes a quantitative management technique with a goal of building an equity portfolio that provides better returns than the S&P 500 Index without taking on significant additional risk and while attempting to create a dividend yield that will be greater than the S&P 500 Index. ----------------------------------------------------------------------- ASSET AST American Century Strategic American Century ALLOCA Allocation Portfolio: seeks Investment TION/ long-term capital growth with some Management, Inc. BALANCED regular income. The Portfolio will invest, under normal circumstances, in any type of U.S. or foreign equity security that meets certain fundamental and technical standards. The portfolio managers will draw on growth, value and quantitative investment techniques in managing the equity portion of the Portfolio and diversify the Portfolio's investments among small, medium and large companies. ----------------------------------------------------------------------- ASSET AST Balanced Asset Allocation AST Investment ALLOCA Portfolio: seeks the highest Services, Inc. & TION/ potential total return consistent Prudential BALANCED with its specified level of risk Investments LLC/ tolerance. The Portfolio will invest Prudential its assets in several other Advanced Investments LLC Series Trust Portfolios. Under normal market conditions, the Portfolio will devote approximately 75% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 67.5% to 80%), and 25% of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 20.0% to 32.5%). ----------------------------------------------------------------------- 17 --------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR --------------------------------------------------------------------- FIXED AST Bond Portfolio 2015: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2015. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. --------------------------------------------------------------------- FIXED AST Bond Portfolio 2018: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2018. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. --------------------------------------------------------------------- FIXED AST Bond Portfolio 2019: seeks the Prudential INCOME highest potential total return Investment consistent with its specified level Management, Inc. of risk tolerance to meet the parameters established to support the GRO benefits and maintain liquidity to support changes in market conditions for a fixed maturity of 2019. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. --------------------------------------------------------------------- ASSET AST Capital Growth Asset Allocation AST Investment ALLOCA Portfolio: seeks the highest Services, Inc. & TION/ potential total return consistent Prudential BALANCED with its specified level of risk Investments LLC/ tolerance. The Portfolio will invest Prudential its assets in several other Advanced Investments LLC Series Trust Portfolios. Under normal market conditions, the Portfolio will devote approximately 65% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 57.5% to 72.5%, and 35% of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 27.5% to 42.5%). --------------------------------------------------------------------- ASSET AST CLS Growth Asset Allocation CLS Investment ALLOCA Portfolio: seeks the highest Firm, LLC TION/ potential total return consistent GROWTH with its specified level of risk tolerance. Under normal circumstances, at least 90% of the Portfolio's assets will be invested in other portfolios of Advanced Series Trust (the underlying portfolios) while no more than 10% of the Portfolio's assets may be invested in exchange traded funds (ETFs). Under normal market conditions, the Portfolio will devote from 60% to 80% of its net assets to underlying portfolios and ETFs investing primarily in equity securities, and from 20% to 40% of its net assets to underlying portfolios and ETFs investing primarily in debt securities and money market instruments. --------------------------------------------------------------------- ASSET AST CLS Moderate Asset Allocation CLS Investment ALLOCA Portfolio: seeks the highest Firm, LLC TION/ potential total return consistent GROWTH with its specified level of risk tolerance. Under normal circumstances, at least 90% of the Portfolio's assets will be invested in other portfolios of Advanced Series Trust (the underlying portfolios) while no more than 10% of the Portfolio's assets may be invested in exchange traded funds (ETFs). Under normal market conditions, the Portfolio will devote from 40% to 60% of its net assets to underlying portfolios and ETFs investing primarily in equity securities, and from 40% to 60% of its net assets to underlying portfolios and ETFs investing primarily in debt securities and money market instruments. --------------------------------------------------------------------- SPECIALTY AST Cohen & Steers Realty Portfolio: Cohen & Steers seeks to maximize total return Capital through investment in real estate Management, Inc. securities. The Portfolio pursues its investment objective by investing, under normal circumstances, at least 80% of its net assets in common stocks and other equity securities issued by real estate companies, such as real estate investment trusts (REITs). Under normal circumstances, the Portfolio will invest substantially all of its assets in the equity securities of real estate companies, i.e., a company that derives at least 50% of its revenues from the ownership, construction, financing, management or sale of real estate or that has at least 50% of its assets in real estate. Real estate companies may include real estate investment trusts (REITs). --------------------------------------------------------------------- ASSET AST Conservative Asset Allocation AST Investment ALLOCA Portfolio: seeks the highest Services, Inc. & TION/ potential total return consistent Prudential BALANCED with its specified level of risk Investments LLC/ tolerance. The Portfolio will invest Prudential its assets in several other Advanced Investments LLC Series Trust Portfolios. Under normal market conditions, the Portfolio will devote approximately 55% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 47.5% to 62.5%), and 45% of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 37.5% to 52.5%. --------------------------------------------------------------------- 18 ------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------- LARGE AST DeAM Large-Cap Value Portfolio: Deutsche CAP seeks maximum growth of capital by Investment VALUE investing primarily in the value Management stocks of larger companies. The Americas, Inc. Portfolio pursues its objective, under normal market conditions, by primarily investing at least 80% of the value of its assets in the equity securities of large-sized companies included in the Russell 1000(R) Value Index. The subadviser employs an investment strategy designed to maintain a portfolio of equity securities which approximates the market risk of those stocks included in the Russell 1000(R) Value Index, but which attempts to outperform the Russell 1000(R) Value Index through active stock selection. ------------------------------------------------------------------------- SMALL AST DeAM Small-Cap Value Portfolio: Deutsche CAP seeks maximum growth of investors' Investment VALUE capital by investing primarily in Management the value stocks of smaller Americas, Inc. companies. The Portfolio pursues its objective, under normal market conditions, by primarily investing at least 80% of its total assets in the equity securities of small-sized companies included in the Russell 2000(R) Value Index. The subadviser employs an investment strategy designed to maintain a portfolio of equity securities which approximates the market risk of those stocks included in the Russell 2000(R) Value Index, but which attempts to outperform the Russell 2000(R) Value Index. ------------------------------------------------------------------------- SMALL AST Federated Aggressive Growth Federated Equity CAP Portfolio: seeks capital growth. The Management GROWTH Portfolio pursues its investment Company of objective by investing primarily in Pennsylvania/ the stocks of small companies that Federated Global are traded on national security Investment exchanges, NASDAQ stock exchange and Management Corp.; the over- the-counter-market. Small Federated MDTA companies will be defined as LLC companies with market capitalizations similar to companies in the Russell 2000 Growth Index. ------------------------------------------------------------------------- ASSET AST First Trust Balanced Target First Trust Advisors ALLOCA Portfolio: seeks long-term capital L.P. TION/ growth balanced by current income. BALANCED The Portfolio seeks to achieve its objective by investing approximately 65% in common stocks and approximately 35% in fixed income securities. The Portfolio allocates the equity portion of the portfolio across five uniquely specialized strategies - The Dow(R) Target Dividend, the Value Line(R) Target 25, the Global Dividend Target 15, the NYSE(R) International Target 25, and the Target Small Cap. Each strategy employs a quantitative approach by screening common stocks for certain attributes and/or using a multi-factor scoring system to select the common stocks. The fixed income allocation is determined by the Dow Jones Income strategy which utilizes certain screens to select bonds from the Dow Jones Corporate Bond Index or like-bonds not in the index. ------------------------------------------------------------------------- ASSET AST First Trust Capital Appreciation First Trust Advisors ALLOCA Target Portfolio: seeks long-term L.P. TION/ capital growth. The Portfolio seeks BALANCED to achieve its objective by investing approximately 80% in common stocks and 20% in fixed income securities. The portfolio allocates the equity portion of the portfolio across five uniquely specialized strategies - the Value Line(R) Target 25, the Global Dividend Target 15, the Target Small Cap, the Nasdaq(R) Target 15, and the NYSE(R) International Target 25. Each strategy employs a quantitative approach by screening common stocks for certain attributes and/or using a multi-factor scoring system to select the common stocks. The fixed income allocation is determined by the Dow Jones Income strategy which utilizes certain screens to select bonds from the Dow Jones Corporate Bond Index or like-bonds not in the index. ------------------------------------------------------------------------- LARGE AST Goldman Sachs Concentrated Goldman Sachs CAP Growth Portfolio: seeks long-term Asset Management, GROWTH growth of capital. The Portfolio L.P. will pursue its objective by investing primarily in equity securities of companies that the subadviser believes have the potential to achieve capital appreciation over the long-term. The Portfolio seeks to achieve its investment objective by investing, under normal circumstances, in approximately 30 - 45 companies that are considered by the subadviser to be positioned for long-term growth. ------------------------------------------------------------------------- 19 ---------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ---------------------------------------------------------------------- MID CAP AST Goldman Sachs Mid-Cap Growth Goldman Sachs GROWTH Portfolio: seeks long-term capital Asset Management, growth. The Portfolio pursues its L.P. investment objective, by investing primarily in equity securities selected for their growth potential, and normally invests at least 80% of the value of its assets in medium-sized companies. Medium-sized companies are those whose market capitalizations (measured at the time of investment) fall within the range of companies in the Russell Mid-cap Growth Index. The subadviser seeks to identify individual companies with earnings growth potential that may not be recognized by the market at large. ---------------------------------------------------------------------- FIXED AST High Yield Portfolio: seeks Pacific Investment INCOME maximum total return, consistent Management with preservation of capital and Company LLC prudent investment management. The (PIMCO) Portfolio invests, under normal circumstances, at least 80% of its net assets plus any borrowings for investment purposes (measured at time of purchase) in high yield, fixed-income securities that, at the time of purchase, are non-investment grade securities. Such securities are commonly referred to as "junk bonds". ---------------------------------------------------------------------- ASSET AST Horizon Growth Asset Allocation Horizon ALLOCA Portfolio: seeks the highest Investments, LLC TION/ potential total return consistent GROWTH with its specified level of risk tolerance. Under normal circumstances, at least 90% of the Portfolio's assets will be invested in other portfolios of Advanced Series Trust (the underlying portfolios) while no more than 10% of the Portfolio's assets may be invested in exchange traded funds (ETFs). Under normal market conditions, the Portfolio will devote from 60% to 80% of its net assets to underlying portfolios and ETFs investing primarily in equity securities, and from 20% to 40% of its net assets to underlying portfolios and ETFs investing primarily in debt securities and money market instruments. ---------------------------------------------------------------------- ASSET AST Horizon Moderate Asset Horizon ALLOCA Allocation Portfolio: seeks the Investments, LLC TION/ highest potential total return GROWTH consistent with its specified level of risk tolerance. Under normal circumstances, at least 90% of the Portfolio's assets will be invested in other portfolios of Advanced Series Trust (the underlying portfolios) while no more than 10% of the Portfolio's assets may be invested in exchange traded funds (ETFs). Under normal market conditions, the Portfolio will devote from 40% to 60% of its net assets to underlying portfolios and ETFs investing primarily in equity securities, and from 40% to 60% of its net assets to underlying portfolios and ETFs investing primarily in debt securities and money market instruments. ---------------------------------------------------------------------- INTER AST International Growth Portfolio: Marsico Capital NATIONAL seeks long-term capital growth. Management, LLC; EQUITY Under normal circumstances, the William Blair & Portfolio invests at least 80% of Company, LLC the value of its assets in securities of issuers that are economically tied to countries other than the United States. Although the Portfolio intends to invest at least 80% of its assets in the securities of issuers located outside the United States, it may at times invest in U.S. issuers and it may invest all of its assets in fewer than five countries or even a single country. The Portfolio looks primarily for stocks of companies whose earnings are growing at a faster rate than other companies or which offer attractive growth. ---------------------------------------------------------------------- INTER AST International Value Portfolio: LSV Asset NATIONAL seeks long-term capital Management; EQUITY appreciation. The Portfolio normally Thornburg invests at least 80% of the Investment Portfolio's assets in equity Management, Inc. securities. The Portfolio will invest at least 65% of its net assets in the equity securities of companies in at least three different countries, without limit as to the amount of assets that may be invested in a single country. ---------------------------------------------------------------------- FIXED AST Investment Grade Bond Portfolio: Prudential INCOME seeks the highest potential total Investment return consistent with its specified Management, Inc. level of risk tolerance to meet the parameters established to support the Highest Daily Lifetime Seven benefits and maintain liquidity to support changes in market conditions for a fixed duration (weighted average maturity) of about 6 years. Please note that you may not make purchase payments to this Portfolio, and that this Portfolio is available only with certain living benefits. ---------------------------------------------------------------------- 20 ----------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ----------------------------------------------------------------------- INTER AST JPMorgan International Equity J.P. Morgan NATIONAL Portfolio: seeks long-term capital Investment EQUITY growth by investing in a diversified Management, Inc. portfolio of international equity securities. The Portfolio seeks to meet its objective by investing, under normal market conditions, at least 80% of its assets in a diversified portfolio of equity securities of companies located or operating in developed non-U.S. countries and emerging markets of the world. The equity securities will ordinarily be traded on a recognized foreign securities exchange or traded in a foreign over-the-counter market in the country where the issuer is principally based, but may also be traded in other countries including the United States. ----------------------------------------------------------------------- LARGE AST Large-Cap Value Portfolio: seeks Dreman Value CAP current income and long-term growth Management LLC; VALUE of income, as well as capital Hotchkis and Wiley appreciation. The Portfolio invests, Capital under normal circumstances, at least Management LLC; 80% of its net assets in common J.P. Morgan stocks of large capitalization Investment companies. Large capitalization Management, Inc. companies are those companies with market capitalizations within the market capitalization range of the Russell 1000 Value Index. ----------------------------------------------------------------------- FIXED AST Lord Abbett Bond-Debenture Lord, Abbett & Co. INCOME Portfolio: seeks high current income LLC and the opportunity for capital appreciation to produce a high total return. The Portfolio invests, under normal circumstances, at least 80% of the value of its assets in fixed income securities. The Portfolio allocates its assets principally among fixed income securities in four market sectors: U.S. investment grade securities, U.S. high yield securities, foreign securities (including emerging market securities) and convertible securities. Under normal circumstances, the Portfolio invests in each of the four sectors described above. However, the Portfolio may invest substantially all of its assets in any one sector at any time, subject to the limitation that at least 20% of the Portfolio's net assets must be invested in any combination of investment grade debt securities, U.S. Government securities and cash equivalents. The Portfolio may also make significant investments in mortgage-backed securities. Although the Portfolio expects to maintain a weighted average maturity in the range of five to twelve years, there are no restrictions on the overall Portfolio or on individual securities. The Portfolio may invest up to 20% of its net assets in equity securities. ----------------------------------------------------------------------- LARGE AST Marsico Capital Growth Marsico Capital CAP Portfolio: seeks capital growth. Management, LLC GROWTH Income realization is not an investment objective and any income realized on the Portfolio's investments, therefore, will be incidental to the Portfolio's objective. The Portfolio will pursue its objective by investing primarily in common stocks of large companies that are selected for their growth potential. Large capitalization companies are companies with market capitalizations within the market capitalization range of the Russell 1000 Growth Index. In selecting investments for the Portfolio, the subadviser uses an approach that combines "top down" macroeconomic analysis with "bottom up" stock selection. The "top down" approach identifies sectors, industries and companies that may benefit from the trends the subadviser has observed. The subadviser then looks for individual companies with earnings growth potential that may not be recognized by the market at large, utilizing a "bottom up" stock selection process. The Portfolio will normally hold a core position of between 35 and 50 common stocks. The Portfolio may hold a limited number of additional common stocks at times when the Portfolio manager is accumulating new positions, phasing out existing or responding to exceptional market conditions. ----------------------------------------------------------------------- INTER AST MFS Global Equity Portfolio: Massachusetts NATIONAL seeks capital growth. Under normal Financial Services EQUITY circumstances the Portfolio invests Company at least 80% of its assets in equity securities. The Portfolio will invest in the securities of U.S. and foreign issuers (including issuers in emerging market countries). While the portfolio may invest its assets in companies of any size, the Portfolio generally focuses on companies with relatively large market capitalizations relative to the markets in which they are traded. ----------------------------------------------------------------------- 21 --------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR --------------------------------------------------------------------- LARGE AST MFS Growth Portfolio: seeks Massachusetts CAP long-term capital growth and future, Financial Services GROWTH rather than current income. Under Company normal market conditions, the Portfolio invests at least 80% of its net assets in common stocks and related securities, such as preferred stocks, convertible securities and depositary receipts, of companies that the subadviser believes offer better than average prospects for long-term growth. The subadviser uses a "bottom up" as opposed to a "top down" investment style in managing the Portfolio. --------------------------------------------------------------------- MID CAP AST Mid Cap Value Portfolio: seeks EARNEST Partners VALUE to provide capital growth by LLC; WEDGE investing primarily in Capital mid-capitalization stocks that Management, LLP appear to be undervalued. The Portfolio generally invests, under normal circumstances, at least 80% of the value of its net assets in mid- capitalization companies. Mid-capitalization companies are generally those that have market capitalizations, at the time of purchase, within the market capitalization range of companies included in the Russell Midcap Value Index during the previous 12-months based on month-end data. --------------------------------------------------------------------- FIXED AST Money Market Portfolio: seeks Prudential INCOME high current income while Investment maintaining high levels of Management, Inc. liquidity. The Portfolio invests in high-quality, short-term, U.S. dollar denominated corporate, bank and government obligations. The Portfolio will invest in securities which have effective maturities of not more than 397 days. --------------------------------------------------------------------- MID CAP AST Neuberger Berman Mid-Cap Growth Neuberger Berman GROWTH Portfolio: seeks capital growth. Management Inc. Under normal market conditions, the Portfolio invests at least 80% of its net assets in the common stocks of mid-capitalization companies. Mid-capitalization companies are those companies whose market capitalization is within the range of market capitalizations of companies in the Russell Midcap(R) Growth Index. Using fundamental research and quantitative analysis, the subadviser looks for fast-growing companies that are in new or rapidly evolving industries. --------------------------------------------------------------------- MID CAP AST Neuberger Berman Mid-Cap Value Neuberger Berman VALUE Portfolio: seeks capital growth. Management Inc. Under normal market conditions, the Portfolio invests at least 80% of its net assets in the common stocks of medium capitalization companies. For purposes of the Portfolio, companies with market capitalizations that fall within the range of the Russell Midcap(R) Index at the time of investment are considered medium capitalization companies. Some of the Portfolio's assets may be invested in the securities of large-cap companies as well as in small-cap companies. Under the Portfolio's value-oriented investment approach, the subadviser looks for well-managed companies whose stock prices are undervalued and that may rise in price before other investors realize their worth. --------------------------------------------------------------------- SMALL AST Neuberger Berman Small-Cap Neuberger Berman CAP Growth Portfolio: seeks maximum Management Inc. GROWTH growth of investors' capital from a portfolio of growth stocks of smaller companies. The Portfolio pursues its objective, under normal circumstances, by primarily investing at least 80% of its total assets in the equity securities of small-sized companies included in the Russell 2000 Growth(R) Index. --------------------------------------------------------------------- ASSET AST Niemann Capital Growth Asset Neimann Capital ALLOCA Allocation Portfolio: seeks the Management Inc. TION/ highest potential total return GROWTH consistent with its specified level of risk tolerance. Under normal circumstances, at least 90% of the Portfolio's assets will be invested in other portfolios of Advanced Series Trust (the underlying portfolios) while no more than 10% of the Portfolio's assets may be invested in exchange traded funds (ETFs). Under normal market conditions, the Portfolio will devote from 60% to 80% of its net assets to underlying portfolios and ETFs investing primarily in equity securities, and from 20% to 40% of its net assets to underlying portfolios and ETFs investing primarily in debt securities and money market instruments. --------------------------------------------------------------------- FIXED AST PIMCO Limited Maturity Bond Pacific Investment INCOME Portfolio: seeks to maximize total Management return consistent with preservation Company LLC of capital and prudent investment (PIMCO) management. The Portfolio will invest in a portfolio of fixed-income investment instruments of varying maturities. The average portfolio duration of the Portfolio generally will vary within a one- to three- year time frame based on the subadviser's forecast for interest rates. --------------------------------------------------------------------- 22 ----------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ----------------------------------------------------------------------- FIXED AST PIMCO Total Return Bond Pacific Investment INCOME Portfolio: seeks to maximize total Management return consistent with preservation Company LLC of capital and prudent investment (PIMCO) management. The Portfolio will invest in a portfolio of fixed-income investment instruments of varying maturities. ----------------------------------------------------------------------- ASSET AST Preservation Asset Allocation AST Investment ALLOCA Portfolio: seeks the highest Services, Inc. & TION/ potential total return consistent Prudential BALANCED with its specified level of risk Investments LLC/ tolerance. The Portfolio will invest Prudential its assets in several other Advanced Investments LLC Series Trust Portfolios. Under normal market conditions, the Portfolio will devote approximately 35% of its net assets to underlying portfolios investing primarily in equity securities (with a range of 27.5% to 42.5%), and 65% of its net assets to underlying portfolios investing primarily in debt securities and money market instruments (with a range of 57.5% to 72.5%. ----------------------------------------------------------------------- LARGE AST QMA US Equity Portfolio Quantitative CAP (formerly known as AST Management BLEND AllianceBernstein Managed Index 500 Associates LLC Portfolio): seeks to produce returns that exceed those of the benchmark. The portfolio utilizes a long/short investment strategy and will normally invest at least 80% of its net assets plus borrowings in equity and equity related securities of issuers traded on a securities exchange or market in the US. The benchmark index is the Russell 1000(R) which is comprised of stocks representing more than 90% of the market cap of the US market and includes the largest 1000 securities in the Russell 3000(R) index. ----------------------------------------------------------------------- SMALL AST Small-Cap Growth Portfolio: Eagle Asset CAP seeks long-term capital growth. The Management; GROWTH Portfolio pursues its objective by Neuberger Berman investing, under normal Management Inc. circumstances, at least 80% of the value of its assets in small-capitalization companies. Small-capitalization companies are those companies with a market capitalization, at the time of purchase, no larger than the largest capitalized company included in the Russell 2000(R) Index at the time of the Portfolio's investment. ----------------------------------------------------------------------- SMALL AST Small-Cap Value Portfolio: seeks ClearBridge CAP to provide long-term capital growth Advisors, LLC; VALUE by investing primarily in Dreman Value small-capitalization stocks that Management LLC; appear to be undervalued. The J.P. Morgan Portfolio invests, under normal Investment circumstances, at least 80% of the Management, Inc.; value of its net assets in small Lee Munder capitalization stocks. Small Investments, Ltd capitalization stocks are the stocks of companies with market capitalization that are within the market capitalization range of the Russell 2000(R) Value Index. ----------------------------------------------------------------------- ASSET AST T. Rowe Price Asset Allocation T. Rowe Price ALLOCA Portfolio: seeks a high level of Associates, Inc. TION/ total return by investing primarily BALANCED in a diversified portfolio of fixed income and equity securities. The Portfolio normally invests approximately 60% of its total assets in equity securities and 40% in fixed income securities. This mix may vary depending on the subadviser's outlook for the markets. The subadviser concentrates common stock investments in larger, more established companies, but the Portfolio may include small and medium-sized companies with good growth prospects. The fixed income portion of the Portfolio will be allocated among investment grade securities, high yield or "junk" bonds, emerging market securities, foreign high quality debt securities and cash reserves. ----------------------------------------------------------------------- FIXED AST T. Rowe Price Global Bond T. Rowe Price INCOME Portfolio: seeks to provide high International, Inc. current income and capital growth by investing in high-quality foreign and U.S. dollar-denominated bonds. The Portfolio will invest at least 80% of its total assets in fixed income securities. The Portfolio invests in all types of bonds, including those issued or guaranteed by U.S. or foreign governments or their agencies and by foreign authorities, provinces and municipalities as well as investment grade corporate bonds, mortgage and asset-backed securities, and high-yield bonds of U.S. and foreign issuers. The Portfolio generally invests in countries where the combination of fixed-income returns and currency exchange rates appears attractive, or, if the currency trend is unfavorable, where the subadviser believes that the currency risk can be minimized through hedging. The Portfolio may also invest up to 20% of its assets in the aggregate in below investment-grade, high-risk bonds ("junk bonds"). In addition, the Portfolio may invest up to 30% of its assets in mortgage- related (including mortgage dollar rolls and derivatives, such as collateralized mortgage obligations and stripped mortgage securities) and asset-backed securities. ----------------------------------------------------------------------- 23 ------------------------------------------------------------------------ STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------ LARGE AST T. Rowe Price Large-Cap Growth T. Rowe Price CAP Portfolio: seeks long-term growth of Associates, Inc. GROWTH capital by investing predominantly in the equity securities of a limited number of large, carefully selected, high-quality U.S. companies that are judged likely to achieve superior earnings growth. The Portfolio takes a growth approach to investment selection and normally invests at least 80% of its net assets in the common stocks of large companies. Large companies are defined as those whose market cap is larger than the median market cap of companies in the Russell 1000 Growth Index as of the time of purchase. ------------------------------------------------------------------------ SPECIALTY AST T. Rowe Price Natural Resources T. Rowe Price Portfolio: seeks long-term capital Associates, Inc. growth primarily through the common stocks of companies that own or develop natural resources (such as energy products, precious metals and forest products) and other basic commodities. The Portfolio invests, under normal circumstances, at least 80% of the value of its assts in natural resource companies. The Portfolio may also invest in non-resource companies with the potential for growth. The Portfolio looks for companies that have the ability to expand production, to maintain superior exploration programs and production facilities, and the potential to accumulate new resources. Although at least 50% of Portfolio assets will be invested in U.S. securities, up to 50% of total assets also may be invested in foreign securities. ------------------------------------------------------------------------ ASSET AST UBS Dynamic Alpha Portfolio: UBS Global Asset ALLOCA seeks to maximize total return, Management TION/ consisting of capital appreciation (Americas) Inc. BALANCED and current income. The Portfolio invests in securities and financial instruments to gain exposure to global equity, global fixed income and cash equivalent markets, including global currencies. The Portfolio may invest in equity and fixed income securities of issuers located within and outside the United States or in open-end investment companies advised by UBS Global Asset Management (Americas) Inc., the Portfolio's subadviser, to gain exposure to certain global equity and global fixed income markets. ------------------------------------------------------------------------ FIXED AST Western Asset Core Plus Bond Western Asset INCOME Portfolio: seeks to maximize total Management return, consistent with prudent Company investment management and liquidity needs, by investing to obtain its average specified duration. The Portfolio's current target average duration is generally 2.5 to 7 years. The Portfolio pursues this objective by investing in all major fixed income sectors with a bias towards non-Treasuries. ------------------------------------------------------------------------ AIM VARIABLE INSURANCE FUNDS ------------------------------------------------------------------------ MID CAP AIM Variable Insurance Funds - AIM Advisor: Invesco GROWTH V.I. Dynamics Fund - Series I Aim Advisors, Inc. shares: The investment objective is Sub-advisor: long-term capital growth. The Advisory entities Portfolio pursues its objective by affiliated with normally investing at least 65% of Invesco Aim its assets in equity securities of Advisors, Inc. mid-sized companies that are included in the Russell Midcap(R) Growth Index at the time of purchase. ------------------------------------------------------------------------ SPECIALTY AIM Variable Insurance Funds - AIM Advisor: Invesco V.I. Financial Services Fund - Aim Advisors, Inc. Series I shares: The investment Sub-advisor: objective is capital growth. The Advisory entities Portfolio normally invests at least affiliated with 80% of its net assets, plus the Invesco Aim amount of any borrowings for Advisors, Inc. investment purposes, in equity securities of issuers engaged primarily in financial services-related industries. ------------------------------------------------------------------------ SPECIALTY AIM Variable Insurance Funds - AIM Advisor: Invesco V.I. Global Health Care Fund - Aim Advisors, Inc. Series I shares: The investment Sub-advisor: objective is capital growth. The Advisory entities Portfolio normally invests at least affiliated with 80% of its net assets in securities Invesco Aim of health care industry companies. Advisors, Inc. ------------------------------------------------------------------------ 24 ------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------- SPECIALTY AIM Variable Insurance Funds - AIM Advisor: Invesco V.I. Technology Fund - Series I Aim Advisors, Inc. shares: The investment objective is capital growth. The Portfolio normally invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities and equity-related instruments of companies engaged in technology-related industries. Companies in technology-related industries include, but are not limited to, those involved in the design, manufacture, distribution, licensing, or provision of various applied technologies, hardware, software, semiconductors, telecommunications equipment and services and service-related companies in information technology. ------------------------------------------------------------------------- EVERGREEN VARIABLE ANNUITY TRUST ------------------------------------------------------------------------- SMALL Evergreen VA Growth: seeks long-term Evergreen CAP capital growth. The Portfolio Investment GROWTH invests at least 75% of its assets Management in common stocks of small- and Company, LLC medium-sized companies (i.e., companies whose market capitalizations fall within the market capitalization range of the companies tracked by the Russell 2000(R) Growth Index, measured at the time of purchase). The remaining portion of the Portfolio's assets may be invested in companies of any size. The Portfolio's managers employ a growth-style of equity management and will generally seek to purchase stocks of companies that have demonstrated earnings growth potential which they believe is not yet reflected in the stock's market price. The Portfolio's managers consider potential earnings growth above the average earnings growth of companies included in the Russell 2000(R) Growth Index as a key factor in selecting investments. ------------------------------------------------------------------------- INTER Evergreen VA International Equity: Evergreen NATIONAL seeks long-term capital growth and Investment EQUITY secondarily, modest income. The Management Portfolio will normally invest at Company, LLC least 80% of its assets in equity securities issued by, in the manager's opinion, established and quality non-U.S. companies located in countries with developed markets. The Portfolio may purchase securities across all market capitalizations. The Portfolio normally invests at least 65% of its assets in securities of companies in at least three countries (other than the U.S.). The Portfolio may also invest in emerging markets. The Portfolio's managers seek both growth and value opportunities For growth investments, the Portfolio's manager seeks, among other things, good business models, good management and growth in cash flows. For value investments, the Portfolio's manager seeks, among other things, companies that are undervalued in the marketplace compared to their assets. The Portfolio normally intends to seek modest income from dividends paid by its equity holdings. Other than cash and cash equivalents, the Portfolio intends to invest substantially all of its assets in the securities of non-U.S. issuers. ------------------------------------------------------------------------- SPECIALTY Evergreen VA Omega: seeks long-term Evergreen capital growth. The Portfolio Investment invests primarily, and under normal Management conditions substantially all of its Company, LLC assets, in common stocks of U.S. companies across any market capitalizations. The Portfolio's manager employs a growth style of equity management that seeks to emphasizes companies with cash flow growth, sustainable competitive advantages, returns on invested capital above their cost of capital and the ability to manage for profitable growth that can create long-term value for shareholders. ------------------------------------------------------------------------- FIRST DEFINED PORTFOLIO FUND, LLC ------------------------------------------------------------------------- SPECIALTY First Trust Target Focus Four First Trust Advisors Portfolio (formerly, First Trust 10 L.P. Uncommon Values Portfolio): seeks to provide above-average capital appreciation. The Portfolio seeks to achieve its objective by investing in the common stocks of companies which are selected by applying four separate uniquely specialized strategies. (the "Focus Four Strategy"). The Focus Four Strategy adheres to a disciplined investment process that targets the following four strategies: The Dow(R) Target Dividend Strategy, Value Line(R) Target 25 Strategy, S&P Target SMid 60 Strategy, and NYSE(R) International Target 25 Strategy. ------------------------------------------------------------------------- 25 ------------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------- SPECIALTY Global Dividend Target 15 Portfolio: First Trust Advisors seeks to provide above-average total L.P. return. The Portfolio seeks to achieve its objective by investing in common stocks issued by companies that are expected to provide income and to have the potential for capital appreciation. The Portfolio invests primarily in the common stocks of the companies which are components of the Dow Jones Industrial Average/sm/ ("DJIA/sm/"), the Financial Times Industrial Ordinary Share Index ("FT Index") and the Hang Seng Index. The Portfolio primarily consists of common stocks of the five companies with the lowest per share stock prices of the ten companies in each of the DJIA/sm/, FT Index and Hang Seng Index, respectively, that have the highest dividend yields in the respective index on or about the applicable stock selection date. Each security is initially equally weighted in the portfolio. ------------------------------------------------------------------------- SPECIALTY NASDAQ(R) Target 15 Portfolio: seeks First Trust Advisors to provide above-average total L.P. return. Beginning with the stocks in the NASDAQ-100 Index(R) on or about the applicable stock selection date, the Portfolio selects fifteen stocks based on a multi-factor model. A modified market capitalization approach is used to weight each security in the portfolio. ------------------------------------------------------------------------- SPECIALTY S&P(R) Target 24 Portfolio: seeks to First Trust Advisors provide above-average total return. L.P. Beginning with the stocks in the Standard & Poor's 500 Index ("S&P 500 Index"), on or about the applicable stock selection date, the Portfolio selects three stocks from each of the eight largest economic sectors of the S&P 500 Index. The twenty four stocks are selected based on a multi-factor model and a modified market capitalization approach is used to weight each security in the portfolio. ------------------------------------------------------------------------- SPECIALTY Target Managed VIP Portfolio: seeks First Trust Advisors to provide above-average total L.P. return. The Portfolio seeks to achieve its objective by investing in common stocks of the companies that are identified based on six uniquely specialized strategies - The Dow(R) DART 5, the European Target 20, the NASDAQ(R) Target 15, the S&P(R) Target 24, the Target Small-Cap and the Value Line(R) Target 25. Each strategy employs a quantitative approach by screening common stocks for certain attributes and/or using a multi-factor scoring system to select the common stocks. ------------------------------------------------------------------------- SPECIALTY The Dow(R) Target Dividend First Trust Advisors Portfolio: seeks to provide L.P. above-average total return. The Portfolio seeks to achieve its objective by investing in common stocks issued by companies that are expected to provide income and to have the potential for capital appreciation. Beginning with the stocks in The Dow Jones Select Dividend Index/sm/, on or about the applicable stock selection date, the Portfolio selects twenty common stocks based on a multi-factor model. Each security is initially equally weighted in the portfolio. ------------------------------------------------------------------------- SPECIALTY The Dow(R) DART 10 Portfolio: seeks First Trust Advisors to provide above-average total L.P. return. The Portfolio seeks to achieve its objective by investing in common stocks issued by companies that are expected to provide income and to have the potential for capital appreciation. The Portfolio invests primarily in the common stocks of the ten companies in the DJIA that have the highest combined dividend yields and buyback ratios on or about the applicable stock selection date. Each security is initially equally weighted in the portfolio. ------------------------------------------------------------------------- SPECIALTY Value Line(R) Target 25 Portfolio: First Trust Advisors seeks to provide above-average L.P. capital appreciation. The Portfolio seeks to achieve its objective by investing in 25 of the 100 common stocks that Value Line(R) gives a #1 ranking for Timelines/tm/ which have recently exhibited certain positive financial attributes. Value Line(R) ranks approximately 1,700 stocks of which 100 are given their #1 ranking for Timeliness(TM) which measures Value Line's view of their probable price performance during the next six to 12 months relative to the others. Beginning with the 100 stocks that Value Line(R) ranks #1 for Timeliness(TM), on or about the applicable stock selection date, the Portfolio selects twenty five stocks based on a multi-factor model. A modified market capitalization approach is used to weight each security in the portfolio. ------------------------------------------------------------------------- 26 ------------------------------------------------------------------------ STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------ FRANKLIN TEMPLETON VARIABLE INSURANCE PRODUCTS TRUST ------------------------------------------------------------------------ MODERATE Franklin Templeton Founding Funds Franklin Templeton ALLOCA Allocation Fund: Seeks capital Services, LLC TION appreciation, with income as a secondary goal. The Fund normally invests equal portions in Class 1 shares of Franklin Income Securities Fund; Mutual Shares Securities Fund; and Templeton Growth Securities Fund. ------------------------------------------------------------------------ NATIONWIDE VARIABLE INSURANCE TRUST ------------------------------------------------------------------------ INTER Gartmore NVIT Developing Markets NWD Management NATIONAL Fund: seeks long-term capital & Research Trust/ EQUITY appreciation, under normal Gartmore Global conditions by investing at least 80% Partners of the value of its net assets in equity securities of companies of any size based in the world's developing market countries. Under normal market conditions, investments are maintained in at least six countries at all times with no more than 35% of the value of its net assets invested in securities of any one country. ------------------------------------------------------------------------ PROFUND VP ------------------------------------------------------------------------ Each ProFund VP portfolio described below pursues an investment strategy that seeks to provide daily investment results, before fees and expenses, that match a widely followed index, increased by a specified factor relative to the index, or that match the inverse of the index or the inverse of the index multiplied by a specified factor. The investment strategy of some of the portfolios may magnify (both positively and negatively) the daily investment results of the applicable index. It is recommended that only those Annuity Owners who engage a financial advisor to allocate their account value using a strategic or tactical asset allocation strategy invest in these portfolios. The Portfolios are arranged based on the index on which its investment strategy is based. ------------------------------------------------------------------------ SPECIALTY ProFund VP Bull: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the S&P 500(R) Index. ------------------------------------------------------------------------ SPECIALTY ProFund VP Bear: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the inverse (opposite) of the daily performance of the S&P 500(R) Index. If ProFund VP Bear is successful in meeting its objective, its net asset value should gain approximately the same amount, on a percentage basis, as any decrease in the S&P 500(R) Index when the Index declines on a given day. Conversely, its net asset value should lose approximately the same amount, on a percentage basis, as any increase in the Index when the Index rises on a given day. ------------------------------------------------------------------------ SPECIALTY ProFund VP UltraBull: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to twice (200%) the daily performance of the S&P 500(R) Index. If ProFund VP UltraBull is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the S&P 500(R) Index when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day. ------------------------------------------------------------------------ The S&P 500(R) Index is a measure of large-cap U.S. stock market performance. It is a float-adjusted market capitalization weighted index of 500 U.S. operating companies and REITS selected by an S&P U.S. Index Committee through a non- mechanical process that factors criteria such as liquidity, price, market capitalization and financial viability. Reconstitution occurs both on a quarterly and ongoing basis. ------------------------------------------------------------------------ SPECIALTY ProFund VP NASDAQ-100 (formerly ProFund Advisors known as ProFund VP OTC): seeks LLC daily investment results, before fees and expenses, that correspond to the daily performance of the NASDAQ-100 Index(R). ------------------------------------------------------------------------ SPECIALTY ProFund VP Short NASDAQ-100 ProFund Advisors (formerly known as ProFund VP Short LLC OTC): seeks daily investment results, before fees and expenses, that correspond to the inverse (opposite) of the daily performance of the NASDAQ-100 Index(R). If ProFund VP Short OTC is successful in meeting its objective, its net asset value should gain approximately the same amount, on a percentage basis, as any decrease in the NASDAQ-100 Index(R) when the Index declines on a given day. Conversely, its net asset value should lose approximately the same amount, on a percentage basis, as any increase in the Index when the Index rises on a given day. ------------------------------------------------------------------------ 27 ------------------------------------------------------------------------ STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------ SPECIALTY ProFund VP UltraNASDAQ-100 (formerly ProFund Advisors known as ProFund VP UltraOTC): seeks LLC daily investment results, before fees and expenses, that correspond to twice (200%) the daily performance of the NASDAQ-100 Index(R). If ProFund VP UltraOTC is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the NASDAQ-100 Index(R) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day. ------------------------------------------------------------------------ The NASDAQ-100 Index(R) includes 100 of the largest non-financial domestic and international issues listed on the NASDAQ Stock Market. To be eligible for inclusion companies cannot be in bankruptcy proceedings and must meet certain additional criteria including minimum trading volume and "seasoning" requirements. The Index is calculated under a modified capitalization-weighted methodology. Reconstitution and rebalancing occurs on an annual, quarterly and ongoing basis. ------------------------------------------------------------------------ SPECIALTY ProFund VP UltraSmall-Cap: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to twice (200%) the daily performance of the Russell 2000(R) Index. If ProFund VP UltraSmall-Cap is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the Russell 2000 Index(R) when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day. ------------------------------------------------------------------------ SPECIALTY ProFund VP Short Small-Cap: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to the inverse (opposite) of the daily performance of the Russell 2000(R) Index. If ProFund VP Short Small-Cap is successful in meeting its objective, its net asset value should gain approximately the same amount, on a percentage basis, as any decrease in the Russell 2000 Index when the Index declines on a given day. Conversely, its net asset value should lose approximately the same amount, on a percentage basis, as any increase in the Index when the Index rises on a given day. ------------------------------------------------------------------------ The Russell 2000 Index is a measure of small-cap U.S. stock market performance. It is an adjusted market capitalization weighted index containing approximately 2000 of the smallest companies in the Russell 3000 Index or approximately 8% of the total market capitalization of the Russell 3000 Index, which in turn represents approximately 98% of the investable U.S. equity market. All U.S. companies listed on the NYSE, AMEX or NASDAQ meeting an initial minimum ($1) price are considered for inclusion. Reconstitution occurs annually. Securities are not replaced if they leave the index, however, new issue securities meeting other membership requirements may be added on a quarterly basis. ------------------------------------------------------------------------ SPECIALTY ProFund VP UltraMid-Cap: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to twice (200%) the daily performance of the S&P MidCap 400 Index(R). If ProFund VP UltraMid-Cap is successful in meeting its objective, its net asset value should gain approximately twice as much, on a percentage basis, as the S&P MidCap 400 Index when the Index rises on a given day. Conversely, its net asset value should lose approximately twice as much, on a percentage basis, as the Index when the Index declines on a given day. ------------------------------------------------------------------------ SPECIALTY ProFund VP Short Mid-Cap: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to the inverse (opposite) of the daily performance of the S&P MidCap 400 Index(R). If ProFund VP Short Mid-Cap is successful in meeting its objective, its net asset value should gain approximately the same amount, on a percentage basis, as any decrease in the S&P MidCap 400 Index when the Index declines on a given day. Conversely, its net asset value should lose approximately the same amount, on a percentage basis, as any increase in the Index when the Index rises on a given day. ------------------------------------------------------------------------ The S&P MidCap 400 Index is a measure of mid-size company U.S. stock market performance. It is a float-adjusted market capitalization weighted index of 400 U.S. operating companies and REITs. Securities are selected for inclusion in the index by the S&P U.S. Index Committee through a non-mechanical process that factors criteria such as liquidity, price, market capitalization and financial viability. Reconstitution occurs both on a quarterly and ongoing basis. ------------------------------------------------------------------------ 28 ------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------- SMALL ProFund VP Small-Cap Value: seeks ProFund Advisors CAP daily investment results, before LLC VALUE fees and expenses, that correspond to the daily performance of the S&P SmallCap 600/Citigroup Value Index(R). The S&P SmallCap 600/Citigroup Value Index is designed to provide a comprehensive measure of small-cap U.S. equity "value" performance. It is an unmanaged float adjusted market capitalization weighted index comprised of stocks representing approximately half the market capitalization of the S&P SmallCap 600 Index that have been identified as being on the value end of the growth-value spectrum. (Note: The S&P SmallCap 600 Index is a measure of small-cap company U.S. stock market performance. It is a float adjusted market capitalization weighted index of 600 U.S. operating companies. Securities are selected for inclusion in the index by an S&P committee through a nonmechanical process that factors criteria such as liquidity, price, market capitalization, financial viability, and public float.) ------------------------------------------------------------------- SMALL ProFund VP Small-Cap Growth: seeks ProFund Advisors CAP daily investment results, before LLC GROWTH fees and expenses, that correspond to the daily performance of the S&P SmallCap 600/Citigroup Growth Index(R). The S&P SmallCap 600/Citigroup Growth Index is designed to provide a comprehensive measure of small-cap U.S. equity "growth" performance. It is an unmanaged float adjusted market capitalization weighted index comprised of stocks representing approximately half the market capitalization of the S&P SmallCap 600 Index that have been identified as being on the growth end of the growth-value spectrum. (Note: The S&P SmallCap 600 Index is a measure of small-cap company U.S. stock market performance. It is a float adjusted market capitalization weighted index of 600 U.S. operating companies. Securities are selected for inclusion in the index by an S&P committee through a nonmechanical process that factors criteria such as liquidity, price, market capitalization, financial viability, and public float.) ------------------------------------------------------------------- The S&P SmallCap 600 Index is a measure of small-cap company U.S. stock market performance. It is a float adjusted market capitalization weighted index of 600 U.S. operating companies. Securities are selected for inclusion in the index by an S&P committee through a nonmechanical process that factors criteria such as liquidity, price, market capitalization, financial viability, and public float. ------------------------------------------------------------------- LARGE ProFund VP Large-Cap Value: seeks ProFund Advisors CAP daily investment results, before LLC VALUE fees and expenses, that correspond to the daily performance of the S&P 500/Citigroup Value Index(R). The S&P 500/Citigroup Value Index is designed to provide a comprehensive measure of large-cap U.S. equity "value" performance. It is an unmanaged float adjusted market capitalization weighted index comprised of stocks representing approximately half the market capitalization of the S&P 500 Index that have been identified as being on the value end of the growth value spectrum. ------------------------------------------------------------------- LARGE ProFund VP Large-Cap Growth: seeks ProFund Advisors CAP daily investment results, before LLC GROWTH fees and expenses, that correspond to the daily performance of the S&P 500/Citigroup Growth Index(R). The S&P 500/Citigroup Growth Index is designed to provide a comprehensive measure of large-cap U.S. equity "growth" performance. It is an unmanaged float adjusted market capitalization weighted index comprised of stocks representing approximately half the market capitalization of the S&P 500 Index that have been identified as being on the growth end of the growth-value spectrum. ------------------------------------------------------------------- The S&P 500/Citigroup Growth Index is designed to provide a comprehensive measure of large-cap U.S. equity "growth" performance. It is an unmanaged float adjusted market capitalization weighted index comprised of stocks representing approximately half the market capitalization of the S&P 500 Index that have been identified as being on the growth end of the growth-value spectrum. ------------------------------------------------------------------- MID CAP ProFund VP Mid-Cap Value: seeks ProFund Advisors VALUE daily investment results, before LLC fees and expenses, that correspond to the daily performance of the S&P MidCap 400/Citigroup Value Index(R). The S&P MidCap 400/Citigroup Value Index is designed to provide a comprehensive measure of mid-cap U.S. equity "value" performance. It is an unmanaged float adjusted market capitalization weighted index comprised of stocks representing approximately half the market capitalization of the S&P MidCap 400 Index that have been identified as being on the value end of the growth-value spectrum. ------------------------------------------------------------------- 29 ------------------------------------------------------------------------ STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ------------------------------------------------------------------------ MID CAP ProFund VP Mid-Cap Growth: seeks ProFund Advisors GROWTH daily investment results, before LLC fees and expenses, that correspond to the daily performance of the S&P MidCap 400/Citigroup Growth Index(R). The S&P MidCap 400/Citigroup Growth Index is designed to provide a comprehensive measure of mid-cap U.S. equity "growth" performance. It is an unmanaged float adjusted market capitalization weighted index comprised of stocks representing approximately half the market capitalization of the S&P MidCap 400 Index that have been identified as being on the growth end of the growth-value spectrum. ------------------------------------------------------------------------ The S&P MidCap 400/Citigroup Value Index is designed to provide a comprehensive measure of mid-cap U.S. equity "value" performance. It is an unmanaged float adjusted market capitalization weighted index comprised of stocks representing approximately half the market capitalization of the S&P MidCap 400 Index that have been identified as being on the value end of the growth-value spectrum. ------------------------------------------------------------------------ SPECIALTY ProFund VP Asia 30: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the ProFunds Asia 30 Index. The ProFunds Asia 30 Index, created by ProFund Advisors, is composed of 30 companies whose principal offices are located in the Asia/Pacific region, excluding Japan, and whose securities are traded on U.S. exchanges or on the NASDAQ as depository receipts or ordinary shares. The component companies in the ProFunds Asia 30 Index are determined annually based upon their U.S. dollar-traded volume. Their relative weights are determined based on the modified market capitalization method. ------------------------------------------------------------------------ SPECIALTY ProFund VP Europe 30: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the ProFunds Europe 30 Index. The ProFunds Europe 30 Index, created by ProFund Advisors, is composed of companies whose principal offices are located in Europe and whose securities are traded on U.S. exchanges or on the NASDAQ as depositary receipts or ordinary shares. The component companies in the ProFunds Europe 30 Index are determined annually based upon their U.S. dollar- traded volume. Their relative weights are determined based on a modified market capitalization method. ------------------------------------------------------------------------ SPECIALTY ProFund VP Japan: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the Nikkei 225 Stock Average. The Fund determines its success in meeting this investment objective by comparing its daily return on a given day with the daily performance of the dollar-denominated Nikkei 225 futures contracts traded in the United States. The Fund seeks to provide a return consistent with an investment in the component equities in the Nikkei 225 Stock Average hedged to U.S. dollars. ------------------------------------------------------------------------ The Nikkei 225 Stock Average ("Nikkei" ) is a modified price-weighted index of the 225 most actively traded and liquid Japanese companies listed in the First Section of the Tokyo Stock Exchange (TSE). The Nikkei is calculated from the prices of the 225 TSE First Section stocks selected to represent a broad cross-section of Japanese industries and the overall performance of the Japanese equity market. Nihon Keizai Shimbun, Inc. is the sponsor of the Index. Companies in the Nikkei are reviewed annually. Emphasis is placed on maintaining the Index's historical continuity while keeping the Index composed of stocks with high market liquidity. The sponsor consults with various market experts, considers company specific information and the overall composition of the Index. ------------------------------------------------------------------------ SPECIALTY ProFund VP Banks: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the Dow Jones U.S. Banks Index. The Dow Jones U.S. Banks Index measures the performance of the banking sector of the U.S. equity market. Component companies include regional and major U.S. domiciled banks engaged in a wide range of financial services, including retail banking, loans and money transmissions. ------------------------------------------------------------------------ SPECIALTY ProFund VP Basic Materials: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to the daily performance of the Dow Jones U.S. Basic Materials Index. The Dow Jones U.S. Basic Materials Index measures the performance of the basic materials industry of the U.S. equity market. Component companies are involved in the production of aluminum, steel, non ferrous metals, commodity chemicals, specialty chemicals, forest products, paper products, as well as the mining of precious metals and coal. ------------------------------------------------------------------------ 30 --------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR --------------------------------------------------------------------- SPECIALTY ProFund VP Biotechnology: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to the daily performance of the Dow Jones U.S. Biotechnology Index. The Dow Jones U.S. Biotechnology Index measures the performance of the biotechnology subsector of the U.S. equity market. Component companies engage in research and development of biological substances for drug discovery and diagnostic development. These companies derive most of their revenue from the sale of licensing of drugs and diagnostic tools. --------------------------------------------------------------------- SPECIALTY ProFund VP Consumer Goods: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to the daily performance of the Dow Jones U.S. Consumer Goods Index. The Dow Jones U.S. Consumer Goods Index measures the performance of consumer spending in the goods industry of the U.S. equity market. Component companies include automobiles and auto parts and tires, brewers and distillers, farming and fishing, durable and non-durable household product manufacturers, cosmetic companies, food and tobacco products, clothing, accessories and footwear. --------------------------------------------------------------------- SPECIALTY ProFund VP Consumer Services: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to the daily performance of the Dow Jones U.S. Consumer Services Index. The Dow Jones U.S. Consumer Services Index measures the performance of consumer spending in the services industry of the U.S. equity market. Component companies include airlines, broadcasting and entertainment, apparel and broadline retailers, food and drug retailers, media agencies, publishing, gambling, hotels, restaurants and bars, and travel and tourism. --------------------------------------------------------------------- SPECIALTY ProFund VP Financials: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the Dow Jones U.S. Financials Index. The Dow Jones U.S. Financials Index measures the performance of the financial services industry of the U.S. equity market. Component companies include regional banks; major U.S. domiciled international banks; full line, life, and property and casualty insurance companies; companies that invest, directly or indirectly in real estate; diversified financial companies such as Fannie Mae, credit card issuers, check cashing companies, mortgage lenders and investment advisers; securities brokers and dealers, including investment banks, merchant banks and online brokers; and publicly traded stock exchanges. --------------------------------------------------------------------- SPECIALTY ProFund VP Health Care: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the Dow Jones U.S. Health Care Index. The Dow Jones U.S. Health Care Index measures the performance of the healthcare industry of the U.S. equity market. Component companies include health care providers, biotechnology companies, medical supplies, advanced medical devices and pharmaceuticals. --------------------------------------------------------------------- SPECIALTY ProFund VP Industrials: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the Dow Jones U.S. Industrials Index. The Dow Jones U.S. Industrials Index measures the performance of the industrial industry of the U.S. equity market. Component companies include building materials, heavy construction, factory equipment, heavy machinery, industrial services, pollution control, containers and packaging, industrial diversified, air freight, marine transportation, railroads, trucking, land-transportation equipment, shipbuilding, transportation services, advanced industrial equipment, electric components and equipment, and aerospace. --------------------------------------------------------------------- SPECIALTY ProFund VP Internet: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the Dow Jones Composite Internet Index. The Dow Jones Composite Internet Index measures the performance of stocks in the U.S. equity markets that generate the majority of their revenues from the Internet. The Index is composed of two sub-groups: Internet Commerce - companies that derive the majority of their revenues from providing goods and/or services through an open network, such as a web site. Internet Services - companies that derive the majority of their revenues from providing access to the Internet or providing services to people using the Internet. --------------------------------------------------------------------- 31 ---------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ---------------------------------------------------------------------- SPECIALTY ProFund VP Oil & Gas: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the Dow Jones U.S. Oil & Gas Index. The Dow Jones U.S. Oil & Gas Index measures the performance of the oil and gas industry of the U.S. equity market. Component companies include oil drilling equipment and services, oil companies-major, oil companies-secondary, pipelines, liquid, solid or gaseous fossil fuel producers and service companies. ---------------------------------------------------------------------- SPECIALTY ProFund VP Pharmaceuticals: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to the daily performance of the Dow Jones U.S. Pharmaceuticals Index. The Dow Jones U.S. Pharmaceuticals Index measures the performance of the pharmaceuticals subsector of the U.S. equity market. Component companies include the makers of prescription and over-the-counter drugs such as birth control pills, vaccines, aspirin and cold remedies. ---------------------------------------------------------------------- SPECIALTY ProFund VP Precious Metals: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to the daily performance of the Dow Jones Precious Metals Index. The Dow Jones Precious Metals Index measures the performance of the precious metals mining industry. Component companies include leading miners and producers of gold, silver and platinum-group metals whose securities are available to U.S. investors during U.S. trading hours. It is a float-adjusted market-capitalization weighted index. ---------------------------------------------------------------------- SPECIALTY ProFund VP Real Estate: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the Dow Jones U.S. Real Estate Index. The Dow Jones U.S. Real Estate Index measures the performance of the real estate sector of the U.S. equity market. Component companies include those that invest directly or indirectly through development, management or ownership of shopping malls, apartment buildings and housing developments; and real estate investment trusts ("REITs") that invest in apartments, office and retail properties. REITs are passive investment vehicles that invest primarily in income-producing real estate or real estate related loans or interests. ---------------------------------------------------------------------- SPECIALTY ProFund VP Semiconductor: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to the daily performance of the Dow Jones U.S. Semiconductosr Index. The Dow Jones U.S. Semiconductors Index measures the performance of the semiconductor subsector of the U.S. equity market. Component companies are engaged in the production of semiconductors and other integrated chips, as well as other related products such as semiconductor capital equipment and mother-boards. ---------------------------------------------------------------------- SPECIALTY ProFund VP Technology: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the Dow Jones U.S. Technology Index. The Dow Jones U.S. Technology Index measures the performance of the technology industry of the U.S. equity market. Component companies include those involved in computers and office equipment, software, communications technology, semiconductors, diversified technology services and Internet services. ---------------------------------------------------------------------- SPECIALTY ProFund VP Telecommunications: seeks ProFund Advisors daily investment results, before LLC fees and expenses, that correspond to the daily performance of the Dow Jones U.S. Telecommunications Index. The Dow Jones U.S. Telecommunications Index measures the performance of the telecommunications industry of the U.S. equity market. Component companies include fixed-line communications and wireless communications companies. ---------------------------------------------------------------------- SPECIALTY ProFund VP Utilities: seeks daily ProFund Advisors investment results, before fees and LLC expenses, that correspond to the daily performance of the Dow Jones U.S. Utilities Sector Index. The Dow Jones U.S. Utilities Sector Index measures the performance of the utilities industry of the U.S. equity market. Component companies include electric utilities, gas utilities and water utilities. ---------------------------------------------------------------------- 32 ---------------------------------------------------------------------- STYLE/ INVESTMENT OBJECTIVES/POLICIES PORTFOLIO TYPE ADVISOR/ SUB-ADVISOR ---------------------------------------------------------------------- SPECIALTY ProFund VP U.S. Government Plus: ProFund Advisors seeks daily investment results, LLC before fees and expenses, that correspond to one and one-quarter times (125%) the daily price movement of the most recently issued 30-year U.S. Treasury bond ("Long Bond"). In accordance with its stated objective, the net asset value of ProFund VP U.S. Government Plus generally should decrease as interest rates rise. If ProFund VP U.S. Government Plus is successful in meeting its objective, its net asset value should gain approximately one and one-quarter times (125%) as much, on a percentage basis, as any daily increase in the price of the Long Bond on a given day. Conversely, it value should lose approximately one and one-quarter as much, on a percentage basis, as any daily decrease in the price of the Long Bond on a given day. ---------------------------------------------------------------------- SPECIALTY ProFund VP Rising Rates Opportunity: ProFund Advisors seeks daily investment results, LLC before fees and expenses, that correspond to one and one-quarter times (125%) the inverse (opposite) of the daily price movement of the most recently issued 30-year U.S. Treasury bond ("Long Bond"). In accordance with its stated objective, the net asset value of ProFund VP Rising Rates Opportunity generally should decrease as interest rates fall. If ProFund VP Rising Rates Opportunity is successful in meeting its objective, its net asset value should gain approximately one and one-quarter times as much, on a percentage basis, as any daily decrease in the Long Bond on a given day. Conversely, its net asset value should lose approximately one and one-quarter times as much, on a percentage basis, as any daily increase in the price of the Long Bond on a given day. ---------------------------------------------------------------------- SPECIALTY Access VP High Yield Fund: seeks to ProFund Advisors provide investment results that LLC correspond generally to the total return of the high yield market consistent with maintaining reasonable liquidity. The Fund will achieve its high yield exposure primarily through credit default swaps (CDSs) but may invest in high yield debt instruments ("junk bonds"), interest rate swap agreements and futures contracts, and other debt and money market instruments without limitation, consistent with applicable regulations. Under normal market conditions, the Fund will invest at least 80% of its net assets in CDSs and other financial instruments that in combination have economic characteristics similar to the high yield debt market and/or in high yield debt securities. The Fund seeks to maintain exposure to the high yield bond markets regardless of market conditions and without taking defensive positions in cash or other instruments in anticipation of an adverse climate for the high yield bond markets. ProFund Advisors does not conduct fundamental analysis in managing the Fund. ---------------------------------------------------------------------- WELLS FARGO VARIABLE TRUST ---------------------------------------------------------------------- LARGE Wells Fargo Advantage VT Equity Wells Fargo Funds CAP Income Fund: Seeks long-term capital Management, LLC, VALUE appreciation and dividend income. adviser; The Portfolio invests principally in Wells Capital equity securities of large- Management capitalization companies, which they Incorporated, define as companies with market subadviser capitalizations of $3 billion or more. ---------------------------------------------------------------------- "Dow Jones Industrial Average/SM/", "DJIA/SM/", "Dow Industrials/SM/", "The Dow/SM/", and the other Dow indices, are service marks of Dow Jones & Company, Inc. ("Dow Jones") and have been licensed for use for certain purposes by First Trust Advisors L.P. ("First Trust"). The portfolios are not endorsed, sold or promoted by Dow Jones, and Dow Jones makes no representation regarding the advisability of investing in such products. "Standard & Poor's," "S&P," "S&P 500," "Standard & Poor's 500," and "500" are trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by First Trust. The Portfolios are not sponsored, endorsed, managed, sold or promoted by Standard & Poor's and Standard & Poor's makes no representation regarding the advisability of investing in the Portfolio. "The Nasdaq 100(R)", "Nasdaq-100 Index(R)", "Nasdaq Stock Market(R)", and "Nasdaq(R)" are trade or service marks of The Nasdaq Stock Market, Inc. (which with its affiliates are the "Corporations") and have been licensed for use by First Trust. The Nasdaq Target 15 Portfolio and Target Managed VIP Portfolio have not been passed on by the Corporations as to its legality or suitability. The Nasdaq Target 15 Portfolio and Target Managed VIP Portfolio are not issued, endorsed, sponsored, managed, sold or promoted by the Corporations. The Corporations make no warranties and bear no liability with respect to the Nasdaq Target 15 Portfolio or the Target Managed VIP Portfolio. "Value Line(R)," "The Value Line Investment Survey," and "Value Line Timeliness/TM/ Ranking System" are registered trademarks of Value Line Securities, Inc. or Value Line Publishing, Inc. The Target Managed VIP(R) Portfolio and Value Line Target 25 Portfolio are not sponsored, recommended, sold or promoted by Value Line Publishing, Inc., Value Line, Inc. or Value Line Securities, Inc. ("Value Line"). Value Line makes no representation regarding the advisability of investing in the Portfolio. 33 "Value Line Publishing, Inc.'s ("VLPI") only relationship to First Trust Advisors L.P. or the Portfolio is VLPI's licensing to First Trust Advisors L.P. of certain VLPI trademarks and trade names and the Value Line Timeliness Ranking System (the "System"), which is composed by VLPI without regard to First Trust Advisors L.P., the Portfolio or any investor. First Trust Advisors, L.P. has sub-licensed certain VLPI trademarks and trade names to Prudential Investments LLC. VLPI has no obligation to take the needs of First Trust Advisors L.P., Prudential Investments LLC or any investor in the Portfolio into consideration in composing the System. The Portfolio's results may differ from the hypothetical or published results of the Value Line Timeliness Ranking System. VLPI is not responsible for, and has not participated in, the determination of the prices and composition of the Portfolio or the timing of the issuance for sale of the Portfolio or in the calculation of the equations by which the Portfolio is to be converted into cash. VLPI MAKES NO WARRANTY CONCERNING THE SYSTEM, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR ANY IMPLIED WARRANTIES ARISING FROM USAGE OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE, AND VLPI MAKES NO WARRANTY AS TO THE POTENTIAL PROFITS OR ANY OTHER BENEFITS THAT MAY BE ACHIEVED BY USING THE SYSTEM OR ANY INFORMATION OR MATERIALS GENERATED THEREFROM. VLPI DOES NOT WARRANT THAT THE SYSTEM WILL MEET ANY REQUIREMENTS OR THAT IT WILL BE ACCURATE OR ERROR-FREE. VLPI ALSO DOES NOT GUARANTEE ANY USES, INFORMATION, DATA OR OTHER RESULTS GENERATED FROM THE SYSTEM. VLPI HAS NO OBLIGATION OR LIABILITY (I) IN CONNNECTION WITH THE ADMINISTRATION, MARKETING OR TRADING OF THE PORTFOLIO; OR (II) FOR ANY LOSS, DAMAGE, COST OR EXPENSE SUFFERED OR INCURRED BY ANY INVESTOR OR OTHER PERSON OR ENTITY IN CONNNECTION WITH THE PORTFOLIO, AND IN NO EVENT SHALL VLPI BE LIABLE FOR ANY LOST PROFITS OR OTHER CONSEQUENTIAL, SPECIAL, PUNITIVE, INCIDENTAL, INDIRECT OR EXEMPLARY DAMAGES IN CONNECTION WITH THE PORTFOLIO." Dow Jones has no relationship to the ProFunds VP, other than the licensing of the Dow Jones sector indices and its service marks for use in connection with the ProFunds VP. The ProFunds VP are not sponsored, endorsed, sold, or promoted by Standard & Poor's or NASDAQ, and neither Standard & Poor's nor NASDAQ makes any representations regarding the advisability of investing in the ProFunds VP. WHAT ARE THE FIXED ALLOCATIONS? We offer Fixed Allocations of different durations during the accumulation period. These "Fixed Allocations" earn a guaranteed fixed rate of interest for a specified period of time, called the "Guarantee Period." In most states, we offer Fixed Allocations with Guarantee Periods from 1 to 10 years. We may also offer special purpose Fixed Allocations for use with certain optional investment programs. We guarantee the fixed rate for the entire Guarantee Period. However, if you withdraw or transfer Account Value before the end of the Guarantee Period, we will adjust the value of your withdrawal or transfer based on a formula, called a "Market Value Adjustment." The Market Value Adjustment can either be positive or negative, depending on the movement of applicable interest rates payable on Strips of the appropriate duration. Please refer to the section entitled "How does the Market Value Adjustment Work?" for a description of the formula along with examples of how it is calculated. You may allocate Account Value to more than one Fixed Allocation at a time. Fixed Allocations may not be available in all states. Availability of Fixed Allocations is subject to change and may differ by state and by the annuity product you purchase. Please call Prudential Annuities at 1-800-752-6342 to determine availability of Fixed Allocations in your state and for your annuity product. We may restrict your ability to allocate Account Value to Fixed Allocations if you elect certain optional benefits. The interest rate that we credit to the Fixed Allocations may be reduced by an amount that corresponds to the asset-based charges assessed against the Sub-accounts. 34 FEES AND CHARGES The charges under the Annuity are designed to cover, in the aggregate, our direct and indirect costs of selling, administering and providing benefits under the Annuity. They are also designed, in the aggregate, to compensate us for the risks of loss we assume. If, as we expect, the charges that we collect from the Annuities exceed our total costs in connection with the Annuities, we will earn a profit. Otherwise we will incur a loss. For example, Prudential Annuities may make a profit on the Insurance Charge if, over time, the actual costs of providing the guaranteed insurance obligations under an Annuity are less than the amount we deduct for the Insurance Charge. To the extent we make a profit on the Insurance Charge, such profit may be used for any other corporate purpose, including payment of other expenses that Prudential Annuities incurs promoting, distributing, issuing and administering the Annuity. The rates of certain of our charges have been set with reference to estimates of the amount of specific types of expenses or risks that we will incur. In most cases, this prospectus identifies such expenses or risks in the name of the charge; however, the fact that any charge bears the name of, or is designed primarily to defray a particular expense or risk does not mean that the amount we collect from that charge will never be more than the amount of such expense or risk, nor does it mean that we may not also be compensated for such expense or risk out of any other charges we are permitted to deduct by the terms of the Annuity. A portion of the proceeds that we receive from charges that apply to the Sub-accounts may include amounts based on market appreciation of the Sub-account values. WHAT ARE THE CONTRACT FEES AND CHARGES? Contingent Deferred Sales Charge: We do not deduct a sales charge from Purchase Payments you make to your Annuity. However, we may deduct a CDSC if you surrender your Annuity or when you make a partial withdrawal. The CDSC reimburses us for expenses related to sales and distribution of the Annuity, including commissions, marketing materials and other promotional expenses. The CDSC is calculated as a percentage of your Purchase Payment being surrendered or withdrawn during the applicable Annuity Year. For purposes of calculating the CDSC, we consider the year following the Issue Date of your Annuity as Year 1. The amount of the CDSC decreases over time, measured from the Issue Date of the Annuity. The CDSC percentages are shown under "Summary of Contract Fees and Charges". With respect to a partial withdrawal, we calculate the CDSC by assuming that any available free withdrawal amount is taken out first (see How Much Can I Withdraw as a Free Withdrawal?). If the free withdrawal amount is not sufficient, we then assume that withdrawals are taken from Purchase Payments that have not been previously withdrawn, on a first-in, first-out basis, and subsequently from any other Account Value in the Annuity. For purposes of calculating any applicable CDSC on a surrender, the Purchase Payments being withdrawn may be greater than your remaining Account Value or the amount of your withdrawal request. This is most likely to occur if you have made prior partial withdrawals or if your Account Value has declined in value due to negative market performance. In that scenario, we would determine the CDSC amount as the applicable percentage of the Purchase Payments being withdrawn, rather than as a percentage of the remaining Account Value or withdrawal request. Thus, the CDSC would be greater than if it were calculated as a percentage of remaining Account Value or withdrawal amount. We may waive any applicable CDSC under certain circumstances including certain medically-related circumstances or when taking a Minimum Distribution from an Annuity purchased as a "qualified" investment. Free Withdrawals, Medically-Related Surrenders and Minimum Distributions are each explained more fully in the section entitled "Access to Your Account Value". Transfer Fee: Currently, you may make twenty (20) free transfers between investment options the Annuity Year. We will charge $10.00 for each transfer after the twentieth in each Annuity Year. We do not consider transfers made as part of a Dollar Cost Averaging, Automatic Rebalancing or asset allocation program when we count the twenty free transfers. All transfers made on the same day will be treated as one (1) transfer. We may reduce the number of free transfers allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee unless you make use of electronic means to transmit your transfer requests. We may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. If enrolled in any program that does not permit transfer requests to be transmitted electronically, the Transfer Fee will not be waived. Annual Maintenance Fee: During the accumulation period we deduct an Annual Maintenance Fee. The Annual Maintenance Fee is $35.00 or 2% of your Account Value invested in the Sub-accounts, whichever is less. This fee will be deducted annually on the anniversary of the Issue Date of your Annuity or, if you surrender your Annuity during the Annuity Year, the fee is deducted at the time of surrender. The Annual Maintenance Fee is only deducted if your Account Value is less than $100,000 on the anniversary of the Issue Date or at the time of surrender. We do not impose the Annual Maintenance Fee upon annuitization, the payment of a Death Benefit, or a medically-related full surrender. We may increase the Annual Maintenance Fee. However, any increase will only apply to Annuities issued after the date of the increase. For beneficiaries that elect the Beneficiary Continuation Option, the Annual Maintenance Fee is the lesser of $30 or 2% of Account Value. For a non-qualified Beneficiary Continuation Option, the fee is only applicable if the Account Value is less than $25,000 at the time the fee is assessed. 35 Tax Charge: Several states and some municipalities charge premium taxes or similar taxes on annuities that we are required to pay. The amount of tax will vary from jurisdiction to jurisdiction and is subject to change. The tax charge currently ranges up to 3 1/2% of your Purchase Payments and is designed to approximate the taxes that we are required to pay. We reserve the right to deduct the charge either at the time the tax is imposed, upon a full surrender of the Annuity, or upon annuitization. We may assess a charge against the Sub-accounts equal to any taxes which may be imposed upon the separate accounts. We will pay company income taxes on the taxable corporate earnings created by this separate account product. While we may consider company income taxes when pricing our products, we do not currently include such income taxes in the tax charges you pay under the Annuity. We will periodically review the issue of charging for these taxes and may impose a charge in the future. In calculating our corporate income tax liability, we derive certain corporate income tax benefits associated with the investment of company assets, including separate account assets, which are treated as company assets under applicable income tax law. These benefits reduce our overall corporate income tax liability. Under current law, such benefits may include foreign tax credits and corporate dividends received deductions. We do not pass these tax benefits through to holders of the separate account annuity contracts because (i) the contract owners are not the owners of the assets generating these benefits under applicable income tax law and (ii) we do not currently include company income taxes in the tax charges you pay under the contract. Insurance Charge: We deduct an Insurance Charge daily. The charge is assessed against the daily assets allocated to the Sub-accounts and is equal to the amount indicated under "Summary of Contract Fees and Charges". The Insurance Charge is the combination of the Mortality & Expense Risk Charge and the Administration Charge. The Insurance Charge is intended to compensate Prudential Annuities for providing the insurance benefits under the Annuity, including the Annuity's basic Death Benefit that provides guaranteed benefits to your beneficiaries even if the market declines and the risk that persons we guarantee annuity payments to will live longer than our assumptions. The charge also covers administrative costs associated with providing the Annuity benefits, including preparation of the contract and prospectus, confirmation statements, annual account statements and annual reports, legal and accounting fees as well as various related expenses. Finally, the charge covers the risk that our assumptions about the mortality risks and expenses under the Annuity are incorrect and that we have agreed not to increase these charges over time despite our actual costs. We may increase the portion of the total Insurance Charge that is deducted for administrative costs; however, any increase will only apply to Annuities issued after the date of the increase. Optional Benefits for which we assess a charge: Generally, if you elect to purchase certain optional benefits, we will deduct an additional charge on a daily basis from your Account Value allocated to the Sub-accounts. The additional charge is included in the daily calculation of the Unit Price for each Sub-account. We may assess charges for other optional benefits on a different basis. Please refer to the section entitled "Summary of Contract Fees and Charges" for the list of charges for each Optional Benefit. Settlement Service Charge: If your beneficiary takes the death benefit under a Beneficiary Continuation Option, we deduct a Settlement Service Charge. The charge is assessed daily against the average assets allocated to the Sub-accounts and is equal to an annual charge of 1.00% for non-qualified Annuities and 1.40% for qualified Annuities. Fees and expenses incurred by the Portfolios: Each Portfolio incurs total annual operating expenses comprised of an investment management fee, other expenses and any distribution and service (12b-1) fees that may apply. These fees and expenses are reflected daily by each Portfolio before it provides us with the net asset value as of the close of business each day. More detailed information about fees and expenses can be found in the prospectuses for the Portfolios. WHAT CHARGES APPLY IF I CHOOSE AN ANNUITY PAYMENT OPTION? If you select a fixed payment option, the amount of each fixed payment will depend on the Account Value of your Annuity when you elected to annuitize. There is no specific charge deducted from these payments; however, the amount of each annuity payment reflects assumptions about our insurance expenses. If you select a variable payment option that we may offer, then the amount of your benefits will reflect changes in the value of your Annuity and will be subject to charges that apply under the variable immediate annuity option. Also, a tax charge may apply (see "Tax Charge" above). Currently, we only offer fixed payment options. EXCEPTIONS/REDUCTIONS TO FEES AND CHARGES We may reduce or eliminate certain fees and charges or alter the manner in which the particular fee or charge is deducted. For example, we may reduce the amount of any CDSC or the length of time it applies, reduce or eliminate the amount of the Annual Maintenance Fee or reduce the portion of the total Insurance Charge that is deducted as an Administration Charge. Generally, these types of changes will be based on a reduction to our sales, maintenance or administrative expenses due to the nature of the individual or group purchasing the Annuity. Some of the factors we might consider in making such a decision are: (a) the size and type of group; (b) the number of Annuities purchased by an Owner; (c) the amount of Purchase Payments or likelihood of additional Purchase Payments; (d) whether an annuity is reinstated pursuant to our rules; and/or (e) other transactions where sales, maintenance or administrative expenses are likely to be reduced. We will not discriminate unfairly between Annuity purchasers if and when we reduce any fees and charges. 36 PURCHASING YOUR ANNUITY WHAT ARE OUR REQUIREMENTS FOR PURCHASING THE ANNUITY? Initial Purchase Payment: Unless we agree otherwise and subject to our rules, you must make a minimum initial Purchase Payment of $10,000. However, if you decide to make payments under a systematic investment or an electronic funds transfer program, we may accept a lower initial Purchase Payment provided that, within the first Annuity Year, your subsequent Purchase Payments plus your initial Purchase Payment total the minimum initial Purchase Payment amount required for the Annuity purchased. Where allowed by law, we must approve any initial and additional Purchase Payments of $1,000,000 or more. We may apply certain limitations and/or restrictions on an Annuity as a condition of our acceptance, including limiting the liquidity features or the Death Benefit protection provided under an Annuity, limiting the right to make additional Purchase Payments, changing the number of transfers allowable under an Annuity or restricting the Sub-accounts that are available. Other limitations and/or restrictions may apply. Applicable laws designed to counter terrorists and prevent money laundering might, in certain circumstances, require us to block a contract owner's ability to make certain transactions, and thereby refuse to accept Purchase Payments or requests for transfers, partial withdrawals, total withdrawals, death benefits, or income payments until instructions are received from the appropriate regulator. We also may be required to provide additional information about you and your Annuity to government regulators. Except as noted below, Purchase Payments must be submitted by check drawn on a U.S. bank, in U.S. dollars, and made payable to Prudential Annuities. Purchase Payments may also be submitted via 1035 exchange or direct transfer of funds. Under certain circumstances, Purchase Payments may be transmitted to Prudential Annuities via wiring funds through your Financial Professional's broker-dealer firm. Additional Purchase Payments may also be applied to your Annuity under an electronic funds transfer arrangement where you authorize us to deduct money directly from your bank account. We may reject any payment if it is received in an unacceptable form. Our acceptance of a check is subject to our ability to collect funds. Age Restrictions: Unless we agree otherwise and subject to our rules, the Owner (or Annuitant if entity owned) must not be older than the maximum issue age of 85 as of the Issue Date of the Annuity. If an Annuity is owned jointly, the oldest of the Owners must not be older than the maximum issue age on the Issue Date. You should consider your need to access your Account Value and whether the Annuity's liquidity features will satisfy that need. If you take a distribution prior to age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. The availability and level of protection of certain optional benefits may vary based on the age of the Owner on the Issue Date of the Annuity or the date of the Owner's death. Owner, Annuitant and Beneficiary Designations: We will ask you to name the Owner(s), Annuitant and one or more Beneficiaries for your Annuity. . Owner: The Owner(s) holds all rights under the Annuity. You may name up to two Owners in which case all ownership rights are held jointly. Generally, joint owners are required to act jointly; however, if each owner provides us with an instruction that we find acceptable, we will permit each owner to act separately. All information and documents that we are required to send you will be sent to the first named owner. This Annuity does not provide a right of survivorship. Refer to the Glossary of Terms for a complete description of the term "Owner." . Annuitant: The Annuitant is the person upon whose life we continue to make annuity payments. You must name an Annuitant who is a natural person. We do not accept a designation of joint Annuitants during the accumulation period. In limited circumstances and where allowed by law, you may name one or more Contingent Annuitants. Generally, a Contingent Annuitant will become the Annuitant if the Annuitant dies before the Annuity Date. Please refer to the discussion of "Considerations for Contingent Annuitants" in the Tax Considerations section of the Prospectus. . Beneficiary: The Beneficiary is the person(s) or entity you name to receive the Death Benefit. Your Beneficiary Designation should be the exact name of your beneficiary, not only a reference to the beneficiary's relationship to you. If you use a designation of "surviving spouse," we will pay the Death Benefit to the individual that is your spouse at the time of your death (as defined under the federal tax laws and regulations). If no beneficiary is named the Death Benefit will be paid to you or your estate. Your right to make certain designations may be limited if your Annuity is to be used as an IRA or other "qualified" investment that is given beneficial tax treatment under the Code. You should seek competent tax advice on the income, estate and gift tax implications of your designations. 37 MANAGING YOUR ANNUITY MAY I CHANGE THE OWNER, ANNUITANT AND BENEFICIARY DESIGNATIONS? You may change the Owner, Annuitant and Beneficiary Designations by sending us a request in writing in a form acceptable to us. Upon an ownership change, any automated investment or withdrawal programs will be canceled. The new owner must submit the applicable program enrollment if they wish to participate in such a program. Where allowed by law, such changes will be subject to our acceptance. Some of the changes we will not accept include, but are not limited to: . a new Owner subsequent to the death of the Owner or the first of any joint Owners to die, except where a spouse Beneficiary has become the Owner as a result of an Owner's death; . a new Annuitant subsequent to the Annuity Date; . for "non-qualified" investments, a new Annuitant prior to the Annuity Date if the Annuity is owned by an entity; and a change in Beneficiary if the Owner had previously made the designation irrevocable. There are also restrictions on designation changes when you have elected certain optional benefits. See the "Living Benefit Programs" and "Death Benefits" sections of this Prospectus for any such restrictions. Spousal Designations If an Annuity is co-owned by spouses, we will assume that the sole primary Beneficiary is the surviving spouse that was named as the co-owner unless you elect an alternative Beneficiary Designation. Unless you elect an alternative Beneficiary Designation, upon the death of either spousal Owner, the surviving spouse may elect to assume ownership of the Annuity instead of taking the Death Benefit payment. The Death Benefit that would have been payable will be the new Account Value of the Annuity as of the date of due proof of death and any required proof of a spousal relationship. As of the date the assumption is effective, the surviving spouse will have all the rights and benefits that would be available under the Annuity to a new purchaser of the same attained age. For purposes of determining any future Death Benefit for the beneficiary of the surviving spouse, the new Account Value will be considered as the initial Purchase Payment. No CDSC will apply to the new Account Value. However, any additional Purchase Payments applied after the date the assumption is effective will be subject to all provisions of the Annuity, including the CDSC when applicable. Spousal assumption is also permitted, subject to our rules and regulatory approval, if the Annuity is held by a custodial account established to hold retirement assets for the benefit of the natural person Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code ("Code") (or any successor Code section thereto) ("Custodial Account") and, on the date of the Annuitant's death, the spouse of the Annuitant is (1) the Contingent Annuitant under the Annuity and (2) the beneficiary of the Custodial Account. The ability to continue the Annuity in this manner will result in the Annuity no longer qualifying for tax deferral under the Code. However, such tax deferral should result from the ownership of the Annuity by the Custodial Account. Please consult your tax or legal adviser. We define a spouse the same as under federal tax laws and regulations. Contingent Annuitant Generally, if an Annuity is owned by an entity and the entity has named a Contingent Annuitant, the Contingent Annuitant will become the Annuitant upon the death of the Annuitant, and no Death Benefit is payable. Unless we agree otherwise, the Annuity is only eligible to have a Contingent Annuitant designation if the entity which owns the Annuity is (1) a plan described in Internal Revenue Code Section 72(s)(5)(A)(i) (or any successor Code section thereto); (2) an entity described in Code Section 72(u)(1) (or any successor Code section thereto); or (3) a Custodial Account, as described in the above section. Where the Annuity is held by a Custodial Account, the Contingent Annuitant will not automatically become the Annuitant upon the death of the Annuitant. Upon the death of the Annuitant, the Custodial Account will have the choice, subject to our rules, to either elect to receive the Death Benefit or elect to continue the Annuity. If the Custodial Account elects to receive the Death Benefit, the Account Value of the Annuity as of the date of due proof of death of the Annuitant will reflect the amount that would have been payable had a Death Benefit been paid. See the section above entitled "Spousal Designations" for more information about how the Annuity can be continued by a Custodial Account. MAY I RETURN MY ANNUITY IF I CHANGE MY MIND? If after purchasing your Annuity you change your mind and decide that you do not want it, you may return it to us within a certain period of time known as a right to cancel period. This is often referred to as a "free look." Depending on the state in which you purchased your Annuity and, in some states, if you purchased the Annuity as a replacement for a prior contract, the right to cancel period may be ten (10) days, or longer, measured from the time that you received your Annuity. If you return your Annuity during the applicable period, we will in certain states refund your current Account Value plus any tax charge deducted, less any applicable federal and state income tax withholding and depending on your state's requirements, any applicable insurance charges deducted. The amount returned to you may be higher or lower than the Purchase Payment(s) applied during the right to cancel period. In some states, we are required to return your Purchase Payment(s), and in other states, we are required to return the greater of your current Account Value and the amount of your Purchase Payment(s) less any applicable federal and state income tax withholding. 38 MAY I MAKE ADDITIONAL PURCHASE PAYMENTS? Unless we agree otherwise and subject to our rules, the minimum amount that we accept as an additional Purchase Payment is $100 unless you participate in our "Systematic Investment Plan" or a periodic Purchase Payment program. Purchase Payments made while you participate in an asset allocation program will be allocated in accordance with such program. Additional Purchase Payments may be made at any time before the Annuity Date. MAY I MAKE SCHEDULED PAYMENTS DIRECTLY FROM MY BANK ACCOUNT? You can make additional Purchase Payments to your Annuity by authorizing us to deduct money directly from your bank account and applying it to your Annuity. We call our electronic funds transfer program "The Systematic Investment Plan." Purchase Payments made through electronic funds transfer may only be allocated to the Sub-accounts when applied. Different allocation requirements may apply in connection with certain optional benefits. We may allow you to invest in your Annuity with a lower initial Purchase Payment, as long as you authorize payments through an electronic funds transfer that will equal at least the minimum Purchase Payment set forth above during the first 12 months of your Annuity. We may suspend or cancel electronic funds transfer privileges if sufficient funds are not available from the applicable financial institution on any date that a transaction is scheduled to occur. MAY I MAKE PURCHASE PAYMENTS THROUGH A SALARY REDUCTION PROGRAM? These types of programs are only available with certain types of qualified investments. If your employer sponsors such a program, we may agree to accept periodic Purchase Payments through a salary reduction program as long as the allocations are made only to Sub-accounts and the periodic Purchase Payments received in the first year total at least the minimum Purchase Payment set forth above. 39 MANAGING YOUR ACCOUNT VALUE HOW AND WHEN ARE PURCHASE PAYMENTS INVESTED? (See "Valuing Your Investment" for a description of our procedure for pricing initial and subsequent Purchase Payments.) Initial Purchase Payment: Once we accept your application, we invest your Purchase Payment in your Annuity according to your instructions for allocating your Account Value. The Purchase Payment is your initial Purchase Payment minus any tax charges that may apply. You can allocate Account Value to one or more Sub-accounts. Investment restrictions will apply if you elect certain optional benefits. Subsequent Purchase Payments: Unless you participate in an asset allocation program, or unless you have provided us with other specific allocation instructions for one, more than one, or all subsequent Purchase Payments, we will allocate any additional Purchase Payments you make according to your initial Purchase Payment allocation instructions. If you so instruct us, we will allocate subsequent Purchase Payments according to any new allocation instructions. Unless you tell us otherwise, Purchase Payments made while you participate in an asset allocation program will be allocated in accordance with such program. ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS? During the accumulation period you may transfer Account Value between investment options subject to the restrictions outlined below. Transfers are not subject to taxation on any gain. We may require a minimum of $500 in each Sub-account you allocate Account Value to at the time of any allocation or transfer. If you request a transfer and, as a result of the transfer, there would be less than $500 in the Sub-account, we may transfer the remaining Account Value in the Sub-account pro- rata to the other investment options to which you transferred. Currently, any transfer involving the ProFunds VP Sub-accounts must be received by us no later than one hour prior to any announced closing of the applicable securities exchange (generally, 3:00 p.m. Eastern time) to be processed on the current Valuation Day. The "cut-off" time for such financial transactions involving a ProFunds VP Sub-account will be extended to 1/2 hour prior to any announced closing (generally, 3:30 p.m. Eastern time) for transactions submitted electronically, including through Prudential Annuities' Internet website (www. prudentialannuities.com. For transfers involving Sub-accounts other than ProFunds, the cut-off time is 4:00 pm Eastern time. Currently, we charge $10.00 for each transfer after the twentieth (20/th/) transfer in each Annuity Year. Transfers made as part of a Dollar Cost Averaging, Automatic Rebalancing or asset allocation program do not count toward the twenty free transfer limit. We may reduce the number of free transfers allowable each Annuity Year (subject to a minimum of eight) without charging a Transfer Fee. We may also increase the Transfer Fee that we charge to $20.00 for each transfer after the number of free transfers has been used up. We may eliminate the Transfer Fee for transfer requests transmitted electronically or through other means that reduce our processing costs. If enrolled in any program that does not permit transfer requests to be transmitted electronically, the Transfer Fee will not be waived. Once you have made 20 transfers among the Sub-accounts during an Annuity Year, we will accept any additional transfer request during that year only if the request is submitted to us in writing with an original signature and otherwise is in good order. For purposes of this 20 transfer limit, we (i) do not view a facsimile transmission as a "writing", (ii) will treat multiple transfer requests submitted on the same Valuation Day as a single transfer, and (iii) do not count any transfer that solely involves Sub-accounts corresponding to any ProFund Portfolio and/or the AST Money Market Portfolio, or any transfer that involves one of our systematic programs, such as asset allocation and automated withdrawals. Frequent transfers among Sub-accounts in response to short-term fluctuations in markets, sometimes called "market timing," can make it very difficult for a Portfolio manager to manage a Portfolio's investments. Frequent transfers may cause the Portfolio to hold more cash than otherwise necessary, disrupt management strategies, increase transaction costs, or affect performance. The Annuity offers Sub-accounts designed for Owners who wish to engage in frequent transfers (i.e., one or more of the Sub-accounts corresponding to the ProFund Portfolios and the AST Money Market Portfolio), and we encourage Owners seeking frequent transfers to utilize those Sub-accounts. In light of the risks posed to Owners and other investors by frequent transfers, we reserve the right to limit the number of transfers in any Annuity Year for all existing or new Owners and to take the other actions discussed below. We also reserve the right to limit the number of transfers in any Annuity Year or to refuse any transfer request for an Owner or certain Owners if: (a) we believe that excessive transfer activity (as we define it) or a specific transfer request or group of transfer requests may have a detrimental effect on Unit Values or the share prices of the Portfolios; or (b) we are informed by a Portfolio (e.g., by the Portfolio's portfolio manager) that the purchase or redemption of shares in the Portfolio must be restricted because the Portfolio believes the transfer activity to which such purchase and redemption relates would have a detrimental effect on the share prices of the affected Portfolio. Without limiting the above, the most likely scenario where either of the above could occur would be if the aggregate amount of a trade or trades represented a relatively large proportion of the total assets of a particular Portfolio. In furtherance of our general authority to restrict transfers as described above, and without limiting other actions we may take in the future, we have adopted the following specific restrictions: With respect to each Sub-account (other than the AST Money Market Sub-account, or a Sub-account corresponding to a ProFund Portfolio), we track amounts exceeding a certain dollar threshold that were transferred into the Sub-account. If you transfer such 40 amount into a particular Sub-account, and within 30 calendar days thereafter transfer (the "Transfer Out") all or a portion of that amount into another Sub-account, then upon the Transfer Out, the former Sub-account becomes restricted (the "Restricted Sub-account"). Specifically, we will not permit subsequent transfers into the Restricted Sub-account for 90 calendar days after the Transfer Out if the Restricted Sub-account invests in a non-international Portfolio, or 180 calendar days after the Transfer Out if the Restricted Sub-account invests in an international Portfolio. For purposes of this rule, we (i) do not count transfers made in connection with one of our systematic programs, such as asset allocation and automated withdrawals; (ii) do not count any transfer that solely involves Sub-accounts corresponding to any ProFund Portfolio and/or the AST Money Market Portfolio; and (iii) do not categorize as a transfer the first transfer that you make after the Issue Date, if you make that transfer within 30 calendar days after the Issue Date. Even if an amount becomes restricted under the foregoing rules, you are still free to redeem the amount from your Annuity at any time. We reserve the right to effect exchanges on a delayed basis for all contracts. That is, we may price an exchange involving the Sub-accounts on the Valuation Day subsequent to the Valuation Day on which the exchange request was received. Before implementing such a practice, we would issue a separate written notice to Owners that explains the practice in detail. If we deny one or more transfer requests under the foregoing rules, we will inform you or your Financial Professional promptly of the circumstances concerning the denial. In addition, there are contract owners of different variable annuity contracts that are funded through the same Separate Account that are not subject to the above-referenced transfer restrictions and, therefore, might make more numerous and frequent transfers than contract owners who are subject to such limitations. Finally, there are contract owners of other variable annuity contracts or variable life contracts that are issued by Prudential Annuities as well as other insurance companies that have the same underlying mutual fund portfolios available to them. Since some contract owners are not subject to the same transfer restrictions, unfavorable consequences associated with such frequent trading within the underlying mutual fund (e.g., greater portfolio turnover, higher transaction costs, or performance or tax issues) may affect all contract owners. Similarly, while contracts managed by a Financial Professional or third party investment advisor are subject to the restrictions on transfers between investment options that are discussed above, if the advisor manages a number of contracts in the same fashion unfavorable consequences may be associated with management activity since it may involve the movement of a substantial portion of an underlying mutual fund's assets which may affect all contract owners invested in the affected options. Apart from jurisdiction-specific and contract differences in transfer restrictions, we will apply these rules uniformly (including contracts managed by a Financial Professional or third party investment advisor), and will not waive a transfer restriction for any contract owner. Although our transfer restrictions are designed to prevent excessive transfers, they are not capable of preventing every potential occurrence of excessive transfer activity. The Portfolios may have adopted their own policies and procedures with respect to excessive trading of their respective shares, and we reserve the right to enforce these policies and procedures. The prospectuses for the Portfolios describe any such policies and procedures, which may be more or less restrictive than the policies and procedures we have adopted. Under SEC rules, we are required to: (1) enter into a written agreement with each Portfolio or its principal underwriter or its transfer agent that obligates us to provide to the Portfolio promptly upon request certain information about the trading activity of individual contract owners, and (2) execute instructions from the Portfolio to restrict or prohibit further purchases or transfers by specific contract owners who violate the excessive trading policies established by the Portfolio. In addition, you should be aware that some Portfolios may receive "omnibus" purchase and redemption orders from other insurance companies or intermediaries such as retirement plans. The omnibus orders reflect the aggregation and netting of multiple orders from individual owners of variable insurance contracts and/or individual retirement plan participants. The omnibus nature of these orders may limit the Portfolios in their ability to apply their excessive trading policies and procedures. In addition, the other insurance companies and/or retirement plans may have different policies and procedures or may not have any such policies and procedures because of contractual limitations. For these reasons, we cannot guarantee that the Portfolios (and thus contract owners) will not be harmed by transfer activity relating to other insurance companies and/or retirement plans that may invest in the Portfolios. A Portfolio also may assess a short term trading fee in connection with a transfer out of the Sub-account investing in that Portfolio that occurs within a certain number of days following the date of allocation to the Sub-account. Each Portfolio determines the amount of the short term trading fee and when the fee is imposed. The fee is retained by or paid to the Portfolio and is not retained by us. The fee will be deducted from your Account Value, to the extent allowed by law. At present, no Portfolio has adopted a short-term trading fee. DO YOU OFFER DOLLAR COST AVERAGING? Yes. We offer Dollar Cost Averaging during the accumulation period. Dollar Cost Averaging allows you to systematically transfer an amount periodically from one investment option to one or more other investment options. You can choose to transfer earnings only, principal plus earnings or a flat dollar amount. You may elect a Dollar Cost Averaging program that transfers amounts monthly, quarterly, semi-annually, or annually from Sub-accounts. By investing amounts on a regular basis instead of investing the total amount at one time, Dollar Cost Averaging may decrease the effect of market fluctuation on the investment of your Purchase 41 Payment. This may result in a lower average cost of units over time. However, there is no guarantee that Dollar Cost Averaging will result in a profit or protect against a loss in a declining market. There is no minimum Account Value required to enroll in a Dollar Cost Averaging program and we do not deduct a charge for participating in a Dollar Cost Averaging program. The Dollar Cost Averaging program is not available if you have elected an automatic rebalancing program or an asset allocation program. Account Value will be transferred to the Sub-accounts you choose under the Dollar Cost Averaging program. If you terminate the Dollar Cost Averaging program before the entire principal amount plus earnings has been transferred to the Sub-account(s), you must transfer all remaining Account Value to any other investment option. DO YOU OFFER ANY AUTOMATIC REBALANCING PROGRAMS? Yes. During the accumulation period, we offer Automatic Rebalancing among the Sub-accounts you choose. You can choose to have your Account Value rebalanced monthly, quarterly, semi-annually, or annually. On the appropriate date, the Sub-accounts you chose are rebalanced to the allocation percentages you requested. With Automatic Rebalancing, we transfer the appropriate amount from the "overweighted" Sub-accounts to the "underweighted" Sub-accounts to return your allocations to the percentages you request. For example, over time the performance of the Sub-accounts will differ, causing your percentage allocations to shift. Any transfer to or from any Sub-account that is not part of your Automatic Rebalancing program, will be made; however, that Sub-account will not become part of your rebalancing program unless we receive instructions from you indicating that you would like such option to become part of the program. There is no minimum Account Value required to enroll in Automatic Rebalancing. All rebalancing transfers as part of an Automatic Rebalancing program are not included when counting the number of transfers each year toward the maximum number of free transfers. We do not deduct a charge for participating in an Automatic Rebalancing program. Participation in the Automatic Rebalancing program may be restricted if you are enrolled in certain other optional programs. Sub-accounts that are part of a Systematic Withdrawal program or Dollar Cost Averaging program will be excluded from an Automatic Rebalancing program. ARE ANY ASSET ALLOCATION PROGRAMS AVAILABLE? We currently do not offer any asset allocation programs for use with your Annuity. MAY I GIVE MY FINANCIAL PROFESSIONAL PERMISSION TO FORWARD TRANSACTION INSTRUCTIONS? Yes. Subject to our rules, your Financial Professional may forward instructions regarding the allocation of your Account Value, and request financial transactions involving investment options. If your Financial Professional has this authority, we deem that all transactions that are directed by your Financial Professional with respect to your Annuity have been authorized by you. You must contact us immediately if and when you revoke such authority. We will not be responsible for acting on instructions from your Financial Professional until we receive notification of the revocation of such person's authority. We may also suspend, cancel or limit these privileges at any time. We will notify you if we do. MAY I AUTHORIZE MY THIRD PARTY INVESTMENT ADVISOR TO MANAGE MY ACCOUNT? Yes. You may engage your own investment advisor to manage your account. These investment advisors may be firms or persons who also are appointed by us, or whose affiliated broker-dealers are appointed by us, as authorized sellers of the Annuities. Even if this is the case, however, please note that the investment advisor you engage to provide advice and/or make transfers for you, is not acting on our behalf, but rather is acting on your behalf. We do not offer advice about how to allocate your Account Value under any circumstance. As such, we are not responsible for any recommendations such investment advisors make, any investment models or asset allocation programs they choose to follow or any specific transfers they make on your behalf. Please note that if you have engaged a third-party investment advisor to provide asset allocation services with respect to your Annuity, we do not allow you to elect an optional benefit that requires investment in an asset allocation Portfolio and/or that involves mandatory Account Value transfers (e.g. Highest Daily GRO). It is your responsibility to arrange for the payment of the advisory fee charged by your investment advisor. Similarly, it is your responsibility to understand the advisory services provided by your investment advisor and the advisory fees charged for the services. We or an affiliate of ours may provide administrative support to licensed, registered Financial Professionals or Investment advisors who you authorize to make financial transactions on your behalf. We may require Financial Professionals or investment advisors, who are authorized by multiple contract owners to make financial transactions, to enter into an administrative agreement with Prudential Annuities as a condition of our accepting transactions on your behalf. The administrative agreement may impose limitations on the Financial Professional's or investment advisor's ability to request financial transactions on your behalf. These limitations are intended to minimize the detrimental impact of a Financial Professional who is in a position to transfer large amounts of money for multiple clients in a particular Portfolio or type of portfolio or to comply with specific restrictions or limitations imposed by a Portfolio(s) of Prudential Annuities. 42 Please Note: Annuities where your Financial Professional or investment advisor has the authority to forward instruction on financial transactions are also subject to the restrictions on transfers between investment options that are discussed in the section entitled "ARE THERE RESTRICTIONS OR CHARGES ON TRANSFERS BETWEEN INVESTMENT OPTIONS?" Since transfer activity directed by a Financial Professional or third party investment adviser may result in unfavorable consequences to all contract owners invested in the affected options, we reserve the right to limit the investment options available to a particular Owner where such authority as described above has been given to a Financial Professional or investment advisor or impose other transfer restrictions we deem necessary. The administrative agreement may limit the available investment options, require advance notice of large transactions, or impose other trading limitations on your Financial Professional. Your Financial Professional will be informed of all such restrictions on an ongoing basis. We may also require that your Financial Professional transmit all financial transactions using the electronic trading functionality available through our Internet website (www.prudentialannuities.com). Limitations that we may impose on your Financial Professional or investment advisor under the terms of the administrative agreement do not apply to financial transactions requested by an Owner on their own behalf, except as otherwise described in this Prospectus. 43 ACCESS TO ACCOUNT VALUE WHAT TYPES OF DISTRIBUTIONS ARE AVAILABLE TO ME? During the accumulation period you can access your Account Value through partial withdrawals, Systematic Withdrawals, and where required for tax purposes, Minimum Distributions. You can also surrender your Annuity at any time. We may deduct a portion of the Account Value being withdrawn or surrendered as a CDSC, if applicable. If you surrender your Annuity, in addition to any CDSC, we may deduct the Annual Maintenance Fee, any Tax Charge that applies and the charge for any optional benefits. Certain amounts may be available to you each Annuity Year that are not subject to a CDSC. These are called "Free Withdrawals." Unless you notify us differently, withdrawals are taken pro-rata based on the Account Value in the investment options at the time we receive your withdrawal request. Each of these types of distributions is described more fully below. ARE THERE TAX IMPLICATIONS FOR DISTRIBUTIONS? (For more information, see "Tax Considerations.") During the Accumulation Period A distribution during the accumulation period is deemed to come first from any "gain" in your Annuity and second as a return of your "tax basis", if any. Distributions from your Annuity are generally subject to ordinary income taxation on the amount of any investment gain unless the distribution qualifies as a non-taxable exchange or transfer. If you take a distribution prior to the taxpayer's age 59 1/2, you may be subject to a 10% penalty in addition to ordinary income taxes on any gain. You may wish to consult a professional tax advisor for advice before requesting a distribution. During the Annuitization Period During the annuitization period, a portion of each annuity payment is taxed as ordinary income at the tax rate you are subject to at the time of the payment. The Code and regulations have "exclusionary rules" that we use to determine what portion of each annuity payment should be treated as a return of any tax basis you have in your Annuity. Once the tax basis in your Annuity has been distributed, the remaining annuity payments are taxable as ordinary income. The tax basis in your Annuity may be based on the tax-basis from a prior contract in the case of a 1035 exchange or other qualifying transfer. CAN I WITHDRAW A PORTION OF MY ANNUITY? Yes, you can make a withdrawal during the accumulation period. . To meet liquidity needs, you can withdraw a limited amount from your Annuity during each Annuity Year without application of any CDSC. We call this the "Free Withdrawal" amount. The Free Withdrawal amount is not available if you choose to surrender your Annuity. Amounts withdrawn as a Free Withdrawal do not reduce the amount of CDSC that may apply upon a subsequent withdrawal or surrender of your Annuity. The minimum Free Withdrawal you may request is $100. . You can also make withdrawals in excess of the Free Withdrawal amount. The minimum partial withdrawal you may request is $100. To determine if a CDSC applies to partial withdrawals, we: 1. First determine what, if any, amounts qualify as a Free Withdrawal. These amounts are not subject to the CDSC. 2. Next determine what, if any, remaining amounts are withdrawals of Purchase Payments. Amounts in excess of the Free Withdrawal amount will be treated as withdrawals of Purchase Payments unless all Purchase Payments have been previously withdrawn. These amounts are subject to the CDSC. Purchase Payments are withdrawn on a first in, first out basis. 3. Withdraw any remaining amounts from any other Account Value. These amounts are not subject to the CDSC. You may request a withdrawal for an exact dollar amount after deduction of any CDSC that applies (called a "net withdrawal") or request a gross withdrawal from which we will deduct any CDSC that applies, resulting in less money being payable to you than the amount you requested. If you request a net withdrawal, the amount deducted from your Account Value to pay the CDSC may also be subject to a CDSC. Partial withdrawals may also be available following annuitization but only if you choose certain annuity payment options. (Note, however, that we do not permit commutation once annuity payments have commenced). To request the forms necessary to make a withdrawal from your Annuity, call 1-800-752-6342 or visit our Internet Website at www.prudentialannuities.com. HOW MUCH CAN I WITHDRAW AS A FREE WITHDRAWAL? The maximum Free Withdrawal amount during each Annuity Year is equal to 10% of all Purchase Payments that are subject to a CDSC. Withdrawals made within an Annuity Year reduce the Free Withdrawal amount available for the remainder of the Annuity Year. If you do not make a withdrawal during an Annuity Year, you are not allowed to carry over the Free Withdrawal amount to the next Annuity Year. 44 CAN I MAKE PERIODIC WITHDRAWALS FROM MY ANNUITY DURING THE ACCUMULATION PERIOD? Yes. We call these "Systematic Withdrawals." You can receive Systematic Withdrawals of earnings only or a flat dollar amount. Systematic Withdrawals may be subject to a CDSC. We will determine whether a CDSC applies and the amount in the same way as we would for a partial withdrawal. Systematic Withdrawals can be made from Account Value allocated to the Sub-accounts. Systematic Withdrawals are available on a monthly, quarterly, semi-annual or annual basis. The minimum amount for each Systematic Withdrawal is $100. If any scheduled Systematic Withdrawal is for less than $100 (which may occur under a program that provides payment of an amount equal to the earnings in your Annuity for the period requested), we may postpone the withdrawal and add the expected amount to the amount that is to be withdrawn on the next scheduled Systematic Withdrawal. DO YOU OFFER A PROGRAM FOR WITHDRAWALS UNDER SECTIONS 72(t) OF THE INTERNAL REVENUE CODE? Yes. If your Annuity is used as a funding vehicle for certain retirement plans that receive special tax treatment under Sections 401, 403(b), 408 or 408A of the Code, Section 72(t) of the Code may provide an exception to the 10% penalty tax on distributions made prior to age 59 1/2 if you elect to receive distributions as a series of "substantially equal periodic payments". Distributions received under these provisions in any Annuity Year that exceed the maximum amount available as a free withdrawal will be subject to any applicable CDSC. To request a program that complies with Sections 72(t), you must provide us with certain required information in writing on a form acceptable to us. We may require advance notice to allow us to calculate the amount of 72(t) withdrawals. The Surrender Value of your Annuity must be at least $20,000 before we will allow you to begin a program for withdrawals under Sections 72(t). The minimum amount for any such withdrawal is $100 and payments may be made monthly, quarterly, semi-annually or annually. You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means of receiving income payments before age 59 1/2 that are not subject to the 10% penalty. WHAT ARE REQUIRED MINIMUM DISTRIBUTIONS AND WHEN WOULD I NEED TO MAKE THEM? (See "Tax Considerations" for a further discussion of Required Minimum Distributions.) Required Minimum Distributions are a type of Systematic Withdrawal we allow to meet distribution requirements under Sections 401, 403(b) or 408 of the Code. Required Minimum Distribution rules do not apply to Roth IRAs during the Owner's lifetime. Under the Code, you may be required to begin receiving periodic amounts from your Annuity. In such case, we will allow you to make Systematic Withdrawals in amounts that satisfy the Required Minimum Distribution rules under the Code. We do not assess a CDSC on Required Minimum Distributions from your Annuity if you are required by law to take such Required Minimum Distributions from your Annuity at the time it is taken. However, a CDSC (if applicable) may be assessed on that portion of a Systematic Withdrawal that is taken to satisfy the Required Minimum Distribution provisions in relation to other savings or investment plans under other qualified retirement plans not maintained with Prudential Annuities. The amount of the Required Minimum Distribution for your particular situation may depend on other annuities, savings or investments. We will only calculate the amount of your Required Minimum Distribution based on the value of your Annuity. We require three (3) days advance written notice to calculate and process the amount of your payments. You may elect to have Required Minimum Distributions paid out monthly, quarterly, semi-annually or annually. The $100 minimum amount that applies to Systematic Withdrawals applies to monthly Required Minimum Distributions but does not apply to Required Minimum Distributions taken out on a quarterly, semi-annual or annual basis. You may also annuitize your contract and begin receiving payments for the remainder of your life (or life expectancy) as a means of receiving income payments and satisfying the Required Minimum Distribution provisions under the Code. CAN I SURRENDER MY ANNUITY FOR ITS VALUE? Yes. During the accumulation period you can surrender your Annuity at any time. Upon surrender, you will receive the Surrender Value. Upon surrender of your Annuity, you will no longer have any rights under the surrendered Annuity. For purposes of calculating any applicable CDSC on surrender, the Purchase Payments being withdrawn may be greater than your remaining Account Value or the amount of your withdrawal request. This is most likely to occur if you have made prior withdrawals under the Free Withdrawal provision or if your Account Value has declined in value due to negative market performance. In that scenario, we would determine the CDSC amount as the applicable percentage of the Purchase Payments being withdrawn, rather than as a percentage of the remaining Account Value or withdrawal request. Thus, the CDSC would be greater than if it were calculated as a percentage of remaining Account Value or withdrawal amount. Under certain annuity payment options, you may be allowed to surrender your Annuity for its then current value. 45 To request the forms necessary to surrender your Annuity, call 1-800-752-6342 or visit our Internet Website at www.prudentialannuities.com. WHAT IS A MEDICALLY-RELATED SURRENDER AND HOW DO I QUALIFY? Where permitted by law, you may request to surrender all or part of your Annuity prior to the Annuity Date without application of any otherwise applicable CDSC upon occurrence of a medically-related "Contingency Event" as described below. If you request a full surrender, the amount payable will be your Account Value. This waiver of any applicable CDSC is subject to our rules, including but not limited to the following: . The Annuitant must have been named or any change of Annuitant must have been accepted by us, prior to the "Contingency Event" described below in order to qualify for a medically-related surrender; . the Annuitant must be alive as of the date we pay the proceeds of such surrender request; . if the Owner is one or more natural persons, all such Owners must also be alive at such time; . we must receive satisfactory proof of the Annuitant's confinement in a Medical Care Facility or Fatal Illness in writing on a form satisfactory to us; . no additional Purchase Payments can be made to the Annuity. A "Contingency Event" occurs if the Annuitant is: . first confined in a "Medical Care Facility" while your Annuity is in force and remains confined for at least 90 days in a row; or . first diagnosed as having a "Fatal Illness" while your Annuity is in force. . The definitions of "Medical Care Facility" and "Fatal Illness," as well as additional terms and conditions, are provided in your Annuity and set forth here. Specific details and definitions in relation to this benefit may differ in certain jurisdictions. "Medical Care Facility" means a facility operated pursuant to law or any state licensed facility providing medically necessary in-patient care which is: (a)prescribed by a licensed Physician in writing; and (b)based on physical limitations which prohibit daily living in a non-institutional setting. "Fatal Illness" means a condition: (a)diagnosed by a licensed Physician; and (b)is expected to result in death within 2 years for 80% of the diagnosed cases. WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE? We currently make available annuity options that provide fixed annuity payments. Your Annuity provides certain fixed annuity payment options. Fixed options provide the same amount with each payment. Adjustable options provide a fixed payment that is periodically adjusted based on current interest rates. Please refer to the "Guaranteed Minimum Income Benefit," the "Lifetime Five Income Benefit," the "Spousal Lifetime Five Income Benefit," the "Highest Daily Lifetime Seven Income Benefit" and the "Spousal Highest Daily Lifetime Seven Income Benefit," under "Living Benefits" below for a description of annuity options that are available when you elect these benefits. For additional information on annuity payment options you may request a Statement of Additional Information. You may choose an Annuity Date, an annuity option and the frequency of annuity payments. You may change your choices before the Annuity Date under the terms of your contract. A maximum Annuity Date is required under the terms of your Annuity. The Annuity Date may depend on the annuity option you choose. Certain annuity options may not be available depending on the age of the Annuitant. See section below entitled "How and When Do I Choose the Annuity Payment Option?" Certain of these annuity options may be available to Beneficiaries who choose to receive the Death Benefit proceeds as a series of payments instead of a lump sum payment. You may not annuitize within the first Annuity Year. Option 1 Payments for Life: Under this option, income is payable periodically until the death of the "key life". The "key life" (as used in this section) is the person or persons upon whose life annuity payments are based. No additional annuity payments are made after the death of the key life. Since no minimum number of payments is guaranteed, this option offers the largest amount of periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of the key life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. Under this option, you cannot make a partial or full surrender of the annuity. Option 2 Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two key lives, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the key lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. Under this option, you cannot make a partial or full surrender of the annuity. 46 Option 3 Payments for Life with a Certain Period: Under this option, income is payable until the death of the key life. However, if the key life dies before the end of the period selected (5, 10 or 15 years), the remaining payments are paid to the Beneficiary until the end of such period. Under this option, you cannot make a partial or full surrender of the annuity. Option 4 Fixed Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary until the end of such period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting this option. Under this option, you cannot make a partial or full surrender of the annuity. We may make different annuity payment options available in the future. We do not guarantee to continue to make available any other option other than the fixed annuity payment options set forth in your contract. HOW AND WHEN DO I CHOOSE THE ANNUITY PAYMENT OPTION? Unless prohibited by law, we require that you elect either a life annuity or an annuity with a certain period of at least 5 years if any CDSC would apply were you to surrender your Annuity on the Annuity Date. Certain annuity payment options may not be available if your Annuity Date occurs during the period that a CDSC would apply. You have a right to choose your Annuity Date, provided it is no later than the maximum Annuity Date that may be required by law or under the terms of your Annuity. The Annuity Date you choose must be no later than the first day of the calendar month coinciding with or next following the later of: (a) the oldest Owner's or Annuitant's 95/th/ birthday, whichever occurs first, and (b) the fifth anniversary of the Issue Date. Certain states may have different requirements based on applicable laws. If you do not provide us with your Annuity Date, the maximum date as described above will be the default date; and, unless you instruct us otherwise, we will pay you the annuity payments and the annuity payments, where allowed by law, will be calculated on a fixed basis under Option 3, Payments for Life with 10 years certain. Please note that annuitization essentially involves converting your Account Value to an annuity payment stream, the length of which depends on the terms of the applicable annuity option. Thus, once annuity payments begin, your death benefit is determined solely under the terms of the applicable annuity payment option, and you no longer participate in any optional living benefit (unless you have annuitized under that benefit). HOW ARE ANNUITY PAYMENTS CALCULATED? Fixed Annuity Payments With fixed annuity payments, you will receive equal fixed-dollar payments throughout the period you select. The amount of the fixed payment will vary depending on the annuity payment option and payment frequency you select. Generally, the first annuity payment is determined by multiplying the Account Value, minus any state premium taxes that may apply, by the factor determined from our table of annuity rates. The table of annuity rates differs based on the type of annuity chosen and the frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are derived from the a2000 Individual Annuity Mortality Table with an assumed interest rate of 3% per annum. Where required by law or regulation, such annuity table will have rates that do not differ according to the gender of the key life. Otherwise, the rates will differ according to the gender of the key life. 47 LIVING BENEFIT PROGRAMS DO YOU OFFER PROGRAMS DESIGNED TO PROVIDE INVESTMENT PROTECTION FOR OWNERS WHILE THEY ARE ALIVE? Prudential Annuities offers different optional benefits, for an additional charge, that can provide investment protection for Owners while they are alive. Notwithstanding the additional protection provided under the optional Living Benefit Programs, the additional cost has the impact of reducing net performance of the investment options. Each optional benefit offers a distinct type of guarantee, regardless of the performance of the Sub-accounts, that may be appropriate for you depending on the manner in which you intend to make use of your Annuity while you are alive. Depending on which optional benefit you choose, you can have flexibility to invest in the Sub-accounts while: . protecting a principal amount from decreases in value as of specified future dates due to investment performance; . taking withdrawals with a guarantee that you will be able to withdraw not less than a principal amount over time; . guaranteeing a minimum amount of growth will be applied to your principal, if it is to be used as the basis for certain types of lifetime income payments; or . providing spousal continuation of certain benefits. The "living benefits" that Prudential Annuities offers under this Annuity are the Guaranteed Return Option Plus 2008 (GRO Plus 2008), the Highest Daily Guaranteed Return Option (Highest Daily GRO), the Guaranteed Minimum Withdrawal Benefit (GMWB), the Guaranteed Minimum Income Benefit (GMIB), the Lifetime Five Income Benefit, the Spousal Lifetime Five Income Benefit, the Highest Daily Lifetime Seven Income Benefit and the Spousal Highest Daily Lifetime Seven Income Benefit. Here is a general description of each kind of living benefit that we offer under this Annuity: . Guaranteed Minimum Accumulation Benefits. The common characteristic of these benefits is that a specified amount of your annuity value is guaranteed at some point in the future. For example, under our Highest Daily GRO benefit, we make an initial guarantee that your annuity value on the day you start the benefit will not be any less ten years later. If your annuity value is less on that date, we use our own funds to give you the difference. Because the guarantee inherent in the guaranteed minimum accumulation benefit does not take effect until a specified number of years into the future, you should elect such a benefit only if your investment time horizon is of at least that duration. . Guaranteed Minimum Income Benefit or ("GMIB"). As discussed elsewhere in this prospectus, you have the right under your annuity to ask us to convert your accumulated annuity value into a series of annuity payments. Generally, the smaller the amount of your annuity value, the smaller the amount of your annuity payments. GMIB addresses this risk, by guaranteeing a certain amount of appreciation in the amount used to produce annuity payments. Thus, even if your annuity value goes down in value, GMIB guarantees that the amount we use to determine the amount of the annuity payments will go up in value by the prescribed amount. You should select GMIB only if you are prepared to delay your annuity payments for the required waiting period and if you anticipate needing annuity payments. . Guaranteed Minimum Withdrawal Benefit. This benefit is designed for someone who wants to access the annuity's value through withdrawals over time, rather than by annuitizing. This benefit guarantees that a specified amount will be available for withdrawal over time, even if the value of the annuity itself has declined. Please note that there is a maximum Annuity Date under your Annuity, by which date annuity payments must commence. . Lifetime Guaranteed Minimum Withdrawal Benefits. These benefits also are designed for someone who wants to access the annuity's value through withdrawals over time, rather than by annuitizing. These benefits differ, however, in that the withdrawal amounts are guaranteed for life (or until the second to die of spouses). The way that we establish the guaranteed amount that, in turn, determines the amount of the annual lifetime payments varies among these benefits. Under our Highest Daily Lifetime Seven benefit, for example, the guaranteed amount generally is equal to your annuity value, appreciated at seven percent annually. Please note that there is a maximum Annuity Date under your Annuity, by which date annuity payments must commence. Please refer to the benefit descriptions that follow for a complete description of the terms, conditions and limitations of each optional benefit. Investment restrictions apply if you elect certain optional living benefits. See the chart in the "Investment Options" section of the Prospectus for a list of investment options available and permitted with each benefit. You should consult with your Financial Professional to determine if any of these optional benefits may be appropriate for you based on your financial needs. There are many factors to consider, but we note that among them you may want to evaluate the tax implications of these different approaches to meeting your needs, both between these benefits and in comparison to other potential solutions to your needs (e.g., comparing the tax implications of the withdrawal benefit and annuity payments). GUARANTEED RETURN OPTION PLUS 2008/SM/ (GRO Plus 2008)/SM / The GRO Plus 2008 benefit described below is only being offered in those jurisdictions where we have received regulatory approval, and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. Certain terms and conditions may differ between jurisdictions once approved. You can elect this benefit on the Issue Date of your Annuity, or at any time thereafter (unless you previously participated in either this benefit or Highest Daily GRO, in which case your election must be on an Annuity Anniversary). GRO Plus 2008 is not available if you participate in any other optional living benefit. However, GRO Plus 2008 may be elected together with any optional death benefit, other than the Highest Daily Value Death Benefit. 48 Under GRO Plus 2008, we guarantee that the Account Value on the date that the benefit is added to your Annuity (adjusted for subsequent Purchase Payments and withdrawals as detailed below) will not be any less than that original value on the seventh anniversary of benefit election and each anniversary thereafter. We refer to this initial guarantee as the "base guarantee." In addition to the base guarantee, GRO Plus 2008 offers the possibility of an enhanced guarantee. You may lock in an enhanced guarantee once per "benefit year" (i.e., a year beginning on the date you acquired the benefit and each anniversary thereafter) if your Account Value on the Valuation Day exceeds the amount of any outstanding base guarantee or enhanced guarantee. We guarantee that the Account Value locked-in by that enhanced guarantee will not be any less seven years later, and each anniversary of that date thereafter. In addition, you may elect an automatic enhanced guarantee feature under which, if Account Value on a benefit anniversary exceeds the highest existing guarantee by 7% or more, we guarantee that such Account Value will not be any less seven benefit anniversaries later and each benefit anniversary thereafter. You may maintain only one enhanced guarantee in addition to your base guarantee. Thus, when a new enhanced guarantee is created, it cancels any existing enhanced guarantee. However, the fact that an enhanced guarantee was effected automatically on a benefit anniversary does not prevent you from "manually" locking-in an enhanced guarantee during the ensuing benefit year. Please note that whenever an enhanced guarantee is created, we reserve the right to increase your charge for GRO Plus 2008 if we have increased the charge for new elections of the benefit generally. You may not lock in an enhanced guarantee, either manually or through our optional automatic program, within seven years of the date by which annuity payments must commence under the terms of your Annuity (please see "How and When Do I Choose The Annuity Payment Option?" for further information on your maximum Annuity Date). In general, we refer to a date on which the Account Value is guaranteed to be present as the "maturity date". If the Account Value on the maturity date is less than the guaranteed amount, we will contribute funds from our general account to bring your Account Value up to the guaranteed amount. If the maturity date is not a Valuation Day, then we would contribute such an amount on the next Valuation Day. We will allocate any such amount to each Sub-account (other than the "Current AST bond portfolio Sub-account" described below) in accordance with your current allocations instructions. Regardless of whether we need to contribute funds at the end of a guarantee period, we will at that time transfer all amounts held within the Current AST bond portfolio Sub-account associated with the maturing guarantee to your other Sub-accounts, on a pro rata basis. If the entire Account Value is invested in an AST bond portfolio Sub-account, we will allocate according to your current allocation instructions. We increase both the base guarantee and any enhanced guarantee by the amount of each Purchase Payment (and associated credits) made subsequent to the date that the guarantee was established. For example, if the effective date of the benefit was January 1, 2009 and the Account Value was $100,000 on that date, then a $30,000 Purchase Payment made on March 30, 2010 would increase the base guarantee amount to $130,000. As illustrated in the examples below, additional Purchase Payments also increase an amount we refer to as the "dollar-for-dollar corridor." The dollar-for-dollar corridor is equal to 5% of the base guarantee amount (i.e., 5% of the Account Value at benefit election). Thereafter, the dollar-for-dollar corridor is adjusted only for subsequent Purchase Payments (i.e., 5% of the Purchase Payment is added to the corridor amount) and "excess withdrawals" (as described below). Thus, the creation of any enhanced guarantee has no impact on the dollar-for-dollar corridor. Each "benefit year", withdrawals that you make that are equal to or less than the dollar-for-dollar corridor reduce both the amount of the dollar-for-dollar corridor for that benefit year plus the base guarantee amount and the amount of any enhanced guarantee by the exact amount of the withdrawal. However, if you withdraw more than the dollar-for-dollar corridor in a given benefit year, we use the portion of the withdrawal that exceeded the dollar-for-dollar corridor to effect a proportional reduction to both the dollar-for-dollar corridor itself and each guarantee amount. We calculate a proportional reduction by (i) identifying the amount of the withdrawal that exceeded the dollar-for-dollar corridor (the "excess withdrawal") (ii) subtracting the dollar-for-dollar amount from the Account Value prior to the withdrawal (iii) dividing the excess withdrawal by the amount in (ii), and (iv) reducing each guarantee amount, and the dollar-for-dollar corridor itself, by the percentage derived in (iii). See examples of this calculation below. Any partial withdrawals in payment of any third party investment advisory service will be treated as withdrawals, and will reduce each guarantee amount and the dollar-for-dollar corridor in the manner indicated above. EXAMPLES The following examples of dollar-for-dollar and proportional reductions assume that: 1.) the Issue Date and the effective date of the GRO Plus/SM/ 2008 program are October 13, 2008; 2.) an initial Purchase Payment of $250,000; 3.) a base guarantee amount of $250,000; and 4.) a dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for GRO Plus 2008 or other fees and charges. Example 1. Dollar-for-dollar reduction A $10,000 withdrawal is taken on November 29, 2008 (in the first Annuity Year). No prior withdrawals have been taken. As the amount withdrawn is less than the Dollar-for-dollar Limit: . The base guarantee amount is reduced by the amount withdrawn (i.e., by $10,000, from $250,000 to $240,000). . The remaining dollar-for-dollar limit ("Remaining Limit") for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $12,500 to $2,500). 49 Example 2. Dollar-for-dollar and proportional reductions A second $10,000 withdrawal is taken on December 18, 2008 (still within the first Annuity Year). The Account Value immediately before the withdrawal is $180,000. As the amount withdrawn exceeds the Remaining Limit of $2,500 from Example 1: . the base guarantee amount is first reduced by the Remaining Limit (from $240,000 to $237,500); . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or $7,500). -- B is the Account Value less the Remaining Limit ($180,000 - $2,500, or $177,500). The resulting base guarantee amount is: $237,500 X (1 - $7,500 / $177,500), or $227,464.79. . The Remaining Limit is set to zero (0) for the balance of the first Annuity Year. The resulting dollar-for-dollar corridor for the next Annuity Year is calculated by multiplying the prior dollar-for-dollar corridor by the same ratio by which we reduce the Guarantee Amount above: $12,500 X (1 - $7,500 / $177,500), or $11,971.83. Key Feature - Allocation of Account Value To allow us to make these guarantees, we monitor your Account Value according to the formula that is set forth in the schedule supplement to the rider. Because the formula is made part of your schedule supplement, the formula applicable to you may not be altered once you elect the benefit. However, we do reserve the right to amend the formula for newly-issued Annuities that elect GRO Plus 2008 and for existing Annuities that elect the benefit in the future. This required allocation mechanism helps us manage our financial exposure under GRO Plus 2008, by moving assets out of certain Sub-accounts in the event of securities market declines. In essence, we seek to preserve the value of these assets, by transferring them to a more stable option (i.e., one or more specified bond portfolios of Advanced Series Trust). We refer to these bond portfolios collectively as the "AST bond portfolios." The formula also contemplates the transfer of assets from an AST bond portfolio to the other Sub-accounts in certain other scenarios. The formula itself is the same as that used for our Highest Daily GRO benefit, and is set forth in the Appendices to this prospectus (please see Appendix D for a complete recitation of the formula). A summary description of each AST Bond Portfolio appears within the prospectus section entitled "What Are The Investment Objectives and Policies Of The Portfolios? Upon the initial transfer of your Account Value into an AST Bond Portfolio, we will send a prospectus for that Portfolio to you along with your confirmation. In addition, you can find a copy of the AST Bond Portfolio prospectus by going to www.prudentialannuities.com. Each AST bond portfolio is unique, in that its underlying investments generally mature at different times. For example, there would be an AST bond portfolio whose underlying investments generally mature in 2015, an AST bond portfolio whose underlying investments generally mature in 2016, and so forth. We will introduce new AST bond portfolios in subsequent years, to correspond generally to the length of new guarantee periods that are created under this benefit (and the Highest Daily GRO benefit). If you have elected GRO Plus 2008, you may invest in an AST bond portfolio only by operation of the asset transfer formula, and thus you may not allocate Purchase Payments to such a Portfolio. Please see this prospectus and the prospectus for the Advanced Series Trust for more information about each AST bond portfolio used with this benefit. Although we employ several AST bond portfolios for purposes of the benefit, the formula described in the next paragraph operates so that your Account Value may be allocated to only one AST bond portfolio Sub-account at one time. In the description of the formula in the next paragraph, we refer to the AST bond portfolio Sub-account in which you are invested immediately prior to any potential asset transfer as the "Current AST bond portfolio Sub-account." The formula may dictate that a transfer out of the Current AST Bond Portfolio Sub-account be made, or alternatively may mandate a transfer into another AST bond portfolio Sub-account. Any transfer into an AST bond portfolio Sub-account will be directed to the AST bond portfolio Sub-account associated with the "current liability" (we refer to that Sub-account as the "Transfer AST bond portfolio Sub-account"). Note that if the Current AST bond portfolio Sub-account is associated with the current liability, then that Sub-account would be the Transfer AST bond portfolio Sub-account, and we would simply transfer additional assets into the Sub-account if such a transfer is dictated by the formula. As indicated, the AST bond portfolios are employed with this benefit to help us mitigate the financial risks under our guarantee. Thus, in accordance with the formula, applicable to you under the benefit, we determine which AST bond portfolio your Account Value is transferred to, and under what circumstances a transfer is made. In general, the asset transfer formula works as follows (please see Appendix D for a complete recitation of the formula). On each Valuation Day, the formula automatically performs an analysis with respect to each guarantee amount that is outstanding. For each outstanding guarantee, the formula begins by determining the present value on that Valuation Day that, if appreciated at the applicable "discount rate", would equal the applicable guarantee amount on the maturity date. As detailed in the formula, the discount rate is an interest rate determined by taking a benchmark index used within the financial services industry and then reducing the rate determined by that index by a prescribed adjustment. Once selected, we do not change the applicable benchmark index (although we do reserve the right to use a new benchmark index if the original benchmark is discontinued). The greatest of each such present value is referred to as the "current liability" in the formula. The formula compares the current liability to the amount of your Account Value held within the Current AST bond portfolio Sub-account and to your Account Value held within 50 the other Sub-accounts. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount held within your other Sub-accounts, exceeds an upper target value (currently, 0.85), then the formula will make a transfer into the Transfer AST bond portfolio Sub-account, in the amount dictated by the formula. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount within your other Sub-accounts, is less than a lower target value (currently, 0.79), then the formula will transfer Account Value within the Current AST bond portfolio Sub-account into the other Sub-accounts (other than the Transfer AST bond portfolio Sub-account), in the amount dictated by the formula. If a significant amount of your Account Value is systematically transferred to an AST bond portfolio Sub-account to support the guarantee amounts during periods of market declines, low interest rates, and/or as the guarantee nears its maturity date, less of your Account Value may be available to participate in the investment experience of the other Sub-accounts if there is a subsequent market recovery. During periods closer to the maturity date of the guarantee, a significant portion of your Account Value may be allocated to an AST bond portfolio Sub-account to support any applicable guaranteed amount(s). Election/Cancellation of the Program GRO Plus 2008 can be elected on the Issue Date of your Annuity, or at any time thereafter (unless you previously participated in either this benefit or Highest Daily GRO, in which case your election generally must be on an Annuity Anniversary). If you elect the benefit after the Issue Date of your Annuity, the benefit will be effective as of the Valuation Day that we receive the required documentation in good order at our home office, and the base guarantee amount will equal the Account Value on that day. You may elect GRO Plus 2008 only if the oldest of the Owner and Annuitant is 84 or younger on the date of election. You may cancel the GRO Plus 2008 benefit at any time. Upon cancellation, we will transfer any Account Value that is held in an AST bond portfolio Sub-account to the other Sub-accounts, according to your current allocation instructions. GRO Plus 2008 will terminate automatically upon: (a) the death of the Owner or the Annuitant (in an entity owned contract), unless the Annuity is continued by the surviving spouse; (b) as of the date Account Value is applied to begin annuity payments; (c) as of the anniversary of benefit election that immediately precedes the contractually-mandated latest annuity date, or (d) upon full surrender of the Annuity. If you elect to terminate the program, GRO Plus 2008 will no longer provide any guarantees. The charge for the GRO Plus 2008 program will no longer be deducted from your Account Value upon termination of the program. Special Considerations under GRO Plus 2008 This program is subject to certain rules and restrictions, including, but not limited to the following: . Upon inception of the program, 100% of your Account Value must be allocated to the permitted Sub-accounts. The permitted Sub-accounts are those described in the Investment Option section of the prospectus. No fixed interest rate allocations may be in effect as of the date that you elect to participate in the program. . You cannot participate in any dollar cost averaging program that transfers Account Value from a fixed interest rate option to a Sub-account. . Transfers between an AST bond portfolio Sub-account and your other Sub-accounts under the program will not count toward the maximum number of free transfers allowable under the Annuity. . Any amounts applied to your Account Value by us on a maturity date will not be treated as "investment in the contract" for income tax purposes. . As the time remaining until the applicable maturity date gradually decreases, the program may become increasingly sensitive to moves to an AST bond portfolio Sub-account. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this program. Moreover, if you are invested in prohibited investment options and seek to acquire the benefit, we will ask you to reallocate to permitted investment options as a prerequisite to acquiring the benefit. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. We may also require that you allocate your Account Value according to an asset allocation model. Charges under the Program We deduct a charge equal to 0.35% of the average daily net assets of the Sub-accounts for participation in the GRO Plus 2008 program. The annual charge is deducted daily. The charge is deducted to compensate us for: (a) the risk that your Account Value on a maturity date is less than the amount guaranteed and (b) administration of the program. We reserve the right to increase this fee for newly-issued contracts or new elections of the benefit. 51 HIGHEST DAILY GUARANTEED RETURN OPTION/SM/ (HD GRO)/SM/ The Highest Daily Guaranteed Return Option described below is only being offered in those jurisdictions where we have received regulatory approval, and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. Certain terms and conditions may differ between jurisdictions once approved. You can elect this benefit on the Issue Date of your Annuity, or at any time thereafter (unless you previously participated in this benefit, in which case your election must be on an Annuity Anniversary). Highest Daily GRO is not available if you participate in any other living benefit. However, Highest Daily GRO may be elected together with any optional death benefit, other than the Highest Daily Value Death Benefit. Highest Daily GRO creates a series of separate guarantees, each of which is based on the highest Account Value attained on a day during the applicable time period. As each year of your participation in the benefit passes, we create a new guarantee. Each guarantee then remains in existence until the date on which it matures (unless the benefit terminates sooner). We refer to each date on which the specified Account Value is guaranteed as the "maturity date" for that guarantee. The guarantees provided by the program exist only on the applicable maturity date(s). However, due to the ongoing monitoring of your Account Value, and the transfer of Account Value to support our future guarantees, the program may provide some protection from significant market losses if you choose to surrender your Annuity or begin receiving annuity payments prior to a maturity date. For this same reason, the program may limit your ability to benefit from market increases while it is in effect. The initial guarantee is created on the day that the Highest Daily GRO benefit is added to your Annuity. We guarantee that your Account Value on the tenth anniversary of that day (we refer to each such anniversary as a "benefit anniversary") will not be less than your Account Value on the day that the Highest Daily GRO benefit was added to your Annuity. Each benefit anniversary thereafter, we create a new guarantee. With respect to each such subsequent guarantee, we identify the highest Account Value that occurred between the date of that benefit anniversary and the date on which Highest Daily GRO was added to your Annuity. We guarantee that your Account Value ten years after that benefit anniversary will be no less than the highest daily Account Value that occurred during that time period. The following example illustrates the time period over which we identify the highest daily Account Value for purposes of each subsequent guarantee under the benefit. If the date of benefit election were January 1, 2009, we would create a guarantee on January 1, 2012 based on the highest Account Value achieved between January 1, 2009 and January 1, 2012, and that guarantee would mature on January 1, 2022. As described below, we adjust each of the guarantee amounts for purchase payments and withdrawals. In general, we refer to a date on which the Account Value is guaranteed to be present as the "maturity date". If the Account Value on the maturity date is less than the guaranteed amount, we will contribute funds from our general account to bring your Account Value up to the guaranteed amount. If the maturity date is not a Valuation Day, then we would contribute such an amount on the next Valuation Day. We will allocate any such amount to each Sub-account (other than the "Current AST bond portfolio Sub-account" described below) in accordance with your current allocations instructions. Regardless of whether we need to contribute funds at the end of a guarantee period, we will at that time transfer all amounts held within the AST bond portfolio Sub-account associated with the maturing guarantee to your other Sub-accounts, on a pro rata basis. If the entire account value is invested in the AST bond portfolio Sub-account, we will allocate according to your current allocation instructions. We increase the amount of each guarantee that has not yet reached its maturity date, as well as the highest daily Account Value that we calculate to establish a guarantee, by the amount of each Purchase Payment made prior to the applicable maturity date. For example, if the effective date of the benefit was January 1, 2009, and there was an initial guaranteed amount that was set at $100,000 maturing January 1, 2019, and a second guaranteed amount that was set at $120,000 maturing January 1, 2020, then a $30,000 Purchase Payment made on March 30, 2010 would increase the guaranteed amounts to $130,000 and $150,000, respectively. As illustrated in the examples below, additional Purchase Payments also increase an amount we refer to as the "dollar-for-dollar corridor." We reflect the effect of withdrawals by reference to an amount called the "dollar-for-dollar corridor." The dollar-for-dollar corridor is set initially to equal 5% of the initial guaranteed amount (i.e., 5% of the Account Value at benefit election). Each "benefit year" (i.e., a year that begins on the date of election of Highest Daily GRO and each anniversary thereafter), withdrawals that you make that are equal to or less than the dollar-for-dollar corridor reduce (i) the amount of the dollar-for-dollar corridor for that benefit year (ii) the amount of each outstanding guarantee amount, and (iii) the highest daily Account Value that we calculate to establish a guarantee, by the exact amount of the withdrawal. However, if you withdraw more than the dollar-for-dollar corridor in a given benefit year, we use the portion of the withdrawal that exceeded the dollar-for-dollar corridor to effect a proportional reduction to both the dollar-for-dollar corridor itself and each outstanding guaranteed amount, as well as the highest daily Account Value that we calculate to establish a guarantee. We calculate a proportional reduction by (i) identifying the amount of the withdrawal that exceeded the dollar-for-dollar corridor (the "excess withdrawal") (ii) subtracting the dollar-for-dollar amount from the Account Value prior to the withdrawal (iii) dividing the excess withdrawal by the amount in (ii), and (iv) reducing each guaranteed amount, as well as the highest daily Account Value that we calculate to establish a guarantee and the dollar for dollar corridor itself, by the percentage derived in (iii). See examples of this calculation below. Any partial withdrawals in payment of any third party investment advisory service will be treated as withdrawals, and will reduce each applicable guaranteed amount and the dollar-for-dollar corridor in the manner indicated above. 52 EXAMPLES The following examples of dollar-for-dollar and proportional reductions assume that: 1.) the Issue Date and the effective date of the Highest Daily GRO program are October 13, 2008; 2.) an initial Purchase Payment of $250,000; 3.) an initial guarantee amount of $250,000; and 4.) a dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for Highest Daily GRO or other fees and charges. Example 1. Dollar-for-dollar reduction A $10,000 withdrawal is taken on November 29, 2008 (in the first Annuity Year). No prior withdrawals have been taken. As the amount withdrawn is less than the Dollar-for-dollar Limit: . The initial guarantee amount is reduced by the amount withdrawn (i.e., by $10,000, from $250,000 to $240,000). . The remaining dollar-for-dollar limit ("Remaining Limit") for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $12,500 to $2,500). Example 2. Dollar-for-dollar and proportional reductions A second $10,000 withdrawal is taken on December 18, 2008 (still within the first Annuity Year). The Account Value immediately before the withdrawal is $180,000. As the amount withdrawn exceeds the Remaining Limit of $2,500 from Example 1: . the initial guarantee amount is first reduced by the Remaining Limit (from $240,000 to $237,500); . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or $7,500). -- B is the Account Value less the Remaining Limit ($180,000 - $2,500, or $177,500). The resulting initial guarantee amount is: $237,500 X (1 - $7,500 / $177,500), or $227,464.79. . The Remaining Limit is set to zero (0) for the balance of the first Annuity Year. The resulting dollar-for-dollar corridor for the next Annuity Year is calculated by multiplying the prior dollar-for-dollar corridor by the same ratio by which we reduce the Guarantee Amount above: $12,500 X (1 - $7,500 / $177,500), or $11,971.83. Key Feature - Allocation of Account Value To allow us to make these guarantees, we monitor your Account Value according to the formula that is set forth in the schedule supplement to the rider. Because the formula is made part of your schedule supplement, the formula may not be altered. However, we do reserve the right to amend the formula for newly-issued annuity contracts that elect Highest Daily GRO and for existing contracts that elect the benefit post-issue. This required allocation mechanism helps us manage our financial exposure under Highest Daily GRO, by moving assets out of certain Sub-accounts in certain scenarios. In essence, we seek to preserve the value of these assets, by transferring them to a more stable option (i.e., one of a specified group of bond portfolios within Advanced Series Trust) (collectively, the "AST Bond Portfolios"). The formula also contemplates the transfer of assets from the AST Bond Portfolios to the other Sub-accounts in other scenarios. For purposes of operating the Highest Daily GRO formula, we have included as investment options within this Annuity several AST bond portfolios. Each AST bond portfolio is unique, in that its underlying investments generally mature at the same time as each outstanding maturity date that exists under the benefit. For example, there would be an AST bond portfolio whose underlying investments generally mature in 2018 (corresponding to all guarantees that mature in 2018), an AST Bond Portfolio whose underlying investments generally mature in 2019 (corresponding to all guarantees that mature in 2019), and so forth. We will introduce new AST bond portfolios in subsequent years, to correspond generally to the length of new guarantee periods that are created under this benefit. If you have elected Highest Daily GRO, you may invest in an AST bond portfolio only by operation of the asset transfer formula, and thus you may not allocate Purchase Payments to such a Portfolio. Please see this prospectus and the prospectus for the Advanced Series Trust for more information about each AST bond portfolio used with this benefit. A summary description of each AST Bond Portfolio appears within the prospectus section entitled "What Are The Investment Objectives and Policies Of The Portfolios?" Upon the initial transfer of your Account Value into an AST Bond Portfolio, we will send a prospectus for that Portfolio to you along with your confirmation. In addition, you can find a copy of the AST Bond Portfolio prospectus by going to www.prudentialannuities.com Although we employ several AST bond portfolios for purposes of the benefit, the formula described in the next paragraph operates so that your Account Value may be allocated to only one AST bond portfolio Sub-account at one time. In the description of the formula in the next paragraph, we refer to the AST bond portfolio Sub-account in which you are invested immediately prior to any potential asset transfer as the "Current AST bond portfolio Sub-account." The formula may dictate that a transfer out of the Current AST bond portfolio Sub-account be made, or alternatively may mandate a transfer into an AST bond portfolio Sub-account. Any transfer into an AST bond portfolio Sub-account will be directed to the AST bond portfolio Sub-account associated with the "current liability" (we refer to that Sub-account as the "Transfer AST bond portfolio Sub-account"). Note that if the Current AST bond portfolio Sub-account is associated with the current liability, then that Sub-account would be the Transfer AST bond portfolio Sub-account, and we would simply transfer additional assets into the Sub-account if dictated by the formula. 53 In general, the asset transfer formula works as follows. On each Valuation Day, the formula automatically performs an analysis with respect to each guarantee that is outstanding. For each outstanding guarantee, the formula begins by determining the present value on that Valuation Day that, if appreciated at the applicable "discount rate", would equal the applicable guarantee amount on the maturity date. As detailed in the formula, the discount rate is an interest rate determined by taking a benchmark index used within the financial services industry and then reducing that interest rate by a prescribed adjustment. Once selected, we do not change the applicable benchmark index (although we do reserve the right to use a new benchmark index if the original benchmark is discontinued). The greatest of each such present value is referred to as the "current liability" in the formula. The formula compares the current liability to the amount of your Account Value held within the Current AST bond portfolio Sub-account and to your Account Value held within the other Sub-accounts. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount held within your other Sub-accounts, exceeds an upper target value (currently, 0.85), then the formula will make a transfer into the Transfer AST bond portfolio Sub-account, in the amount dictated by the formula. If the current liability, reduced by the amount held within the Current AST bond portfolio Sub-account, and divided by the amount within your other Sub-accounts, is less than a lower target value (currently, 0.79), then the formula will transfer Account Value within the Current AST bond portfolio Sub-account into the other Sub-accounts (other than the Transfer AST bond portfolio Sub-account), in the amount dictated by the formula. If a significant amount of your Account Value is systematically transferred to an AST bond portfolio Sub-account to support the guarantee amounts during periods of market declines, low interest rates, and/or as the guarantee nears its maturity date, less of your Account Value may be available to participate in the investment experience of the other Sub-accounts if there is a subsequent market recovery. During periods closer to the maturity date of the guarantee, a significant portion of your Account Value may be allocated to an AST bond portfolio Sub-account to support any applicable guaranteed amount(s). Election/Cancellation of the Program Highest Daily GRO can be elected on the Issue Date of your Annuity, or at any time thereafter (unless you previously participated in either this benefit or GRO Plus 2008, in which case your election must be on an Annuity Anniversary). If you elect the benefit after the Issue Date of your Annuity, the benefit will be effective as of the Valuation Day that we receive the required documentation in good order at our home office, and the initial guaranteed amount will equal the Account Value on that day. You may elect Highest Daily GRO only if the oldest of the Owner and Annuitant is 84 or younger on the date of election (80 or younger, in New York). If you currently participate in one of the original versions of GRO, you may terminate that benefit at any time and elect Highest Daily GRO. You may cancel Highest Daily GRO at any time. Upon cancellation, we will transfer any Account Value that is held in an AST bond portfolio Sub-account to the other Sub-accounts, according to your current allocation instructions. Highest Daily GRO will terminate automatically upon: (a) the death of the Owner or the Annuitant (in an entity owned contract), unless the Annuity is continued by the surviving spouse; (b) as of the date Account Value is applied to begin annuity payments; (c) as of the anniversary of benefit election that immediately precedes the contractually-mandated latest annuity date, or (d) upon full surrender of the Annuity. If you elect to terminate the program, Highest Daily GRO will no longer provide any guarantees. The charge for the Highest Daily GRO program will no longer be deducted from your Account Value upon termination of the program. Special Considerations under Highest Daily GRO This program is subject to certain rules and restrictions, including, but not limited to the following: . Upon inception of the program, 100% of your Account Value must be allocated to the permitted Sub-accounts. The permitted Sub-accounts are those described in the Investment Option section of this prospectus. No fixed interest rate allocations may be in effect as of the date that you elect to participate in the program. . You cannot participate in any dollar cost averaging program that transfers Account Value from a fixed interest rate option to a Sub-account. . Transfers from the other Sub-accounts to an AST bond portfolio Sub-account or from an AST bond portfolio Sub-account to the other Sub-accounts under the program will not count toward the maximum number of free transfers allowable under the Annuity. . Any amounts applied to your Account Value by us on a maturity date will not be treated as "investment in the contract" for income tax purposes. . As a given maturity period gets closer to its end, there is a greater likelihood of a transfer to the AST bond portfolio Sub-account. In addition, the amount transferred generally will be larger than a transfer occurring earlier in the maturity period. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this program. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. We may also require that you allocate your Account Value according to an asset allocation model. 54 Charges under the Program We deduct an annual charge equal to 0.35% of the average daily net assets of the Sub-accounts (including each AST bond portfolio Sub-account) for participation in the Highest Daily GRO program. The charge is deducted daily. The charge is deducted to compensate us for: (a) the risk that your Account Value on the maturity date is less than the amount guaranteed and (b) administration of the program. We reserve the right to increase this fee for newly-issued contracts or new elections of the benefit. GUARANTEED MINIMUM WITHDRAWAL BENEFIT (GMWB) The Guaranteed Minimum Withdrawal Benefit program described below is only being offered in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. Certain terms and conditions may differ between jurisdictions once approved. Currently, the program can only be elected by new purchasers on the Issue Date of their Annuity. We may offer the program to existing Annuity Owners in the future, subject to our eligibility rules and restrictions. The Guaranteed Minimum Withdrawal Benefit program is not available if you elect any other optional living benefit. We offer a program that guarantees your ability to withdraw amounts equal to an initial principal value (called the "Protected Value"), regardless of the impact of market performance on your Account Value, subject to our program rules regarding the timing and amount of withdrawals. The program may be appropriate if you intend to make periodic withdrawals from your Annuity and wish to ensure that market performance will not affect your ability to protect your principal. You are not required to make withdrawals as part of the program - the guarantee is not lost if you withdraw less than the maximum allowable amount of principal each year under the rules of the program. There is an additional charge if you elect the GMWB program; however, the charge may be waived under certain circumstances described below. Key Feature - Protected Value The Protected Value is the total amount that we guarantee will be available to you through withdrawals from your Annuity and/or benefit payments, regardless of the impact of market performance on your Account Value. The Protected Value is reduced with each withdrawal you make until the Protected Value is reduced to zero. When the Protected Value is reduced to zero due to your withdrawals, the GMWB program terminates. Additionally, the Protected Value is used to determine the maximum annual amount that you can withdraw from your Annuity, called the Protected Annual Withdrawal Amount, without triggering an adjustment in the Protected Value on a proportional basis. The Protected Value is referred to as the "Benefit Base" in the rider we issue for this benefit. The Protected Value is determined as of the date you make your first withdrawal under your Annuity following your election of the GMWB program. The initial Protected Value is equal to the greater of (A) the Account Value on the date you elect the GMWB program, plus any additional Purchase Payments before the date of your first withdrawal; or (B) the Account Value as of the date of the first withdrawal from your Annuity. The Protected Value may be enhanced by increases in your Account Value due to market performance during the period between your election of the GMWB program and the date of your first withdrawal. . If you elect the GMWB program at the time you purchase your Annuity, the Account Value will be your initial Purchase Payment. . If we offer the GMWB program to existing Annuity Owners, the Account Value on the anniversary of the Issue Date of your Annuity following your election of the GMWB program will be used to determine the initial Protected Value. . If you make additional Purchase Payments after your first withdrawal, the Protected Value will be increased by the amount of the additional Purchase Payment. You may elect to step-up your Protected Value if, due to positive market performance, your Account Value is greater than the Protected Value. You are eligible to step-up the Protected Value on or after the 5/th/ Annuity anniversary following the first withdrawal under the GMWB program. The Protected Value can be stepped up again on or after the 5/th/ Annuity anniversary following the preceding step-up. If you elect to step-up the Protected Value, you must do so during the 30-day period prior to your eligibility date. If you elect to step-up the Protected Value under the program, and on the date you elect to step-up, the charges under the GMWB program have changed for new purchasers, your program may be subject to the new charge going forward. Upon election of the step-up, we reset the Protected Value to be equal to the then current Account Value. For example, assume your initial Protected Value was $100,000 and you have made cumulative withdrawals of $40,000, reducing the Protected Value to $60,000. On the date you are eligible to step-up the Protected Value, your Account Value is equal to $75,000. You could elect to step-up the Protected Value to $75,000 on the date you are eligible. Upon election of the step-up, we also reset the Protected Annual Withdrawal Amount (discussed immediately below) to be equal to the greater of (A) the Protected Annual Withdrawal Amount immediately prior to the reset; and (B) 7% of the Protected Value immediately after the reset. Key Feature - Protected Annual Withdrawal Amount The initial Protected Annual Withdrawal Amount is equal to 7% of the Protected Value. Under the GMWB program, if your cumulative withdrawals each Annuity Year are less than or equal to the Protected Annual Withdrawal Amount, your Protected 55 Value will be reduced on a "dollar-for-dollar" basis (the Protected Value is reduced by the actual amount of the withdrawal, including any CDSC or MVA that may apply). Cumulative withdrawals in any Annuity Year that exceed the Protected Annual Withdrawal Amount trigger a proportional adjustment to both the Protected Value and the Protected Annual Withdrawal Amount, as described in the rider for this benefit (see the examples of this calculation below). The Protected Annual Withdrawal Amount is referred to as the "Maximum Annual Benefit" in the rider we issue for this benefit. The GMWB program does not affect your ability to make withdrawals under your Annuity or limit your ability to request withdrawals that exceed the Protected Annual Withdrawal Amount. You are not required to withdraw all or any portion of the Protected Annual Withdrawal Amount each Annuity Year. . If, cumulatively, you withdraw an amount less than the Protected Annual Withdrawal Amount in any Annuity Year, you cannot carry-over the unused portion of the Protected Annual Withdrawal Amount to subsequent Annuity Years. However, because the Protected Value is only reduced by the actual amount of withdrawals you make under these circumstances, any unused Protected Annual Withdrawal Amount may extend the period of time until the remaining Protected Value is reduced to zero. . Additional Purchase Payments will increase the Protected Annual Withdrawal Amount by 7% of the applicable Purchase Payment. . If the Protected Annual Withdrawal Amount after an adjustment exceeds the Protected Value, the Protected Annual Withdrawal Amount will be set equal to the Protected Value. The following examples of dollar-for dollar and proportional reductions and the reset of the Maximum Annual Benefit assume that: 1.) the Issue Date and the effective date of the GMWB program are October 13, 2005; 2.) an initial Purchase Payment of $250,000; 3.) a Protected Value of $250,000; and 4.) a Protected Annual Withdrawal Amount of $17,500 (7% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for GMWB or any other fees and charges. Example 1. Dollar-for-dollar reduction A $10,000 withdrawal is taken on November 13, 2005 (in the first Annuity Year). No prior withdrawals have been taken. As the amount withdrawn is less than the Protected Annual Withdrawal Amount: . The Protected Value is reduced by the amount withdrawn (i.e., by $10,000, from $250,000 to $240,000). . The remaining Protected Annual Withdrawal Amount for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $17,500 to $7,500). Example 2. Dollar-for-dollar and proportional reductions A second $10,000 withdrawal is taken on December 13, 2005 (still within the first Annuity Year). The Account Value immediately before the withdrawal is $220,000. As the amount withdrawn exceeds the remaining Protected Annual Withdrawal Amount of $7,500 from Example 1: . the Protected Value is first reduced by the remaining Protected Annual Withdrawal Amount (from $240,000 to $232,500); . The result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the remaining Protected Annual Withdrawal Amount ($10,000 - $7,500, or $2,500). -- B is the Account Value less the remaining Protected Annual Withdrawal Amount ($220,000 - $7,500, or $212,500). The resulting Protected Value is: $232,500 X (1 - $2,500/$212,500), or $229,764.71. . the Protected Annual Withdrawal Amount is also reduced by the ratio of A to B: The resulting Protected Annual Withdrawal Amount is: $17,500 X (1 - $2,500/$212,500), or $17,294.12. -- The remaining Protected Annual Withdrawal Amount is set to zero (0) for the balance of the first Annuity Year. Example 3. Reset of the Maximum Annual Benefit A $10,000 withdrawal is made on October 13, 2006 (second Annuity Year). The remaining Protected Annual Withdrawal Amount has been reset to the Protected Annual Withdrawal Amount of $17,294.12 from Example 2. As the amount withdrawn is less than the remaining Protected Annual Withdrawal Amount: . the Protected Value is reduced by the amount withdrawn (i.e., reduced by $10,000, from $229,764.71 to $219,764.71). . the remaining Protected Annual Withdrawal Amount for the balance of the second Annuity Year is also reduced by the amount withdrawn (from $17,294.12 to $7,294.12). BENEFITS UNDER THE GMWB PROGRAM . In addition to any withdrawals you make under the GMWB program, market performance may reduce your Account Value. If your Account Value is equal to zero, and you have not received all of your Protected Value in the form of 56 withdrawals from your Annuity, we will continue to make payments equal to the remaining Protected Value in the form of fixed, periodic payments until the remainder of the Protected Value is paid, at which time the rider terminates. The fixed, periodic payments will each be equal to the Protected Annual Withdrawal Amount, except for the last payment which may be equal to the remaining Protected Value. We will determine the duration for which periodic payments will continue by dividing the Protected Value by the Protected Annual Withdrawal Amount. You will not have the right to make additional Purchase Payments or receive the remaining Protected Value in a lump sum. You can elect the frequency of payments, subject to our rules then in effect. . If the death benefit under your Annuity becomes payable before you have received all of your Protected Value in the form of withdrawals from your Annuity, your Beneficiary has the option to elect to receive the remaining Protected Value as an alternate death benefit payout in lieu of the amount payable under any other death benefit provided under your Annuity. The remaining Protected Value will be payable in the form of fixed, periodic payments. Your beneficiary can elect the frequency of payments, subject to our rules then in effect. We will determine the duration for which periodic payments will continue by dividing the Protected Value by the Protected Annual Withdrawal Amount. The Protected Value is not equal to the Account Value for purposes of the Annuity's other death benefit options. The GMWB program does not increase or decrease the amount otherwise payable under the Annuity's other death benefit options. Generally, the GMWB program would be of value to your Beneficiary only when the Protected Value at death exceeds any other amount available as a death benefit. . If you elect to begin receiving annuity payments before you have received all of your Protected Value in the form of withdrawals from your Annuity, an additional annuity payment option will be available that makes fixed annuity payments for a certain period, determined by dividing the Protected Value by the Protected Annual Withdrawal Amount. If you elect to receive annuity payments calculated in this manner, the assumed interest rate used to calculate such payments will be 0%, which is less than the assumed interest rate on other annuity payment options we offer. This 0% assumed interest rate results in lower annuity payments than what would have been paid if the assumed interest rate was higher than 0%. You can also elect to terminate the GMWB program and begin receiving annuity payments based on your then current Account Value (not the remaining Protected Value) under any of the available annuity payment options. Other Important Considerations . Withdrawals under the GMWB program are subject to all of the terms and conditions of your Annuity, including any CDSC and MVA that may apply. . Withdrawals made while the GMWB program is in effect will be treated, for tax purposes, in the same way as any other withdrawals under your Annuity. . The GMWB program does not directly affect your Annuity's Account Value or Surrender Value, but any withdrawal will decrease the Account Value by the amount of the withdrawal. If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the GMWB program. The GMWB program provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Protected Value in the form of periodic benefit payments. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this program. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. We may also require that you allocate your Account Value according to an asset allocation model. Election of the Program Currently, the GMWB program can only be elected at the time that you purchase your Annuity. In the future, we may offer existing Annuity Owners the option to elect the GMWB program after the Issue Date of their Annuity, subject to our eligibility rules and restrictions. If you elect the GMWB program after the Issue Date of your Annuity, the program will be effective as of the next anniversary date. Your Account Value as of such anniversary date will be used to calculate the initial Protected Value and the initial Protected Annual Withdrawal Amount. We reserve the right to restrict the maximum amount of Protected Value that may be covered under the GMWB program under this Annuity or any other annuities that you own that are issued by Prudential Annuities or its affiliated companies. Termination of the Program The program terminates automatically when your Protected Value reaches zero based on your withdrawals. You may terminate the program at any time by notifying us. If you terminate the program, any guarantee provided by the benefit will terminate as of the date the termination is effective. The program terminates upon your surrender of your Annuity, upon due proof of death (unless your surviving spouse elects to continue your Annuity and the GMWB program or your Beneficiary elects to receive the amounts payable under the GMWB program in lieu of the death benefit) or upon your election to begin receiving annuity payments. The charge for the GMWB program will no longer be deducted from your Account Value upon termination of the program. 57 Charges under the Program Currently, we deduct a charge equal to 0.35% of the average daily net assets of the Sub-accounts per year to purchase the GMWB program. The annual charge is deducted daily. . If, during the seven years following the effective date of the program, you do not make any withdrawals, and do not make any additional Purchase Payments after a five-year period following the effective date of the program, the program will remain in effect; however, we will waive the annual charge going forward. If you make an additional Purchase Payment following the waiver of the annual charge, we will begin charging for the program. After year seven (7) following the effective date of the program, withdrawals will not cause a charge to be re-imposed. Thus, although a purchase payment made when the charge waiver is in effect will result in termination of the charge waiver, a withdrawal will not have that effect. . If you elect to step-up the Protected Value under the program, and on the date you elect to step-up, the charges under the program have changed for new purchasers, your program may be subject to the new charge level for the benefit. Additional Tax Considerations for Qualified Contracts/Arrangements If you purchase an Annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the required minimum distribution rules under the Code provide that you begin receiving periodic amounts from your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than 5 percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Protected Annual Withdrawal Amount, which will cause us to recalculate the Protected Value and the Protected Annual Withdrawal Amount, resulting in a lower amount payable in future Annuity Years. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as required minimum distribution provisions under the tax law. GUARANTEED MINIMUM INCOME BENEFIT (GMIB) The Guaranteed Minimum Income Benefit program described below is only being offered in those jurisdictions where we have received regulatory approval, and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. Certain terms and conditions may differ between jurisdictions once approved. Currently, the program can only be elected by new purchasers on the Issue Date of their Annuity. We may offer the program to existing Annuity Owners in the future, subject to our eligibility rules and restrictions. The Guaranteed Minimum Income Benefit program is not available if you elect any other optional living benefit. We offer a program that, after a seven-year waiting period, guarantees your ability to begin receiving income from your Annuity in the form of annuity payments based on a guaranteed minimum value (called the "Protected Income Value") that increases after the waiting period begins, regardless of the impact of market performance on your Account Value. The program may be appropriate for you if you anticipate using your Annuity as a future source of periodic fixed income payments for the remainder of your life and wish to ensure that the basis upon which your income payments will be calculated will achieve at least a minimum amount despite fluctuations in market performance. There is an additional charge if you elect the GMIB program. Key Feature - Protected Income Value The Protected Income Value is the minimum amount that we guarantee will be available (net of any applicable tax charge), after a waiting period of at least seven years, as a basis to begin receiving fixed annuity payments. The Protected Income Value is initially established on the effective date of the GMIB program and is equal to your Account Value on such date. Currently, since the GMIB program may only be elected at issue, the effective date is the Issue Date of your Annuity. The Protected Income Value is increased daily based on an annual growth rate of 5%, subject to the limitations described below. The Protected Income Value is referred to as the "Protected Value" in the rider we issue for this benefit. The 5% annual growth rate is referred to as the "Roll-Up Percentage" in the rider we issue for this benefit. The Protected Income Value is subject to a limit of 200% (2X) of the sum of the Protected Income Value established on the effective date of the GMIB program, or the effective date of any step-up value, plus any additional Purchase Payments made after the waiting period begins ("Maximum Protected Income Value"), minus the sum of any reductions in the Protected Income Value due to withdrawals you make from your Annuity after the waiting period begins. . Subject to the maximum age/durational limits described immediately below, we will no longer increase the Protected Income Value by the 5% annual growth rate once you reach the Maximum Protected Income Value. However, we will increase the Protected Income Value by the amount of any additional Purchase Payments after you reach the Maximum Protected Income Value. Further, if you make withdrawals after you reach the Maximum Protected Income Value, we will reduce the Protected Income Value and the Maximum Protected Income Value by the proportional impact of the withdrawal on your Account Value. . Subject to the Maximum Protected Income Value, we will no longer increase the Protected Income Value by the 5% annual growth rate after the later of the anniversary date on or immediately following the Annuitant's 80/th/ birthday or the 7/th/ anniversary of the later of the effective date of the GMIB program or the effective date of the most recent step-up. 58 However, we will increase the Protected Income Value by the amount of any additional Purchase Payments. Further, if you make withdrawals after the Annuitant reaches the maximum age/duration limits, we will reduce the Protected Income Value and the Maximum Protected Income Value by the proportional impact of the withdrawal on your Account Value. . Subject to the Maximum Protected Income Value, if you make an additional Purchase Payment, we will increase the Protected Income Value by the amount of the Purchase Payment and will apply the 5% annual growth rate on the new amount from the date the Purchase Payment is applied. . As described below, after the waiting period begins, cumulative withdrawals each Annuity Year that are up to 5% of the Protected Income Value on the prior anniversary of your Annuity will reduce the Protected Income Value by the amount of the withdrawal. Cumulative withdrawals each Annuity Year in excess of 5% of the Protected Income Value on the prior anniversary of your Annuity will reduce the Protected Income Value proportionately. All withdrawals after the Maximum Protected Income Value is reached will reduce the Protected Income Value proportionately. The 5% annual growth rate will be applied to the reduced Protected Income Value from the date of the withdrawal. Stepping-Up the Protected Income Value - You may elect to "step-up" or "reset" your Protected Income Value if your Account Value is greater than the current Protected Income Value. Upon exercise of the step-up provision, your initial Protected Income Value will be reset equal to your current Account Value. From the date that you elect to step-up the Protected Income Value, we will apply the 5% annual growth rate to the stepped-up Protected Income Value, as described above. You can exercise the step-up provision twice while the GMIB program is in effect, and only while the Annuitant is less than age 76. . A new seven-year waiting period will be established upon the effective date of your election to step-up the Protected Income Value. You cannot exercise your right to begin receiving annuity payments under the GMIB program until the end of the new waiting period. In light of this waiting period upon resets, it is not recommended that you reset your GMIB if the required beginning date under IRS minimum distribution requirements would commence during the 7 year waiting period. See "Tax Considerations" section in this prospectus for additional information on IRS requirements. . The Maximum Protected Income Value will be reset as of the effective date of any step-up. The new Maximum Protected Income Value will be equal to 200% of the sum of the Protected Income Value as of the effective date of the step-up plus any subsequent Purchase Payments, minus the impact of any withdrawals after the date of the step-up. . When determining the guaranteed annuity purchase rates for annuity payments under the GMIB program, we will apply such rates based on the number of years since the most recent step-up. . If you elect to step-up the Protected Income Value under the program, and on the date you elect to step-up, the charges under the GMIB program have changed for new purchasers, your program may be subject to the new charge going forward. . A step-up will increase the dollar for dollar limit on the anniversary of the Issue Date of the Annuity following such step-up. Impact of Withdrawals on the Protected Income Value - Cumulative withdrawals each Annuity Year up to 5% of the Protected Income Value will reduce the Protected Income Value on a "dollar-for-dollar" basis (the Protected Income Value is reduced by the actual amount of the withdrawal). Cumulative withdrawals in any Annuity Year in excess of 5% of the Protected Income Value will reduce the Protected Income Value proportionately (see the examples of this calculation below). The 5% annual withdrawal amount is determined on each anniversary of the Issue Date (or on the Issue Date for the first Annuity Year) and applies to any withdrawals during the Annuity Year. This means that the amount available for withdrawals each Annuity Year on a "dollar-for-dollar" basis is adjusted on each Annuity anniversary to reflect changes in the Protected Income Value during the prior Annuity Year. The following examples of dollar-for-dollar and proportional reductions assume that: 1.) the Issue Date and the effective date of the GMIB program are October 13, 2005; 2.) an initial Purchase Payment of $250,000; 3.) an initial Protected Income Value of $250,000; and 4.) a dollar-for-dollar limit of $12,500 (5% of $250,000). The values set forth here are purely hypothetical and do not reflect the charge for GMIB or any other fees and charges. Example 1. Dollar-for-dollar reduction A $10,000 withdrawal is taken on November 13, 2005 (in the first Annuity Year). No prior withdrawals have been taken. Immediately prior to the withdrawal, the Protected Income Value is $251,038.10 (the initial value accumulated for 31 days at an annual effective rate of 5%). As the amount withdrawn is less than the dollar-for-dollar limit: . the Protected Income Value is reduced by the amount withdrawn (i.e., by $10,000, from $251,038.10 to $241,038.10). . the remaining dollar-for-dollar limit ("Remaining Limit") for the balance of the first Annuity Year is also reduced by the amount withdrawn (from $12,500 to $2,500). Example 2. Dollar-for-dollar and proportional reductions A second $10,000 withdrawal is taken on December 13, 2005 (still within the first Annuity Year). Immediately before the withdrawal, the Account Value is $220,000 and the Protected Income Value is $242,006.64. As the amount withdrawn exceeds the Remaining Limit of $2,500 from Example 1: . the Protected Income Value is first reduced by the Remaining Limit (from $242,006.64 to $239,506.64); . the result is then further reduced by the ratio of A to B, where: -- A is the amount withdrawn less the Remaining Limit ($10,000 - $2,500, or $7,500). -- B is the Account Value less the Remaining Limit ($220,000 - $2,500, or $217,500). 59 The resulting Protected Income Value is: $239,506.64 X (1 - $7,500/$217,500), or $231,247.79. . The Remaining Limit is set to zero (0) for the balance of the first Annuity Year. Example 3. Reset of the Dollar-for-dollar Limit A $10,000 withdrawal is made on the first anniversary of the Issue Date, October 13, 2006 (second Annuity Year). Prior to the withdrawal, the Protected Income Value is $240,838.37. The Remaining Limit is reset to 5% of this amount, or $12,041.92. As the amount withdrawn is less than the dollar-for-dollar limit: . the Protected Income Value is reduced by the amount withdrawn (i.e., reduced by $10,000, from $240,838.37 to $230,838.37). . the Remaining Limit for the balance of the second Annuity Year is also reduced by the amount withdrawn (from $12,041.92 to $2,041.92). Key Feature - GMIB Annuity Payments You can elect to apply the Protected Income Value to one of the available GMIB Annuity Payment Options on any anniversary date following the initial waiting period, or any subsequent waiting period established upon your election to step-up the Protected Income Value. Once you have completed the waiting period, you will have a 30-day period each year, prior to the Annuity anniversary, during which you may elect to begin receiving annuity payments under one of the available GMIB Annuity Payment Options. You must elect one of the GMIB Annuity Payment Options by the anniversary of the Annuity's Issue Date on or immediately following the Annuitant's or your 95/th/ birthday (whichever is sooner), except for Annuities used as a funding vehicle for an IRA, SEP IRA or 403(b), in which case you must elect one of the GMIB Annuity Payment Options by the anniversary of the Annuity's Issue Date on or immediately following the Annuitant's 92/nd/ birthday. Your Annuity or state law may require you to begin receiving annuity payments at an earlier date. The amount of each GMIB Annuity Payment will be determined based on the age and, where permitted by law, sex of the Annuitant by applying the Protected Income Value (net of any applicable tax charge that may be due) to the GMIB Annuity Payment Option you choose. We use special annuity purchase rates to calculate the amount of each payment due under the GMIB Annuity Payment Options. These special rates for the GMIB Annuity Payment Options are calculated using an assumed interest rate factor that provides for lower growth in the value applied to produce annuity payments than if you elected an annuity payment option that is not part of the GMIB program. These special rates also are calculated using other factors such as "age setbacks" (use of an age lower than the Annuitant's actual age) that result in lower payments than would result if you elected an annuity payment option that is not part of the GMIB program. Use of an age setback entails a longer assumed life for the Annuitant which in turn results in lower annuity payments. On the date that you elect to begin receiving GMIB Annuity Payments, we guarantee that your payments will be calculated based on your Account Value and our then current annuity purchase rates if the payment amount calculated on this basis would be higher than it would be based on the Protected Income Value and the special GMIB annuity purchase rates. GMIB Annuity Payment Option 1 - Payments for Life with a Certain Period Under this option, monthly annuity payments will be made until the death of the Annuitant. If the Annuitant dies before having received 120 monthly annuity payments, the remainder of the 120 monthly annuity payments will be made to the Beneficiary. GMIB Annuity Payment Option 2 - Payments for Joint Lives with a Certain Period Under this option, monthly annuity payments will be made until the death of both the Annuitant and the Joint Annuitant. If the Annuitant and the Joint Annuitant die before having received 120 monthly annuity payments, the remainder of the 120 monthly annuity payments will be made to the Beneficiary. . If the Annuitant dies first, we will continue to make payments until the later of the death of the Joint Annuitant and the end of the period certain. However, if the Joint Annuitant is still receiving annuity payments following the end of the certain period, we will reduce the amount of each subsequent payment to 50% of the original payment amount. . If the Joint Annuitant dies first, we will continue to make payments until the later of the death of the Annuitant and the end of the period certain. You cannot withdraw your Account Value or the Protected Income Value under either GMIB Annuity Payment Option once annuity payments have begun. We may make other payout frequencies available, such as quarterly, semi-annually or annually. Other Important Considerations . You should note that GMIB is designed to provide a type of insurance that serves as a safety net only in the event your Account Value declines significantly due to negative investment performance. If your Account Value is not significantly affected by negative investment performance, it is unlikely that the purchase of the GMIB will result in your receiving larger annuity payments than if you had not purchased GMIB. This is because the assumptions that we use in computing the GMIB, such as the annuity purchase rates, (which include assumptions as to age-setbacks and assumed interest rates), are 60 more conservative than the assumptions that we use in computing annuity payout options outside of GMIB. Therefore, you may generate higher income payments if you were to annuitize a lower Account Value at the current annuity purchase rates, than if you were to annuitize under the GMIB with a higher Protected Value than your Account Value but, at the annuity purchase rates guaranteed under the GMIB. The GMIB program does not directly affect an Annuity's Account Value, Surrender Value or the amount payable under either the basic Death Benefit provision of the Annuity or any optional Death Benefit provision. If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Income Value. The Protected Income Value is only applicable if you elect to begin receiving annuity payments under one of the GMIB annuity options after the waiting period. . Each Annuity offers other annuity payment options that you can elect which do not impose an additional charge, but which do not offer to guarantee a minimum value on which to make annuity payments. . Where allowed by law, we reserve the right to limit subsequent Purchase Payments if we determine, at our sole discretion, that based on the timing of your Purchase Payments and withdrawals, your Protected Income Value is increasing in ways we did not intend. In determining whether to limit Purchase Payments, we will look at Purchase Payments which are disproportionately larger than your initial Purchase Payment and other actions that may artificially increase the Protected Income Value. . We currently limit the Sub-accounts in which you may allocate Account Value if you participate in this program. Should we prohibit access to any investment option, any transfers required to move Account Value to eligible investment options will not be counted in determining the number of free transfers during an Annuity Year. We may also require that you allocate your Account Value according to an asset allocation model. . If you change the Annuitant after the effective date of the GMIB program, the period of time during which we will apply the 5% annual growth rate may be changed based on the age of the new Annuitant. If the new Annuitant would not be eligible to elect the GMIB program based on his or her age at the time of the change, then the GMIB program will terminate. . Annuity payments made under the GMIB program are subject to the same tax treatment as any other annuity payment. . At the time you elect to begin receiving annuity payments under the GMIB program or under any other annuity payment option we make available, the protection provided by an Annuity's basic Death Benefit or any optional Death Benefit provision you elected will no longer apply. Election of the Program Currently, the GMIB program can only be elected at the time that you purchase your Annuity. The Annuitant must be age 75 or less as of the effective date of the GMIB program. In the future, we may offer existing Annuity Owners the option to elect the GMIB program after the Issue Date of their Annuity, subject to our eligibility rules and restrictions. If you elect the GMIB program after the Issue Date of your Annuity, the program will be effective as of the date of election. Your Account Value as of that date will be used to calculate the Protected Income Value as of the effective date of the program. Termination of the Program The GMIB program cannot be terminated by the Owner once elected. The GMIB program automatically terminates as of the date your Annuity is fully surrendered, on the date the Death Benefit is payable to your Beneficiary (unless your surviving spouse elects to continue your Annuity), or on the date that your Account Value is transferred to begin making annuity payments. The GMIB program may also be terminated if you designate a new Annuitant who would not be eligible to elect the GMIB program based on his or her age at the time of the change. Upon termination of the GMIB program we will deduct the charge from your Account Value for the portion of the Annuity Year since the prior anniversary of the Annuity's Issue Date (or the Issue Date if in the first Annuity Year). Charges under the Program Currently, we deduct a charge equal to 0.50% per year of the average Protected Income Value for the period the charge applies. Because the charge is calculated based on the average Protected Income Value, it does not increase or decrease based on changes to the Annuity's Account Value due to market performance. The dollar amount you pay each year will increase in any year the Protected Income Value increases, and it will decrease in any year the Protected Income Value decreases due to withdrawal, irrespective of whether your Account Value increases or decreases. The charge is deducted annually in arrears each Annuity Year on the anniversary of the Issue Date of an Annuity. We deduct the amount of the charge pro-rata from the Account Value allocated to the Sub-accounts and the Fixed Allocations. No MVA will apply to Account Value deducted from a Fixed Allocation. If you surrender your Annuity, begin receiving annuity payments under the GMIB program or any other annuity payment option we make available during an Annuity Year, or the GMIB program terminates, we will deduct the charge for the portion of the Annuity Year since the prior anniversary of the Annuity's Issue Date (or the Issue Date if in the first Annuity Year). No charge applies after the Annuity Date. 61 LIFETIME FIVE/SM/ INCOME BENEFIT (LIFETIME FIVE)/SM/ The Lifetime Five Income Benefit program described below is only being offered in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. Certain terms and conditions may differ between jurisdictions once approved. Lifetime Five can be elected only where the Annuitant and the Owner are the same person or, if the Annuity Owner is an entity, where there is only one Annuitant. Currently, if you elect Lifetime Five and subsequently terminate the benefit, there may be a restriction on your ability to re-elect Lifetime Five and elect another of our lifetime withdrawal benefits. The Annuitant must be at least 45 years old when the program is elected. The Lifetime Five Income Benefit program is not available if you elect any other optional living benefit. As long as your Lifetime Five Income Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available option(s) with this program. We offer a program that guarantees your ability to withdraw amounts equal to a percentage of an initial principal value (called the "Protected Withdrawal Value"), regardless of the impact of market performance on your Account Value, subject to our program rules regarding the timing and amount of withdrawals. There are two options - one is designed to provide an annual withdrawal amount for life (the "Life Income Benefit") and the other is designed to provide a greater annual withdrawal amount as long as there is Protected Withdrawal Value (adjusted as described below) (the "Withdrawal Benefit"). If there is no Protected Withdrawal Value, the withdrawal benefit will be zero. You do not choose between these two options; each option will continue to be available as long as your Annuity has an Account Value and the Lifetime Five is in effect. Certain benefits under Lifetime Five may remain in effect even if the Account Value of your Annuity is zero. The program may be appropriate if you intend to make periodic withdrawals from your Annuity and wish to ensure that market performance will not affect your ability to receive annual payments. You are not required to make withdrawals as part of the program - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the program. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to determine the amount of each annual payment under the Life Income Benefit and the Withdrawal Benefit. The initial Protected Withdrawal Value is determined as of the date you make your first withdrawal under your Annuity following your election of Lifetime Five. The initial Protected Withdrawal Value is equal to the greater of (A) the Account Value on the date you elect Lifetime Five, plus any additional Purchase Payments, as applicable, each growing at 5% per year from the date of your election of the program, or application of the Purchase Payment to your Annuity until the date of your first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier (B) the Account Value on the date of the first withdrawal from your Annuity, prior to the withdrawal, and (C) the highest Account Value on each Annuity anniversary, plus subsequent Purchase Payments prior to the first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier. With respect to (A) and (C) above, after the 10th anniversary of the benefit effective date, each value is increased by the amount of any subsequent Purchase Payments. (see below for a description of Annual Income Amount and Annual Withdrawal Amount). . If you elect the Lifetime Five program at the time you purchase your Annuity, the Account Value will be your initial Purchase Payment. . For existing Owners who are electing the Lifetime Five benefit, the Account Value on the date of your election of the Lifetime Five program will be used to determine the initial Protected Withdrawal Value. . If you make additional Purchase Payments after your first withdrawal, the Protected Withdrawal Value will be increased by the amount of each additional Purchase Payment. The Protected Withdrawal Value is reduced each time a withdrawal is made on a dollar-for-dollar basis up to 7% per Annuity Year of the Protected Withdrawal Value and on the greater of a dollar-for-dollar basis or a pro rata basis for withdrawals in an Annuity Year in excess of that amount until the Protected Withdrawal Value is reduced to zero. At that point the Annual Withdrawal Amount will be zero until such time (if any) as the Annuity reflects a Protected Withdrawal Value (for example, due to a step-up or additional Purchase Payments being made into the Annuity). Step-Up of the Protected Withdrawal Value You may elect to step-up your Protected Withdrawal Value if, due to positive market performance, your Account Value is greater than the Protected Withdrawal Value, as follows: . you are eligible to step-up the Protected Withdrawal Value on or after the 1st anniversary of the first withdrawal under the Lifetime Five program . the Protected Withdrawal Value can be stepped up again on or after the 1st anniversary of the preceding step-up. If you elect to step-up the Protected Withdrawal Value under the program, and on the date you elect to step-up, the charges under the Lifetime Five program have changed for new purchasers, your program may be subject to the new charge at the time of step-up (but will not exceed the maximum charge). Upon election of the step-up, we increase the Protected Withdrawal Value to be equal to the then current Account Value. For example, assume your initial Protected Withdrawal Value was $100,000 and you have made 62 cumulative withdrawals of $40,000, reducing the Protected Withdrawal Value to $60,000. On the date you are eligible to step-up the Protected Withdrawal Value, your Account Value is equal to $75,000. You could elect to step-up the Protected Withdrawal Value to $75,000 on the date you are eligible. If your current Annual Income Amount and Annual Withdrawal Amount are less than they would be if we did not reflect the step-up in Protected Withdrawal Value, then we will increase these amounts to reflect the step-up as described below. An optional automatic step-up ("Auto Step-Up") feature is available for this benefit. This feature may be elected at the time the benefit is elected or at any time while the benefit is in force. If you elected the Lifetime Five program and have also elected the Auto Step-Up feature: . the first Auto Step-Up opportunity will occur on the 1st Annuity Anniversary that is at least one year after the later of (1) the date of the first withdrawal under the Lifetime Five program or (2) the most recent step-up . your Protected Withdrawal Value will only be stepped-up if 5% of the Account Value is greater than the Annual Income Amount by any amount . if at the time of the first Auto Step-Up opportunity, 5% of the Account Value is not greater than the Annual Income Amount, an Auto Step-Up opportunity will occur on each successive Annuity Anniversary until a step-up occurs . once a step-up occurs, the next Auto Step-Up opportunity will occur on the 1st Annuity Anniversary that is at least one year after the most recent step-up If on the date that we implement an Auto Step-Up to your Protected Withdrawal Value, the charge for Lifetime Five has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Subject to our rules and restrictions, you will still be permitted to manually step-up the Protected Withdrawal Value even if you elect the Auto Step-Up feature. Key Feature - Annual Income Amount under the Life Income Benefit The initial Annual Income Amount is equal to 5% of the initial Protected Withdrawal Value. Under the Lifetime Five program, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. A withdrawal can be considered Excess Income under the Life Income Benefit even though it does not exceed the Annual Withdrawal Amount under the Withdrawal Benefit. When you elect a step-up (or an auto step-up is effected), your Annual Income Amount increases to equal 5% of your Account Value after the step-up if such amount is greater than your Annual Income Amount. Your Annual Income Amount also increases if you make additional Purchase Payments. The amount of the increase is equal to 5% of any additional Purchase Payments. Any increase will be added to your Annual Income Amount beginning on the day that the step-up is effective or the Purchase Payment is made. A determination of whether you have exceeded your Annual Income Amount is made at the time of each withdrawal; therefore a subsequent increase in the Annual Income Amount will not offset the effect of a withdrawal that exceeded the Annual Income Amount at the time the withdrawal was made. Key Feature - Annual Withdrawal Amount under the Withdrawal Benefit The initial Annual Withdrawal Amount is equal to 7% of the initial Protected Withdrawal Value. Under the Lifetime Five program, if your cumulative withdrawals each Annuity Year are less than or equal to the Annual Withdrawal Amount, your Protected Withdrawal Value will be reduced on a dollar-for-dollar basis. If your cumulative withdrawals are in excess of the Annual Withdrawal Amount ("Excess Withdrawal"), your Annual Withdrawal Amount will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Withdrawal to the Account Value immediately prior to such withdrawal (see the examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. When you elect a step-up (or an auto step-up is effected), your Annual Withdrawal Amount increases to equal 7% of your Account Value after the step-up if such amount is greater than your Annual Withdrawal Amount. Your Annual Withdrawal Amount also increases if you make additional Purchase Payments. The amount of the increase is equal to 7% of any additional Purchase Payments. A determination of whether you have exceeded your Annual Withdrawal Amount is made at the time of each withdrawal; therefore, a subsequent increase in the Annual Withdrawal Amount will not offset the effect of a withdrawal that exceeded the Annual Withdrawal Amount at the time the withdrawal was made. The Lifetime Five program does not affect your ability to make withdrawals under your Annuity or limit your ability to request withdrawals that exceed the Annual Income Amount and the Annual Withdrawal Amount. You are not required to withdraw all or any portion of the Annual Withdrawal Amount or Annual Income Amount in each Annuity Year. . If, cumulatively, you withdraw an amount less than the Annual Withdrawal Amount under the Withdrawal Benefit in any Annuity Year, you cannot carry-over the unused portion of the Annual Withdrawal Amount to subsequent Annuity Years. However, because the Protected Withdrawal Value is only reduced by the actual amount of withdrawals you make under these circumstances, any unused Annual Withdrawal Amount may extend the period of time until the remaining Protected Withdrawal Value is reduced to zero. 63 . If, cumulatively, you withdraw an amount less than the Annual Income Amount under the Life Income Benefit in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. However, because the Protected Withdrawal Value is only reduced by the actual amount of withdrawals you make under these circumstances, any unused Annual Income Amount may extend the period of time until the remaining Protected Withdrawal Value is reduced to zero. Examples of Withdrawals The following examples of dollar-for-dollar and proportional reductions of the Protected Withdrawal Value, Annual Withdrawal Amount and Annual Income Amount assume: 1.) the Issue Date and the Effective Date of the Lifetime Five program are February 1, 2005; 2.) an initial Purchase Payment of $250,000; 3.) the Account Value on February 1, 2006 is equal to $265,000; and 4.) the first withdrawal occurs on March 1, 2006 when the Account Value is equal to $263,000. The values set forth here are purely hypothetical, and do not reflect the charge for Lifetime Five or any other fees and charges. The initial Protected Withdrawal Value is calculated as the greatest of (a), (b) and (c): (a)Purchase payment accumulated at 5% per year from February 1, 2005 until March 1, 2006 (393 days) = $250,000 X 1.05/(393/365)/ = $263,484.33 (b)Account Value on March 1, 2006 (the date of the first withdrawal) = $263,000 (c)Account Value on February 1, 2006 (the first Annuity Anniversary) = $265,000 Therefore, the initial Protected Withdrawal Value is equal to $265,000. The Annual Withdrawal Amount is equal to $18,550 under the Withdrawal Benefit (7% of $265,000). The Annual Income Amount is equal to $13,250 under the Life Income Benefit (5% of $265,000). Example 1. Dollar-for-dollar reduction If $10,000 was withdrawn (less than both the Annual Income Amount and the Annual Withdrawal Amount) on March 1, 2006, then the following values would result: . Remaining Annual Withdrawal Amount for current Annuity Year = $18,550 - $10,000 = $8,550. Annual Withdrawal Amount for future Annuity Years remains at $18,550 . Remaining Annual Income Amount for current Annuity Year = $13,250 - $10,000 = $3,250. Annual Income Amount for future Annuity Years remains at $13,250 . Protected Withdrawal Value is reduced by $10,000 from $265,000 to $255,000 Example 2. Dollar-for-dollar and proportional reductions (a)If $15,000 was withdrawn (more than the Annual Income Amount but less than the Annual Withdrawal Amount) on March 1, 2006, then the following values would result: . Remaining Annual Withdrawal Amount for current Annuity Year = $18,550 - $15,000 = $3,550. Annual Withdrawal Amount for future Annuity Years remains at $18,550 . Remaining Annual Income Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Income Amount ($15,000 - $13,250 = $1,750) reduces Annual Income Amount for future Annuity Years. . Reduction to Annual Income Amount = Excess Income/Account Value before Excess Income X Annual Income Amount = $1,750/($263,000 - $13,250) X $13,250 = $93. Annual Income Amount for future Annuity Years = $13,250 - $93 = $13,157 . Protected Withdrawal Value is reduced by $15,000 from $265,000 to $250,000 (b)If $25,000 was withdrawn (more than both the Annual Income Amount and the Annual Withdrawal Amount) on March 1, 2006, then the following values would result: . Remaining Annual Withdrawal Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Withdrawal Amount ($25,000 - $18,550 = $6,450) reduces Annual Withdrawal Amount for future Annuity Years. . Reduction to Annual Withdrawal Amount = Excess Withdrawal/Account Value before Excess Withdrawal X Annual Withdrawal Amount = $6,450/($263,000 - $18,550) X $18,550 = $489 Annual Withdrawal Amount for future Annuity Years = $18,550 - $489 = $18,061 . Remaining Annual Income Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Income Amount ($25,000 - $13,250 = $11,750) reduces Annual Income Amount for future Annuity Years. . Reduction to Annual Income Amount = Excess Income/Account Value before Excess Income X Annual Income Amount = $11,750/($263,000 - $13,250) X $13,250 = $623. Annual Income Amount for future Annuity Years = $13,250 - $623 = $12,627 64 . Protected Withdrawal Value is first reduced by the Annual Withdrawal Amount ($18,550) from $265,000 to $246,450. It is further reduced by the greater of a dollar-for-dollar reduction or a proportional reduction. Dollar-for-dollar reduction = $25,000 - $18,550 = $6,450 . Proportional reduction = Excess Withdrawal/Account Value before Excess Withdrawal X Protected Withdrawal Value = $6,450/($263,000 - $18,550) X $246,450 = $6,503 Protected Withdrawal Value = $246,450 - max {$6,450, $6,503} = $239,947 BENEFITS UNDER THE LIFETIME FIVE PROGRAM . If your Account Value is equal to zero, and the cumulative withdrawals in the current Annuity Year are greater than the Annual Withdrawal Amount, the Lifetime Five program will terminate. To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount and amounts are still payable under both the Life Income Benefit and the Withdrawal Benefit, you will be given the choice of receiving the payments under the Life Income Benefit or under the Withdrawal Benefit. Thus, in that scenario, the remaining amounts under the Life Income Benefit and the Withdrawal Benefit would be payable even though your Account Value was reduced to zero. Once you make this election we will make an additional payment for that Annuity Year equal to either the remaining Annual Income Amount or Annual Withdrawal Amount for the Annuity Year, if any, depending on the option you choose. In subsequent Annuity Years we make payments that equal either the Annual Income Amount or the Annual Withdrawal Amount as described in this Prospectus. You will not be able to change the option after your election and no further Purchase Payments will be accepted under your Annuity. If you do not make an election, we will pay you annually under the Life Income Benefit. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount but less than or equal to the Annual Withdrawal Amount and amounts are still payable under the Withdrawal Benefit, you will receive the payments under the Withdrawal Benefit. In the year of a withdrawal that reduced your Account Value to zero, we will make an additional payment to equal any remaining Annual Withdrawal Amount and make payments equal to the Annual Withdrawal Amount in each subsequent year (until the Protected Withdrawal Value is depleted). Once your Account Value equals zero no further Purchase Payments will be accepted under your Annuity. . If annuity payments are to begin under the terms of your Annuity or if you decide to begin receiving annuity payments and there is any Annual Income Amount due in subsequent Annuity Years or any remaining Protected Withdrawal Value, you can elect one of the following three options: (1)apply your Account Value to any annuity option available; or (2)request that, as of the date annuity payments are to begin, we make annuity payments each year equal to the Annual Income Amount. We make such annuity payments until the Annuitant's death; or (3)request that, as of the date annuity payments are to begin, we pay out any remaining Protected Withdrawal Value as annuity payments. Each year such annuity payments will equal the Annual Withdrawal Amount or the remaining Protected Withdrawal Value if less. We make such annuity payments until the earlier of the Annuitant's death or the date the Protected Withdrawal Value is depleted. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a single life fixed annuity with five payments certain using the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such annuity payments will be the greater of: (1)the present value of future Annual Income Amount payments. Such present value will be calculated using the greater of the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will determine a Protected Withdrawal Value and calculate an Annual Income Amount and an Annual Withdrawal Amount as if you made your first withdrawal on the date the annuity payments are to begin. Other Important Considerations . Withdrawals under the Lifetime Five program are subject to all of the terms and conditions of your Annuity, including any applicable CDSC. . Withdrawals made while the Lifetime Five program is in effect will be treated, for tax purposes, in the same way as any other withdrawals under your Annuity. The Lifetime Five program does not directly affect your Annuity's Account Value or Surrender Value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Withdrawal Value. 65 . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Lifetime Five program. The Lifetime Five program provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Protected Withdrawal Value or Annual Income Amount in the form of periodic benefit payments. . In general, you must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly-adopted requirements. Subsequent to any change in requirements, transfers of Account Value and allocation of additional Purchase Payments may be subject to the new investment limitations. Election of the Program The Lifetime Five program can be elected at the time that you purchase your Annuity. We also offer existing Owners the option to elect the Lifetime Five program after the Issue Date of their Annuity, subject to our eligibility rules and restrictions. Your Account Value as the date of election will be used as a basis to calculate the initial Protected Withdrawal Value, the initial Protected Annual Withdrawal Amount, and the Annual Income Amount. Currently, if you terminate the program, you generally will only be permitted to re-elect Lifetime Five or elect another lifetime withdrawal benefit on any anniversary of the Issue Date that is at least 90 calendar days from the date the benefit was last terminated. If you had previously elected Lifetime Five after the Issue Date and within the same Annuity Year that you terminated Lifetime Five, you will be able to re-elect the program or elect Highest Daily Lifetime Five or Spousal Lifetime Five on any date on or after the next anniversary of the Issue Date. However, once you choose to re-elect/elect, the waiting period described above will apply to subsequent re-elections. We reserve the right to limit the re-election/election frequency in the future. Before making any such change to the re-election/election frequency, we will provide prior notice to Owners who have an effective Lifetime Five Income Benefit. Termination of the Program The program terminates automatically when your Protected Withdrawal Value and Annual Income Amount equal zero. You may terminate the program at any time by notifying us. If you terminate the program, any guarantee provided by the benefit will terminate as of the date the termination is effective and certain restrictions on re-election of the benefit will apply as described above. The program terminates upon your surrender of your Annuity, upon the death of the Annuitant (but your surviving spouse may elect a new Lifetime Five if your spouse elects the spousal continuance option and your spouse would then be eligible to elect the benefit if he or she was a new purchaser), upon a change in ownership of your Annuity that changes the tax identification number of the Owner, upon change in the Annuitant or upon your election to begin receiving annuity payments. While you may terminate your program at any time, we may not terminate the program other than in the circumstances listed above. However, we may stop offering the program for new elections or re-elections at any time in the future. The charge for the Lifetime Five program will no longer be deducted from your Account Value upon termination of the program. Additional Tax Considerations If you purchase an Annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the Owner's lifetime. The amount required under the Code may exceed the Annual Withdrawal Amount and the Annual Income Amount, which will cause us to increase the Annual Income Amount and the Annual Withdrawal Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. Any such payments will reduce your Protected Withdrawal Value. In addition, the amount and duration of payments under the annuity payment and Death Benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. 66 SPOUSAL LIFETIME FIVE/SM/ INCOME BENEFIT (SPOUSAL LIFETIME FIVE)/SM/ The Spousal Lifetime Five program described below is only being offered in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. Certain terms and conditions may differ between jurisdictions once approved. Currently, if you elect Spousal Lifetime Five and subsequently terminate the benefit, there may be a restriction on your ability to re-elect Spousal Lifetime Five or elect another lifetime withdrawal benefit. (See "Election of and Designations under the Program" below for details). Spousal Lifetime Five must be elected based on two Designated Lives, as described below. Each Designated Life must be at least 55 years old when the benefit is elected. The Spousal Lifetime Five program is not available if you elect any other optional living benefit or optional death benefit. As long as your Spousal Lifetime Five Income Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available option(s) with this program. We offer a program that guarantees until the later death of two natural persons that are each other's spouses at the time of election of Spousal Lifetime Five and at the first death of one of them (the "Designated Lives", each a "Designated Life") the ability to withdraw an annual amount ("Spousal Life Income Benefit") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of market performance on the Account Value, subject to our program rules regarding the timing and amount of withdrawals. The Spousal Life Income Benefit may remain in effect even if the Account Value of the Annuity is zero. The program may be appropriate if you intend to make periodic withdrawals from your Annuity, wish to ensure that market performance will not affect your ability to receive annual payments, and wish either spouse to be able to continue the Spousal Life Income Benefit after the death of the first. You are not required to make withdrawals as part of the program - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the program. Key Feature - Initial Protected Withdrawal Value The Protected Withdrawal Value is used to determine the amount of each annual payment under the Spousal Life Income Benefit. The initial Protected Withdrawal Value is determined as of the date you make your first withdrawal under the Annuity following your election of Spousal Lifetime Five. The initial Protected Withdrawal Value is equal to the greater of (A) the Account Value on the date you elect Spousal Lifetime Five, plus any additional Purchase Payments as applicable, each growing at 5% per year from the date of your election of the program, or application of the Purchase Payment to your Annuity, until the date of your first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier (B) the Account Value on the date of the first withdrawal from your Annuity, prior to the withdrawal, and (C) the highest Account Value on each Annuity anniversary, plus subsequent Purchase Payments prior to the first withdrawal or the 10/th/ anniversary of the benefit effective date, if earlier. With respect to (A) and (C) above, after the 10/th/ anniversary of the benefit effective date, each value is increased by the amount of any subsequent Purchase Payments. . If you elect the Spousal Lifetime Five program at the time you purchase your Annuity, the Account Value will be your initial Purchase Payment. . For existing Owners who are electing the Spousal Lifetime Five benefit, the Account Value on the date of your election of the Spousal Lifetime Five program will be used to determine the initial Protected Withdrawal Value. Key Feature - Annual Income Amount under the Spousal Life Income Benefit The initial Annual Income Amount is equal to 5% of the initial Protected Withdrawal Value. Under the Spousal Lifetime Five program, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount under the Spousal Life Income Benefit in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. The Spousal Lifetime Five program does not affect your ability to make withdrawals under your Annuity or limit your ability to request withdrawals that exceed the Annual Income Amount. Step-Up of Annual Income Amount You may elect to step-up your Annual Income Amount if, due to positive market performance, 5% of your Account Value is greater than the Annual Income Amount. You are eligible to step-up the Annual Income Amount on or after the 1/st/ anniversary of the first withdrawal under the Spousal Lifetime Five program. The Annual Income Amount can be stepped up again on or after the 1/st/ anniversary of the preceding step-up. If you elect to step-up the Annual Income Amount under the program, and on the date you elect to step-up, the charges under the Spousal Lifetime Five program have changed for new purchasers, your program may be subject to the new charge at the time of such step-up. When you elect a step-up, your Annual Income Amount increases to equal 5% of your Account Value after the step-up. Your Annual Income Amount also increases if you make additional Purchase Payments. The amount of the increase is equal to 5% of any additional Purchase Payments. Any increase will be added to your Annual Income Amount beginning on the day that the step-up is effective or the Purchase Payment is made. A determination of 67 whether you have exceeded your Annual Income Amount is made at the time of each withdrawal; therefore a subsequent increase in the Annual Income Amount will not offset the effect of a withdrawal that exceeded the Annual Income Amount at the time the withdrawal was made. An optional automatic step-up ("Auto Step-Up") feature is available for this benefit. This feature may be elected at the time the benefit is elected or at any time while the benefit is in force. If you elect this feature, the first Auto Step-Up opportunity will occur on the 1st Annuity Anniversary that is at least one year after the later of (1) the date of the first withdrawal under the Spousal Lifetime Five program or (2) the most recent step-up. At this time, your Annual Income Amount will be stepped-up if 5% of your Account Value is greater than the Annual Income Amount by any amount. If 5% of the Account Value does not exceed the Annual Income Amount, then an Auto Step-Up opportunity will occur on each successive Annuity Anniversary until a step-up occurs. Once a step-up occurs, the next Auto Step-Up opportunity will occur on the 1st Annuity Anniversary that is at least 1 year after the most recent step-up. If, on the date that we implement an Auto Step-Up to your Annual Income Amount, the charge for Spousal Lifetime Five has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Subject to our rules and restrictions, you will still be permitted to manually step-up the Annual Income Amount even if you elect the Auto Step-Up feature. Examples of withdrawals and step-up The following examples of dollar-for-dollar and proportional reductions and the step-up of the Annual Income Amount assume: 1.) the Issue Date and the Effective Date of the Spousal Lifetime Five program are February 1, 2005; 2.) an initial Purchase Payment of $250,000; 3.) the Account Value on February 1, 2006 is equal to $265,000; 4.) the first withdrawal occurs on March 1, 2006 when the Account Value is equal to $263,000; and 5.) the Account Value on February 1, 2010 is equal to $280,000. The values set forth here are purely hypothetical, and do not reflect the charge for the Spousal Lifetime Five or any other fees and charges. The initial Protected Withdrawal Value is calculated as the greatest of (a), (b) and (c): (a)Purchase payment accumulated at 5% per year from February 1, 2005 until March 1, 2006 (393 days) = $250,000 X 1.05/(393/365)/ = $263,484.33 (b)Account Value on March 1, 2006 (the date of the first withdrawal) = $263,000 (c)Account Value on February 1, 2006 (the first Annuity Anniversary) = $265,000 Therefore, the initial Protected Withdrawal Value is equal to $265,000. The Annual Income Amount is equal to $13,250 under the Spousal Life Income Benefit (5% of $265,000). Example 1. Dollar-for-dollar reduction If $10,000 was withdrawn (less than the Annual Income Amount) on March 1, 2006, then the following values would result: . Remaining Annual Income Amount for current Annuity Year = $13,250 - $10,000 = $3,250 . Annual Income Amount for future Annuity Years remains at $13,250 Example 2. Dollar-for-dollar and proportional reductions If $15,000 was withdrawn (more than the Annual Income Amount) on March 1, 2006, then the following values would result: . Remaining Annual Income Amount for current Annuity Year = $0 Excess of withdrawal over the Annual Income Amount ($15,000 - $13,250 $1,750) reduces Annual Income Amount for future Annuity Years. . Reduction to Annual Income Amount = Excess Income/Account Value before Excess Income X Annual Income Amount = $1,750/($263,000 - $13,250) X $13,250 = $93. Annual Income Amount for future Annuity Years = $13,250 - $93 = $13,157 Example 3. Step-up of the Annual Income Amount If a step-up of the Annual Income Amount is requested on February 1, 2010 or the Auto Step-Up feature was elected, the step-up would occur because 5% of the Account Value, which is $14,000 (5% of $280,000), is greater than the Annual Income Amount of $13,250. The new Annual Income Amount will be equal to $14,000. BENEFITS UNDER THE SPOUSAL LIFETIME FIVE PROGRAM To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount and amounts are still payable under the Spousal Life Income Benefit, we will make an additional payment for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year, if any. Thus, in that scenario, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section of the Prospectus. No further Purchase Payments will be accepted under your Annuity. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Spousal Life Income Benefit terminates and no additional payments will be made. 68 . If annuity payments are to begin under the terms of your Annuity or if you decide to begin receiving annuity payments and there is any Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any annuity option available; or (2)request that, as of the date annuity payments are to begin, we make annuity payments each year equal to the Annual Income Amount. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a joint and survivor or single (as applicable) life fixed annuity with five payments certain using the same basis that is used to calculate the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such annuity payments will be the greater of: (1)the present value of future Annual Income Amount payments. Such present value will be calculated using the same basis that is used to calculate the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will determine an initial Protected Withdrawal Value and calculate an Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. Other Important Considerations . Withdrawals under the Spousal Lifetime Five program are subject to all of the terms and conditions of the Annuity, including any CDSC. . Withdrawals made while the Spousal Lifetime Five program is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Spousal Lifetime Five program does not directly affect the Annuity's Account Value or Surrender Value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity, you will receive the current Surrender Value, not the Protected Withdrawal Value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Spousal Lifetime Five program. The Spousal Lifetime Five program provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . In general, you must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly-adopted requirements. Subsequent to any change in requirements, transfers of Account Value and allocation of additional Purchase Payments may be subject to the new investment limitations. . There may be circumstances (for example, upon divorce where one spouse retains the annuity) where you will continue to be charged the full amount for the Spousal Lifetime Five program even when the benefit is only providing a guarantee of income base on one life with no survivorship. . In order for the Surviving Designated Life to continue the Spousal Lifetime Five program upon the death of an owner, the Designated Life must elect to assume ownership of the Annuity under the spousal continuation option. When the Annuity is owned by a Custodial Account, in order for Spousal Lifetime Five to be continued after the death of the first Designated Life (the Annuitant), the Custodial Account must elect to continue the Annuity and the second Designated Life (the Contingent Annuitant) will be named as the new Annuitant. See "Spousal Designations", and "Spousal Assumption of Annuity" in this Prospectus. Election of and Designations under the Program Spousal Lifetime Five can only be elected based on two Designated Lives. Designated Lives must be natural persons who are each other's spouses at the time of election of the program and at the death of the first of the Designated Lives to die. Currently, the program may only be elected where the Owner, Annuitant and Beneficiary Designations are as follows: . One Annuity Owner, where the Annuitant and the Owner are the same person and the beneficiary is the Owner's spouse. The Owner/Annuitant and the beneficiary each must be at least 55 years old at the time of election; or . Co-Annuity Owners, where the Owners are each other's spouses. The Beneficiary Designation must be the surviving spouse. The first named Owner must be the Annuitant. Both Owners must each be at least 55 years old at the time of election; or . One Annuity Owner, where the Owner is a custodial account established to hold retirement assets for the benefit of the Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code (or any successor Code section thereto) ("Custodial Account"), the Beneficiary is the Custodial Account and the spouse of the Annuitant is the Contingent Annuitant. Both the Annuitant and Contingent Annuitant must each be at least 55 years old at the time of election. 69 No Ownership changes or Annuitant changes will be permitted once this program is elected. However, if the Annuity is co-owned, the Owner that is not the Annuitant may be removed without affecting the benefit. The Spousal Lifetime Five program can be elected at the time that you purchase your Annuity. We also offer existing Owners the option to elect the Spousal Lifetime Five program after the Issue Date of their Annuity, subject to our eligibility rules and restrictions. Your Account Value as the date of election will be used as a basis to calculate the initial Protected Withdrawal Value and the Annual Income Amount. Currently, if you terminate the program, you may, for certain optional benefits, be permitted to elect a lifetime withdrawal benefit only on any anniversary of the Issue Date that is at least 90 calendar days from the date the benefit was last terminated. We reserve the right to further limit the election frequency in the future. Before making any such change to the election frequency, we will provide prior notice to Owners who have an effective Spousal Lifetime Five Income Benefit. Termination of the Program The program terminates automatically when your Annual Income Amount equals zero. You may terminate the program at any time by notifying us. If you terminate the program, any guarantee provided by the benefit will terminate as of the date the termination is effective and certain restrictions on re-election of the benefit will apply as described above. We reserve the right to further limit the frequency election in the future. The program terminates upon your surrender of the Annuity, upon the first Designated Life to die if the Annuity is not continued, upon the second Designated Life to die or upon your election to begin receiving annuity payments. The charge for the Spousal Lifetime Five program will no longer be deducted from your Account Value upon termination of the program. Additional Tax Considerations If you purchase an Annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or an employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your Annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than 5 percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the Owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and Death Benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. HIGHEST DAILY LIFETIME SEVEN/SM/ INCOME BENEFIT (HD 7)/SM/ Highest Daily Lifetime Seven is offered as an alternative to Lifetime Five, Spousal Lifetime Five, and Highest Daily Lifetime Five. Currently, if you elect Highest Daily Lifetime Seven and subsequently terminate the benefit, you may have a waiting period until you can elect another lifetime withdrawal benefit. See "Election of and Designations under the Program" below for details. The income benefit under Highest Daily Lifetime Seven currently is based on a single "designated life" who is at least 55 years old on the date that the benefit is acquired. The Highest Daily Lifetime Seven Benefit is not available if you elect any other optional living benefit, although you may elect any optional death benefit other than the Highest Daily Value death benefit. As long as your Highest Daily Lifetime Seven Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this program. For a more detailed description of the permitted investment options, see the Investment options section of this prospectus. We offer a benefit that guarantees until the death of the single designated life the ability to withdraw an annual amount (the "Annual Income Amount") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of market performance on the Account Value, subject to our program rules regarding the timing and amount of withdrawals. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, and wish to ensure that market performance will not affect your ability to receive annual payments. You are not required to make withdrawals as part of the program - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer program in order to participate in Highest Daily Lifetime Seven, and in Appendix E to this prospectus, we set forth the formula under which we make those asset transfers. 70 As discussed below, a key component of Highest Daily Lifetime Seven is the Protected Withdrawal Value. Because each of the Protected Withdrawal Value and Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for the Account Value to fall to zero, even though the Annual Income Amount remains. You are guaranteed to be able to withdraw the Annual Income Amount for the rest of your life, provided that you have not made "excess withdrawals." Excess withdrawals, as discussed below, will reduce your Annual Income Amount. Thus, you could experience a scenario in which your Account Value was zero, and, due to your excess withdrawals, your Annual Income Amount also was reduced to zero. In that scenario, no further amount would be payable under Highest Daily Lifetime Seven. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to calculate the initial Annual Income Amount. On the effective date of the benefit , the Protected Withdrawal Value is equal to your Account Value. On each Valuation Day thereafter, until the earlier of the tenth anniversary of benefit election (the "Tenth Anniversary Date") or the date of the first withdrawal, the Protected Withdrawal Value is equal to the "Periodic Value" described in the next paragraph. The "Periodic Value" initially is equal to the Account Value on the effective date of the benefit. On each Valuation Day thereafter, until the earlier of the first withdrawal or the Tenth Anniversary Date, we recalculate the Periodic Value. We stop determining the Periodic Value upon the earlier of your first withdrawal after the effective date of the benefit or the Tenth Anniversary Date. On each Valuation Day (the "Current Valuation Day"), the Periodic Value is equal to the greater of: (1)the Periodic Value for the immediately preceding business day (the "Prior Valuation Day") appreciated at the daily equivalent of 7% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any adjusted Purchase Payment made on the Current Valuation Day; and (2)the Account Value. If you make a withdrawal prior to the Tenth Anniversary Date, the Protected Withdrawal Value on the date of the withdrawal is equal to the greatest of: (a)the Account Value; or (b)the Periodic Value on the date of the withdrawal. If you have not made a withdrawal on or before the Tenth Anniversary Date, your Protected Withdrawal Value subsequent to the Tenth Anniversary Date is equal to the greatest of: (1)the Account Value; or (2)the Periodic Value on the Tenth Anniversary Date, increased for subsequent adjusted Purchase Payments; or (3)the sum of: (a)200% of the Account Value on the effective date of the benefit; (b)200% of all adjusted Purchase Payments made within one year after the effective date of the benefit; and (c)all adjusted Purchase Payments made after one year following the effective date of the benefit up to the date of the first withdrawal. On and after the date of your first withdrawal, your Protected Withdrawal Value is increased by the amount of any subsequent Purchase Payments, is reduced by withdrawals, including your first withdrawal (as described below), and is increased if you qualify for a step-up (as described below). Irrespective of these calculations, your Protected Withdrawal Value will always be at least equal to your Account Value. Key Feature - Annual Income Amount under the Highest Daily Lifetime Seven Benefit The Annual Income Amount is equal to a specified percentage of the Protected Withdrawal Value. The percentage depends on the age of the Annuitant on the date of the first withdrawal after election of the benefit. The percentages are: 5% for ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. Under the Highest Daily Lifetime Seven benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. Withdrawals of any amount up to and including the Annual Income Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the same ratio as the reduction to the Annual Income Amount. 71 A Purchase Payment that you make will (i) increase the then-existing Annual Income Amount by an amount equal to a percentage of the Purchase Payment based on the age of the Annuitant at the time of the first withdrawal (the percentages are: 5% for ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older) and (ii) increase the Protected Withdrawal Value by the amount of the Purchase Payment. An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as part of this benefit. As detailed in this paragraph, the Highest Quarterly Auto Step-Up feature can result in a larger Annual Income Amount if your Account Value increases subsequent to your first withdrawal. We begin examining the Account Value for purposes of the Highest Quarterly Step-Up starting with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on the Valuation Days corresponding to the end of each quarter that (i) is based on your Annuity Year, rather than a calendar year; (ii) is subsequent to the first withdrawal; and (iii) falls within the immediately preceding Annuity Year. If the end of any such quarter falls on a holiday or a weekend, we use the next Valuation Day. Having identified each of those quarter-end Account Values, we then multiply each such value by a percentage that varies based on the age of the Annuitant on the Annuity Anniversary as of which the step-up would occur. The percentages are 5% for ages 74 and younger, 6% for ages 75-79, 7% for ages 80-84, and 8% for ages 85 and older. Thus, we multiply each quarterly value by the applicable percentage, adjust each such quarterly value for subsequent withdrawals and Purchase Payments, and then select the highest of those values. If the highest of those values exceeds the existing Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Annual Income Amount intact. In later years, (i.e., after the first Annuity Anniversary after the first withdrawal) we determine whether an automatic step-up should occur on each Annuity Anniversary, by performing a similar examination of the Account Values on the end of the four immediately preceding quarters. At the time that we increase your Annual Income Amount, we also increase your Protected Withdrawal Value to equal the highest quarterly value upon which your step-up was based. If, on the date that we implement a Highest Quarterly Auto Step-Up to your Annual Income Amount, the charge for Highest Daily Lifetime Seven has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Highest Daily Lifetime Seven upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. The Highest Daily Lifetime Seven program does not affect your ability to make withdrawals under your Annuity, or limit your ability to request withdrawals that exceed the Annual Income Amount. Under Highest Daily Lifetime Seven, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. Examples of dollar-for-dollar and proportional reductions, and the Highest Quarterly Auto Step-Up are set forth below. The values depicted here are purely hypothetical, and do not reflect the charges for the Highest Daily Lifetime Seven benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2007 . The Highest Daily Lifetime Seven benefit is elected on March 5, 2008 . The Annuitant was 70 years old when he/she elected the Highest Daily Lifetime Seven benefit. Dollar-for-dollar reductions On May 2, 2008, the Protected Withdrawal Value is $120,000, resulting in an Annual Income Amount of $6,000 (since the Annuitant is younger than 75 at the time of the 1st withdrawal, the Annual Income Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Annual Income Amount for that Annuity Year (up to and including December 1, 2008) is $3,500. This is the result of a dollar-for-dollar reduction of the Annual Income Amount - $6,000 less $2,500 = $3,500. Proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on August 6, 2008 and the Account Value at the time of this withdrawal is $110,000. The first $3,500 of this withdrawal reduces the Annual Income Amount for that Annuity Year to $0. The remaining withdrawal amount - $1,500--reduces the Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there were other withdrawals in that Annuity Year, each would result in another proportional reduction to the Annual Income Amount). 72 Here is the calculation: Account Value before withdrawal $110,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $106,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $106,500.00 Ratio 1.41% Annual Income Amount $ 6,000.00 Less ratio of 1.41% $ 84.51 Annual Income Amount for future Annuity Years $ 5,915.49
Highest Quarterly Auto Step-Up On each Annuity Anniversary date, the Annual Income Amount is stepped-up if the appropriate percentage (based on the Annuitant's age on the Annuity Anniversary) of the highest quarterly value since your first withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional Purchase Payments, is higher than the Annual Income Amount, adjusted for excess withdrawals and additional Purchase Payments. Continuing the same example as above, the Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces this amount to $5,915.49 for future years (see above). For the next Annuity Year, the Annual Income Amount will be stepped-up if 5% (since the youngest Designated Life is younger than 75 on the date of the potential step-up) of the highest quarterly Account Value adjusted for withdrawals, is higher than $5,915.49. Here are the calculations for determining the quarterly values. Only the June 1 value is being adjusted for excess withdrawals as the September 1 and December 1 Valuation Days occur after the excess withdrawal on August 6.
Highest Quarterly Value (adjusted with Adjusted Annual Income withdrawal and Purchase Amount (5% of the Date* Account Value Payments)** Highest Quarterly Value) ----- ------------- ----------------------- ------------------------ June 1, 2008 $118,000.00 $118,000.00 $5,900.00 August 6, 2008 $110,000.00 $112,885.55 $5,644.28 September 1, 2008 $112,000.00 $112,885.55 $5,644.28 December 1, 2008 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly valuation dates are every three months thereafter - March 1, June 1, September 1, and December 1. In this example, we do not use the March 1 date as the first withdrawal took place after March 1. The Annuity Anniversary Date of December 1 is considered the fourth and final quarterly valuation date for the year. ** In this example, the first quarterly value after the first withdrawal is $118,000 on June 1, yielding an adjusted Annual Income Amount of $5,900.00. This amount is adjusted on August 6 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $118,000 on June 1 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $114,500 before the excess withdrawal. . This amount ($114,500) is further reduced by 1.41% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Quarterly Value of $112,885.55. . The adjusted Annual Income Amount is carried forward to the next quarterly anniversary date of September 1. At this time, we compare this amount to 5% of the Account Value on September 1. Since the June 1 adjusted Annual Income Amount of $5,644.28 is higher than $5,600.00 (5% of $112,000), we continue to carry $5,644.28 forward to the next and final quarterly anniversary date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,644.28, the adjusted Annual Income Amount is reset to $5,950.00. In this example, 5% of the December 1 value yields the highest amount of $5,950.00. Since this amount is higher than the current year's Annual Income Amount of $5,915.49 adjusted for excess withdrawals, the Annual Income Amount for the next Annuity Year, starting on December 2, 2008 and continuing through December 1, 2009, will be stepped-up to $5,950.00. Benefits Under the Highest Daily Lifetime Seven Program . To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount or as a result of the fee that we assess for Highest Daily Lifetime Seven, and amounts are still payable under Highest Daily Lifetime Seven, we will make an additional payment, if any, for that Annuity Year equal to the remaining Annual Income Amount for the Annuity Year. Thus, in that scenario, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section. We will make payments until the death of the single designated life. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Highest Daily Lifetime Seven benefit terminates, and no additional payments are made. However, if a withdrawal in the latter scenario was taken to meet required minimum distribution requirements under the Annuity, then the benefit will not terminate, and we will continue to pay the Annual Income Amount in the form of a fixed annuity. 73 . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is a Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Annual Income Amount. We will make payments until the death of the single designated life. We must receive your request in a form acceptable to us at our office. . In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments in the form of a single life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Annual Income Amount payments. Such present value will be calculated using the greater of the single life fixed annuity rates then currently available or the single life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will calculate the Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. . Please note that payments that we make under this benefit after the Annuity Anniversary coinciding with or next following the annuitant's 95/th/ birthday will be treated as annuity payments. Other Important Considerations . Withdrawals under the Highest Daily Lifetime Seven benefit are subject to all of the terms and conditions of the Annuity, including any CDSC. . Withdrawals made while the Highest Daily Lifetime Seven Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Highest Daily Lifetime Seven Benefit does not directly affect the Account Value or surrender value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity you will receive the current surrender value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Highest Daily Lifetime Seven benefit. The Highest Daily Lifetime Seven benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the permitted Sub-accounts. . You cannot allocate Purchase Payments or transfer Account Value to the AST Investment Grade Bond Portfolio Sub-account (see description below) if you elect this benefit. A summary description of the AST Investment Grade Bond Portfolio appears within the prospectus section entitled "What Are The Investment Objectives and Policies of The Portfolios?". Upon the initial transfer of your Account Value into the AST Investment Grade Bond Portfolio, we will send a prospectus for that Portfolio to you, along with your confirmation. In addition, you can find a copy of the AST Investment Grade Bond Portfolio prospectus by going to www.prudentialannuities.com. . Transfers to and from the elected Sub-accounts and an AST Investment Grade Bond Portfolio Sub-account triggered by the asset transfer component of the benefit will not count toward the maximum number of free transfers allowable under an Annuity. . You must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the Highest Daily Lifetime Seven benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly adopted requirements. Subject to any change in requirements, transfer of Account Value and allocation of additional Purchase Payments may be subject to new investment limitations. . The fee for Highest Daily Lifetime Seven is 0.60% annually of the Protected Withdrawal Value. We deduct this fee at the end of each quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.15% of the Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Portfolio Sub-account. Since this fee is based on the Protected Withdrawal Value the fee for Highest Daily Lifetime Seven may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described above. 74 Election of and Designations under the Program For Highest Daily Lifetime Seven, there must be either a single Owner who is the same as the Annuitant, or if the Annuity is entity owned, there must be a single natural person Annuitant. In either case, the Annuitant must be at least 55 years old. Any change of the Annuitant under the Annuity will result in cancellation of Highest Daily Lifetime Seven. Similarly, any change of Owner will result in cancellation of Highest Daily Lifetime Seven, except if (a) the new Owner has the same taxpayer identification number as the previous owner (b) ownership is transferred from a custodian to the Annuitant, or vice versa or (c) ownership is transferred from one entity to another entity. Highest Daily Lifetime Seven can be elected at the time that you purchase your Annuity or after the Issue Date, subject to our eligibility rules and restrictions. Currently, if you terminate the Highest Daily Lifetime Seven benefit, you generally will only be allowed to re-elect the benefit or elect the Spousal Lifetime Five Benefit, the Lifetime Five Income Benefit, the Highest Daily Lifetime Five benefit, or the Spousal Highest Daily Lifetime Seven Income Benefit on any anniversary of the Issue Date that is at least 90 calendar days from the date the Highest Daily Lifetime Seven Benefit was terminated. We reserve the right to further limit the election frequency in the future. We also reserve the right to waive that requirement. Return of Principal Guarantee If you have not made a withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: a) your Account Value on the day that you elected Highest Daily Lifetime Seven; and b) the sum of each Purchase Payment you made during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of your variable investment options (other than a bond Sub-account used with this benefit), in the same proportion that each such Sub-account bears to your total Account Value, immediately before the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Protected Withdrawal Value, your death benefit, or the amount of any optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. This potential addition to Account Value is available only if you have elected Highest Daily Lifetime Seven and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. Termination of the Program You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election will apply as described above. The benefit terminates: (i) upon your termination of the benefit (ii) upon your surrender of the Annuity (iii) upon your election to begin receiving annuity payments (although if you have elected to the Annual Income Amount in the form of Annuity payments, we will continue to pay the Annual Income Amount) (iv) upon the death of the Annuitant (v) if both the Account Value and Annual Income Amount equal zero or (vi) if you cease to meet our requirements for issuing the benefit (see Elections and Designations under the Program). Upon termination of Highest Daily Lifetime Seven other than upon the death of the Annuitant, we impose any accrued fee for the benefit (i.e., the fee for the pro-rated portion of the year since the fee was last assessed), and thereafter we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the AST Investment Grade Bond Portfolio Sub-account to your variable investment options, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). Asset Transfer Component of Highest Daily Lifetime Seven As indicated above, we limit the Sub-accounts to which you may allocate Account Value if you elect Highest Daily Lifetime Seven. For purposes of this benefit, we refer to those permitted Sub-accounts as the "Permitted Sub-accounts". As a requirement of participating in Highest Daily Lifetime Seven, we require that you participate in our specialized asset transfer program, under which we may transfer Account Value between the Permitted Sub-accounts and a specified bond fund within the Advanced Series Trust (the "AST Investment Grade Bond Sub-account"). We determine whether to make a transfer, and the amount of any transfer, under a non-discretionary formula, discussed below. The AST Investment Grade Bond Sub-account is available only with this benefit, and thus you may not allocate Purchase Payments to the AST Investment Grade Bond Sub-account. Under the asset 75 transfer component of Highest Daily Lifetime Seven, we monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account. Any transfer would be made in accordance with a formula, which is set forth in the Appendices to this prospectus. Speaking generally, the formula, which we apply each Valuation Day, operates as follows. The formula starts by identifying an income basis for that day and then multiplies that figure by 5%, to produce a projected (i.e., hypothetical) income amount. Note that we use 5% in the formula, irrespective of the Annuitant's attained age. Then we produce an estimate of the total amount we would target in our allocation model, based on the projected income amount and factors set forth in the formula. In the formula, we refer to that value as the "Target Value" or "L". If you have already made a withdrawal, your projected income amount (and thus your Target Value) would take into account any automatic step-up, any subsequent purchase payments, and any excess withdrawals. Next, the formula subtracts from the Target Value the amount held within the AST Investment Grade Bond Sub-account on that day, and divides that difference by the amount held within the Permitted Sub-accounts. That ratio, which essentially isolates the amount of your Target Value that is not offset by amounts held within the AST Investment Grade Bond Sub-account, is called the "Target Ratio" or "r". If the Target Ratio exceeds a certain percentage (currently 83%), it means essentially that too much Target Value is not offset by assets within the AST Investment Grade Bond Sub-account, and therefore we will transfer an amount from your Permitted Sub-accounts to the AST Investment Grade Bond Sub-account. Conversely, if the Target Ratio falls below a certain percentage (currently 77%), then a transfer from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts would occur. As you can glean from the formula, a downturn in the securities markets (i.e., a reduction in the amount held within the Permitted Sub-accounts) may cause us to transfer some of your variable Account Value to the AST Investment Grade Bond Sub-account, because such a reduction will tend to increase the Target Ratio. Moreover, certain market return scenarios involving "flat" returns over a period of time also could result in the transfer of money to the AST Investment Grade Bond Sub-account. In deciding how much to transfer, we use another formula, which essentially seeks to re-balance amounts held in the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account so that the Target Ratio meets a target, which currently is equal to 80%. Once you elect Highest Daily Lifetime Seven, the ratios we use will be fixed. For newly-issued Annuities that elect Highest Daily Lifetime Seven and existing Annuities that elect Highest Daily Lifetime Seven, however, we reserve the right to change the ratios. While you are not notified when your Annuity reaches a reallocation trigger, you will receive a confirmation statement indicating the transfer of a portion of your Account Value either to or from the AST Investment Grade Bond Sub-account. The formula by which the reallocation triggers operate is designed primarily to mitigate the financial risks that we incur in providing the guarantee under Highest Daily Lifetime Seven. Depending on the results of the calculation relative to the reallocation triggers, we may, on any day: . Not make any transfer; or . If a portion of your Account Value was previously allocated to the AST Investment Grade Bond Sub-account, transfer all or a portion of those amounts to the Permitted Sub-accounts, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). Amounts taken out of the AST Investment Grade Bond Sub-account will be withdrawn for this purpose on a last-in, first-out basis; or . Transfer all or a portion of your Account Value in the Permitted Sub-accounts pro-rata to the AST Investment Grade Bond Sub-account. If a significant amount of your Account Value is systematically transferred to the AST Investment Grade Bond Sub-account during periods of market declines or low interest rates, less of your Account Value may be available to participate in the investment experience of the Permitted Sub-accounts if there is a subsequent market recovery. If your entire Account Value is transferred to the AST Investment Grade Bond Sub-account, then based on the way the formula operates, that value would remain in the AST Investment Grade Bond Sub-account unless you made additional Purchase Payments to the Permitted Sub-accounts, which could cause Account Value to transfer out of the AST Investment Grade Bond Sub-account. Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Please note, however, that any withdrawal you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive the Return of Principal Guarantee and the guaranteed amount described above under "KEY FEATURE - Protected Withdrawal Value". 76 As indicated, withdrawals made while this Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this Benefit here. However, we do note that if you participate in Highest Daily Lifetime Seven through a non-qualified annuity, as with all withdrawals, once all Purchase Payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Beneficiary Income Option We offer an optional death benefit feature under this benefit, the amount of which is linked to your Annual Income Amount. We refer to this optional death benefit as the Beneficiary Income Option. You may choose Highest Daily Lifetime Seven without also selecting the Beneficiary Income Option death benefit. You must elect the Beneficiary Income Option death benefit at the time you elect Highest Daily Lifetime Seven. If you elect this death benefit, you may not elect any other optional death benefit. You may elect the Beneficiary Income Option death benefit so long as the Annuitant is no older than age 75 at the time of election. For purposes of this optional death benefit, we calculate the Annual Income Amount and Protected Withdrawal Value in the same manner that we do under Highest Daily Lifetime Seven itself. Upon a death that triggers payment of a death benefit under the Annuity, we identify the following amounts: (a) the amount of the basic Death Benefit under the Annuity (b) the Protected Withdrawal Value and (c) the Annual Income Amount. If there were no withdrawals prior to the date of death, then we calculate the Protected Withdrawal Value for purposes of this death benefit as of the date of death, and we calculate the Annual Income Amount as if there were a withdrawal on the date of death. If there were withdrawals prior to the date of death, then we set the Protected Withdrawal Value and Annual Income Amount for purposes of this death benefit as of the date that we receive due proof of death. If there is one beneficiary, he/she must choose to receive either the basic Death Benefit (in a lump sum or other permitted form of distribution) or the Beneficiary Income Option death benefit (in the form of periodic payments of the Annual Income Amount - such payments may be annual or at other intervals that we permit). If there are multiple beneficiaries, each beneficiary is presented with the same choice. Thus, each beneficiary can choose to take his/her portion of either (a) the basic death benefit or (b) the Beneficiary Income Option death benefit. In order to receive the Beneficiary Income Option death benefit, each beneficiary's share of the death benefit proceeds must be allocated as a percentage of the total death benefit to be paid. We allow a beneficiary who has opted to receive the Annual Income Amount to designate another beneficiary, who would receive any remaining payments upon the former beneficiary's death. Note also that the final payment, exhausting the Protected Withdrawal Value, may be less than the Annual Income Amount. Here is an example to illustrate how the death benefit may be paid: . Assume that (i) the basic death benefit is $50,000, the Protected Withdrawal Value is $100,000, and the Annual Income Amount is $5,000; (ii) there are two beneficiaries (the first designated to receive 75% of the death benefit and the second designated to receive 25% of the death benefit); (iii) the first beneficiary chooses to receive his/her portion of the death benefit in the form of the Annual Income Amount, and the second beneficiary chooses to receive his/her portion of the death benefit with reference to the basic death benefit. . Under those assumptions, the first beneficiary will be paid a pro-rated portion of the Annual Income Amount for 20 years (the 20 year pay out period is derived from the $5,000 Annual Income Amount, paid each year until it exhausts the entire $100,000 Protected Withdrawal Value). . The pro-rated portion of the Annual Income Amount, equal to $3,750 annually (i.e., the first beneficiary's 75% share multiplied by $5000), is then paid each year for the 20 year period. Payment of $3,750 for 20 years results in total payments of $75,000 (i.e., the first beneficiary's 75% share of the $100,000 Protected Withdrawal Value). . The second beneficiary would receive 25% of the basic death benefit amount (or $12,500). If you elect to terminate Highest Daily Lifetime Seven with Beneficiary Income Option, both Highest Daily Lifetime Seven and that death benefit option will be terminated. You may not terminate the death benefit option without terminating the entire benefit. If you terminate Highest Daily Lifetime Seven with Beneficiary Income Option, your ability to elect other optional living benefits will be affected as indicated in the "Election and Designations under the Program" section, above. Optional Lifetime Income Accelerator Feature. Subject to regulatory approval, we offer another version of Highest Daily Lifetime Seven that we call Highest Daily Lifetime Seven with Lifetime Income Accelerator ("Highest Daily Lifetime Seven with LIA"). This version is only being offered in those jurisdictions where we have received regulatory approval and will be offered subsequently in other jurisdictions when we receive regulatory approval in those jurisdictions. Certain terms and conditions may differ between jurisdictions once approved. Highest Daily Lifetime Seven with LIA is offered as an alternative to other lifetime withdrawal options. If you elect this benefit, you may not elect any other optional benefit. The income benefit under Highest Daily Lifetime Seven with LIA currently is based on a single "designated life" who is between the ages of 55 and 75 on the date that the benefit is elected. Highest Daily Lifetime Seven with LIA guarantees, until the death of the single designated life, the ability to withdraw an amount equal to double the Annual Income Amount (which we refer to as the "LIA Amount") if you are eligible. The fee for Highest Daily 77 Lifetime Seven with LIA is 0.95% annually of the Protected Withdrawal Value. We deduct this fee at the end of each quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.2375% of the Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Portfolio Sub-account. Since this fee is based on the Protected Withdrawal Value, the fee for Highest Daily Lifetime Seven with LIA may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described below. If this benefit is being elected on an Annuity held as a 403 (b) plan, then in addition to meeting the eligibility requirements listed below for the LIA Amount you must separately qualify for distributions from the 403 (b) plan itself. You may choose Highest Daily Lifetime Seven without also electing LIA, however you may not elect LIA without Highest Daily Lifetime Seven. All terms and conditions of Highest Daily Lifetime Seven apply to this version of the benefit, except as described herein. Currently, if you elect Highest Daily Lifetime Seven with LIA and subsequently terminate the benefit, you will be able to re-elect Highest Daily Lifetime Seven with LIA but all conditions of the benefit described below must be met, and you may be subject to a waiting period until you can elect this or another lifetime withdrawal benefit. Eligibility Requirements for LIA Amount. Both a waiting period of 36 months, from the benefit effective date, and an elimination period of 120 days, from the date of notification that one or both of the requirements described immediately below have been met, apply before you can become eligible for the LIA Amount. The waiting period and the elimination period may run concurrently. In addition to satisfying the waiting and elimination period, one or both of the following requirements ("LIA conditions") must be met: (1)The designated life is confined to a qualified nursing facility. A qualified nursing facility is a facility operated pursuant to law or any state licensed facility providing medically necessary in-patient care which is prescribed by a licensed physician in writing and based on physical limitations which prohibit daily living in a non-institutional setting. (2)The designated life is unable to perform two or more basic abilities of caring for oneself or "activities of daily living." We define these basic abilities as: i. Eating: Feeding oneself by getting food into the body from a receptacle (such as a plate, cup or table) or by a feeding tube or intravenously. ii.Dressing: Putting on and taking off all items of clothing and any necessary braces, fasteners or artificial limbs. iii.Bathing: Washing oneself by sponge bath; or in either a tub or shower, including the task of getting into or out of the tub or shower. iv.Toileting: Getting to and from the toilet, getting on and off the toilet, and performing associated personal hygiene. v. Transferring: Moving into or out of a bed, chair or wheelchair. vi.Continence: Maintaining control of bowel or bladder function; or when unable to maintain control of bowel or bladder function, the ability to perform personal hygiene (including caring for catheter or colostomy bag). You must notify us when the LIA conditions have been met. If, when we receive such notification, there are more than 120 days remaining until the end of the waiting period described above, you will not be eligible for the LIA Amount. If there are 120 days or less remaining until the end of the waiting period when we receive notification that the LIA conditions are met, we will determine eligibility for the LIA Amount through our then current administrative process, which may include, but is not limited to, documentation verifying the LIA conditions and/or an assessment by a third party of our choice. Such assessment may be in person and we will assume any costs associated with the aforementioned assessment. Once eligibility is determined, the LIA Amount is equal to double the Annual Income Amount as described in this prospectus under the Highest Daily Lifetime Seven Benefit. Additionally, we will reassess your eligibility on an annual basis. Your first reassessment may occur in the same year as your initial assessment. If we determine you are no longer eligible to receive the LIA Amount, upon the next Annuity Anniversary the Annual Income Amount would replace the LIA Amount. There is no limit on the number of times you can become eligible for the LIA Amount, however, each time would require the completion of the 120-day elimination period, notification that the designated life meets the LIA conditions, and determination, through our then current administrative process, that you are eligible for the LIA Amount, each as described above. LIA amount At the first withdrawal. If your first withdrawal subsequent to election of Highest Daily Lifetime Seven with LIA occurs while you are eligible for the LIA Amount, the available LIA Amount is equal to double the Annual Income Amount. LIA amount After the first withdrawal. If you become eligible for the LIA Amount after you have taken your first withdrawal, the available LIA amount for the current and subsequent Annuity Years is equal to double the then current Annual Income Amount, however the available LIA amount in the current Annuity Year is reduced by any withdrawals that have been taken in the current Annuity Year. Cumulative withdrawals in an Annuity Year which are less than or equal to the LIA Amount (when eligible for the LIA amount) will not reduce your LIA Amount in subsequent Annuity Years, but any such withdrawals will reduce the LIA Amount on a dollar-for-dollar basis in that Annuity Year. 78 Withdrawals In Excess of the LIA amount. If your cumulative withdrawals in an Annuity Year are in excess of the LIA Amount when you are eligible ("Excess Withdrawal"), your LIA Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the excess portion of the withdrawal to the Account Value immediately prior to the Excess Withdrawal. Reductions include the actual amount of the withdrawal, including any CDSC that may apply. Withdrawals of any amount up to and including the LIA Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Excess Withdrawals will reduce the Protected Withdrawal Value by the same ratio as the reduction to the LIA Amount. Any withdrawals that are less than or equal to the LIA amount (when eligible) but in excess of the free withdrawal amount available under this Annuity will not incur a CDSC. Withdrawals are not required. However, subsequent to the first withdrawal, the LIA Amount is not increased in subsequent Annuity Years if you decide not to take a withdrawal in an Annuity Year or take withdrawals in an Annuity Year that in total are less than the LIA Amount. Purchase Payments. If you are eligible for the LIA Amount as described under "Eligibility Requirements for LIA Amount" and you make an additional Purchase Payment, we will increase your LIA Amount by double the amount we add to your Annual Income Amount. Step Ups. If your Annual Income Amount is stepped up your LIA Amount will be stepped up to equal double the stepped up Annual Income Amount. Guarantee Payments. If your Account Value is reduced to zero as a result of cumulative withdrawals that are equal to or less than the LIA Amount, or as a result of the fee that we assess for Highest Daily Lifetime Seven with LIA, and there is still a LIA Amount available, we will make an additional payment for that Annuity Year equal to the remaining LIA Amount. Thus, in that scenario, the remaining LIA Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the LIA Amount as described in this section. We will make payments until the death of the single designated life. Should the designated life no longer qualify for the LIA amount (as described under "Eligibility Requirements for LIA Amount" above), the Annual Income Amount would continue to be available. Subsequent eligibility for the LIA Amount would require the completion of the 120 day elimination period as well as meeting the LIA conditions listed above under "Eligibility Requirements for LIA Amount". To the extent that cumulative withdrawals in the current Annuity Year that reduce your Account Value to zero are more than the LIA Amount (except in the case of required minimum distributions), Highest Daily Lifetime Seven with LIA terminates, and no additional payments are made. Annuity Options. In addition to the Highest Daily Lifetime Seven Annuity Options described above, after the 10th benefit anniversary you may also request that we make annuity payments each year equal to the Annual Income Amount. In any year that you are eligible for the LIA Amount, we make annuity payments equal to the LIA Amount. If you would receive a greater payment by applying your Account Value to receive payments for life under your Annuity, we will pay the greater amount. Prior to the 10th benefit anniversary this option is not available. We will continue to make payments until the death of the Designated Life. If this option is elected, the Annual Income Amount and LIA Amount will not increase after annuity payments have begun. If you elect HD Lifetime Seven with LIA, and never meet the eligibility requirements you will not receive any additional payments based on the LIA Amount. SPOUSAL HIGHEST DAILY LIFETIME SEVEN/SM/ INCOME BENEFIT (SHD7)/SM/ Spousal Highest Daily Lifetime Seven is the spousal version of Highest Daily Lifetime Seven. Currently, if you elect Spousal Highest Daily Lifetime Seven and subsequently terminate the benefit, you may have a waiting period until you can elect another lifetime withdrawal benefit. See "Election of and Designations under the Program" below for details. Spousal Highest Daily Lifetime Seven must be elected based on two Designated Lives, as described below. Each Designated Life must be at least 59 1/2 years old when the benefit is elected. Spousal Highest Daily Lifetime Seven is not available if you elect any other optional living benefit or optional death benefit. As long as your Spousal Highest Daily Lifetime Seven Benefit is in effect, you must allocate your Account Value in accordance with the then permitted and available investment option(s) with this program. For a more detailed description of permitted investment options, see the Investment options section of this prospectus. We offer a benefit that guarantees until the later death of two natural persons who are each other's spouses at the time of election of the benefit and at the first death of one of them (the "Designated Lives", and each, a "Designated Life") the ability to withdraw an annual amount (the "Annual Income Amount") equal to a percentage of an initial principal value (the "Protected Withdrawal Value") regardless of the impact of market performance on the Account Value, subject to our program rules regarding the timing and amount of withdrawals. The benefit may be appropriate if you intend to make periodic withdrawals from your Annuity, wish to 79 ensure that market performance will not affect your ability to receive annual payments, and wish either spouse to be able to continue the Spousal Highest Daily Lifetime Seven benefit after the death of the first spouse. You are not required to make withdrawals as part of the program - the guarantees are not lost if you withdraw less than the maximum allowable amount each year under the rules of the benefit. As discussed below, we require that you participate in our asset transfer program in order to participate in Spousal Highest Daily Lifetime Seven, and in Appendix E to this prospectus, we set forth the formula under which we make those asset transfers. As discussed below, a key component of Spousal Highest Daily Lifetime Seven is the Protected Withdrawal Value. Because each of the Protected Withdrawal Value and Annual Income Amount is determined in a way that is not solely related to Account Value, it is possible for the Account Value to fall to zero, even though the Annual Income Amount remains. You are guaranteed to be able to withdraw the Annual Income Amount until the death of the second Designated Life, provided that there have not been "excess withdrawals." Excess withdrawals, as discussed below, will reduce your Annual Income Amount. Thus, you could experience a scenario in which your Account Value was zero, and, due to your excess withdrawals, your Annual Income Amount also was reduced to zero. In that scenario, no further amount would be payable under Spousal Highest Daily Lifetime Seven. Key Feature - Protected Withdrawal Value The Protected Withdrawal Value is used to calculate the initial Annual Income Amount. On the effective date of the benefit , the Protected Withdrawal Value is equal to your Account Value. On each Valuation Day thereafter, until the earlier of the tenth anniversary of benefit election (the "Tenth Anniversary Date") or the date of the first withdrawal, the Protected Withdrawal Value is equal to the "Periodic Value" described in the next paragraph. The "Periodic Value" initially is equal to the Account Value on the effective date of the benefit. On each Valuation Day thereafter, until the earlier of the first withdrawal or the Tenth Anniversary Date, we recalculate the Periodic Value. We stop determining the Periodic Value upon the earlier of your first withdrawal after the effective date of the benefit or the Tenth Anniversary Date. On each Valuation Day (the "Current Valuation Day"), the Periodic Value is equal to the greater of: (1)the Periodic Value for the immediately preceding business day (the "Prior Valuation Day") appreciated at the daily equivalent of 7% annually during the calendar day(s) between the Prior Valuation Day and the Current Valuation Day (i.e., one day for successive Valuation Days, but more than one calendar day for Valuation Days that are separated by weekends and/or holidays), plus the amount of any adjusted Purchase Payment made on the Current Valuation Day; and (2)the Account Value. If you make a withdrawal prior to the Tenth Anniversary Date, the Protected Withdrawal Value on the date of the withdrawal is equal to the greatest of: (1)the Account Value; or (2)the Periodic Value on the date of the withdrawal. If you have not made a withdrawal on or before the Tenth Anniversary Date, your Protected Withdrawal Value subsequent to the Tenth Anniversary Date is equal to the greatest of: (1)the Account Value; or (2)the Periodic Value on the Tenth Anniversary Date, increased for subsequent adjusted Purchase Payments; or (3)the sum of: (a)200% of the Account Value on the effective date of the benefit; (b)200% of all adjusted Purchase Payments made within one year after the effective date of the benefit; and (c)all adjusted Purchase Payments made after one year following the effective date of the benefit up to the date of the first withdrawal. On and after the date of your first withdrawal, your Protected Withdrawal Value is increased by the amount of any subsequent Purchase Payments, is reduced by withdrawals, including your first withdrawal (as described below), and is increased if you qualify for a step-up (as described below). Irrespective of these calculations, your Protected Withdrawal Value will always be at least equal to your Account Value. Key Feature - Annual Income Amount under the Spousal Highest Daily Lifetime Seven Benefit The Annual Income Amount is equal to a specified percentage of the Protected Withdrawal Value. The percentage depends on the age of the youngest Designated Life on the date of the first withdrawal after election of the benefit. The percentages are: 5% for ages 79 and younger, 6% for ages 80 to 84, 7% for ages 85 to 89, and 8% for ages 90 and older. We use the age of the youngest Designated Life even if that Designated Life is no longer a participant under the Annuity due to death or divorce. Under the Spousal Highest Daily Lifetime Seven benefit, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not 80 reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If your cumulative withdrawals are in excess of the Annual Income Amount ("Excess Income"), your Annual Income Amount in subsequent years will be reduced (except with regard to required minimum distributions) by the result of the ratio of the Excess Income to the Account Value immediately prior to such withdrawal (see examples of this calculation below). Reductions include the actual amount of the withdrawal, including any CDSC that may apply. Withdrawals of any amount up to and including the Annual Income Amount will reduce the Protected Withdrawal Value by the amount of the withdrawal. Withdrawals of Excess Income will reduce the Protected Withdrawal Value by the same ratio as the reduction to the Annual Income Amount. A Purchase Payment that you make will (i) increase the then-existing Annual Income Amount by an amount equal to a percentage of the Purchase Payment based on the age of the Annuitant at the time of the first withdrawal (the percentages are: 5% for ages 79 and younger, 6% for ages 80-84, 7% for ages 85-89, and 8% for ages 90 and older) and (ii) increase the Protected Withdrawal Value by the amount of the Purchase Payment. Note that if your withdrawal of the Annual Income Amount in a given Annuity Year exceeds the applicable free withdrawal amount under the Annuity (but is not considered Excess Income), we will not impose any CDSC on the amount of that withdrawal. An automatic step-up feature ("Highest Quarterly Auto Step-Up") is included as part of this benefit. As detailed in this paragraph, the Highest Quarterly Auto Step-Up feature can result in a larger Annual Income Amount if your Account Value increases subsequent to your first withdrawal. We begin examining the Account Value for purposes of the Highest Quarterly Step-Up starting with the anniversary of the Issue Date of the Annuity (the "Annuity Anniversary") immediately after your first withdrawal under the benefit. Specifically, upon the first such Annuity Anniversary, we identify the Account Value on the Valuation Days corresponding to the end of each quarter that (i) is based on your Annuity Year, rather than a calendar year; (ii) is subsequent to the first withdrawal; and (iii) falls within the immediately preceding Annuity Year. If the end of any such quarter falls on a holiday or a weekend, we use the next Valuation Day. Having identified each of those quarter-end Account Values, we then multiply each such value by a percentage that varies based on the age of the youngest Designated Life on the Annuity Anniversary as of which the step-up would occur. The percentages are 5% for ages 79 and younger, 6% for ages 80-84, 7% for ages 85-89, and 8% for ages 90 and older. Thus, we multiply each quarterly value by the applicable percentage, adjust each such quarterly value for subsequent withdrawals and Purchase Payments, and then select the highest of those values. If the highest of those values exceeds the existing Annual Income Amount, we replace the existing amount with the new, higher amount. Otherwise, we leave the existing Annual Income Amount intact. In later years, (i.e., after the first Annuity Anniversary after the first withdrawal) we determine whether an automatic step-up should occur on each Annuity Anniversary, by performing a similar examination of the Account Values on the end of the four immediately preceding quarters. At the time that we increase your Annual Income Amount, we also increase your Protected Withdrawal Value to equal the highest quarterly value upon which your step-up was based. If, on the date that we implement a Highest Quarterly Auto Step-Up to your Annual Income Amount, the charge for Spousal Highest Daily Lifetime Seven has changed for new purchasers, you may be subject to the new charge at the time of such step-up. Prior to increasing your charge for Spousal Highest Daily Lifetime Seven upon a step-up, we would notify you, and give you the opportunity to cancel the automatic step-up feature. If you receive notice of a proposed step-up and accompanying fee increase, you should carefully evaluate whether the amount of the step-up justifies the increased fee to which you will be subject. The Spousal Highest Daily Lifetime Seven program does not affect your ability to make withdrawals under your annuity, or limit your ability to request withdrawals that exceed the Annual Income Amount. Under Spousal Highest Daily Lifetime Seven, if your cumulative withdrawals in an Annuity Year are less than or equal to the Annual Income Amount, they will not reduce your Annual Income Amount in subsequent Annuity Years, but any such withdrawals will reduce the Annual Income Amount on a dollar-for-dollar basis in that Annuity Year. If, cumulatively, you withdraw an amount less than the Annual Income Amount in any Annuity Year, you cannot carry-over the unused portion of the Annual Income Amount to subsequent Annuity Years. Examples of dollar-for-dollar and proportional reductions, and the Highest Quarterly Auto Step-Up are set forth below. The values depicted here are purely hypothetical, and do not reflect the charges for the Spousal Highest Daily Lifetime Seven benefit or any other fees and charges. Assume the following for all three examples: . The Issue Date is December 1, 2007 . The Spousal Highest Daily Lifetime Seven benefit is elected on March 5, 2008. . The youngest Designated Life was 70 years old when he/she elected the Spousal Highest Daily Lifetime Seven benefit. Dollar-for-dollar reductions On May 2, 2008, the Protected Withdrawal Value is $120,000, resulting in an Annual Income Amount of $6,000 (since the youngest Designated Life is younger than 80 at the time of the 1st withdrawal, the Annual Income Amount is 5% of the Protected Withdrawal Value, in this case 5% of $120,000). Assuming $2,500 is withdrawn from the Annuity on this date, the remaining Annual Income Amount for that Annuity Year (up to and including December 1, 2008) is $3,500. This is the result of a dollar-for-dollar reduction of the Annual Income Amount - $6,000 less $2,500 = $3,500. Proportional reductions Continuing the previous example, assume an additional withdrawal of $5,000 occurs on August 6, 2008 and the Account Value at the time of this withdrawal is $110,000. The first $3,500 of this withdrawal reduces the Annual Income Amount for that Annuity 81 Year to $0. The remaining withdrawal amount - $1,500 - reduces the Annual Income Amount in future Annuity Years on a proportional basis based on the ratio of the excess withdrawal to the Account Value immediately prior to the excess withdrawal. (Note that if there were other withdrawals in that Annuity Year, each would result in another proportional reduction to the Annual Income Amount). Here is the calculation: Account Value before withdrawal $110,000.00 Less amount of "non" excess withdrawal $ 3,500.00 Account Value immediately before excess withdrawal of $1,500 $106,500.00 Excess withdrawal amount $ 1,500.00 Divided by Account Value immediately before excess withdrawal $106,500.00 Ratio 1.41% Annual Income Amount $ 6,000.00 Less ratio of 1.41% $ 84.51 Annual Income Amount for future Annuity Years $ 5,915.49
Highest Quarterly Auto Step-Up On each Annuity Anniversary date, the Annual Income Amount is stepped-up if the appropriate percentage (based on the youngest Designated Life's age on the Annuity Anniversary) of the highest quarterly value since your first withdrawal (or last Annuity Anniversary in subsequent years), adjusted for withdrawals and additional Purchase Payments, is higher than the Annual Income Amount, adjusted for excess withdrawals and additional Purchase Payments. Continuing the same example as above, the Annual Income Amount for this Annuity Year is $6,000. However, the excess withdrawal on August 6 reduces this amount to $5,915.49 for future years (see above). For the next Annuity Year, the Annual Income Amount will be stepped-up if 5% (since the youngest Designated Life is younger than 80 on the date of the potential step-up) of the highest quarterly Account Value adjusted for withdrawals, is higher than $5,915.49. Here are the calculations for determining the quarterly values. Only the June 1 value is being adjusted for excess withdrawals as the September 1 and December 1 Valuation Days occur after the excess withdrawal on August 6.
Highest Quarterly Value (adjusted with Adjusted Annual withdrawal and Purchase Income Amount (5% of the Date* Account Value Payments)** Highest Quarterly Value) ----- ------------- ----------------------- ------------------------ June 1, 2008 $118,000.00 $118,000.00 $5,900.00 August 6, 2008 $110,000.00 $112,885.55 $5,644.28 September 1, 2008 $112,000.00 $112,885.55 $5,644.28 December 1, 2008 $119,000.00 $119,000.00 $5,950.00
* In this example, the Annuity Anniversary date is December 1. The quarterly valuation dates are every three months thereafter -March 1, June 1, September 1, and December 1. In this example, we do not use the March 1 date as the first withdrawal took place after March 1. The Annuity Anniversary Date of December 1 is considered the fourth and final quarterly valuation date for the year. ** In this example, the first quarterly value after the first withdrawal is $118,000 on June 1, yielding an adjusted Annual Income Amount of $5,900.00. This amount is adjusted on August 6 to reflect the $5,000 withdrawal. The calculations for the adjustments are: . The Account Value of $118,000 on June 1 is first reduced dollar-for-dollar by $3,500 ($3,500 is the remaining Total Annual Income Amount for the Annuity Year), resulting in an adjusted Account Value of $114,500 before the excess withdrawal. . This amount ($114,500) is further reduced by 1.41% (this is the ratio in the above example which is the excess withdrawal divided by the Account Value immediately preceding the excess withdrawal) resulting in a Highest Quarterly Value of $112,885.55. The adjusted Annual Income Amount is carried forward to the next quarterly anniversary date of September 1. At this time, we compare this amount to 5% of the Account Value on September 1. Since the June 1 adjusted Annual Income Amount of $5,644.28 is higher than $5,600.00 (5% of $112,000), we continue to carry $5,644.28 forward to the next and final quarterly anniversary date of December 1. The Account Value on December 1 is $119,000 and 5% of this amount is $5,950. Since this is higher than $5,644.28, the adjusted Annual Income Amount is reset to $5,950.00. In this example, 5% of the December 1 value yields the highest amount of $5,950.00. Since this amount is higher than the current year's Annual Income Amount of $5,915.49 adjusted for excess withdrawals, the Annual Income Amount for the next Annuity Year, starting on December 2, 2008 and continuing through December 1, 2009, will be stepped-up to $5,950.00. Benefits Under the Spousal Highest Daily Lifetime Seven Program . To the extent that your Account Value was reduced to zero as a result of cumulative withdrawals that are equal to or less than the Annual Income Amount or as a result of the fee that we assess for Spousal Highest Daily Lifetime Seven, and amounts are still payable under Spousal Highest Daily Lifetime Seven, we will make an additional payment, if any, for that Annuity Year 82 equal to the remaining Annual Income Amount for the Annuity Year. Thus, in that scenario, the remaining Annual Income Amount would be payable even though your Account Value was reduced to zero. In subsequent Annuity Years we make payments that equal the Annual Income Amount as described in this section. We will make payments until the death of the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. To the extent that cumulative withdrawals in the current Annuity Year that reduced your Account Value to zero are more than the Annual Income Amount, the Spousal Highest Daily Lifetime Seven benefit terminates, and no additional payments will be made. However, if a withdrawal in the latter scenario was taken to meet required minimum distribution requirements under the Annuity, then the benefit will not terminate, and we will continue to pay the Annual Income Amount in the form of a fixed annuity. . If Annuity payments are to begin under the terms of your Annuity, or if you decide to begin receiving Annuity payments and there is a Annual Income Amount due in subsequent Annuity Years, you can elect one of the following two options: (1)apply your Account Value to any Annuity option available; or (2)request that, as of the date Annuity payments are to begin, we make Annuity payments each year equal to the Annual Income Amount. We will make payments until the first of the Designated Lives to die, and will continue to make payments until the death of the second Designated Life as long as the Designated Lives were spouses at the time of the first death. If, due to death of a Designated Life or divorce prior to annuitization, only a single Designated Life remains, then Annuity payments will be made as a life annuity for the lifetime of the Designated Life. We must receive your request in a form acceptable to us at our office. In the absence of an election when mandatory annuity payments are to begin, we will make annual annuity payments as a joint and survivor or single (as applicable) life fixed annuity with ten payments certain, by applying the greater of the annuity rates then currently available or the annuity rates guaranteed in your Annuity. The amount that will be applied to provide such Annuity payments will be the greater of: (1)the present value of the future Annual Income Amount payments. Such present value will be calculated using the greater of the joint and survivor or single (as applicable) life fixed annuity rates then currently available or the joint and survivor or single (as applicable) life fixed annuity rates guaranteed in your Annuity; and (2)the Account Value. . If no withdrawal was ever taken, we will calculate the Annual Income Amount as if you made your first withdrawal on the date the annuity payments are to begin. . Please note that payments that we make under this benefit after the Annuity Anniversary coinciding with or next following the older of the owner or Annuitant's 95/th/ birthday, will be treated as annuity payments. Other Important Considerations . Withdrawals under the Spousal Highest Daily Lifetime Seven benefit are subject to all of the terms and conditions of the Annuity, including any CDSC. . Withdrawals made while the Spousal Highest Daily Lifetime Seven Benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. The Spousal Highest Daily Lifetime Seven Benefit does not directly affect the Account Value or surrender value, but any withdrawal will decrease the Account Value by the amount of the withdrawal (plus any applicable CDSC). If you surrender your Annuity you will receive the current surrender value. . You can make withdrawals from your Annuity while your Account Value is greater than zero without purchasing the Spousal Highest Daily Lifetime Seven benefit. The Spousal Highest Daily Lifetime Seven benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Upon inception of the benefit, 100% of your Account Value must be allocated to the permitted Sub-accounts. . You cannot allocate Purchase Payments or transfer Account Value to the AST Investment Grade Bond Portfolio Sub-account (as described below) if you elect this benefit. A summary description of the AST Investment Grade Bond Portfolio appears within the prospectus section entitled "What Are The Investment Objectives and Policies of The Portfolios?". Upon the initial transfer of your Account Value into the AST Investment Grade Bond Portfolio, we will send a prospectus for that Portfolio to you, along with your confirmation. In addition, you can find a copy of the AST Investment Grade Bond Portfolio prospectus by going to www.prudentialannuities.com. . You can make withdrawals from your Annuity without purchasing the Spousal Highest Daily Lifetime Seven benefit. The Spousal Highest Daily Lifetime Seven benefit provides a guarantee that if your Account Value declines due to market performance, you will be able to receive your Annual Income Amount in the form of periodic benefit payments. . Transfers to and from the elected Sub-accounts and the AST Investment Grade Bond Portfolio Sub-account triggered by the asset transfer component of the benefit will not count toward the maximum number of free transfers allowable under an Annuity. . You must allocate your Account Value in accordance with the then available investment option(s) that we may prescribe in order to elect and maintain the Spousal Highest Daily Lifetime Seven benefit. If, subsequent to your election of the benefit, we 83 change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly adopted requirements. Subject to any change in requirements, transfers of Account Value and allocation of Additional Purchase Payments may be subject to new investment limitations. . The fee for Spousal Highest Daily Lifetime Seven is 0.75% annually of the Protected Withdrawal Value. We deduct this fee at the end of each quarter, where each such quarter is part of a year that begins on the effective date of the benefit or an anniversary thereafter. Thus, on each such quarter-end (or the next Valuation Day, if the quarter-end is not a Valuation Day), we deduct 0.1875% of the Protected Withdrawal Value at the end of the quarter. We deduct the fee pro rata from each of your Sub-accounts including the AST Investment Grade Bond Sub-account. Since this fee is based on the Protected Withdrawal Value, the fee for Spousal Highest Daily Lifetime Seven may be greater than it would have been, had it been based on the Account Value alone. If the fee to be deducted exceeds the current Account Value, we will reduce the Account Value to zero, and continue the benefit as described above. Election of and Designations under the Program Spousal Highest Daily Lifetime Seven can only be elected based on two Designated Lives. Designated Lives must be natural persons who are each other's spouses at the time of election of the program and at the death of the first of the Designated Lives to die. Currently, Spousal Highest Daily Lifetime Seven only may be elected where the Owner, Annuitant, and Beneficiary designations are as follows: . One Annuity Owner, where the Annuitant and the Owner are the same person and the beneficiary is the Owner's spouse. The Owner/Annuitant and the beneficiary each must be at least 59 1/2 years old at the time of election; or . Co-Annuity Owners, where the Owners are each other's spouses. The beneficiary designation must be the surviving spouse, or the spouses named equally. One of the owners must be the Annuitant. Each Owner must each be at least 59 1/2 years old at the time of election; or . One Annuity Owner, where the Owner is a custodial account established to hold retirement assets for the benefit of the Annuitant pursuant to the provisions of Section 408(a) of the Internal Revenue Code (or any successor Code section thereto) ("Custodial Account"), the beneficiary is the Custodial Account, and the spouse of the Annuitant is the Contingent Annuitant. Both the Annuitant and the Contingent Annuitant each must be at least 59 1/2 years old at the time of election. We do not permit a change of Owner under this benefit, except as follows: (a) if one Owner dies and the surviving spousal Owner assumes the Annuity or (b) if the Annuity initially is co-owned, but thereafter the Owner who is not the Annuitant is removed as Owner. We permit changes of beneficiary under this benefit. If the Designated Lives divorce, the Spousal Highest Daily Lifetime Seven benefit may not be divided as part of the divorce settlement or judgment. Nor may the divorcing spouse who retains ownership of the Annuity appoint a new Designated Life upon re-marriage. The divorcing spouse who retains ownership of the Annuity will retain Spousal Highest Daily Lifetime Seven unless he/she terminates the benefit. Spousal Highest Daily Lifetime Seven can be elected at the time that you purchase your Annuity or after the Issue Date, subject to our eligibility rules and restrictions. Currently, if you terminate the Spousal Highest Daily Lifetime Seven benefit, you generally will only be allowed to re-elect the benefit or to elect the Lifetime Five Benefit, the Spousal Lifetime Five Benefit, the Highest Daily Lifetime Five benefit, or the Highest Daily Lifetime Seven Benefit on any anniversary of the Issue Date that is at least 90 calendar days from the date the Spousal Highest Daily Lifetime Seven Benefit was terminated. We reserve the right to further limit the election frequency in the future. We also reserve the right to waive that requirement. Return of Principal Guarantee If you have not made a withdrawal before the Tenth Anniversary, we will increase your Account Value on that Tenth Anniversary (or the next Valuation Day, if that anniversary is not a Valuation Day), if the requirements set forth in this paragraph are met. On the Tenth Anniversary, we add: a) your Account Value on the day that you elected Spousal Highest Daily Lifetime Seven; and b) the sum of each Purchase Payment you made during the one-year period after you elected the benefit. If the sum of (a) and (b) is greater than your Account Value on the Tenth Anniversary, we increase your Account Value to equal the sum of (a) and (b), by contributing funds from our general account. If the sum of (a) and (b) is less than or equal to your Account Value on the Tenth Anniversary, we make no such adjustment. The amount that we add to your Account Value under this provision will be allocated to each of your variable investment options (other than a bond Sub-account used with this benefit), in the same proportion that each such Sub-account bears to your total Account Value, immediately before the application of the amount. Any such amount will not be considered a Purchase Payment when calculating your Protected Withdrawal Value, your death benefit, or the amount of any optional benefit that you may have selected, and therefore will have no direct impact on any such values at the time we add this amount. This potential addition to Account Value is available only if you have elected Spousal Highest Daily Lifetime Seven and if you meet the conditions set forth in this paragraph. Thus, if you take a withdrawal prior to the Tenth Anniversary, you are not eligible to receive the Return of Principal Guarantee. 84 Termination of the Program You may terminate the benefit at any time by notifying us. If you terminate the benefit, any guarantee provided by the benefit will terminate as of the date the termination is effective, and certain restrictions on re-election will apply as described above. The benefit terminates: (i) if upon the death of the first Designated Life, the surviving Designated Life opts to take the death benefit under the Annuity (thus, the benefit does not terminate solely because of the death of the first Designated Life) (ii) upon the death of the second Designated Life, (iii) upon your termination of the benefit (although if you have elected to take annuity payments in the form of the Annual Income Amount, we will continue to pay the Annual Income Amount) (iv) upon your surrender of the Annuity (v) upon your election to begin receiving annuity payments (vi) if both the Account Value and Annual Income Amount equal zero or (vii) if you cease to meet our requirements for issuing the benefit (see Election of and Designations under the Program). Upon termination of Spousal Highest Daily Lifetime Seven other than upon death of a Designated Life, we impose any accrued fee for the benefit (i.e., the fee for the pro-rated portion of the year since the fee was last assessed), and thereafter we cease deducting the charge for the benefit. With regard to your investment allocations, upon termination we will: (i) leave intact amounts that are held in the variable investment options, and (ii) transfer all amounts held in the AST Investment Grade Bond Portfolio Sub-account (as defined below) to your variable investment options, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e. in the same proportion as the current balances in your variable investment options). Asset Transfer Component of Spousal Highest Daily Lifetime Seven As indicated above, we limit the Sub-accounts to which you may allocate Account Value if you elect Spousal Highest Daily Lifetime Seven. For purposes of this benefit, we refer to those permitted Sub-accounts as the "Permitted Sub-accounts". As a requirement of participating in Spousal Highest Daily Lifetime Seven, we require that you participate in our specialized asset transfer program, under which we may transfer Account Value between the Permitted Sub-accounts and a specified bond fund within the Advanced Series Trust (the "AST Investment Grade Bond Sub-account"). We determine whether to make a transfer, and the amount of any transfer, under a non-discretionary formula, discussed below. The AST Investment Grade Bond Sub-account is available only with this benefit, and thus you may not allocate Purchase Payments to the AST Investment Grade Bond Sub-account. Under the asset transfer component of Spousal Highest Daily Lifetime Seven, we monitor your Account Value daily and, if dictated by the formula, systematically transfer amounts between the Permitted Sub-accounts you have chosen and the AST Investment Grade Bond Sub-account. Any transfer would be made in accordance with a formula, which is set forth in the Appendix J to this prospectus. Speaking generally, the formula, which we apply each Valuation Day, operates as follows. The formula starts by identifying an income basis for that day and then multiplies that figure by 5%, to produce a projected (i.e., hypothetical) Highest Daily annual income amount. Note that we use 5% in the formula, irrespective of the youngest Designated Life's attained age. Then we produce an estimate of the total amount we would target in our allocation model, based on the projected income amount and factors set forth in the formula. In the formula, we refer to that value as the "Target Value" or "L". If you have already made a withdrawal, your projected income amount (and thus your Target Value) would take into account any automatic step-up, any subsequent purchase payments, and any excess withdrawals. Next, the formula subtracts from the Target Value the amount held within the AST Investment Grade Bond Sub-account on that day, and divides that difference by the amount held within the Permitted Sub-accounts. That ratio, which essentially isolates the amount of your Target Value that is not offset by amounts held within the AST Investment Grade Bond Sub-account, is called the "Target Ratio" or "r". If the Target Ratio exceeds a certain percentage (currently 83%), it means essentially that too much Target Value is not offset by assets within the AST Investment Grade Bond Sub-account, and therefore we will transfer an amount from your Permitted Sub-accounts to the AST Investment Grade Bond Sub-account. Conversely, if the Target Ratio falls below a certain percentage (currently 77%), then a transfer from the AST Investment Grade Bond Sub-account to the Permitted Sub-accounts would occur. As you can glean from the formula, a downturn in the securities markets (i.e., a reduction in the amount held within the Permitted Sub-accounts) may cause us to transfer some of your variable Account Value to the AST Investment Grade Bond Sub-account, because such a reduction will tend to increase the Target Ratio. Moreover, certain market return scenarios involving "flat" returns over a period of time also could result in the transfer of money to the AST Investment Grade Bond Sub-account. In deciding how much to transfer, we use another formula, which essentially seeks to re-balance amounts held in the Permitted Sub-accounts and the AST Investment Grade Bond Sub-account so that the Target Ratio meets a target, which currently is equal to 80%. Once you elect Spousal Highest Daily Lifetime Seven, the ratios we use will be fixed. For newly-issued Annuities that elect Spousal Highest Daily Lifetime Seven and existing Annuities that elect Spousal Highest Daily Lifetime Seven, however, we reserve the right to change the ratios. While you are not notified when your Annuity reaches a reallocation trigger, you will receive a confirmation statement indicating the transfer of a portion of your Account Value either to or from the AST Investment Grade Bond Sub-account. The formula by which the reallocation triggers operate is designed primarily to mitigate the financial risks that we incur in providing the guarantee under Spousal Highest Daily Lifetime Seven. Depending on the results of the calculation relative to the reallocation triggers, we may, on any day: . Not make any transfer; or 85 . If a portion of your Account Value was previously allocated to the AST Investment Grade Bond Sub-account, transfer all or a portion of those amounts to the Permitted Sub-accounts, based on your existing allocation instructions or (in the absence of such existing instructions) pro rata (i.e., in the same proportion as the current balances in your variable investment options). Amounts taken out of the AST Investment Grade Bond Sub-account will be withdrawn for this purpose on a last-in, first-out basis; or . Transfer all or a portion of your Account Value in the Permitted Sub-accounts pro-rata to the AST Investment Grade Bond Sub-account. If a significant amount of your Account Value is systematically transferred to the AST Investment Grade Bond Sub-account during periods of market declines or low interest rates, less of your Account Value may be available to participate in the investment experience of the Permitted Sub-accounts if there is a subsequent market recovery. If your entire Account Value is transferred to the AST Investment Grade Bond Sub-account, then based on the way the formula operates, that value would remain in the AST Investment Grade Bond Sub-account unless you made additional Purchase Payments to the Permitted Sub-accounts, which could cause Account Value to transfer out of the AST Investment Grade Bond Sub-account. Additional Tax Considerations If you purchase an annuity as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Tax Sheltered Annuity (or 403(b)) or employer plan under Code Section 401(a), the Required Minimum Distribution rules under the Code provide that you begin receiving periodic amounts from your annuity beginning after age 70 1/2. For a Tax Sheltered Annuity or a 401(a) plan for which the participant is not a greater than five (5) percent owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the owner's lifetime. The amount required under the Code may exceed the Annual Income Amount, which will cause us to increase the Annual Income Amount in any Annuity Year that Required Minimum Distributions due from your Annuity are greater than such amounts. In addition, the amount and duration of payments under the annuity payment and death benefit provisions may be adjusted so that the payments do not trigger any penalty or excise taxes due to tax considerations such as Required Minimum Distribution provisions under the tax law. Please note, however, that any withdrawal you take prior to the Tenth Anniversary, even if withdrawn to satisfy required minimum distribution rules, will cause you to lose the ability to receive the Return of Principal Guarantee and the guaranteed amount described above under "KEY FEATURE - Protected Withdrawal Value". As indicated, withdrawals made while this benefit is in effect will be treated, for tax purposes, in the same way as any other withdrawals under the Annuity. Please see the Tax Considerations section of the prospectus for a detailed discussion of the tax treatment of withdrawals. We do not address each potential tax scenario that could arise with respect to this benefit here. However, we do note that if you participate in Spousal Highest Daily Lifetime Seven through a non-qualified annuity, as with all withdrawals, once all Purchase Payments are returned under the Annuity, all subsequent withdrawal amounts will be taxed as ordinary income. Beneficiary Income Option We offer an optional death benefit feature under this benefit, the amount of which is linked to your Annual Income Amount. You may choose Spousal Highest Daily Lifetime Seven without also selecting the Beneficiary Income Option death benefit. If you elect the Beneficiary Income Option death benefit, you may not elect any other optional death benefit. You may elect the Beneficiary Income Option death benefit so long as each Designated Life is no older than age 75 at the time of election. This death benefit is not transferable in the event of a divorce, nor may the benefit be split in accordance with any divorce proceedings or similar instrument of separation. For purposes of the Beneficiary Income Option death benefit, we calculate the Annual Income Amount and Protected Withdrawal Value in the same manner that we do under Spousal Highest Daily Lifetime Seven itself. Upon the first death of a Designated Life, no amount is payable under the Beneficiary Income Option death benefit. Upon the second death of a Designated Life, we identify the following amounts: (a) the amount of the base death benefit under the Annuity (b) the Protected Withdrawal Value and (c) the Annual Income Amount. If there were no withdrawals prior to the date of death, then we calculate the Protected Withdrawal Value for purposes of this death benefit as of the date of death, and we calculate the Annual Income Amount as if there were a withdrawal on the date of death. If there were withdrawals prior to the date of death, then we set the Protected Withdrawal Value and Annual Income Amount for purposes of this death benefit as of the date that we receive due proof of death. If there is one beneficiary, he/she must choose to receive either the base death benefit (in a lump sum or other permitted form of distribution) or the Beneficiary Income Option death benefit (in the form of annual payment of the Annual Income Amount - such payments may be annual or at other intervals that we permit). If there are multiple beneficiaries, each beneficiary is presented with the same choice. Thus, each beneficiary can choose to take his/her portion of either (a) the basic death benefit or (b) the Beneficiary Income Option death benefit. In order to receive the Beneficiary Income Option death benefit, each beneficiary's share of the death benefit proceeds must be allocated as a percentage of the total death benefit to be paid. We allow a beneficiary who has opted to receive the Annual Income Amount to designate another beneficiary, who would receive 86 any remaining payments upon the former beneficiary's death. Note also that the final payment, exhausting the Protected Withdrawal Value, may be less than the Annual Income Amount. Here is an example to illustrate how the death benefit may be paid: . Assume that (i) the basic death benefit is $50,000, the Protected Withdrawal Value is $100,000, and the Annual Income Amount is $5,000; (ii) there are two beneficiaries (the first designated to receive 75% of the death benefit and the second designated to receive 25% of the death benefit); (iii) the first beneficiary chooses to receive his/her portion of the death benefit in the form of the Annual Income Amount, and the second beneficiary chooses to receive his/her portion of the death benefit with reference to the basic death benefit. . Under those assumptions, the first beneficiary will be paid a pro-rated portion of the Annual Income Amount for 20 years (the 20 year pay out period is derived from the $5,000 Annual Income Amount, paid each year until it exhausts the entire $100,000 Protected Withdrawal Value). . The pro-rated portion of the Annual Income Amount equal to $3,750 (i.e., the first beneficiary's 75% share multiplied by $5,000) is then paid each year for the 20 year period. Payment of $3,750 for 20 years results in total payments of $75,000 (i.e., the first beneficiary's 75% share of the $100,000 Protected Withdrawal Value). . The second beneficiary would receive 25% of the basic death benefit amount (or $12,500). If you elect to terminate Spousal Highest Daily Lifetime Seven with Beneficiary Income Option, both Spousal Highest Daily Lifetime Seven and that death benefit option will be terminated. You may not terminate the death benefit option without terminating the entire benefit. If you terminate Spousal Highest Daily Lifetime Seven with Beneficiary Income Option, your ability to elect other optional living benefits will be affected as indicated in the "Election and Designations under the Program" section, above. 87 DEATH BENEFIT WHAT TRIGGERS THE PAYMENT OF A DEATH BENEFIT? The Annuity provides a Death Benefit during its accumulation period. If an Annuity is owned by one or more natural persons, the Death Benefit is payable upon the first death of an Owner. If an Annuity is owned by an entity, the Death Benefit is payable upon the Annuitant's death, if there is no Contingent Annuitant. Generally, if a Contingent Annuitant was designated before the Annuitant's death and the Annuitant dies, then the Contingent Annuitant becomes the Annuitant and a Death Benefit will not be paid at that time. The person upon whose death the Death Benefit is paid is referred to below as the "decedent." Considerations for Contingent Annuitants: We may allow the naming of a contingent annuitant when a Nonqualified annuity contract is held by a pension plan or a tax favored retirement plan. In such a situation, the annuity may no longer qualify for tax deferral where the annuity contract continues after the death of the Annuitant. BASIC DEATH BENEFIT The Annuity provides a basic Death Benefit at no additional charge. The Insurance Charge we deduct daily from your Account Value allocated to the Sub-accounts is used, in part, to pay us for the risk we assume in providing the basic Death Benefit guarantee under an Annuity. The Annuity also offers four different optional Death Benefits that can be purchased for an additional charge. The additional charge is deducted to compensate Prudential Annuities for providing increased insurance protection under the optional Death Benefits. Notwithstanding the additional protection provided under the optional Death Benefits, the additional cost has the impact of reducing the net performance of the investment options. Where death occurs after the decedent's age 85, or older, the basic Death Benefit is the greater of: . The sum of all Purchase Payments less the sum of all proportional withdrawals. . The sum of your Account Value in the Sub-accounts "Proportional withdrawals" are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. For example, a withdrawal of 50% of Account Value would be considered as a 50% reduction in Purchase Payments for purposes of calculating the basic Death Benefit. OPTIONAL DEATH BENEFITS Four optional Death Benefits are offered for purchase with your Annuity to provide an enhanced level of protection for your beneficiaries. Currently, these benefits are only offered in those jurisdictions where we have received regulatory approval and must be elected at the time that you purchase your Annuity. We may, at a later date, allow existing Annuity Owners to purchase an optional Death Benefit subject to our rules and any changes or restrictions in the benefits. Certain terms and conditions may differ between jurisdictions once approved and if you purchase your Annuity as part of an exchange, replacement or transfer, in whole or in part, from any other Annuity we issue. The "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit may only be elected individually, and cannot be elected in combination with any other optional Death Benefit. If you elect Spousal Lifetime Five or Spousal Highest Daily Lifetime Seven, you are not permitted to elect an optional Death Benefit. Investment Restrictions may apply if you elect certain optional death benefits. See the chart in the "Investment Options" section of the Prospectus for a list of investment options available and permitted with each benefit. Enhanced Beneficiary Protection Optional Death Benefit The Enhanced Beneficiary Protection Optional Death Benefit can provide additional amounts to your Beneficiary that may be used to offset federal and state taxes payable on any taxable gains in your Annuity at the time of your death. Whether this benefit is appropriate for you may depend on your particular circumstances, including other financial resources that may be available to your Beneficiary to pay taxes on your Annuity should you die during the accumulation period. No benefit is payable if death occurs on or after the Annuity Date. The Enhanced Beneficiary Protection Optional Death Benefit provides a benefit that is payable in addition to the basic Death Benefit and certain other optional death benefits you may elect in conjunction with this benefit. If the Annuity has one Owner, the Owner must be age 75 or less at the time the benefit is purchased. If an Annuity has joint Owners, the oldest Owner must be age 75 or less. If an Annuity is owned by an entity, the Annuitant must be age 75 or less. Calculation of Enhanced Beneficiary Protection Optional Death Benefit If you purchase the Enhanced Beneficiary Protection Optional Death Benefit, the Death Benefit is calculated as follows: 1. the basic Death Benefit described above; PLUS 2. 40% of your "Growth" under an Annuity, as defined below. 88 "Growth" means the sum of your Account Value in the Sub-accounts, minus the total of all Purchase Payments reduced by the sum of all proportional withdrawals. "Proportional withdrawals" are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. For example, a withdrawal of 50% of Account Value would be considered as a 50% reduction in Purchase Payments. The Enhanced Beneficiary Protection Optional Death Benefit is subject to a maximum of 100% of all Purchase Payments applied to an Annuity at least 12 months prior to the death of the decedent that triggers the payment of the Death Benefit. The Enhanced Beneficiary Protection Optional Death Benefit is being offered in those jurisdictions where we have received regulatory approval. Certain terms and conditions may differ between jurisdictions once approved. Please refer to the section entitled "Tax Considerations" for a discussion of special tax considerations for purchasers of this benefit. The Enhanced Beneficiary Protection Death Benefit is not available if you elect the "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit , Spousal Lifetime Five Income Benefit or Spousal Highest Daily Lifetime Seven. See Appendix B for examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated. Highest Anniversary Value Death Benefit ("HAV") If an Annuity has one Owner, the Owner must be age 79 or less at the time the Highest Anniversary Value Optional Death Benefit is purchased. If an Annuity has joint Owners, the oldest Owner must be age 79 or less. If an Annuity is owned by an entity, the Annuitant must be age 79 or less. Certain of the Portfolios offered as Sub-accounts under the Annuity are not available if you elect the Highest Anniversary Value Death Benefit. In addition, we reserve the right to require you to use certain asset allocation model(s) if you elect this death benefit. Calculation of Highest Anniversary Value Death Benefit The HAV Death Benefit depends on whether death occurs before or after the Death Benefit Target Date. If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above; and 2. the Highest Anniversary Value as of the Owner's date of death. If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above; and 2. the Highest Anniversary Value on the Death Benefit Target Date plus the sum of all Purchase Payments less the sum of all proportional withdrawals since the Death Benefit Target Date. The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death and decreased by any proportional withdrawals since such date. The Highest Anniversary Value Death Benefit described above is currently being offered in those jurisdictions where we have received regulatory approval. Certain terms and conditions may differ between jurisdictions once approved. The Highest Anniversary Value Death Benefit is not available if you elect the "Combination 5% Roll-up and Highest Anniversary Value" or the "Highest Daily Value" Death Benefit. It is also not available with Spousal Lifetime Five and Spousal Highest Daily Lifetime Seven. Please refer to the definition of Death Benefit Target Date below. This death benefit may not be an appropriate feature where the Owner's age is near the age specified in the Death Benefit Target Date. This is because the benefit may not have the same potential for growth as it otherwise would, since there will be fewer contract anniversaries before the death benefit target date is reached. The death benefit target date under this death benefit is earlier than the death benefit target date under the Combination 5% Roll-up and Highest Anniversary Value Death Benefit for Owners who are age 76 or older when an Annuity is issued, which may result in a lower value on the death benefit, since there will be fewer contract anniversaries before the death benefit target date is reached. See Appendix B for examples of how the Highest Anniversary Value Death Benefit is calculated. 89 Combination 5% Roll-up and Highest Anniversary Value Death Benefit If an Annuity has one Owner, the Owner must be age 79 or less at the time the Combination 5% Roll-up and HAV Optional Death Benefit is purchased. If an Annuity has joint Owners, the oldest Owner must be age 79 or less. If the Annuity is owned by an entity, the Annuitant must be age 79 or less. Certain of the Portfolios offered as Sub-accounts under an Annuity are not available if you elect the Combination 5% Roll-up and HAV Death Benefit. If you elect this benefit, you must allocate your Account Value in accordance with the then permitted and available option(s). In addition, we reserve the right to require you to use certain asset allocation model(s) if you elect this Death Benefit. Calculation of the Combination 5% Roll-up and Highest Anniversary Value Death Benefit The Combination 5% Roll-up and HAV Death Benefit equals the greatest of: 1. the basic Death Benefit described above; and 2. the Highest Anniversary Value Death Benefit described above; and 3. 5% Roll-up described below. Thecalculation of the 5% Roll-up depends on whether death occurs before or after the Death Benefit Target Date. If the Owner dies before the Death Benefit Target Date the 5% Roll up is equal to: . all Purchase Payments increasing at an annual effective interest rate of 5% starting on the date that each Purchase Payment is made and ending on the Owner's date of death; MINUS . the sum of all withdrawals, dollar for dollar up to 5% of the Death Benefit's value as of the prior contract anniversary (or Issue Date if the withdrawal is in the first contract year). Any withdrawals in excess of the 5% dollar for dollar limit are proportional. If the Owner dies on or after the Death Benefit Target Date the 5% Roll-up is equal to: . the 5% Roll-up value as of the Death Benefit Target Date increased by total Purchase Payments made after the Death Benefit Target Date; MINUS . the sum of all withdrawals which reduce the 5% Roll-up proportionally. This Death Benefit may not be an appropriate feature where the Owner's age is near the age specified in the Death Benefit Target Date. This is because the benefit may not have the same potential for growth as it otherwise would, since there will be fewer Annuity anniversaries before the Death Benefit Target Date is reached. The "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit described above is currently being offered in those jurisdictions where we have received regulatory approval. Certain terms and conditions may differ between jurisdictions once approved. The "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit is not available if you elect any other optional Death Benefit or elect Spousal Lifetime Five or Spousal Highest Daily Lifetime Seven. See Appendix B for examples of how the "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit is calculated. Key Terms Used with the Highest Anniversary Value Death Benefit and the Combination 5% Roll-up and Highest Anniversary Value Death Benefit: . The Death Benefit Target Date for the Highest Anniversary Value Death Benefit is the contract anniversary on or after the 80th birthday of the current Owner, the oldest of either joint Owner or the Annuitant, if entity owned. . The Death Benefit Target Date for the Combination 5% Roll-up and HAV Death Benefit is the later of the contract anniversary on or after the 80/th/ birthday of the current Owner, the oldest of either joint Owner or the Annuitant, if entity owned, or five years after the Issue Date of an Annuity. . The Highest Anniversary Value equals the highest of all previous "Anniversary Values" less proportional withdrawals since such anniversary and plus any Purchase Payments since such anniversary. . The Anniversary Value is the Account Value as of each anniversary of the Issue Date of an Annuity. The Anniversary Value on the Issue Date is equal to your Purchase Payment. 90 . Proportional withdrawals are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. Proportional withdrawals result in a reduction to the Highest Anniversary Value or 5% Roll-up value by reducing such value in the same proportion as the Account Value was reduced by the withdrawal as of the date the withdrawal occurred. For example, if your Highest Anniversary Value or 5% Roll-up value is $125,000 and you subsequently withdraw $10,000 at a time when your Account Value is equal to $100,000 (a 10% reduction), when calculating the optional Death Benefit we will reduce your Highest Anniversary Value ($ 125,000) by 10% or $12,500. Highest Daily Value Death Benefit ("HDV") If an Annuity has one Owner, the Owner must be age 79 or less at the time the Highest Daily Value Death Benefit is elected. If an Annuity has joint Owners, the older Owner must be age 79 or less. If there are joint Owners, death of the Owner refers to the first to die of the joint Owners. If an Annuity is owned by an entity, the Annuitant must be age 79 or less and death of the Owner refers to the death of the Annuitant. If you elect this benefit, you must allocate your Account Value in accordance with the then permitted and available option(s) with this benefit. If, subsequent to your election of the benefit, we change our requirements for how Account Value must be allocated under the benefit, the new requirement will apply only to new elections of the benefit, and we will not compel you to re-allocate your Account Value in accordance with our newly-adopted requirements. Subsequent to any change in requirements, transfers of Account Value and allocation of additional Purchase Payments may be subject to the new investment limitations. The HDV Death Benefit depends on whether death occurs before or after the Death Benefit Target Date. If the Owner dies before the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above; and 2. the HDV as of the Owner's date of death. If the Owner dies on or after the Death Benefit Target Date, the Death Benefit equals the greater of: 1. the basic Death Benefit described above; and 2. the HDV on the Death Benefit Target Date plus the sum of all Purchase Payments less the sum of all proportional withdrawals since the Death Benefit Target Date. The amount determined by this calculation is increased by any Purchase Payments received after the Owner's date of death and decreased by any proportional withdrawals since such date. The Highest Daily Value Death Benefit described above is currently being offered in those jurisdictions where we have received regulatory approval. Certain terms and conditions may differ between jurisdictions once approved. The Highest Daily Value Death Benefit is not available if you elect the Guaranteed Return Option Plus 2008, Highest Daily Guaranteed Return Option, Spousal Lifetime Five, Highest Daily Lifetime Seven, or Spousal Highest Daily Lifetime Seven, "Combination 5% Roll-up and Highest Anniversary Value" Death Benefit, or the Highest Anniversary Value Death Benefit. Key Terms Used with the Highest Daily Value Death Benefit: . The Death Benefit Target Date for the Highest Daily Value Death Benefit is the later of an Annuity anniversary on or after the 80/th/ birthday of the current Owner, or the older of either the joint Owner or the Annuitant, if entity owned, or five years after the Issue Date of an Annuity. . The Highest Daily Value equals the highest of all previous "Daily Values" less proportional withdrawals since such date and plus any Purchase Payments since such date. . The Daily Value is the Account Value as of the end of each Valuation Day. The Daily Value on the Issue Date is equal to your Purchase Payment. . Proportional withdrawals are determined by calculating the percentage of your Account Value that each prior withdrawal represented when withdrawn. Proportional withdrawals result in a reduction to the Highest Daily Value by reducing such value in the same proportion as the Account Value was reduced by the withdrawal as of the date the withdrawal occurred. For example, if your Highest Daily Value is $125,000 and you subsequently withdraw $10,000 at a time when your Account Value is equal to $100,000 (a 10% reduction), when calculating the optional Death Benefit we will reduce your Highest Daily Value ($125,000) by 10% or $12,500. Please see Appendix B to this prospectus for a hypothetical example of how the HDV Death Benefit is calculated. 91 Annuities with Joint Owners For Annuities with Joint Owners, the Death Benefits are calculated as shown above except that the age of the oldest of the joint Owners is used to determine the Death Benefit Target Date. NOTE: If you and your spouse own your Annuity jointly, we will pay the Death Benefit to the Beneficiary. If the sole primary Beneficiary is the surviving spouse, then the surviving spouse can elect to assume ownership of your Annuity and continue the Annuity instead of receiving the Death Benefit. Annuities Owned by Entities For Annuities owned by an entity, the Death Benefits are calculated as shown above except that the age of the Annuitant is used to determine the Death Benefit Target Date. Payment of the Death Benefit is based on the death of the Annuitant (or Contingent Annuitant, if applicable). Can I terminate the optional Death Benefits? Do the optional Death Benefits terminate under other circumstances? You can terminate the Enhanced Beneficiary Protection Death Benefit and the Highest Anniversary Value Death Benefit at any time. The "Combination 5% Roll-up and HAV Death Benefit" and the HDV Death Benefit may not be terminated once elected. The optional Death Benefits will terminate automatically on the Annuity Date. We may also terminate any optional Death Benefit if necessary to comply with our interpretation of the Code and applicable regulations. What are the charges for the optional Death Benefits? We deduct a charge equal to 0.25% per year of the average daily net assets of the Sub-accounts for each of the Highest Anniversary Value Death Benefit and the Enhanced Beneficiary Protection Death Benefit and 0.50% per year of the average daily net assets of the Sub-accounts for each of the "Combination 5% Roll-up and HAV Death Benefit" and the HDV Death Benefit. We deduct the charge for each of these benefits to compensate Prudential Annuities for providing increased insurance protection under the optional Death Benefits. The additional annual charge is deducted daily against your Account Value allocated to the Sub-accounts. Please refer to the section entitled "Tax Considerations" for additional considerations in relation to the optional Death Benefit. PRUDENTIAL ANNUITIES' ANNUITY REWARDS What is the Annuity Rewards Benefit? The Annuity Rewards Benefit offers Owners the ability to capture any market gains since the Issue Date of their Annuity as an enhancement to their current Death Benefit so their Beneficiaries will not receive less than an Annuity's value as of the effective date of the benefit. Under the Annuity Rewards Benefit, Prudential Annuities guarantees that the Death Benefit will not be less than: . your Account Value in the Sub-accounts as of the effective date of the benefit . MINUS any proportional withdrawals following the effective date of the benefit . PLUS any additional Purchase Payments applied to your Annuity following the effective date of the benefit. The Annuity Rewards Death Benefit enhancement does not affect the calculation of the basic Death Benefit or any Optional Death Benefits available under an Annuity. If the Death Benefit amount payable under your Annuity's basic Death Benefit or any Optional Death Benefits you purchase is greater than the enhanced Death Benefit under the Annuity Rewards Benefit on the date the Death Benefit is calculated, your Beneficiary will receive the higher amount. Who is eligible for the Annuity Rewards benefit? Owners can elect the Annuity Rewards Death Benefit enhancement when there is no longer a CDSC associated with your Annuity. However, the Account Value on the date that the Annuity Rewards benefit is effective, must be greater than the amount that would be payable to the Beneficiary under the Death Benefit (including any amounts payable under any Optional Death Benefit then in effect). The effective date must occur before annuity payments begin. There can only be one effective date for the Annuity Rewards Death Benefit enhancement. There is no additional charge for electing the Annuity Rewards Death Benefit enhancement. PAYMENT OF DEATH BENEFITS Alternative Death Benefit Payment Options - Annuities owned by Individuals (not associated with Tax-Favored Plans) Except in the case of a spousal assumption as described below, upon your death, certain distributions must be made under the contract. The required distributions depend on whether you die before you start taking annuity payments under the contract or after you start taking annuity payments under the contract. If you die on or after the Annuity Date, the remaining portion of the interest in the contract must be distributed at least as rapidly as under the method of distribution being used as of the date of death. 92 In the event of your death before the Annuity Date, the Death Benefit must be distributed: . within five (5) years of the date of death; or . as a series of payments not extending beyond the life expectancy of the Beneficiary or over the life of the Beneficiary. Payments under this option must begin within one year of the date of death. Unless you have made an election prior to Death Benefit proceeds becoming due, a Beneficiary can elect to receive the Death Benefit proceeds under the Beneficiary Continuation Option as described below in the section entitled "Beneficiary Continuation Option," as a series of annuity payments. Upon our receipt of proof of death, we will send to the beneficiary materials that list these payment options. Alternative Death Benefit Payment Options - Annuities Held by Tax-Favored Plans The Code provides for alternative death benefit payment options when an Annuity is used as an IRA, 403(b) or other "qualified investment" that requires minimum distributions. Upon your death under an IRA, 403(b) or other "qualified investment", the designated Beneficiary may generally elect to continue the Annuity and receive Required Minimum Distributions under the Annuity instead of receiving the death benefit in a single payment. The available payment options will depend on whether you die before the date Required Minimum Distributions under the Code were to begin, whether you have named a designated beneficiary and whether the Beneficiary is your surviving spouse. . If you die after a designated beneficiary has been named, the death benefit must be distributed by December 31/st/ of the year including the five year anniversary of the date of death, or as periodic payments not extending beyond the life expectancy of the designated beneficiary (provided such payments begin by December 31/st/ of the year following the year of death). However, if your surviving spouse is the beneficiary, the death benefit can be paid out over the life expectancy of your spouse with such payments beginning no later than December 31/st/ of the year following the year of death or December 31/st/ of the year in which you would have reached age 70 1/2, which ever is later. Additionally, if the contract is payable to (or for the benefit of) your surviving spouse, that portion of the contract may be continued with your spouse as the owner. . If you die before a designated beneficiary is named and before the date required minimum distributions must begin under the Code, the death benefit must be paid out within five years from the date of death. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31/st/ of the year following the year of death, such contract is deemed to have no designated beneficiary. . If you die before a designated beneficiary is named and after the date required minimum distributions must begin under the Code, the death benefit must be paid out at least as rapidly as under the method then in effect. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31/st/ of the year following the year of death, such contract is deemed to have no designated beneficiary. Until withdrawn, amounts in an IRA, 403(b) or other "qualified investment" continue to be tax deferred. Amounts withdrawn each year, including amounts that are required to be withdrawn under the Required Minimum Distribution rules, are subject to tax. You may wish to consult a professional tax advisor for tax advice as to your particular situation. For a Roth IRA, if death occurs before the entire interest is distributed, the death benefit must be distributed under the same rules applied to IRAs where death occurs before the date Required Minimum Distributions must begin under the Code. The tax consequences to the beneficiary may vary among the different death benefit payment options. See the Tax Considerations section of this prospectus, and consult your tax advisor. Beneficiary Continuation Option Instead of receiving the death benefit in a single payment, or under an Annuity Option, a beneficiary may take the death benefit under an alternative death benefit payment option, as provided by the Code and described above under the sections entitled "Payment of Death Benefits" and "Alternative Death Benefit Payment Options - Annuities Held by Tax-Favored Plans." This "Beneficiary Continuation Option" is described below and is available for both qualified Annuities (i.e. annuities sold to an IRA, Roth IRA, SEP IRA, or 403(b)) and non-qualified Annuities. Under the Beneficiary Continuation Option: . The Owner's Annuity will be continued in the Owner's name, for the benefit of the beneficiary. . Beginning on the date we receive an election by the beneficiary to take the death benefit in a form other than a lump sum, the beneficiary will incur a Settlement Service Charge which is an annual charge assessed on a daily basis against the average assets allocated to the Sub-accounts. For non-qualified Annuities the charge is 1.00% per year, and for qualified Annuities the charge is 1.40% per year. . Beginning on the date we receive an election by the beneficiary to take the death benefit in a form other than a lump sum, the beneficiary will incur an annual maintenance fee equal to the lesser of $30 or 2% of Account Value. For non-qualified 93 annuities, the fee will only apply if the Account Value is less than $25,000 at the time the fee is assessed. The fee will not apply if it is assessed 30 days prior to a surrender request. . The initial Account Value will be equal to any death benefit (including any optional death benefit) that would have been payable to the beneficiary if the beneficiary had taken a lump sum distribution. . The available Sub-accounts will be among those available to the Owner at the time of death, however certain Sub-Accounts may not be available. . The beneficiary may request transfers among Sub-accounts, subject to the same limitations and restrictions that applied to the Owner. Transfers in excess of 20 per year will incur a $10 transfer fee. . No Fixed Allocations or fixed interest rate options will be offered for the non-qualified Beneficiary Continuation Options. However, for qualified Annuities, the Fixed Allocations will be those offered at the time the Beneficiary Continuation Option is elected. . No additional Purchase Payments can be applied to the Annuity. . The basic death benefit and any optional benefits elected by the Owner will no longer apply to the beneficiary. . The beneficiary can request a withdrawal of all or a portion of the Account Value at any time, unless the Beneficiary Continuation Option was the payout predetermined by the Owner and the Owner restricted the beneficiary's withdrawal rights. . Withdrawals are not subject to CDSC. . Upon the death of the beneficiary, any remaining Account Value will be paid in a lump sum to the person(s) named by the beneficiary (successor), unless the successor chooses to continue receiving payments. Currently only Investment Options corresponding to Portfolios of the Advanced Series Trust and the ProFund VP are available under the Beneficiary Continuation Option. In addition to the materials referenced above, the Beneficiary will be provided with a prospectus and a settlement agreement describing the Beneficiary Continuation Option. We may pay compensation to the broker-dealer of record on the Annuity based on amounts held in the Beneficiary Continuation Option. Please contact us for additional information on the availability, restrictions and limitations that will apply to a beneficiary under the Beneficiary Continuation Option. Spousal Assumption of Annuity You may name your spouse as your Beneficiary. If you and your spouse own your Annuity jointly, we assume that the sole primary Beneficiary will be the surviving spouse unless you elect an alternative Beneficiary Designation. Unless you elect an alternative Beneficiary Designation, the spouse Beneficiary may elect to assume ownership of the Annuity instead of taking the Death Benefit payment. Any Death Benefit (including any optional Death Benefits) that would have been payable to the Beneficiary will become the new Account Value as of the date we receive due proof of death and any required proof of a spousal relationship. As of the date the assumption is effective, the surviving spouse will have all the rights and benefits that would be available under the Annuity to a new purchaser of the same attained age. For purposes of determining any future Death Benefit for the surviving spouse, the new Account Value will be considered as the initial Purchase Payment. No CDSC will apply to the new Account Value. However, any additional Purchase Payments applied after the date the assumption is effective will be subject to all provisions of the Annuity, including any CDSC that may apply to the additional Purchase Payments. See the section entitled "Managing Your Annuity" - "Spousal Designations" and "Contingent Annuitant" for a discussion of the treatment of a spousal Contingent Annuitant in the case of the death of the Annuitant in an Annuity owned by a Custodial Account. Are there any exceptions to these rules for paying the Death Benefit? Yes, there are exceptions that apply no matter how your Death Benefit is calculated. There are exceptions to the Death Benefit if the decedent was not the Owner or Annuitant as of the Issue Date (or within 60 days thereafter) and did not become the Owner or Annuitant due to the prior Owner's or Annuitant's death. Any Death Benefit (including any optional Death Benefit) that applies will be suspended for a two-year period from the date he or she first became Owner or Annuitant. After the two-year suspension period is completed, the Death Benefit is the same as if this person had been an Owner or Annuitant on the Issue Date. When do you determine the Death Benefit? We determine the amount of the Death Benefit as of the date we receive "due proof of death" (and in certain limited circumstances as of the date of death), any instructions we require to determine the method of payment and any other written representations we require to determine the proper payment of the Death Benefit to all Beneficiaries. "Due proof of death" may include a certified copy of a death certificate, a certified copy of a decree of a court of competent jurisdiction as to the finding of death or other satisfactory proof of death. Upon our receipt of "due proof of death" we automatically transfer the Death Benefit to the AST Money Market Sub-account until we further determine the universe of eligible Beneficiaries. Once the universe of eligible Beneficiaries has been determined each eligible Beneficiary may allocate his or her eligible share of the Death Benefit to an eligible annuity payment option. Each Beneficiary must make an election as to the method they wish to receive their portion of the Death Benefit. Absent an election of a Death Benefit payment method, no Death Benefit can be paid to the Beneficiary. We may require written acknowledgment of all named Beneficiaries before we can pay the Death Benefit. During the period from the date of death until we receive all required paper work, the amount of the Death Benefit may be subject to market fluctuations. 94 VALUING YOUR INVESTMENT HOW IS MY ACCOUNT VALUE DETERMINED? During the accumulation period, your Annuity has an Account Value. The Account Value is determined separately for each Sub-account allocation. The Account Value is the sum of the values of each Sub-account allocation. The Account Value does not reflect any CDSC that may apply to a withdrawal or surrender. WHAT IS THE SURRENDER VALUE OF MY ANNUITY? The Surrender Value of your Annuity is the value available to you on any day during the accumulation period. The Surrender Value is defined under "Glossary of Terms" above. HOW AND WHEN DO YOU VALUE THE SUB-ACCOUNTS? When you allocate Account Value to a Sub-account, you are purchasing units of the Sub-account. Each Sub-account invests exclusively in shares of an underlying Portfolio. The value of the Units fluctuates with the market fluctuations of the Portfolios. The value of the Units also reflects the daily accrual for the Insurance Charge, and if you elected one or more optional benefits whose annual charge is deducted daily, the additional charge made for such benefits. There may be several different Unit Prices for each Sub-account to reflect the Insurance Charge and the charges for any optional benefits. The Unit Price for the Units you purchase will be based on the total charges for the benefits that apply to your Annuity. See the section entitled "What Happens to My Units When There is a Change in Daily Asset-Based Charges?" for a detailed discussion of how Units are purchased and redeemed to reflect changes in the daily charges that apply to your Annuity. Each Valuation Day, we determine the price for a Unit of each Sub-account, called the "Unit Price." The Unit Price is used for determining the value of transactions involving Units of the Sub-accounts. We determine the number of Units involved in any transaction by dividing the dollar value of the transaction by the Unit Price of the Sub-account as of the Valuation Day. Example Assume you allocate $5,000 to a Sub-account. On the Valuation Day you make the allocation, the Unit Price is $14.83. Your $5,000 buys 337.154 Units of the Sub-account. Assume that later, you wish to transfer $3,000 of your Account Value out of that Sub-account and into another Sub-account. On the Valuation Day you request the transfer, the Unit Price of the original Sub-account has increased to $16.79 and the Unit Price of the new Sub-account is $17.83. To transfer $3,000, we sell 178.677 Units at the current Unit Price, leaving you 158.477 Units. We then buy $3,000 of Units of the new Sub-account at the Unit Price of $17.83. You would then have 168.255 Units of the new Sub-account. WHEN DO YOU PROCESS AND VALUE TRANSACTIONS? Prudential Annuities is generally open to process financial transactions on those days that the New York Stock Exchange (NYSE) is open for trading. There may be circumstances where the NYSE does not open on a regularly scheduled date or time or closes at an earlier time than scheduled (normally 4:00 p.m. EST). Generally, financial transactions requested before the close of the NYSE which meet our requirements will be processed according to the value next determined following the close of business. Financial transactions requested on a non-Valuation Day or after the close of the NYSE will be processed based on the value next computed on the next Valuation Day. There may be circumstances when the opening or closing time of the NYSE is different than other major stock exchanges, such as NASDAQ or the American Stock Exchange. Under such circumstances, the closing time of the NYSE will be used when valuing and processing transactions. There may be circumstances where the NYSE is open, however, due to inclement weather, natural disaster or other circumstances beyond our control, our offices may be closed or our business processing capabilities may be restricted. Under those circumstances, your Account Value may fluctuate based on changes in the Unit Values, but you may not be able to transfer Account Value, or make a purchase or redemption request. The NYSE is closed on the following nationally recognized holidays: New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. On those dates, we will not process any financial transactions involving purchase or redemption orders. Prudential Annuities will also not process financial transactions involving purchase or redemption orders or transfers on any day that: . trading on the NYSE is restricted; . an emergency exists making redemption or valuation of securities held in the separate account impractical; or . the SEC, by order, permits the suspension or postponement for the protection of security holders. Initial Purchase Payments: We are required to allocate your initial Purchase Payment to the Sub-accounts within two (2) Valuation Days after we receive all of our requirements at our office to issue an Annuity. If we do not have all the required information to allow us to issue your Annuity, we may retain the Purchase Payment while we try to reach you or your 95 representative to obtain all of our requirements. If we are unable to obtain all of our required information within five (5) Valuation Days, we are required to return the Purchase Payment to you at that time, unless you specifically consent to our retaining the Purchase Payment while we gather the required information. Once we obtain the required information, we will invest the Purchase Payment and issue an Annuity within two (2) Valuation Days. With respect to both your initial Purchase Payment and any subsequent Purchase Payment that is pending investment in our separate account, we may hold the amount temporarily in our general account and may earn interest on such amount. You will not be credited with interest during that period. Additional Purchase Payments: We will apply any additional Purchase Payments on the Valuation Day that we receive the Purchase Payment at our office with satisfactory allocation instructions. Scheduled Transactions: Scheduled transactions include transfers made in connection with dollar cost averaging, the asset allocation program, auto-rebalancing, systematic withdrawals, systematic investments, required minimum distributions, substantially equal periodic payments under Section 72(t) of the Code, or annuity payments. Scheduled transactions are processed and valued as of the date they are scheduled, unless the scheduled day is not a Valuation Day. In that case, the transaction will be processed and valued on the next Valuation Day, unless (with respect to required minimum distributions, substantially equal periodic payments under Section 72(t) of the Code, systematic withdrawals and annuity payments only), the next Valuation Day falls in the subsequent calendar year, in which case the transaction will be processed and valued on the prior Valuation Day. Unscheduled Transactions: "Unscheduled" transactions include any other non-scheduled transfers and requests for Partial Withdrawals or Free Withdrawals or Surrenders. Unscheduled transactions are processed and valued as of the Valuation Day we receive the request at our Office and have all of the required information. Medically-related Surrenders & Death Benefits: Medically-related surrender requests and Death Benefit claims require our review and evaluation before processing. We price such transactions as of the date we receive at our Office all supporting documentation we require for such transactions and that are satisfactory to us. Transactions in ProFunds VP Sub-accounts: Generally, purchase or redemption orders or transfer requests must be received by us by no later than the close of the NYSE to be processed on the current Valuation Day. However, any transfer request involving the ProFunds VP Sub-accounts must be received by us no later than one hour prior to any announced closing of the applicable securities exchange (generally, 3:00 p.m. Eastern time) to be processed on the current Valuation Day. The "cut-off" time for such financial transactions involving a ProFunds VP Sub-account will be extended to 1/2 hour prior to any announced closing (generally, 3:30 p.m. Eastern time) for transactions submitted electronically through Prudential Annuities' Internet website (www.prudentialannuities.com). You cannot request a transaction involving the transfer of units in one of the ProFunds VP Sub-accounts between the applicable "cut-off" time and 4:00 p.m. Transactions received after 4:00 p.m. will be treated as received by us on the next Valuation Day. Termination of Optional Benefits: Except for the Guaranteed Minimum Income Benefit, the "Combination 5% Roll-up and Highest Anniversary Value Death Benefit" and the Highest Daily Value Death Benefit, which generally cannot be terminated by the owner once elected, if any optional benefit terminates, we will no longer deduct the charge we apply to purchase the optional benefit. Certain optional benefits may be added after you have purchased your Annuity. On the date a charge no longer applies or a charge for an optional benefit begins to be deducted, your Annuity will become subject to a different daily asset-based charge. This change may result in the number of Units attributed to your Annuity and the value of those Units being different than it was before the change; however, the adjustment in the number of Units and Unit Price will not affect your Account Value (although the change in charges that are deducted will affect your Account Value). WHAT HAPPENS TO MY UNITS WHEN THERE IS A CHANGE IN DAILY ASSET-BASED CHARGES? Termination of Optional Benefits: Except for the Guaranteed Minimum Income Benefit, the "Combination 5% Roll-up and Highest Anniversary Value Death Benefit" and the Highest Daily Value Death Benefit, which generally cannot be terminated by the owner once elected, if any optional benefit terminates, we will no longer deduct the charge we apply to purchase the optional benefit. Certain optional benefits may be added after you have purchased your Annuity. On the date a charge no longer applies or a charge for an optional benefit begins to be deducted, your Annuity will become subject to a different daily asset-based charge. This change may result in the number of Units attributed to your Annuity and the value of those Units being different than it was before the change; however, the adjustment in the number of Units and Unit Price will not affect your Account Value (although the change in charges that are deducted will affect your Account Value). 96 TAX CONSIDERATIONS The tax considerations associated with an Annuity vary depending on whether the contract is (i) owned by an individual or non-natural person, and not associated with a tax-favored retirement plan, or (ii) held under a tax-favored retirement plan. We discuss the tax considerations for these categories of contracts below. The discussion is general in nature and describes only federal income tax law (not state or other tax laws). It is based on current law and interpretations, which may change. The information provided is not intended as tax advice. You should consult with a qualified tax advisor for complete information and advice. References to purchase payments below relate to your cost basis in your contract. Generally, your cost basis in a contract not associated with a tax-favored retirement plan is the amount you pay into your contract, or into annuities exchanged for your contract, on an after-tax basis less any withdrawals of such payments. Cost basis for a tax-favored retirement plan is provided only in limited circumstances, such as for contributions to a Roth IRA or nondeductible IRA contributions. The discussion includes a description of certain spousal rights under the contract, and our administration of such spousal rights and related tax reporting accords with our understanding of the Defense of Marriage Act (which defines a "marriage" as a legal union between a man and a woman and a "spouse" as a person of the opposite sex). Depending on the state in which your annuity is issued, we may offer certain spousal benefits to civil union couples. You should be aware, however, that federal tax law does not recognize civil unions. Therefore, we cannot permit a civil union partner to continue the annuity upon the death of the first partner under the annuity's "spousal continuance" provision. Civil union couples should consider that limitation before selecting a spousal benefit under the annuity. NONQUALIFIED ANNUITY CONTRACTS In general, as used in this prospectus, a Nonqualified Annuity is owned by an individual or non-natural person and is not associated with a tax-favored retirement plan. Taxes Payable by You We believe the Annuity is an annuity contract for tax purposes. Accordingly, as a general rule, you should not pay any tax until you receive money under the contract. Generally, annuity contracts issued by the same company (and affiliates) to you during the same calendar year must be treated as one annuity contract for purposes of determining the amount subject to tax under the rules described below. Charges for investment advisory fees that are taken from the contract are treated as a partial withdrawal from the contract and will be reported as such to the contract owner. It is possible that the Internal Revenue Service (IRS) would assert that some or all of the charges for the optional benefits under the contract should be treated for federal income tax purposes as a partial withdrawal from the contract. If this were the case, the charge for this benefit could be deemed a withdrawal and treated as taxable to the extent there are earnings in the contract. Additionally, for owners under age 59 1/2, the taxable income attributable to the charge for the benefit could be subject to a tax penalty. If the IRS determines that the charges for one or more benefits under the contract are taxable withdrawals, then the sole or surviving owner will be provided with a notice from us describing available alternatives regarding these benefits. You must commence annuity payments no later than the first day of the calendar month next following the maximum Annuity date for your Contract. Please refer to your Annuity Contract for the applicable maximum Annuity date. For some of our contracts, you are able to choose to defer the Annuity Date beyond the default Annuity date described in your Contract. However, the IRS may not then consider your contract to be an annuity under the tax law. Taxes on Withdrawals and Surrender If you make a withdrawal from your contract or surrender it before annuity payments begin, the amount you receive will be taxed as ordinary income, rather than as return of purchase payments, until all gain has been withdrawn. Once all gain has been withdrawn, payments will be treated as a nontaxable return of purchase payments until all purchase payments have been returned. After all purchase payments are returned, all subsequent amounts will be taxed as ordinary income. You will generally be taxed on any withdrawals from the contract while you are alive even if the withdrawal is paid to someone else. Withdrawals under any of the optional living benefit programs or as a systematic payment are taxed under these rules. If you assign or pledge all or part of your contract as collateral for a loan, the part assigned generally will be treated as a withdrawal. If you transfer your contract for less than full consideration, such as by gift, you will also trigger tax on any gain in the contract. This rule does not apply if you transfer the contract to your spouse or under most circumstances if you transfer the contract incident to divorce. If you choose to receive payments under an interest payment option, or a beneficiary chooses to receive a death benefit under an interest payment option, that election will be treated, for tax purposes, as surrendering your Annuity and will immediately subject any gain in the contract to income tax. Taxes on Annuity Payments A portion of each annuity payment you receive will be treated as a partial return of your purchase payments and will not be taxed. The remaining portion will be taxed as ordinary income. Generally, the nontaxable portion is determined by multiplying the annuity payment you receive by a fraction, the numerator of which is your purchase payments (less any amounts previously 97 received tax-free) and the denominator of which is the total expected payments under the contract. After the full amount of your purchase payments have been recovered tax-free, the full amount of the annuity payments will be taxable. If annuity payments stop due to the death of the annuitant before the full amount of your purchase payments have been recovered, a tax deduction may be allowed for the unrecovered amount. Tax Penalty for Early Withdrawal from a Nonqualified Annuity Contract You may owe a 10% tax penalty on the taxable part of distributions received from your Nonqualified Annuity contract before you attain age 59 1/2. Amounts are not subject to this tax penalty if: . the amount is paid on or after you reach age 59 1/2 or die; . the amount received is attributable to your becoming disabled; . generally the amount paid or received is in the form of substantially equal payments not less frequently than annually (please note that substantially equal payments must continue until the later of reaching age 59 1/2 or 5 years and modification of payments during that time period will result in retroactive application of the 10% tax penalty); or . the amount received is paid under an immediate annuity contract (in which annuity payments begin within one year of purchase). Other exceptions to this tax may apply. You should consult your tax advisor for further details. Special Rules in Relation to Tax-free Exchanges Under Section 1035 Section 1035 of the Internal Revenue Code of 1986, as amended (Code), permits certain tax-free exchanges of a life insurance, annuity or endowment contract for an annuity. Partial surrenders may be treated in the same way as tax-free 1035 exchanges of entire contracts, therefore avoiding current taxation of any gains in the contract as well as the 10% tax penalty on pre-age 59 1/2 withdrawals. The IRS has reserved the right to treat transactions it considers abusive as ineligible for this favorable partial 1035 exchange treatment. In Revenue Procedure 2008-24, the IRS has indicated that where there is a surrender or distribution from either the initial annuity contract or receiving annuity contract within 12 months of the date on which the partial exchange was completed, the transfer will retroactively be treated as a taxable distribution from the initial annuity contract and a contribution to the receiving annuity contract. Tax free exchange treatment will be retained if the subsequent surrender or distribution would be eligible for an exception to the 10% federal income tax penalty, other than the exceptions for substantially equal periodic payments or distributions under an immediate annuity. It is unclear how the IRS will treat a partial exchange from a life insurance, endowment, or annuity contract into an immediate annuity. As of the date of this prospectus, we will accept a partial 1035 exchange from a non-qualified annuity into an immediate annuity as a "tax-free" exchange for future tax reporting purposes, except to the extent that we, as a reporting and withholding agent, believe that we would be expected to deem the transaction to be abusive. However, some insurance companies may not recognize these partial surrenders as tax-free exchanges and may report them as taxable distributions to the extent of any gain distributed as well as subjecting the taxable portion of the distribution to the 10% tax penalty. We strongly urge you to discuss any transaction of this type with your tax advisor before proceeding with the transaction. If an Annuity is purchased through a tax-free exchange of a life insurance, annuity or endowment contract that was purchased prior to August 14, 1982, then any purchase payments made to the original contract prior to August 14, 1982 will be treated as made to the new contract prior to that date. Generally, such pre-August 14, 1982 withdrawals are treated as a recovery of your investment in the contract first until purchase payments made before August 14, 1982 are withdrawn. Moreover, any income allocable to purchase payments made before August 14, 1982, is not subject to the 10% tax penalty. Taxes Payable by Beneficiaries The Death Benefit options are subject to income tax to the extent the distribution exceeds the cost basis in the contract. The value of the Death Benefit, as determined under federal law, is also included in the owner's estate. Generally, the same tax rules described above would also apply to amounts received by your beneficiary. Choosing any option other than a lump sum Death Benefit may defer taxes. Certain minimum distribution requirements apply upon your death, as discussed further below in the Annuity Qualification section. Tax consequences to the beneficiary vary depending upon the Death Benefit payment option selected. Generally, for payment of the Death Benefit . As a lump sum payment: the beneficiary is taxed on gain in the contract. . Within 5 years of death of owner: the beneficiary is taxed as amounts are withdrawn (in this case gain is treated as being distributed first). . Under an annuity or annuity settlement option with distribution beginning within one year of the date of death of the owner: the beneficiary is taxed on each payment (part will be treated as gain and part as return of purchase payments). Considerations for Contingent Annuitants: We may allow the naming of a contingent annuitant when a Nonqualified Annuity contract is held by a pension plan or a tax favored retirement plan. In such a situation, the Annuity may no longer qualify for tax deferral where the Annuity contract continues after the death of the Annuitant. Reporting and Withholding on Distributions Taxable amounts distributed from an Annuity are subject to federal and state income tax reporting and withholding. In general, we will withhold federal income tax from the taxable portion of such distribution based on the type of distribution. In the case of an 98 annuity or similar periodic payment, we will withhold as if you are a married individual with three (3) exemptions unless you designate a different withholding status. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default. In the case of all other distributions, we will withhold at a 10% rate. You may generally elect not to have tax withheld from your payments. An election out of withholding must be made on forms that we provide. State income tax withholding rules vary and we will withhold based on the rules of your State of residence. Special tax rules apply to withholding for nonresident aliens, and we generally withhold income tax for nonresident aliens at a 30% rate. A different withholding rate may be applicable to a nonresident alien based on the terms of an existing income tax treaty between the United States and the nonresident alien's country. Please refer to the discussion below regarding withholding rules for a Qualified Annuity. Regardless of the amount withheld by us, you are liable for payment of federal and state income tax on the taxable portion of annuity distributions. You should consult with your tax advisor regarding the payment of the correct amount of these income taxes and potential liability if you fail to pay such taxes. Entity Owners Where a contract is held by a non-natural person (e.g. a corporation), other than as an agent or nominee for a natural person (or in other limited circumstances), the contract will not be taxed as an annuity and increases in the value of the contract over its cost basis will be subject to tax annually. Where a contract is issued to a trust, and such trust is characterized as a grantor trust under the Internal Revenue Code, such contract shall not be considered to be held by a non-natural person and will generally be subject to the tax reporting and withholding requirements for a Nonqualified Annuity. Where a contract is structured so that it is owned by a grantor trust but the annuitant is not the grantor, then the contract is required to terminate upon the death of the grantor if the grantor pre-deceases the annuitant under Section 72(s) of the Code. Under this circumstance, the contract value will be paid out to the beneficiary and it is not eligible for the death benefit provided under the contract. Annuity Qualification Diversification And Investor Control. In order to qualify for the tax rules applicable to annuity contracts described above, the assets underlying the Sub-accounts of an Annuity must be diversified, according to certain rules under the Internal Revenue Code. Each portfolio is required to diversify its investments each quarter so that no more than 55% of the value of its assets is represented by any one investment, no more than 70% is represented by any two investments, no more than 80% is represented by any three investments, and no more than 90% is represented by any four investments. Generally, securities of a single issuer are treated as one investment and obligations of each U.S. Government agency and instrumentality (such as the Government National Mortgage Association) are treated as issued by separate issuers. In addition, any security issued, guaranteed or insured (to the extent so guaranteed or insured) by the United States or an instrumentality of the U.S. will be treated as a security issued by the U.S. Government or its instrumentality, where applicable. We believe the portfolios underlying the variable investment options of the Annuity meet these diversification requirements. An additional requirement for qualification for the tax treatment described above is that we, and not you as the contract owner, must have sufficient control over the underlying assets to be treated as the owner of the underlying assets for tax purposes. While we also believe these investor control rules will be met, the Treasury Department may promulgate guidelines under which a variable annuity will not be treated as an annuity for tax purposes if persons with ownership rights have excessive control over the investments underlying such variable annuity. It is unclear whether such guidelines, if in fact promulgated, would have retroactive effect. It is also unclear what effect, if any, such guidelines might have on transfers between the investment options offered pursuant to this Prospectus. We reserve the right to take any action, including modifications to your Annuity or the investment options, required to comply with such guidelines if promulgated. Any such changes will apply uniformly to affected owners and will be made with such notice to affected owners as is feasible under the circumstances. Required Distributions Upon Your Death for Nonqualified Annuity Contracts. Upon your death, certain distributions must be made under the contract. The required distributions depend on whether you die before you start taking annuity payments under the contract or after you start taking annuity payments under the contract. If you die on or after the Annuity Date, the remaining portion of the interest in the contract must be distributed at least as rapidly as under the method of distribution being used as of the date of death. If you die before the Annuity Date, the entire interest in the contract must be distributed within 5 years after the date of death, or as periodic payments over a period not extending beyond the life or life expectancy of such designated beneficiary (provided such payments begin within one year of your death). Your designated beneficiary is the person to whom benefit rights under the contract pass by reason of death, and must be a natural person in order to elect a periodic payment option based on life expectancy or a period exceeding five years. Additionally, if the Annuity is payable to (or for the benefit of) your surviving spouse, that portion of the contract may be continued with your spouse as the owner. For Nonqualified annuity contracts owned by a non-natural person, the required distribution rules apply upon the death of the annuitant. This means that for a contract held by a 99 non-natural person (such as a trust) for which there is named a co-annuitant, then such required distributions will be triggered by the death of the first co-annuitants to die. Changes In Your Annuity. We reserve the right to make any changes we deem necessary to assure that your Annuity qualifies as an annuity contract for tax purposes. Any such changes will apply to all contract owners and you will be given notice to the extent feasible under the circumstances. Qualified Annuity Contracts In general, as used in this prospectus, a Qualified Annuity is an Annuity contract with applicable endorsements for a tax-favored plan or a Nonqualified Annuity contract held by a tax-favored retirement plan. The following is a general discussion of the tax considerations for Qualified Annuity contracts. This Annuity may or may not be available for all types of the tax-favored retirement plans discussed below. This discussion assumes that you have satisfied the eligibility requirements for any tax-favored retirement plan. Please consult your Financial Professional prior to purchase to confirm if this contract is available for a particular type of tax-favored retirement plan or whether we will accept the type of contribution you intend for this contract. A Qualified annuity may typically be purchased for use in connection with: . Individual retirement accounts and annuities (IRAs) which are subject to Sections 408(a) and 408(b) of the Code; . Roth IRAs under Section 408A of the Code; . A corporate Pension or Profit-sharing plan (subject to 401(a) of the Code); . H.R. 10 plans (also known as Keogh Plans, subject to 401(a) of the Code); . Tax Sheltered Annuities (subject to 403(b) of the Code, also known as Tax Deferred Annuities or TDAs); . Section 457 plans (subject to 457 of the Code). A Nonqualified annuity may also be purchased by a 401(a) trust or custodial IRA or Roth IRA account, or a Section 457 plan, which can hold other permissible assets. The terms and administration of the trust or custodial account or plan in accordance with the laws and regulations for 401(a) plans, IRAs or Roth IRAs, or a Section 457 plan, as applicable, are the responsibility of the applicable trustee or custodian. You should be aware that tax favored plans such as IRAs generally provide income tax deferral regardless of whether they invest in annuity contracts. This means that when a tax favored plan invests in an annuity contract, it generally does not result in any additional tax benefits (such as income tax deferral and income tax free transfers). Types of Tax-favored Plans IRAs. If you buy an Annuity for use as an IRA, we will provide you a copy of the prospectus and contract. The "IRA Disclosure Statement" and "Roth IRA Disclosure Statement" which accompany the prospectus contain information about eligibility, contribution limits, tax particulars, and other IRA information. In addition to this information (some of which is summarized below), the IRS requires that you have a "free look" after making an initial contribution to the contract. During this time, you can cancel the Annuity by notifying us in writing, and we will refund all of the purchase payments under the Annuity (or, if provided by applicable state law, the amount credited under the Annuity, if greater), less any applicable federal and state income tax withholding. Contributions Limits/Rollovers. Subject to the minimum purchase payment requirements of an Annuity, you may purchase an Annuity for an IRA in connection with a "rollover" of amounts from a qualified retirement plan, as a transfer from another IRA, by making a single contribution consisting of your IRA contributions and catch-up contributions, if applicable, attributable to the prior year and the current year during the period from January 1 to April 15, or as a current year contribution. In 2008 the contribution limit is $5,000. After 2008 the contribution amount will be indexed for inflation. The tax law also provides for a catch-up provision for individuals who are age 50 and above, allowing these individuals an additional $1,000 contribution each year. The catch-up amount is not indexed for inflation. The "rollover" rules under the Code are fairly technical; however, an individual (or his or her surviving spouse) may generally "roll over" certain distributions from tax favored retirement plans (either directly or within 60 days from the date of these distributions) if he or she meets the requirements for distribution. Once you buy an Annuity, you can make regular IRA contributions under the Annuity (to the extent permitted by law). However, if you make such regular IRA contributions, you should note that you will not be able to treat the contract as a "conduit IRA," which means that you will not retain possible favorable tax treatment if you subsequently "roll over" the contract funds originally derived from a qualified retirement plan or TDA into another Section 401(a) plan or TDA. In some circumstances, non-spouse beneficiaries may directly roll over to an IRA amounts due from qualified plans, 403(b) plans, and governmental 457(b) plans. Required Provisions. Contracts that are IRAs (or endorsements that are part of the contract) must contain certain provisions: . You, as owner of the contract, must be the "annuitant" under the contract (except in certain cases involving the division of property under a decree of divorce); 100 . Your rights as owner are non-forfeitable; . You cannot sell, assign or pledge the contract; . The annual contribution you pay cannot be greater than the maximum amount allowed by law, including catch-up contributions if applicable (which does not include any rollover amounts); . The date on which required minimum distributions must begin cannot be later than April 1st of the calendar year after the calendar year you turn age 70 1/2; and . Death and annuity payments must meet "required minimum distribution" rules described below. Usually, the full amount of any distribution from an IRA (including a distribution from this contract) which is not a rollover is taxable. As taxable income, these distributions are subject to the general tax withholding rules described earlier regarding a Nonqualified Annuity. In addition to this normal tax liability, you may also be liable for the following, depending on your actions: . A 10% early withdrawal penalty described below; . Liability for "prohibited transactions" if you, for example, borrow against the value of an IRA; or . Failure to take a required minimum distribution, also described below. SEPs. SEPs are a variation on a standard IRA, and contracts issued to a SEP must satisfy the same general requirements described under IRAs (above). There are, however, some differences: . If you participate in a SEP, you generally do not include in income any employer contributions made to the SEP on your behalf up to the lesser of (a) $46,000 in 2008 ($45,000 in 2007) or (b) 25% of your taxable compensation paid by the contributing employer (not including the employer's SEP contribution as compensation for these purposes). However, for these purposes, compensation in excess of certain limits established by the IRS will not be considered. In 2008, this limit is $230,000 ($225,000 for 2007); . SEPs must satisfy certain participation and nondiscrimination requirements not generally applicable to IRAs; and . SEPs that contain a salary reduction or "SARSEP" provision prior to 1997 may permit salary deferrals up to $15,500 in 2008 with the employer making these contributions to the SEP. However, no new "salary reduction" or "SARSEPs" can be established after 1996. Individuals participating in a SARSEP who are age 50 or above by the end of the year will be permitted to contribute an additional $5,000 in 2008. These amounts are indexed for inflation. These Annuities are not available for SARSEPs. You will also be provided the same information, and have the same "free look" period, as you would have if you purchased the contract for a standard IRA. ROTH IRAs. The "Roth IRA Disclosure Statement" contains information about eligibility, contribution limits, tax particulars and other Roth IRA information. Like standard IRAs, income within a Roth IRA accumulates tax-free, and contributions are subject to specific limits. Roth IRAs have, however, the following differences: . Contributions to a Roth IRA cannot be deducted from your gross income; . "Qualified distributions" from a Roth IRA are excludable from gross income. A "qualified distribution" is a distribution that satisfies two requirements: (1) the distribution must be made (a) after the owner of the IRA attains age 59 1/2; (b) after the owner's death; (c) due to the owner's disability; or (d) for a qualified first time homebuyer distribution within the meaning of Section 72(t)(2)(F) of the Code; and (2) the distribution must be made in the year that is at least five tax years after the first year for which a contribution was made to any Roth IRA established for the owner or five years after a rollover, transfer, or conversion was made from a traditional IRA to a Roth IRA. Distributions from a Roth IRA that are not qualified distributions will be treated as made first from contributions and then from earnings and earnings will be taxed generally in the same manner as distributions from a traditional IRA. . If eligible (including meeting income limitations and earnings requirements), you may make contributions to a Roth IRA after attaining age 70 1/2, and distributions are not required to begin upon attaining such age or at any time thereafter. Subject to the minimum purchase payment requirements of an Annuity, if you meet certain income limitations you may purchase an Annuity for a Roth IRA in connection with a "rollover" of amounts of another traditional IRA, conduit IRA, SEP, SIMPLE-IRA or Roth IRA by making a single contribution consisting of your Roth IRA contributions and catch-up contributions, if applicable, attributable to the prior year and the current year during the period from January 1 to April 15 of the current year, or with a current contribution. The Code permits persons who meet certain income limitations (generally, adjusted gross income under $100,000) who are not married filing a separate return and who receive certain qualifying distributions from such non-Roth IRAs, to directly rollover or make, within 60 days, a "rollover" of all or any part of the amount of such distribution to a Roth IRA which they establish. Beginning January 2008, an individual receiving an eligible rollover distribution from an employer sponsored retirement plan under sections 401(a) or 403(b) of the Code can directly roll over contributions to a Roth IRA, subject to the same income limits. This conversion triggers current taxation (but is not subject to a 10% early distribution penalty). Once an Annuity has been purchased, regular Roth IRA contributions will be accepted to the extent permitted by law. In addition, an individual receiving an eligible rollover distribution from a designated Roth account under an employer plan may roll over the distribution to a Roth IRA even if the individual is not eligible to make regular contributions to a Roth IRA. Until 2010, participants with an adjusted gross income greater than $100,000 are not permitted to roll over funds from an employer plan , including a Roth 401(k) distribution, to a Roth IRA. 101 TDAs. You may own a Tax Deferred Annuity (also known as a TDA, Tax Sheltered Annuity (TSA), 403(b) plan or 403(b) annuity) generally if you are either an employer or employee of a tax-exempt organization (as defined under Code Section 501(c)(3)) or a public educational organization, and you may make contributions to a TDA so long as your rights (or your employee's rights) to the annuity are nonforfeitable. Contributions to a TDA, and any earnings, are not taxable until distribution. You may also make contributions to a TDA under a salary reduction agreement, generally up to a maximum of $15,500 in 2008. Individuals participating in a TDA who are age 50 or above by the end of the year will be permitted to contribute an additional $5,000 in 2008. This amount is indexed for inflation. Further, you may roll over TDA amounts to another TDA or an IRA. You may also roll over TDA amounts to a qualified retirement plan, a SEP and a 457 government plan. A contract may generally only qualify as a TDA if distributions of salary deferrals (other than "grandfathered" amounts held as of December 31, 1988) may be made only on account of: . Your attainment of age 59 1/2; . Your severance of employment; . Your death; . Your total and permanent disability; or . Hardship (under limited circumstances, and only related to salary deferrals, not including earnings attributable to these amounts). In any event, you must begin receiving distributions from your TDA by April 1st of the calendar year after the calendar year you turn age 70 1/2 or retire, whichever is later. These distribution limits do not apply either to transfers or exchanges of investments under the contract, or to any "direct transfer" of your interest in the contract to another TDA or to a mutual fund "custodial account" described under Code Section 403(b)(7). Employer contributions to TDAs are subject to the same general contribution, nondiscrimination, and minimum participation rules applicable to "qualified" retirement plans. Final regulations related to 403(b) contracts were issued in 2007. Under these final regulations, certain contract exchanges may be accepted only if the employer and the issuer have entered into the required information-sharing agreements. Such agreements must be in place by January 1, 2009. We do not currently accept transfers of funds under 403(b) contracts. Funds can only be added to the contract as a current salary deferral under an agreement with your employer or as a direct rollover from another employer plan. We intend to begin accepting such transfers in the future when we can comply with the new regulations. Required Minimum Distributions and Payment Options If you hold the contract under an IRA (or other tax-favored plan), required minimum distribution rules must be satisfied. This means that generally payments must start by April 1 of the year after the year you reach age 70 1/2 and must be made for each year thereafter. For a TDA or a 401(a) plan for which the participant is not a greater than 5% owner of the employer, this required beginning date can generally be deferred to retirement, if later. Roth IRAs are not subject to these rules during the Owner's lifetime. The amount of the payment must at least equal the minimum required under the IRS rules. Several choices are available for calculating the minimum amount. More information on the mechanics of this calculation is available on request. Please contact us at a reasonable time before the IRS deadline so that a timely distribution is made. Please note that there is a 50% tax penalty on the amount of any required minimum distribution not made in a timely manner. Required minimum distributions are calculated based on the sum of the Account Value and the actuarial value of any additional death benefits and benefits from optional riders that you have purchased under the contract. As a result, the required minimum distributions may be larger than if the calculation were based on the Account Value only, which may in turn result in an earlier (but not before the required beginning date) distribution of amounts under the Annuity and an increased amount of taxable income distributed to the Annuity owner, and a reduction of death benefits and the benefits of any optional riders. You can use the Minimum Distribution option to satisfy the required minimum distribution rules for an Annuity without either beginning annuity payments or surrendering the Annuity. We will distribute to you the required minimum distribution amount, less any other partial withdrawals that you made during the year. Such amount will be based on the value of the contract as of December 31 of the prior year, but is determined without regard to other contracts you may own. Although the IRS rules determine the required amount to be distributed from your IRA each year, certain payment alternatives are still available to you. If you own more than one IRA, you can choose to satisfy your minimum distribution requirement for each of your IRAs by withdrawing that amount from any of your IRAs. If you inherit more than one IRA or more than one Roth IRA from the same owner, similar rules apply. Required Distributions Upon Your Death for Qualified Annuity Contracts Upon your death under an IRA, Roth IRA, 403(b) or other employer sponsored plan, the designated beneficiary may generally elect to continue the contract and receive required minimum distributions under the contract instead of receiving the death benefit in a single payment. The available payment options will depend on whether you die before the date required minimum distributions under the Code were to begin, whether you have named a designated beneficiary and whether that beneficiary is your surviving spouse. 102 . If you die after a designated beneficiary has been named, the death benefit must be distributed by December 31/st/ of the year including the five year anniversary of the date of death, or as periodic payments not extending beyond the life or life expectancy of the designated beneficiary (as long as payments begin by December 31/st/ of the year following the year of death). However, if your surviving spouse is the beneficiary, the death benefit can be paid out over the life or life expectancy of your spouse with such payments beginning no later than December 31/st/ of the year following the year of death or December 31/st/ of the year in which you would have reached age 70 1/2, which ever is later. Additionally, if the contract is payable to (or for the benefit of) your surviving spouse, that portion of the contract may be continued with your spouse as the owner. . If you die before a designated beneficiary is named and before the date required minimum distributions must begin under the Code, the death benefit must be paid out by December 31st of the year including the five year anniversary of the date of death. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31st of the year following the year of death, such contract is deemed to have no designated beneficiary. A designated beneficiary may elect to apply the rules for no designated beneficiary if those would provide a smaller payment requirement. . If you die before a designated beneficiary is named and after the date required minimum distributions must begin under the Code, the death benefit must be paid out at least as rapidly as under the method then in effect. For contracts where multiple beneficiaries have been named and at least one of the beneficiaries does not qualify as a designated beneficiary and the account has not been divided into separate accounts by December 31st of the year following the year of death, such contract is deemed to have no designated beneficiary. A designated beneficiary may elect to apply the rules for no designated beneficiary if those would provide a smaller payment requirement. A beneficiary has the flexibility to take out more each year than mandated under the required minimum distribution rules. Until withdrawn, amounts in a Qualified Annuity contract continue to be tax deferred. Amounts withdrawn each year, including amounts that are required to be withdrawn under the required minimum distribution rules, are subject to tax. You may wish to consult a professional tax advisor for tax advice as to your particular situation. For a Roth IRA, if death occurs before the entire interest is distributed, the death benefit must be distributed under the same rules applied to IRAs where death occurs before the date required minimum distributions must begin under the Code. Tax Penalty for Early Withdrawals from Qualified Annuity Contracts You may owe a 10% tax penalty on the taxable part of distributions received from an IRA, SEP, Roth IRA, TDA or qualified retirement plan before you attain age 59 1/2. Amounts are not subject to this tax penalty if: . the amount is paid on or after you reach age 59 1/2 or die; . the amount received is attributable to your becoming disabled; or . generally the amount paid or received is in the form of substantially equal payments not less frequently than annually. (Please note that substantially equal payments must continue until the later of reaching age 59 1/2 or 5 years. Modification of payments during that time period will result in retroactive application of the 10% tax penalty.) Other exceptions to this tax may apply. You should consult your tax advisor for further details. Withholding We will withhold federal income tax at the rate of 20% for any eligible rollover distribution paid by us to or for a plan participant, unless such distribution is "directly" rolled over into another qualified plan, IRA (including the IRA variations described above), SEP, 457 government plan or TDA. An eligible rollover distribution is defined under the tax law as a distribution from an employer plan under 401(a), a TDA or a 457 governmental plan, excluding any distribution that is part of a series of substantially equal payments (at least annually) made over the life expectancy of the employee or the joint life expectancies of the employee and his designated beneficiary, any distribution made for a specified period of 10 years or more, any distribution that is a required minimum distribution and any hardship distribution. Regulations also specify certain other items which are not considered eligible rollover distributions. For all other distributions, unless you elect otherwise, we will withhold federal income tax from the taxable portion of such distribution at an appropriate percentage. The rate of withholding on annuity payments where no mandatory withholding is required is determined on the basis of the withholding certificate that you file with us. If you do not file a certificate, we will automatically withhold federal taxes on the following basis: . For any annuity payments not subject to mandatory withholding, you will have taxes withheld by us as if you are a married individual, with 3 exemptions. If no U.S. taxpayer identification number is provided, we will automatically withhold using single with zero exemptions as the default; and . For all other distributions, we will withhold at a 10% rate. We will provide you with forms and instructions concerning the right to elect that no amount be withheld from payments in the ordinary course. However, you should know that, in any event, you are liable for payment of federal income taxes on the taxable portion of the distributions, and you should consult with your tax advisor to find out more information on your potential liability if you fail to pay such taxes. There may be additional state income tax withholding requirements. 103 ERISA Requirements ERISA (the "Employee Retirement Income Security Act of 1974") and the Code prevent a fiduciary and other "parties in interest" with respect to a plan (and, for these purposes, an IRA would also constitute a "plan") from receiving any benefit from any party dealing with the plan, as a result of the sale of the contract. Administrative exemptions under ERISA generally permit the sale of insurance/annuity products to plans, provided that certain information is disclosed to the person purchasing the contract. This information has to do primarily with the fees, charges, discounts and other costs related to the contract, as well as any commissions paid to any agent selling the contract. Information about any applicable fees, charges, discounts, penalties or adjustments may be found in the applicable sections of this Prospectus. Information about sales representatives and commissions may be found in the sections of this Prospectus addressing distribution of the Annuities. Other relevant information required by the exemptions is contained in the contract and accompanying documentation. Please consult with your tax advisor if you have any questions about ERISA and these disclosure requirements. Spousal Consent Rules for Retirement Plans - Qualified Contracts If you are married at the time your payments commence, you may be required by federal law to choose an income option that provides survivor annuity income to your spouse, unless your spouse waives that right. Similarly, if you are married at the time of your death, federal law may require all or a portion of the Death Benefit to be paid to your spouse, even if you designated someone else as your beneficiary. A brief explanation of the applicable rules follows. For more information, consult the terms of your retirement arrangement. Defined Benefit Plans and Money Purchase Pension Plans. If you are married at the time your payments commence, federal law requires that benefits be paid to you in the form of a "qualified joint and survivor annuity" (QJSA), unless you and your spouse waive that right, in writing. Generally, this means that you will receive a reduced payment during your life and, upon your death, your spouse will receive at least one-half of what you were receiving for life. You may elect to receive another income option if your spouse consents to the election and waives his or her right to receive the QJSA. If your spouse consents to the alternative form of payment, your spouse may not receive any benefits from the plan upon your death. Federal law also requires that the plan pay a Death Benefit to your spouse if you are married and die before you begin receiving your benefit. This benefit must be available in the form of an annuity for your spouse's lifetime and is called a "qualified pre-retirement survivor annuity" (QPSA). If the plan pays Death Benefits to other beneficiaries, you may elect to have a beneficiary other than your spouse receive the Death Benefit, but only if your spouse consents to the election and waives his or her right to receive the QPSA. If your spouse consents to the alternate beneficiary, your spouse will receive no benefits from the plan upon your death. Any QPSA waiver prior to your attaining age 35 will become null and void on the first day of the calendar year in which you attain age 35, if still employed. Defined Contribution Plans (including 401(k) Plans and ERISA 403(b) Annuities). Spousal consent to a distribution is generally not required. Upon your death, your spouse will receive the entire Death Benefit, even if you designated someone else as your beneficiary, unless your spouse consents in writing to waive this right. Also, if you are married and elect an annuity as a periodic income option, federal law requires that you receive a QJSA (as described above), unless you and your spouse consent to waive this right. IRAs, non-ERISA 403(b) Annuities, and 457 Plans. Spousal consent to a distribution usually is not required. Upon your death, any Death Benefit will be paid to your designated beneficiary. Additional Information For additional information about federal tax law requirements applicable to IRAs and Roth IRAs, see the IRA Disclosure Statement or Roth IRA Disclosure Statement, as applicable. Generation-skipping Transfers If you transfer your contract to a person two or more generations younger than you (such as a grandchild or grandniece) or to a person that is more than 37 1/2 years younger than you, there may be generation-skipping transfer tax consequences. 104 GENERAL INFORMATION HOW WILL I RECEIVE STATEMENTS AND REPORTS? We send any statements and reports required by applicable law or regulation to you at your last known address of record. You should therefore give us prompt notice of any address change. We reserve the right, to the extent permitted by law and subject to your prior consent, to provide any prospectus, prospectus supplements, confirmations, statements and reports required by applicable law or regulation to you through our Internet Website at www.prudentialannuities.com or any other electronic means, including diskettes or CD ROMs. We send a confirmation statement to you each time a transaction is made affecting Account Value, such as making additional Purchase Payments, transfers, exchanges or withdrawals. We may also send quarterly statements detailing the activity affecting your Annuity during the calendar quarter. We may confirm regularly scheduled transactions, including, but not limited to, the Annual Maintenance Fee, Systematic Withdrawals (including 72(t) payments and required minimum distributions), electronic funds transfer, Dollar Cost Averaging, and static rebalancing, in quarterly statements instead of confirming them immediately. You should review the information in these statements carefully. You may request additional reports. We reserve the right to charge up to $50 for each such additional report. We may also send an annual report and a semi-annual report containing applicable financial statements for the Separate Account and the Portfolios, as of December 31 and June 30, respectively, to Owners or, with your prior consent, make such documents available electronically through our Internet Website or other electronic means. WHO IS PRUDENTIAL ANNUITIES? Prudential Annuities Life Assurance Corporation, a Prudential Financial Company, ("Prudential Annuities") is a stock life insurance company domiciled in Connecticut with licenses in all 50 states, the District of Columbia and Puerto Rico. Prudential Annuities is a wholly-owned subsidiary of Prudential Annuities, Inc., whose ultimate parent is Prudential Financial, Inc. Prudential Annuities markets its products to broker-dealers and financial planners through an internal field marketing staff. In addition, Prudential Annuities markets through and in conjunction with financial institutions such as banks that are permitted directly, or through affiliates, to sell annuities. Prudential Annuities offers a wide array of annuities, including (1) deferred variable annuities that are registered with the SEC, including fixed interest rate annuities that are offered as a companion to certain of our variable annuities and are registered because of their market value adjustment feature and (2) fixed annuities that are not registered with the SEC. In addition, Prudential Annuities has in force a relatively small block of variable life insurance policies and immediate variable annuities, but it no longer actively sells such policies. No company other than Prudential Annuities has any legal responsibility to pay amounts that it owes under its annuity and variable life insurance contracts. However, Prudential Financial exercises significant influence over the operations and capital structure of Prudential Annuities. Prudential Annuities conducts the bulk of its operations through staff employed by it or by affiliated companies within the Prudential Financial family. Certain discrete functions have been delegated to non-affiliates that could be deemed "service providers" under the Investment Company Act of 1940. The entities engaged by Prudential Annuities may change over time. As of December 31, 2007, non-affiliated entities that could be deemed service providers to Prudential Annuities and/or another insurer within the Prudential Annuities business unit consisted of the following: ADP (proxy tabulation services) located at 100 Burma Road Jersey City, New Jersey 07305, Alliance-One Services Inc. (administration of variable life policies) located at 55 Hartland Street East Hartford CT 06108, BISYS Retirement Services (qualified plan administrator) located at 200 Dryden Road, Dresher, PA 19025, Blue Frog Solutions, Inc. (order entry systems provider) located at 555 SW 12th Ave, Suite 202 Pompano Beach, FL 33069, EBIX Inc. (order-entry system) located at 5 Concourse Parkway Suite 3200 Atlanta, GA 30328, Diversified Information Technologies Inc. (records management) located at 123 Wyoming Ave Scranton, PA 18503, Fosdick Fulfillment Corp. (fulfillment of prospectuses and marketing materials) located at 26 Barnes Industrial Park Road North Wallingford, CT 06492, Insurance Technologies (annuity illustrations) located at Two South Cascade Avenue, Suite 200 Colorado Springs, CO 80903, Lason Systems Inc. (contract printing and mailing) located at 1305 Stephenson Highway Troy, MI 48083, Morningstar Associates LLC (asset allocation recommendations) located at 225 West Wacker Drive Chicago, IL 60606, Pershing LLC (order-entry systems provider) located at One Pershing Plaza Jersey City, NJ 07399, Personix (printing and fulfillment of confirmations and client statements) located at 13100 North Promenade Boulevard Stafford, TX 77477, RR Donnelley Receivables Inc. (printing annual reports and prospectuses) located at 111 South Wacker Drive Chicago, IL 60606-4301, Stanton Group (qualified plan administrator) located at Two Pine Tree Drive Suite 400 Arden Hills, MN 55112 Attention: Alerus Retirement Solutions, State Street (accumulation unit value calculations) located at State Street Financial Center One Lincoln Street Boston, Massachusetts 02111, The Harty Press, Inc. (printing and fulfillment of marketing materials) located at 25 James Street New Haven, CT 06513, VG Reed & Sons Inc. (printing and fulfillment of annual reports) located at 1002 South 12/th/ Street Louisville, KY 40210, William B. Meyer (printing and fulfillment of prospectuses and marketing materials) located at 255 Long Beach Boulevard Stratford, CT 06615. 105 WHAT ARE SEPARATE ACCOUNTS? The separate accounts are where Prudential Annuities sets aside and invests the assets of some of our annuities. In the accumulation period, assets supporting Account Values of the Annuities are held in a separate account established under the laws of the State of Connecticut. We are the legal owner of assets in the separate accounts. In the payout period, assets supporting fixed annuity payments and any adjustable annuity payments we make available are held in our general account. Assets supporting variable annuity payment options may be invested in our separate accounts. Income, gains and losses from assets allocated to these separate accounts are credited to or charged against each such separate account without regard to other income, gains or losses of Prudential Annuities or of any other of our separate accounts. These assets may only be charged with liabilities which arise from the Annuities issued by Prudential Annuities. The amount of our obligation in relation to allocations to the Sub-accounts is based on the investment performance of such Sub-accounts. However, the obligations themselves are our general corporate obligations. Separate Account B During the accumulation period, the assets supporting obligations based on allocations to the Sub-accounts are held in Sub-accounts of Prudential Annuities Life Assurance Corporation Variable Account B, also referred to as "Separate Account B". Separate Account B was established by us pursuant to Connecticut law on November 25, 1987. Separate Account B also holds assets of other annuities issued by us with values and benefits that vary according to the investment performance of Separate Account B. Separate Account B consists of multiple Sub-accounts. Each Sub-account invests only in a single mutual fund or mutual fund portfolio. The name of each Sub-account generally corresponds to the name of the underlying Portfolio. Each Sub-account in Separate Account B may have several different Unit Prices to reflect the Insurance Charge and the charges for any optional benefits that are offered under the Annuities issued by us through Separate Account B. Separate Account B is registered with the SEC under the Investment Company Act of 1940 ("Investment Company Act") as a unit investment trust, which is a type of investment company. The SEC does not supervise investment policies, management or practices of Separate Account B. We reserve the right to make changes to the Sub-accounts available under the Annuities as we determine appropriate. We may offer new Sub-accounts, eliminate Sub-accounts, or combine Sub-accounts at our sole discretion. We may also close Sub-accounts to additional Purchase Payments on existing Annuities or close Sub-accounts for Annuities purchased on or after specified dates. We may also substitute an underlying mutual fund or portfolio of an underlying mutual fund for another underlying mutual fund or portfolio of an underlying mutual fund, subject to our receipt of any exemptive relief that we are required to obtain under the Investment Company Act. We will notify Owners of changes we make to the Sub-accounts available under their Annuity. Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the underlying mutual funds or fund portfolios, as applicable. We do not guarantee the investment results of any Sub-account. Your Account Value allocated to the Sub-accounts may increase or decrease. You bear the entire investment risk. There is no assurance that the Account Value of your Annuity will equal or be greater than the total of the Purchase Payments you make to us. WHAT IS THE LEGAL STRUCTURE OF THE UNDERLYING FUNDS? Each underlying mutual fund is registered as an open-end management investment company under the Investment Company Act. Shares of the underlying mutual fund portfolios are sold to separate accounts of life insurance companies offering variable annuity and variable life insurance products. The shares may also be sold directly to qualified pension and retirement plans. Voting Rights We are the legal owner of the shares of the underlying mutual funds in which the Sub-accounts invest. However, under SEC rules, you have voting rights in relation to Account Value maintained in the Sub-accounts. If an underlying mutual fund portfolio requests a vote of shareholders, we will vote our shares based on instructions received from Owners with Account Value allocated to that Sub-account. Owners have the right to vote an amount equal to the number of shares attributable to their contracts. If we do not receive voting instructions in relation to certain shares, we will vote those shares in the same manner and proportion as the shares for which we have received instructions. This voting procedure is sometimes referred to as "mirror voting" because, as indicated in the immediately preceding sentence, we mirror the votes that are actually cast, rather than decide on our own how to vote. In addition, because all the shares of a given mutual fund held within our separate account are legally owned by us, we intend to vote all of such shares when that underlying fund seeks a vote of its shareholders. As such, all such shares will be counted towards whether there is a quorum at the underlying fund's shareholder meeting and towards the ultimate outcome of the vote. Thus, under "mirror voting," it is possible that the votes of a small percentage of contractholders who actually vote will determine the ultimate outcome. We will furnish those Owners who have Account Value allocated to a Sub-account whose underlying mutual fund portfolio has requested a "proxy" vote with proxy materials and the necessary forms to provide us with their voting instructions. Generally, you will be asked to provide instructions for us to vote on matters such as changes in a fundamental investment strategy, adoption of a new investment advisory agreement, or matters relating to the structure of the underlying mutual fund that require a vote of shareholders. 106 Advanced Series Trust (the "Trust") has obtained an exemption from the Securities and Exchange Commission that permits its co-investment advisers, AST Investment Services, Inc. and Prudential Investments LLC, subject to approval by the Board of Trustees of the Trust, to change sub-advisors for a Portfolio and to enter into new sub-advisory agreements, without obtaining shareholder approval of the changes. This exemption (which is similar to exemptions granted to other investment companies that are organized in a similar manner as the Trust) is intended to facilitate the efficient supervision and management of the sub-advisors by AST Investment Services, Inc., Prudential Investments LLC and the Trustees. The Trust is required, under the terms of the exemption, to provide certain information to shareholders following these types of changes. We may add new Sub-accounts that invest in a series of underlying funds other than the Trust that is managed by an affiliate. Such series of funds may have a similar order from the SEC. You also should review the prospectuses for the other underlying funds in which various Sub-accounts invest as to whether they have obtained similar orders from the SEC. Material Conflicts It is possible that differences may occur between companies that offer shares of an underlying mutual fund portfolio to their respective separate accounts issuing variable annuities and/or variable life insurance products. Differences may also occur surrounding the offering of an underlying mutual fund portfolio to variable life insurance policies and variable annuity contracts that we offer. Under certain circumstances, these differences could be considered "material conflicts," in which case we would take necessary action to protect persons with voting rights under our variable annuity contracts and variable life insurance policies against persons with voting rights under other insurance companies' variable insurance products. If a "material conflict" were to arise between owners of variable annuity contracts and variable life insurance policies issued by us we would take necessary action to treat such persons equitably in resolving the conflict. "Material conflicts" could arise due to differences in voting instructions between owners of variable life insurance and variable annuity contracts of the same or different companies. We monitor any potential conflicts that may exist. Service Fees Payable to Prudential Annuities Prudential Annuities or our affiliates have entered into agreements with the investment adviser or distributor of the underlying Portfolios. Under the terms of these agreements, Prudential Annuities, or our affiliates may provide administrative and support services to the Portfolios for which it receives a fee of up to 0.75% (currently) of the average assets allocated to the Portfolios under the Annuity from the investment adviser, distributor and/or the fund. These agreements may be different for each underlying mutual fund whose portfolios are offered as Sub-accounts. In addition, an investment adviser, sub-adviser or distributor of the underlying Portfolios may also compensate us by providing reimbursement, defraying the costs of, or paying directly for, among other things, marketing and/or administrative services and/or other services they provide in connection with the Annuity. These services may include, but are not limited to: sponsoring or co-sponsoring various promotional, educational or marketing meetings and seminars attended by distributors, wholesalers, and/or broker dealer firms' registered representatives, and creating marketing material discussing the contract, available options, and underlying Portfolios. The amounts paid depend on the nature of the meetings, the number of meetings attended by the adviser, sub-adviser, or distributor, the number of participants and attendees at the meetings, the costs expected to be incurred, and the level of the adviser's, sub-adviser's or distributor's participation. These payments or reimbursements may not be offered by all advisers, sub-advisers, or distributor and the amounts of such payments may vary between and among each adviser, sub-adviser and distributor depending on their respective participation. During 2007, with regard to amounts that were paid under these kinds of arrangements, the amounts ranged from approximately $750 to approximately $981,102. These amounts may have been paid to one or more Prudential-affiliated insurers issuing individual variable annuities. WHO DISTRIBUTES ANNUITIES OFFERED BY PRUDENTIAL ANNUITIES? Prudential Annuities Distributors, Inc. (PAD), a wholly-owned subsidiary of Prudential Annuities, Inc., is the distributor and principal underwriter of the Annuities offered through this prospectus. PAD acts as the distributor of a number of annuity and life insurance products, and is the co-distributor of the Advanced Series Trust. PAD's principal business address is One Corporate Drive, Shelton, Connecticut 06484. PAD is registered as a broker-dealer under the Securities Exchange Act of 1934 (Exchange Act), and is a member of the Financial Industry Regulatory Authority (FINRA). The Annuity is offered on a continuous basis. PAD enters into distribution agreements with broker-dealers who are registered under the Exchange Act and with entities that may offer the Annuities but are exempt from registration ("firms"). Applications for the Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance agents under state insurance law. In addition, PAD may offer the Annuities directly to potential purchasers. Prudential Annuities sells its annuity products through multiple distribution channels, including (1) independent broker-dealer firms and financial planners; (2) broker-dealers that are members of the New York Stock Exchange, including "wirehouse" and regional broker-dealer firms; and (3) broker-dealers affiliated with banks or that specialize in marketing to customers of banks. Although we are active in each of those distribution channels, the majority of our sales have come from the independent broker- 107 dealer firms and financial planners. On June 1, 2006, The Prudential Insurance Company of America, an affiliate of Prudential Annuities, acquired the variable annuity business of The Allstate Corporation ("Allstate"), which included exclusive access to the Allstate affiliated broker-dealer. We began selling variable annuities through the Allstate affiliated broker-dealer registered representatives in the third quarter of 2006. Commissions are paid to firms on sales of the Annuities according to one or more schedules. The individual representative will receive a portion of the compensation, depending on the practice of his or her firm. Commissions are generally based on a percentage of Purchase Payments made, up to a maximum of 7.0%. Alternative compensation schedules are available that provide a lower initial commission plus ongoing annual compensation based on all or a portion of the Account Value. We may also provide compensation to the distributing firm for providing ongoing service to you in relation to your Annuity. Commissions and other compensation paid in relation to your Annuity do not result in any additional charge to you or to the Separate Account. In addition, in an effort to promote the sale of our products (which may include the placement of Prudential Annuities and/or the Annuities on a preferred or recommended company or product list and/or access to the firm's registered representatives), we or PAD may enter into compensation arrangements with certain broker-dealer firms with respect to certain or all registered representatives of such firms under which such firms may receive separate compensation or reimbursement for, among other things, training of sales personnel and/or marketing and/or administrative services and/or other services they provide. These services may include, but are not limited to: educating customers of the firm on the Annuity's' features; conducting due diligence and analysis, providing office access, operations and systems support; holding seminars intended to educate the firm's registered representatives and make them more knowledgeable about the Annuities; providing a dedicated marketing coordinator; providing priority sales desk support; and providing expedited marketing compliance approval. To the extent permitted by FINRA rules and other applicable laws and regulations, PAD 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. A list of the firms to whom Prudential Annuities paid an amount during 2007 under these arrangements is provided below. 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 Annuities than for selling a different annuity that is not eligible for these compensation arrangements. While compensation is generally taken into account as an expense in considering the charges applicable to an annuity product, any such compensation will be paid by us or PAD and will not result in any additional charge to you. Overall compensation paid to the distributing firm does not exceed, based on actuarial assumptions, 8.5% of the total Purchase Payments made. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Annuity. Further information about the firms that are part of these compensation arrangements appears in the Statement of Additional Information, which is available without charge upon request. We or PAD also may compensate third-party vendors, for services that such vendors render to broker-dealer firms. To the extent permitted by the FINRA rules and other applicable laws and regulations, PAD may pay or allow other promotional incentives or payments in the forms of cash or non-cash compensation. These arrangements may not be offered to all firms and the terms of such arrangements may differ between firms. The list below identifies three general types of payments that PAD pays which are broadly defined as follows: . Percentage Payments based upon "Assets under Management" or "AUM": This type of payment is a percentage payment that is based upon the total amount held in all Prudential Annuities products that were sold through the firm. . Percentage Payments based upon sales: This type of payment is a percentage payment that is based upon the total amount of money received as purchase payments under Prudential Annuities annuity products sold through the firm. . Fixed Payments: These types of payments are made directly to or in sponsorship of the firm (or its affiliated broker-dealers). Examples of arrangements under which such payments may be made currently include, but are not limited to: sponsorships, conferences (national, regional and top producer), speaker fees, promotional items and reimbursements to firms for marketing activities or services paid by the firms and/or their individual representatives. The amount of these payments varies widely because some payments may encompass only a single event, such as a conference, and others have a much broader scope. In addition, we may make payments upon the initiation of a relationship for systems, operational and other support. The list below includes the names of the firms (or their affiliated broker/dealers) that we are aware (as of December 31, 2007) received payment with respect to annuity business during 2007 (or as to which a payment amount was accrued during 2007). The firms listed below include payments in connection with products issued by Prudential Annuities Life Assurance Corporation. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the contract. During 2007, the least amount paid, and greatest amount paid, were $46 and $8,664,735, respectively. 108 Name of Firm: 1717 Capital Management Co. Butler Freeman Tally Fn Gp LLC Financial West Group 1st Global Capital Corporation Cadaret, Grant & Co., Inc. Fintegra, LLC A.G. Edwards & Sons Calton & Associates, Inc First Allied Securities, Inc. Advantage Capital Corporation Cambridge Investment Research, Inc. First Financial Services AICPA Cantella & Co., Inc First Heartland Capital, Inc. AIG Financial Advisors Inc Capital Analysts First Montauk Securities Corp. Allegheny Investments LTD. Capital Financial Services First Trust Portfolios Allegiant Securities LLC Capital Investment Group First Western Advisors Alliance Bernstein Capital One Investments Foothill Securities, Inc. Alliance Financial Group, Inc. Capital Securities Management, Fortune Financial Services, Inc. Allianz Centaurus Financial, Inc. Founders Financial Securities Allstate Financial Srvcs, LLC CFD Investments, Inc. Fox & Co. Investments, Inc. Almax Financial Solutions, LLC Citigroup Global Markets Inc Freedom Investors Corp. Alternative Wealth Strategies City Securities Corporation FSC Securities Corp American General Securities, Inc. Commonwealth Financial Group FSIC AMERICAN PORTFOLIO FIN SVCS INC Commonwealth Financial Network Garden State Securities, Inc. Ameritas Investment Corp Contemporary Fin'l Solutions Gary Goldberg & Co. Arrowhead Investment Center Crown Capital Securities, L.P. Geneos Wealth Management, Inc. Associated Securities Cumberland Brokerage Corporation Genworth Financial Securities AXA Advisors CUNA Brokerage Corporation BancorpSouth Investment Services, Inc. CUSO Financial Services, L.P. Girard Securities, Inc. BB&T Investments Deutsche Goldman Sachs Asset Management BCG Securities, Inc. EDI Financial Great American Advisors, Inc. Benefit Funding Services Group ePlanning Securities, Inc. GunnAllen Financial, Inc. Berthel Fisher & Company Equity Services, Inc. GWN Securities, Inc. Brecek & Young Advisors, Inc. Ferris Baker Watts, Inc H&R Block Financial Advisors, Inc. Broker Dealer Financial FFP Securities, Inc. H. Beck, Inc. Brookstone Securities, Inc. Financial Network Investments Corp. Hantz Financial Services, Inc. Brookstreet Securities Corp. Financial Planning Consultants Harbour Investments, Inc. Hazard & Siegel, Inc. Moors & Cabot, Inc Securities America, Inc. HBW Securities Morgan Keegan Securities Service Network Hornor, Townsend & Kent MTL Equity Products, Inc. Sentra/Spelman Huntington Investment Services Multi Financial Securities Corp. Sigma Financial Corporation ICC Mutual Service Corporation Signator Investor, Inc IFMG Securities, Inc. Mutual Trust Co. of America Sec SII Investments, Inc. IMS Securities, Inc. National Planning Corporation Silver Oaks Securities Independent Financial Group, LLC Neuberger/Berman Stanford Group Company Infinex Investments Inc. New England Securities Stifel Nicolaus & Co., Inc. ING Financial Advisors, LLC Next Financial Group, Inc. Summit Brokerage Services, Inc ING Financial Partners, LLC NFP Securities, Inc. Summit Equities, Incorporated Institutional Securities Corp. North Ridge Securities Corp. SunAmerica Securities InterSecurities, Inc. Oppenheimer & Co, Inc. Sunset Financial Services, Inc Invest Financial Corporation Pacific West Securities, Inc. SWS Financial Services, Inc Investacorp Packerland Brokerage Svcs, Inc Synergy Investment Group, LLC Investment Centers of America Partnervest Securities, Inc. T. Rowe Price Associates Investment Management Corp Paulson Investment Company, Inc. TFS Securities, Inc. Investment Planners, Inc. Planmember Securities Corporation The Investment Center, Inc. Investment Professionals PNC Investment Tower Square Securities Inc Investors Capital Corporation Preferred Financial Group Transamerica Financial Advisors Investors Security Co, Inc. Presidential Brokerage Triad Advisors, Inc. ISG Equity Sales PrimeVest Financial Services Trustmont Financial Group, Inc. J.W. Cole Financial, Inc. Principal Financial Group UBS Financial Services, Inc. Janney Montgomery Scott, LLC. ProEquities, Inc United Planners Financial Services of JB Hanauer Prospera Financial Svcs, Inc. America Jefferson Pilot Securities Co. Pruco Securities United Securities Alliance, Inc. JJB Hilliard Lyons Prudential Annuities USA Financial Securities Corporation Key Investment Services LLC Prudential Financial UVEST Financial Services Group, Inc. KMS FINANCIAL SERVICES, INC Prudential Securities Incorporated Valley National Investments, Inc. Kovack Securities, Inc QA3 Financial Corp. Veritrust Financial LLC Leaders Group Inc. Questar Capital Corporation VSR Financial Services, Inc.
109 Legacy Advisors, LLC R. Seelaus & Co., Inc. Wachovia Bank Legacy Financial Services, Inc. Rampart Financial Services Inc Wachovia Wirehouse Legend Equities Corporation Raymond James & Associates Wall Street Financial Group Legend Securities, Inc. Raymond James Financial Services Walnut Street Securities Leonard & Company RBC Dain Rauscher Waterstone Financial Group Inc Lewis Financial Group, L.C. Resource Horizon Group, LLC Waterstone Investor Services Lincoln Financial Advisors Resource Marketing Webster Investment Services, Inc. Lincoln Investment Planning Rhodes Securities, Inc. Wellstone Securities, LLC Linsco Private Ledger Corp RNR Securities, L.L.C. Westcom Financial Services Lombard Securities Inc. Robert W. Baird & Co., Inc. Wilbanks Securities, Inc. M Holdings Securities, Inc Royal Alliance Williams Financial Group Main Street Securities, LLC Ryan Beck & Co, Inc. Woodbury Financial Services, Inc. MarketMax Rydex Distributors Inc World Choice Securities, Inc. Medallion Investment Services SAIC World Equity Group, Inc. MFS Sammons Securities World Group Securities, Inc. Michigan Securities, Inc. Saunders Discount Brokerage Worth Financial Group, Inc. MML Investors Services, Inc. Scottsdale Capital Advisors WRP Investments, Inc. Money Concepts Capital Corp. Securian Financial Services, Inc. Your Money Matters Brokerage
On July 1, 2003, Prudential Financial combined its retail securities brokerage and clearing operations with those of Wachovia Corporation ("Wachovia") and formed Wachovia Securities Financial Holdings, LLC ("Wachovia Securities"), a joint venture headquartered in Richmond, Virginia. Wachovia is the majority owner and Prudential Financial, indirectly through subsidiaries, is a minority owner of Wachovia Securities. Wachovia and Wachovia Securities are key distribution partners for certain products of Prudential Financial affiliates, including mutual funds and individual annuities that are distributed through their financial advisors, bank channel and independent channel. In addition, Prudential Financial is a service provider to the managed account platform and certain wrap-fee programs offered by Wachovia Securities. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE Prudential Annuities publishes annual and quarterly reports that are filed with the SEC. These reports contain financial information about Prudential Annuities that is annually audited by an independent registered public accounting firm. Prudential Annuities' annual report for the year ended December 31, 2007, together with subsequent periodic reports that Prudential Annuities files with the SEC, are incorporated by reference into this prospectus. You can obtain copies, at no cost, of any and all of this information, including the Prudential Annuities annual report that is not ordinarily mailed to contract owners, the more current reports and any subsequently filed documents at no cost by contacting us at Prudential Annuities - Variable Annuities; P.O. Box 7960, Philadelphia, PA 19176 (Telephone: 203-926-1888). You may read and copy any filings made by Prudential Annuities with the SEC at the SEC's Public Reference Room at 100 F Street, N.E. Washington, D.C. 20549. You can obtain information on the operation of the Public Reference Room by calling (202) 551-8090. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at http://www.sec.gov. FINANCIAL STATEMENTS The financial statements of the separate account and Prudential Annuities Life Assurance Corporation are included in the Statement of Additional Information. HOW TO CONTACT US You can contact us by: . calling our Customer Service Team at 1-800-752-6342 during our normal business hours, Monday through Friday, or Prudential Annuities' telephone automated response system at 1-800-766-4530. . writing to us via regular mail at Prudential Annuities - Variable Annuities, P.O. Box 7960, Philadelphia, PA 19176 OR for express mail Prudential Annuities - Variable Annuities, 2101 Welsh Road, Dresher, PA 19025. NOTE: Failure to send mail to the proper address may result in a delay in our receiving and processing your request. . accessing information about your Annuity through our Internet Website at www. prudentialannuities.com. You can obtain account information by calling our automated response system and at www. prudentialannuities.com, our Internet Website. Our Customer Service representatives are also available during business hours to provide you with information about your account. You can request certain transactions through our telephone voice response system, our Internet Website or through a customer service representative. You can provide authorization for a third party, including your attorney-in-fact acting pursuant to a power of attorney or your Financial Professional, to access your account information and perform certain transactions on your account. You will need to complete a form provided by us which identifies those transactions that you wish to authorize via telephonic and electronic means and whether you wish to authorize a third party to perform any such transactions. Please note that 110 unless you tell us otherwise, we deem that all transactions that are directed by your Financial Professional with respect to your Annuity have been authorized by you. We require that you or your representative provide proper identification before performing transactions over the telephone or through our Internet Website. This may include a Personal Identification Number (PIN) that will be provided to you upon issue of your Annuity or you may establish or change your PIN by calling our automated response system and at www. prudentialannuities.com, our Internet Website. Any third party that you authorize to perform financial transactions on your account will be assigned a PIN for your account. Transactions requested via telephone are recorded. To the extent permitted by law, we will not be responsible for any claims, loss, liability or expense in connection with a transaction requested by telephone or other electronic means if we acted on such transaction instructions after following reasonable procedures to identify those persons authorized to perform transactions on your Annuity using verification methods which may include a request for your Social Security number, PIN or other form of electronic identification. We may be liable for losses due to unauthorized or fraudulent instructions if we did not follow such procedures. Prudential Annuities does not guarantee access to telephonic, facsimile, Internet or any other electronic information or that we will be able to accept transaction instructions via such means at all times. Regular and/or express mail will be the only means by which we will accept transaction instructions when telephonic, facsimile, Internet or any other electronic means are unavailable or delayed. Prudential Annuities reserves the right to limit, restrict or terminate telephonic, facsimile, Internet or any other electronic transaction privileges at any time. INDEMNIFICATION Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Securities Act") may be permitted to directors, officers or persons controlling the registrant pursuant to the foregoing provisions, the registrant has been informed that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. LEGAL PROCEEDINGS We are subject to legal and regulatory actions in the ordinary course of our businesses, including class action lawsuits. Our pending legal and regulatory actions include proceedings specific to us and proceedings generally applicable to business practices in the industry in which we operate. We are subject to class action lawsuits and other litigation alleging, among other things, that we made improper or inadequate disclosures in connection with the sale of annuity products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. We are also subject to litigation arising out of our general business activities, such as our investments and contracts, and could be exposed to claims or litigation concerning certain business or process patents. Regulatory authorities from time to time make inquiries and conduct investigations and examinations relating particularly to us and our products. In addition, we, along with other participants in the business in which we engage, may be subject from time to time to investigations, examinations and inquiries, in some cases industry- wide, concerning issues or matters upon which such regulators have determined to focus. In some of our pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of a litigation or regulatory matter, and the amount or range of potential loss at any particular time, is inherently uncertain. The following is a summary of certain pending proceedings. We have commenced a remediation program to correct errors in the administration of approximately 11,000 annuity contracts issued by us. The owners of these contracts did not receive notification that the contracts were approaching or past their designated annuitization date or default annuitization date (both dates referred to as the "contractual annuity date") and the contracts were not annuitized at their contractual annuity dates. Some of these contracts also were affected by data integrity errors resulting in incorrect contractual annuity dates. The lack of notice and the data integrity errors, as reflected on the annuities administrative system, all occurred before the acquisition of Prudential Annuities by Prudential Financial, Inc. (the "Acquisition"). The remediation and administrative costs of the remediation program are subject to the indemnification provisions of the agreement (the "Acquisition Agreement") pursuant to which Prudential Financial, Inc. acquired Prudential Annuities from Skandia Insurance Company Ltd. (publ) ("Skandia"). Commencing in 2003, we received formal requests for information from the SEC and the New York Attorney General ("NYAG") relating to market timing in variable annuities by us and certain affiliated companies. In connection with these investigations, with the approval of Skandia an offer was made by us to the authorities investigating our companies, the SEC and NYAG, to settle these matters by paying restitution and a civil penalty of $95 million in the aggregate. While not assured, we believe these discussions are likely to lead to settlements with these authorities by us or our affiliates. Any regulatory settlement involving us and certain affiliates would be subject to the indemnification provisions of the Acquisition Agreement pursuant to which Prudential Financial, Inc. purchased Prudential Annuities and certain affiliates in May 2003 from Skandia. If achieved, settlement of the matters relating to us and certain affiliates also could involve continuing monitoring, changes to and/or supervision of business practices, findings that may adversely affect existing or cause additional litigation, adverse publicity and other adverse impacts to our businesses. 111 During the third quarter of 2004, we identified a system generated calculation error in our annuity contract administration system that existed prior to the Acquisition. This error related to the calculation of amounts due to customers for certain transactions subject to a market value adjustment upon the surrender or transfer of monies out of their annuity contract's fixed allocation options. The error resulted in an underpayment to policyholders, as well as additional anticipated costs to us associated with remediation, breakage and other costs. Our consultants have developed the systems functionality to compute remediation amounts and are in the process of running the computations on affected contracts. We contacted state insurance regulators and commenced Phase I of our outreach to customers on November 12, 2007. We have advised Skandia that a portion of the remediation and related administrative costs are subject to the indemnification provisions of the Acquisition Agreement. From January 2006 to May 2007, thirty complaints were filed in 17th Judicial Circuit Court, Broward County, Florida alleging misrepresentations in the sale of annuities against us and in certain of the cases, the two brokers who sold the annuities. The complaints allege that the brokers represented that any losses in the annuities would be insured or paid by a state guaranty fund and purport to state claims of breach of fiduciary duty, negligence, fraud, fraudulent inducement, negligent misrepresentation and seek damages in unspecified amounts but in excess of $15,000 per case. The matter is subject to the indemnification provisions of the Acquisition Agreement. Our litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, the outcomes cannot be predicted. It is possible that the results of operations or the cash flow of Prudential Annuities 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 our 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 our 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 our financial position. It should be noted that the judgments, settlements and expenses associated with many of these lawsuits, administrative and regulatory matters, and contingencies, including certain claims described above, may, in whole or in part, after satisfaction of certain retention requirements, fall within Skandia's indemnification obligations to Prudential Financial and its subsidiaries under the terms of the Acquisition Agreement. Those obligations of Skandia provide for indemnification of certain judgments, settlements, and costs and expenses associated with lawsuits and other claims against Prudential Annuities ("matters"), and apply only to matters, or groups of related matters, for which the costs and expenses exceed $25,000 individually. Additionally, those obligations only apply to such otherwise indemnifiable losses that exceed $10 million in the aggregate, subject to reduction for insurance proceeds, certain accruals and any realized tax benefit applicable to such amounts, and those obligations do not apply to the extent that such aggregate exceeds $1 billion. We are in discussions with Skandia regarding the satisfaction of the $10 million deductible. CONTENTS OF THE STATEMENT OF ADDITIONAL INFORMATION The following are the contents of the Statement of Additional Information: General Information about Prudential Annuities . Prudential Annuities Life Assurance Corporation . Prudential Annuities Life Assurance Corporation Variable Account B Principal Underwriter/Distributor - Prudential Annuities Distributors, Inc. How the Unit Price is Determined Other Tax Rules General Information Voting Rights Modification Deferral of Transactions Misstatement of Age or Sex Ending the Offer Annuitization Experts Legal Experts Financial Statements 112 APPENDIX A - CONDENSED FINANCIAL INFORMATION ABOUT SEPARATE ACCOUNT B SEC rules require us to set forth information about the historical unit vales for the ASAP 2008 Annuity. Because this is the initial offering of ASAP 2008, we do not yet have historical unit values associated with this Annuity. Such historical unit values will be provided in post-effective amendments. A-1 APPENDIX B - CALCULATION OF OPTIONAL DEATH BENEFITS Examples of Enhanced Beneficiary Protection Optional Death Benefit Calculation The following are examples of how the Enhanced Beneficiary Protection Optional Death Benefit is calculated. Each example assumes that a $50,000 initial Purchase Payment is made. Each example assumes that there is one Owner who is age 50 on the Issue Date and that all Account Value is maintained in the variable investment options. The formula for determining the Enhanced Beneficiary Protection Optional Death Benefit is as follows: Growth = Account Value of variable minus Purchase Payments - investment options proportional withdrawals
Example with market increase Assume that the Owner has made no withdrawals and that the Account Value has been increasing due to positive market performance. On the date we receive due proof of death, the Account Value is $75,000. The basic Death Benefit is calculated as Purchase Payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $75,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($75,000) PLUS 40% of the "Growth" under the Annuity. Growth = $75,000 - [$50,000 - $0] = $25,000 Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth = $25,000 * 0.40 = $10,000 Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit = $85,000
Examples with market decline Assume that the Owner has made no withdrawals and that the Account Value has been decreasing due to declines in market performance. On the date we receive due proof of death, the Account Value is $45,000. The basic Death Benefit is calculated as Purchase Payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $50,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($50,000) PLUS the "Growth" under the Annuity. Growth = $45,000 - [$50,000 - $0] = $-5,000 Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth NO BENEFIT IS PAYABLE Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit = $50,000
In this example you would receive no additional benefit from purchasing the Enhanced Beneficiary Protection Optional Death Benefit. Example with market increase and withdrawals Assume that the Account Value has been increasing due to positive market performance and the Owner made a withdrawal of $15,000 in Annuity Year 5 when the Account Value was $75,000. On the date we receive due proof of death, the Account Value is $90,000. The basic Death Benefit is calculated as Purchase Payments minus proportional withdrawals, or Account Value, which ever is greater. Therefore, the basic Death Benefit is equal to $90,000. The Enhanced Beneficiary Protection Optional Death Benefit is equal to the amount payable under the basic Death Benefit ($90,000) PLUS 40% of the "Growth" under the Annuity. Growth = $90,000 - [$50,000 - ($50,000 * $15,000/$75,000)] = $90,000 - [$50,000 - $10,000] = $90,000 - $40,000 = $50,000 Benefit Payable under Enhanced Beneficiary Protection Optional Death Benefit = 40% of Growth = $50,000 * 0.40 = $20,000 Benefit Payable under Basic Death Benefit PLUS Enhanced Beneficiary Protection Optional Death Benefit = $110,000
B-1 Examples of Highest Anniversary Value Death Benefit Calculation The following are examples of how the Highest Anniversary Value Death Benefit is calculated. Each example assumes an initial Purchase Payment of $50,000. Each example assumes that there is one Owner who is age 70 on the Issue Date and that all Account Value is maintained in the variable investment options. Example with market increase and death before Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals have been made. On the date we receive due proof of death, the Account Value is $75,000; however, the Anniversary Value on the 5th anniversary of the Issue Date was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Anniversary Value or the basic Death Benefit. The Death Benefit would be the Highest Anniversary Value ($90,000) because it is greater than the amount that would have been payable under the basic Death Benefit ($75,000). Example with withdrawals Assume that the Account Value has been increasing due to positive market performance and the Owner made a withdrawal of $15,000 in Annuity Year 7 when the Account Value was $75,000. On the date we receive due proof of death, the Account Value is $80,000; however, the Anniversary Value on the 5th anniversary of the Issue Date was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Anniversary Value or the basic Death Benefit. Highest Anniversary Value = $90,000 - [$90,000 * $15,000/$75,000] = $90,000 - $18,000 = $72,000 Basic Death Benefit = max [$80,000, $50,000 - ($50,000 * $15,000/$75,000)] = max [$80,000, $40,000] = $80,000 The Death Benefit therefore is $80,000.
Example with death after Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals had been made prior to the Death Benefit Target Date. Further assume that the Owner dies after the Death Benefit Target Date, when the Account Value is $75,000. The Highest Anniversary Value on the Death Benefit Target Date was $80,000; however, following the Death Benefit Target Date, the Owner made a Purchase Payment of $15,000 and later had taken a withdrawal of $5,000 when the Account Value was $70,000. The Death Benefit is equal to the greater of the Highest Anniversary Value plus Purchase Payments minus proportional withdrawals after the Death Benefit Target Date or the basic Death Benefit. Highest Anniversary Value = $80,000 + $15,000 - [($ 80,000 + $15,000) * $5,000/$70,000] = $80,000 + $15,000 - $6,786 = $88,214 Basic Death Benefit = max [$75,000, ($50,000 + $15,000) - {($50,000 + $15,000) * $5,000/$70,000}] = max [$75,000, $60,357] = $75,000 The Death Benefit therefore is $88,214.
Examples of Combination 5% Roll-Up and Highest Anniversary Value Death Benefit Calculation The following are examples of how the Combination 5% Roll-Up and Highest Anniversary Value Death Benefit are calculated. Each example assumes an initial Purchase Payment of $50,000. Each example assumes that there is one Owner who is age 70 on the Issue Date and that all Account Value is maintained in the variable investment options. Example with market increase and death before Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals have been made. On the 7/th/ anniversary of the Issue Date we receive due proof of death, at which time the Account Value is $75,000; however, the Anniversary Value on the 5/th/ anniversary of the Issue Date was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Roll-Up Value is equal to initial Purchase Payment accumulated at 5% for 6 years, or $67,005. The Death Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary Value or the basic Death Benefit. The Death Benefit would be the Highest Anniversary Value ($90,000) because it is greater than both the Roll-Up Value ($67,005) and the amount that would have been payable under the basic Death Benefit ($75,000). B-2 Example with withdrawals Assume that the Owner made a withdrawal of $5,000 on the 6/th/ anniversary of the Issue Date when the Account Value was $45,000. The Roll-Up Value on the 6/th/ anniversary of the Issue Date is equal to initial Purchase Payment accumulated at 5% for 6 years, or $67,005. The 5% Dollar-for-Dollar Withdrawal Limit for the 7/th/ annuity year is equal to 5% of the Roll-Up Value as of the 6/th/ anniversary of the Issue Date, or $3,350. Therefore, the remaining $1,650 of the withdrawal results in a proportional reduction to the Roll-Up Value. On the 7/th/ anniversary of the Issue Date we receive due proof of death, at which time the Account Value is $43,000; however, the Anniversary Value on the 2nd anniversary of the Issue Date was $70,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary Value or the basic Death Benefit. Roll-Up Value = {($67,005 - $3,350) - [($67,005 - $3,350) * $1,650/($45,000 - $3,350)]} * 1.05 = ($63,655 - $2,522) * 1.05 = $64,190 Highest Anniversary Value = $70,000 - [$70,000 * $5,000/$45,000] = $70,000 - $7,778 = $62,222 Basic Death Benefit = max [$43,000, $50,000 - ($50,000 * $5,000/$45,000)] = max [$43,000, $44,444] = $44,444 The Death Benefit therefore is $64,190.
Example with death after Death Benefit Target Date Assume that the Owner has not made any withdrawals prior to the Death Benefit Target Date. Further assume that the Owner dies after the Death Benefit Target Date, when the Account Value is $75,000. The Roll-Up Value on the Death Benefit Target Date (the contract anniversary on or following the Owner's 80th birthday) is equal to initial Purchase Payment accumulated at 5% for 10 years, or $81,445. The Highest Anniversary Value on the Death Benefit Target Date was $85,000; however, following the Death Benefit Target Date, the Owner made a Purchase Payment of $15,000 and later had taken a withdrawal of $5,000 when the Account Value was $70,000. The Death Benefit is equal to the greatest of the Roll-Up Value, Highest Anniversary Value or the basic Death Benefit as of the Death Benefit Target Date; each increased by subsequent Purchase Payments and reduced proportionally for subsequent withdrawals. Roll-Up Value = $81,445 + $15,000 - [($81,445 + 15,000) * $5,000/$70,000] = $81,445 + $15,000 - $6,889 = $89,556 Highest Anniversary Value = $85,000 + $15,000 - [($85,000 + 15,000) * $5,000/$70,000] = $85,000 + $15,000 - $7,143 = $92,857 Basic Death Benefit = max [$75,000, $50,000 + $15,000 - {(50,000 + $15,000) * $5,000/$70,000}] = max [$75,000, $60,357] = $75,000 The Death Benefit therefore is $92,857.
Examples of Highest Daily Value Death Benefit Calculation The following are examples of how the HDV Death Benefit is calculated. Each example assumes an initial Purchase Payment of $50,000. Each example assumes that there is one Owner who is age 70 on the Issue Date. Example with market increase and death before Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals have been made. On the date we receive due proof of death, the Account Value is $75,000; however, the Highest Daily Value was $90,000. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Daily Value or the basic Death Benefit. The Death Benefit would be the HDV ($90,000) because it is greater than the amount that would have been payable under the basic Death Benefit ($75,000). B-3 Example with withdrawals Assume that the Account Value has been increasing due to positive market performance and the Owner made a withdrawal of $15,000 in Annuity Year 7 when the Account Value was $75,000. On the date we receive due proof of death, the Account Value is $80,000; however, the Highest Daily Value ($90,000) was attained during the fifth Annuity Year. Assume as well that the Owner has died before the Death Benefit Target Date. The Death Benefit is equal to the greater of the Highest Daily Value (proportionally reduced by the subsequent withdrawal) or the basic Death Benefit. Highest Daily Value = $90,000 - [$90,000 * $15,000/$75,000] = $90,000 - $18,000 = $72,000 Basic Death Benefit = max [$80,000, $50,000 - ($50,000 * $15,000/$75,000)] = max [$80,000, $40,000] = $80,000 The Death Benefit therefore is $80,000.
Example with death after Death Benefit Target Date Assume that the Owner's Account Value has generally been increasing due to positive market performance and that no withdrawals had been made prior to the Death Benefit Target Date. Further assume that the Owner dies after the Death Benefit Target Date, when the Account Value is $75,000. The Highest Daily Value on the Death Benefit Target Date was $80,000; however, following the Death Benefit Target Date, the Owner made a Purchase Payment of $15,000 and later had taken a withdrawal of $5,000 when the Account Value was $70,000. The Death Benefit is equal to the greater of the Highest Daily Value on the Death Benefit Target Date plus Purchase Payments minus proportional withdrawals after the Death Benefit Target Date or the basic Death Benefit. Highest Daily Value = $80,000 + $15,000 - [($80,000 + $15,000) * $5,000/$70,000] = $80,000 + $15,000 - $6,786 = $88,214 Basic Death Benefit = max [$75,000, ($50,000 + $15,000) - {($50,000 + $15,000) * $5,000/$70,000}] = max [$75,000, $60,357] = $75,000 The Death Benefit therefore is $88,214.
B-4 APPENDIX C - ADDITIONAL INFORMATION ON ASSET ALLOCATION PROGRAMS PROGRAM RULES Asset allocation is a sophisticated method of diversification that allocates assets among asset classes in order to manage investment risk and potentially enhance returns over the long term. However, asset allocation does not guarantee a profit or protect against a loss. HOW THE ASSET ALLOCATION PROGRAM WORKS. . Amounts will automatically be allocated in accordance with the percentages and to Sub-accounts indicated for the model portfolio that you previously chose. If you allocate your Account Value or transfer your Account Value among any Sub-accounts that are outside of your model portfolio, we will allocate these amounts according to the allocation percentages of the applicable model portfolio upon the next rebalancing. You will not be permitted to change from one model portfolio to another. Upon each rebalance, 100% of your Account Value allocated to the variable Sub-accounts will be allocated to the asset allocation program. Any Account Value not invested in the Sub-accounts will not be part of the program. . Additional Purchase Payments: Unless otherwise requested, any additional Purchase Payments applied to the variable Sub-accounts in the Annuity will be allocated to the Sub-accounts according to the allocation percentages for the model portfolio you chose. Allocation of additional Purchase Payments outside of your model portfolio but into a Sub-account, will be reallocated according to the allocation percentages of the applicable model portfolio upon the next rebalancing. . Rebalancing Your Model Portfolio: Changes in the value of the Sub-account will cause your Account Value allocated to the Sub-accounts to vary from the percentage allocations of the model portfolio you select. By selecting the asset allocation program, you have directed us to periodically (e.g., quarterly) rebalance your Account Value allocated to the Sub-accounts in accordance with the percentage allocations assigned to each Sub-account within your model portfolio at the time you elected the program or had later been modified with your consent. Some asset allocation programs will only require that a rebalancing occur when the percent of your Account Value allocated to the Sub-accounts are outside of the acceptable range permitted under such asset allocation program. Note - Any Account Value not invested in the Sub-accounts will not be affected by any rebalance. . Sub-account Changes Within the Model Portfolios: From time to time there may be a change in a Sub-account within your model portfolio. Unless directed by you or your Financial Professional to reallocate to the new Sub-account, rebalancing will continue in accordance with your unchanged model portfolio, unless the Sub-account is no longer available under your Annuity. If the Sub-account is no longer available we will notify you. If you do not consent to the new Sub-account, your lack of consent will be deemed a request to terminate the asset allocation program and the provisions under "Termination or Modification of the Asset Allocation Program" will apply. . Owner Changes in Choice of Model Portfolio: You may not change from the model portfolio that you have elected to any other model portfolio. TERMINATION OR MODIFICATION OF THE ASSET ALLOCATION PROGRAM: . You may request to terminate your asset allocation program at any time. Once you terminate your asset allocation program, you will not be permitted to re-enroll in the program. Any termination will be effective on the date that Prudential Annuities receives your termination request in good order. If you are enrolled in certain optional benefits, termination of your asset allocation program must coincide with (i) the enrollment in a then currently available and approved asset allocation program or other approved option, or (ii) the allocation of your entire account value to the then required investment option(s) available with these benefits. However, if you are enrolled in certain optional benefits you may terminate the benefit in order to then terminate your asset allocation program. Prudential Annuities reserves the right to terminate or modify the asset allocation program at any time with respect to any programs. RESTRICTIONS ON ELECTING THE ASSET ALLOCATION: . You cannot participate in auto-rebalancing or a DCA program while enrolled in an asset allocation program and Systematic Withdrawals can only be made as flat dollar amounts. C-1 APPENDIX D - ASSET TRANSER FORMULA UNDER GRO PLUS 2008 AND HIGHEST DAILY GRO THE FOLLOWING ARE THE TERMS AND DEFINITIONS REFERENCED IN THE TRANSFER CALCULATION FORMULA: . AV is the current Account Value of the Annuity . V is the current Account Value of the elected Sub-accounts of the Annuity . B is the total current value of the AST bond portfolio Sub-account . C\\l\\ is the lower target value. Currently, it is 79%. . C\\t\\ is the middle target value. Currently, it is 82%. . C\\u\\ is the upper target value. Currently, it is 85%. For each guarantee provided under the program, . G\\i\\ is the guarantee amount . N\\i\\ is the number of days until the maturity date . d\\i\\ is the discount rate applicable to the number of days until the maturity date. It is determined with reference to a benchmark index, reduced by the Discount Rate Adjustment. Once selected, we will not change the applicable benchmark index. However, if the benchmark index is discontinued, we will substitute a successor benchmark index, if there is one. Otherwise we will substitute a comparable benchmark index. We will obtain any required regulatory approvals prior to substitution of the benchmark index. The formula, which is set on the Effective Date and is not changed while the Rider is in effect, determines, on each Valuation Day, when a transfer is required. The formula begins by determining the value on that Valuation Day that, if appreciated at the applicable discount rate, would equal the guarantee amount at the end of the Base Guarantee Period or Step-Up Guarantee Period. We call the greatest of these values the "current liability (L)." L = MAX (L\\i\\), where L\\i\\ = G\\i\\ / (1 + d\\i\\)/(Ni/365)/.
Next the formula calculates the following formula ratio: r = (L - B) / V.
If the formula ratio exceeds an upper target value, then all or a portion of the Account Value will be transferred to the bond fund Sub-account associated with the current liability. If at the time we make a transfer to the bond fund Sub-account associated with the current liability there is Account Value allocated to a bond fund Sub-account not associated with the current liability, we will transfer all assets from that bond fund Sub-account to the bond fund Sub-account associated with the current liability. The formula will transfer assets into the Transfer Account if r (greater than) C\\u\\. The transfer amount is calculated by the following formula: T = {Min(V, [L - B - V*C\\t\\] / (1 - C\\t\\))}
If the formula ratio is less than a lower target value and there are assets in the Transfer Account, then the formula will transfer assets out of the Transfer Account into the elected Sub-accounts. The transfer amount is calculated by the following formula: T = {Min(B, - [L - B - V*C\\t\\] / (1 - C\\t\\))}
If following a transfer to the elected Sub-accounts, there are assets remaining in a bond fund Sub-account not associated with the current liability, we will transfer all assets from that bond fund Sub-account to the bond fund Sub-account associated with the current liability. D-1 APPENDIX E - ASSET TRANSFER FORMULA UNDER HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT AND SPOUSAL HIGHEST DAILY LIFETIME SEVEN INCOME BENEFIT TERMS AND DEFINITIONS REFERENCED IN THE CALCULATION FORMULA: . C\\u\\ - the upper target is established on the effective date of the Highest Daily Lifetime Seven benefit (the "Effective Date") and is not changed for the life of the guarantee. Currently, it is 83%. . C\\t\\ - the target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 80%. . C\\l\\ - the lower target is established on the Effective Date and is not changed for the life of the guarantee. Currently, it is 77%. . L - the target value as of the current business day. . r - the target ratio. . a - factors used in calculating the target value. These factors are established on the Effective Date and are not changed for the life of the guarantee. . V\\v\\ - the total value of all Permitted Sub-accounts in the Annuity. . V\\F\\ the total value of all elected Fixed Rate Options in the Annuity . B - the total value of the AST Investment Grade Bond Portfolio Sub-account. . P - Income Basis. Prior to the first withdrawal, the Income Basis is the Protected Withdrawal Value calculated as if the first withdrawal were taken on the date of calculation. After the first withdrawal, the Income Basis is equal to the greater of (1) the Protected Withdrawal Value at the time of the first withdrawal, adjusted for additional purchase payments, and adjusted proportionally for excess withdrawals*, (2) any highest quarterly value increased for additional purchase payments and adjusted for withdrawals, and (3) the Account Value. . T - the amount of a transfer into or out of the AST Investment Grade Bond Portfolio Sub-account * Note: withdrawals of less than the Annual Income Amount do not reduce the Income Basis. TARGET VALUE CALCULATION: On each business day, a target value (L) is calculated, according to the following formula. If the Account Value (V\\V\\ + V\\F\\) is equal to zero, no calculation is necessary. L = 0.05 * P * a Transfer Calculation: The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines when a transfer is required: Target Ratio r = (L - B) / (V\\V\\ + V\\F\\).
. If r (greater than) C\\u\\, assets in the Permitted Sub-accounts are transferred to the AST Investment Grade Bond Portfolio Sub-account. . If r (less than) C\\l\\, and there are currently assets in the AST Investment Grade Bond Portfolio Sub-account (B (greater than) 0), assets in the AST Investment Grade Bond Portfolio Sub-account are transferred to the Permitted Sub-accounts according to most recent allocation instructions. The following formula, which is set on the Benefit Effective Date and is not changed for the life of the guarantee, determines the transfer amount: T = {Min (V\\V\\ + V\\F\\), [L - B - (V\\V\\ + V\\F\\) * C\\t\\] / (1 - C\\t\\))} Money is transferred from the elected Sub- accounts and Fixed Rate Options to the Transfer Account T = {Min (B, - [L - B -(V\\V\\ + V\\F\\)* C\\t\\] / (1 - C\\t\\))} Money is transferred from the Transfer Account to the elected Sub-accounts
E-1 "a" Factors for Liability Calculations (in Years and Months since Benefit Effective Date)*
Months Years 1 2 3 4 5 6 7 8 9 10 11 12 ----- ------ ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- ----- 1 15.34 15.31 15.27 15.23 15.20 15.16 15.13 15.09 15.05 15.02 14.98 14.95 2 14.91 14.87 14.84 14.80 14.76 14.73 14.69 14.66 14.62 14.58 14.55 14.51 3 14.47 14.44 14.40 14.36 14.33 14.29 14.26 14.22 14.18 14.15 14.11 14.07 4 14.04 14.00 13.96 13.93 13.89 13.85 13.82 13.78 13.74 13.71 13.67 13.63 5 13.60 13.56 13.52 13.48 13.45 13.41 13.37 13.34 13.30 13.26 13.23 13.19 6 13.15 13.12 13.08 13.04 13.00 12.97 12.93 12.89 12.86 12.82 12.78 12.75 7 12.71 12.67 12.63 12.60 12.56 12.52 12.49 12.45 12.41 12.38 12.34 12.30 8 12.26 12.23 12.19 12.15 12.12 12.08 12.04 12.01 11.97 11.93 11.90 11.86 9 11.82 11.78 11.75 11.71 11.67 11.64 11.60 11.56 11.53 11.49 11.45 11.42 10 11.38 11.34 11.31 11.27 11.23 11.20 11.16 11.12 11.09 11.05 11.01 10.98 11 10.94 10.90 10.87 10.83 10.79 10.76 10.72 10.69 10.65 10.61 10.58 10.54 12 10.50 10.47 10.43 10.40 10.36 10.32 10.29 10.25 10.21 10.18 10.14 10.11 13 10.07 10.04 10.00 9.96 9.93 9.89 9.86 9.82 9.79 9.75 9.71 9.68 14 9.64 9.61 9.57 9.54 9.50 9.47 9.43 9.40 9.36 9.33 9.29 9.26 15 9.22 9.19 9.15 9.12 9.08 9.05 9.02 8.98 8.95 8.91 8.88 8.84 16 8.81 8.77 8.74 8.71 8.67 8.64 8.60 8.57 8.54 8.50 8.47 8.44 17 8.40 8.37 8.34 8.30 8.27 8.24 8.20 8.17 8.14 8.10 8.07 8.04 18 8.00 7.97 7.94 7.91 7.88 7.84 7.81 7.78 7.75 7.71 7.68 7.65 19 7.62 7.59 7.55 7.52 7.49 7.46 7.43 7.40 7.37 7.33 7.30 7.27 20 7.24 7.21 7.18 7.15 7.12 7.09 7.06 7.03 7.00 6.97 6.94 6.91 21 6.88 6.85 6.82 6.79 6.76 6.73 6.70 6.67 6.64 6.61 6.58 6.55 22 6.52 6.50 6.47 6.44 6.41 6.38 6.36 6.33 6.30 6.27 6.24 6.22 23 6.19 6.16 6.13 6.11 6.08 6.05 6.03 6.00 5.97 5.94 5.92 5.89 24 5.86 5.84 5.81 5.79 5.76 5.74 5.71 5.69 5.66 5.63 5.61 5.58 25 5.56 5.53 5.51 5.48 5.46 5.44 5.41 5.39 5.36 5.34 5.32 5.29 26 5.27 5.24 5.22 5.20 5.18 5.15 5.13 5.11 5.08 5.06 5.04 5.01 27 4.99 4.97 4.95 4.93 4.91 4.88 4.86 4.84 4.82 4.80 4.78 4.75 28 4.73 4.71 4.69 4.67 4.65 4.63 4.61 4.59 4.57 4.55 4.53 4.51 29 4.49 4.47 4.45 4.43 4.41 4.39 4.37 4.35 4.33 4.32 4.30 4.28 30 4.26 4.24 4.22 4.20 4.18 4.17 4.15 4.13 4.11 4.09 4.07 4.06 31 4.04 4.02 4.00 3.98 3.97 3.95 3.93 3.91 3.90 3.88 3.86 3.84 32 3.83 3.81 3.79 3.78 3.76 3.74 3.72 3.71 3.69 3.67 3.66 3.64 33 3.62 3.61 3.59 3.57 3.55 3.54 3.52 3.50 3.49 3.47 3.45 3.44 34 3.42 3.40 3.39 3.37 3.35 3.34 3.32 3.30 3.29 3.27 3.25 3.24 35 3.22 3.20 3.18 3.17 3.15 3.13 3.12 3.10 3.08 3.07 3.05 3.03 36 3.02 3.00 2.98 2.96 2.95 2.93 2.91 2.90 2.88 2.86 2.85 2.83 37 2.81 2.79 2.78 2.76 2.74 2.73 2.71 2.69 2.68 2.66 2.64 2.62 38 2.61 2.59 2.57 2.56 2.54 2.52 2.51 2.49 2.47 2.45 2.44 2.42 39 2.40 2.39 2.37 2.35 2.34 2.32 2.30 2.29 2.27 2.25 2.24 2.22 40 2.20 2.19 2.17 2.15 2.14 2.12 2.11 2.09 2.07 2.06 2.04 2.02 41 2.01 1.84 1.67 1.51 1.34 1.17 1.00 0.84 0.67 0.50 0.33 0.17
* The values set forth in this table are applied to all ages. E-2 PLEASE SEND ME A STATEMENT OF ADDITIONAL INFORMATION THAT CONTAINS FURTHER DETAILS ABOUT THE PRUDENTIAL ANNUITIES ANNUITY DESCRIBED IN PROSPECTUS. -------------------------------------- (print your name) -------------------------------------- (address) -------------------------------------- (city/state/zip code)
--------------- [LOGO] Prudential PRSRT STD The Prudential Insurance Company of America U.S. POSTAGE 751 Broad Street PAID Newark, NJ 07102-3777 LANCASTER, PA PERMIT NO. 1793 ---------------
Variable Annuity Issued by: Variable Annuity Distributed by: PRUDENTIAL ANNUITIES LIFE ASSURANCE PRUDENTIAL ANNUITIES DISTRIBUTORS, CORPORATION INC. A Prudential Financial Company A Prudential Financial Company One Corporate Drive One Corporate Drive Shelton, Connecticut 06484 Shelton, Connecticut 06484 Telephone: 1-800-752-6342 Telephone: 203-926-1888 http:// www.prudentialannuities.com http://www.prudentialannuities.com
MAILING ADDRESSES: PRUDENTIAL ANNUITIES - VARIABLE ANNUITIES P.O. Box 7960 Philadelphia, PA 19176 EXPRESS MAIL: PRUDENTIAL ANNUITIES - VARIABLE ANNUITIES 2101 Welsh Road Dresher, PA 19025 STATEMENT OF ADDITIONAL INFORMATION The variable investment options under the Annuity are issued by PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION, a Prudential Financial Company, and PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B. The variable investment options are registered under the Securities Act of 1933 and the Investment Company Act of 1940. The fixed investment options ("Fixed Allocations") under the Annuity are issued by PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION. The assets supporting the Fixed Allocations are maintained in PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION SEPARATE ACCOUNT D, a non-unitized separate account, and are registered solely under the Securities Act of 1933. TABLE OF CONTENTS GENERAL INFORMATION ABOUT PRUDENTIAL ANNUITIES 2 PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION 2 PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B 2 PRINCIPAL UNDERWRITER/DISTRIBUTOR - Prudential Annuities Distributors, Inc. 2 HOW THE UNIT PRICE IS DETERMINED 3 GENERAL INFORMATION 3 Voting Rights 3 Modification 4 Deferral of Transactions 4 Misstatement of Age or Sex 5 Ending the Offer 5 ANNUITIZATION 5 EXPERTS 6 LEGAL EXPERTS 6 FINANCIAL STATEMENTS 6 AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION SEPARATE B THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS. YOU SHOULD READ THIS INFORMATION ALONG WITH THE PROSPECTUS FOR THE ANNUITY FOR WHICH IT RELATES. THE PROSPECTUS CONTAINS INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING. FOR A COPY OF THE PROSPECTUS SEND A WRITTEN REQUEST TO PRUDENTIAL ANNUITIES - VARIABLE ANNUITIES, P.O. BOX 7960, PHILADELPHIA, PA OR TELEPHONE 1-800-752-6342. OUR ELECTRONIC MAIL ADDRESS IS CUSTOMERSERVICE@PRUDENTIAL.COM. Date of Statement of Additional Information: June, 2008 Date of Prospectus: June, 2008 ASAP 2008 - SAI (06/2008) GENERAL INFORMATION ABOUT PRUDENTIAL ANNUITIES PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION Prudential Annuities Life Assurance Corporation ("Prudential Annuities", "we", "our" or "us") is a stock life insurance company domiciled in Connecticut with licenses in all 50 states, the District of Columbia and Puerto Rico. Prudential Annuities is a wholly-owned subsidiary of Prudential Annuities, Inc. Prudential Annuities principal business address is One Corporate Drive, Shelton, Connecticut 06484. No company other than Prudential Annuities has any legal responsibility to pay amounts that it owes under its annuity and variable life insurance contracts. However, Prudential Financial exercises significant influence over the operations and capital structure of Prudential Annuities. PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B Prudential Annuities Life Assurance Corporation Variable Account B, also referred to as "Separate Account B", was established by us pursuant to Connecticut law. Separate Account B also holds assets of other annuities issued by us with values and benefits that vary according to the investment performance of the underlying mutual funds or portfolios of underlying mutual funds offered as Sub-accounts of Separate Account B. The underlying mutual funds or portfolios of underlying mutual funds are referred to as the Portfolios. Each Sub-account invests exclusively in a Portfolio. You will find additional information about the Portfolios in their respective prospectuses. Separate Account B is registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940 (the "Investment Company Act") as a unit investment trust, which is a type of investment company. Values and benefits based on allocations to the Sub-accounts will vary with the investment performance of the Portfolios, as applicable. We do not guarantee the investment results of any Sub-account. You bear the entire investment risk. There is no assurance that the Account Value of your Annuity will equal or be greater than the total of the Purchase Payments you make to us. Prior to November 18, 2002, Separate Account B was organized as a single separate account with six different Sub-account classes, each of which was registered as a distinct unit investment trust under the Investment Company Act. Effective November 18, 2002, each Sub-account class of Separate Account B was consolidated into American Skandia Life Assurance Corporation Variable Account B Class 1 Sub-accounts, which was subsequently renamed Prudential Annuities Life Assurance Corporation Variable Account B. Each Sub-account of Separate Account B has multiple Unit Prices to reflect the daily charge deducted for each combination of the applicable Insurance Charge and the charge for each optional benefit offered under Annuity contracts funded through Separate Account B. The consolidation of Separate Account B had no impact on Annuity Owners. During the accumulation phase, we offer a number of Sub-accounts. Certain Sub-accounts may not be available in all jurisdictions. If and when we obtain approval of the applicable authorities to make such Sub-accounts available, we will notify Owners of the availability of such Sub-accounts. A brief summary of the investment objectives and policies of each Portfolio is found in the Prospectus. More detailed information about the investment objectives, policies, risks, costs and management of the Portfolios are found in the prospectuses and statements of additional information for the Portfolios. There can be no guarantee that any Portfolio will meet its investment objectives. Each underlying mutual fund is registered under the Investment Company Act, as amended, as an open-end management investment company. Each underlying mutual fund thereof may or may not be diversified as defined in the Investment Company Act. The trustees or directors, as applicable, of an underlying mutual fund may add, eliminate or substitute portfolios from time to time. Generally, each portfolio issues a separate class of shares. Shares of the portfolios are available to separate accounts of life insurance companies offering variable annuity and variable life insurance products. The shares may also be made available, subject to obtaining all required regulatory approvals, for direct purchase by various pension and retirement savings plans that qualify for preferential tax treatment under the Internal Revenue Code ("Code"). We may make other portfolios available by creating new Sub-accounts. Additionally, new portfolios may be made available by the creation of new Sub-accounts from time to time. Such a new portfolio may be disclosed in its prospectus. However, addition of a portfolio does not require us to create a new Sub-account to invest in that portfolio. We may take other actions in relation to the Sub-accounts and/or Separate Account B. PRINCIPAL UNDERWRITER/DISTRIBUTOR - Prudential Annuities Distributors, Inc. Prudential Annuities Distributors, Inc. ("PAD"), a wholly-owned subsidiary of Prudential Annuities, Inc., is the distributor and principal underwriter of the Annuity described in the Prospectus and this Statement of Additional Information. Prudential Annuities Life Assurance Corporation and AST Investment Services, Inc. ("ASISI"), a co-investment manager of Advanced Series Trust are also wholly-owned subsidiaries of Prudential Annuities, Inc. Prudential Annuities Information Services and Technology Corporation , also a wholly-owned subsidiary of Prudential Annuities, Inc., is a service company that provides systems and information services to Prudential Annuities Life Assurance Corporation and its affiliated companies. PAD acts as the distributor of a number of annuity and life insurance products we offer and is co-distributor of Advanced Series Trust.PAD's principal business address is One Corporate Drive, Shelton, Connecticut 06484. PAD is registered as a broker-dealer under the Securities and Exchange Act of 1934 ("Exchange Act") and is a member of the Financial Industry Regulatory Authority ("FINRA").The Annuity is offered on a continuous basis. PAD enters into distribution agreements with broker-dealers who are registered under the Exchange Act and with entities that may offer the Annuity but are exempt from registration ("firms"). Applications for the Annuity are solicited by registered representatives of those firms. Such representatives will also be our appointed insurance agents under state insurance law. In addition, PAD may offer the Annuity directly to potential purchasers. Commissions are paid to firms on sales of the Annuity according to one or more schedules. The individual representative will receive a portion of the compensation, depending on the practice of his or her firm. Commissions are generally based on a percentage of Purchase Payments made, up to a maximum of 7.0%. Alternative compensation schedules are available that provide a lower initial commission plus ongoing annual compensation based on all or a portion of Account Value. We may also provide compensation to the distributing firm for providing ongoing service to you in relation to the Annuity. Commissions and other compensation paid in relation to the Annuity do not result in any additional charge to you or to the Separate Account. In addition, in an effort to promote the sale of our products (which may include the placement of Prudential Annuities and/or the Annuity on a preferred or recommended company or product list and/or access to the firm's registered representatives), we or PAD may enter into compensation arrangements with certain broker-dealer firms with respect to certain or all registered representatives of such firms under which such firms may receive separate compensation or reimbursement for, among other things, training of sales personnel and/or marketing and/or administrative services and/or other services they provide. We or PAD also may compensate third-party vendors, for services that such vendors render to broker-dealer firms. These services may include, but are not limited to: educating customers of the firm on the Annuity's features; conducting due diligence and analysis, providing office access, operations and systems support; holding seminars intended to educate firm's registered representatives and make them more knowledgeable about the Annuity; providing a dedicated marketing coordinator; providing priority sales desk support; and providing expedited marketing compliance approval. To the extent permitted by FINRA rules and other applicable laws and regulations, PAD 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. The list below identifies three general types of payments that Prudential Annuities pays which are broadly defined as follows: . Percentage Payments based upon "Asset under Management" or "AUM": This type of payment is a percentage payment that is based upon the total amount held in all Prudential Annuities annuity products that were sold through the firm (or its affiliated broker/dealers). . Percentage Payments based upon sales: This type of payment is a percentage payment that is based upon the total amount of money received as purchase payments under Prudential Annuities annuity products sold through the firm (or its affiliated broker/dealers). . Fixed payments: These types of payments are made directly to or in sponsorship of the firm (or its affiliated broker/dealers). Examples of arrangements under which such payments may be made currently include, but are not limited to, sponsorships, conferences (national, regional and top producer), speaker fees, promotional items, and reimbursements to firms for marketing activities or services paid by the firms and/or their individual representatives. The amount of these payments varies widely because some payments may encompass only a single event, such as a conference, and others have a much broader scope. In addition, we may make payments upon the initiation of a relationship for systems, operational and other support. The list below includes the names of the firms (or their affiliated broker/dealers) that we are aware (as of December 31, 2007) received payment with respect to annuity business during 2007 (or as to which a payment amount was accrued during 2007). Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Annuity. During 2007, the least amount paid, and greatest amount paid, were $46 and $8,664,735, respectively. 1717 Capital Management Co. 1st Global Capital Corporation A.G. Edwards & Sons Advantage Capital Corporation AICPA AIG Financial Advisors Inc. Allegheny Investments LTD. Allegiant Securities LLC Alliance Bernstein Alliance Financial Group, Inc. Allianz Allstate Financial Srvcs, LLC Almax Financial Solutions, LLC Alternative Wealth Strategies American General Securities, Inc. AMERICAN PORTFOLIO FIN SVCS INC. Ameritas Investment Corp Arrowhead Investment Center Associated Securities AXA Advisors BancorpSouth Investment Services, Inc. BB&T Investments BCG Securities, Inc. Benefit Funding Services Group Berthel Fisher & Company Brecek & Young Advisors, Inc. Broker Dealer Financial Brookstone Securities, Inc. Brookstreet Securities Corp. Butler Freeman Tally Fn Gp LLC Cadaret, Grant & Co., Inc. Calton & Associates, Inc. Cambridge Investment Research, Inc. Cantella & Co., Inc. Capital Analysts Capital Financial Services Capital Investment Group Capital One Investments Capital Securities Management, Centaurus Financial, Inc. CFD Investments, Inc. Citigroup Global Markets Inc. City Securities Corporation Commonwealth Financial Group Commonwealth Financial Network Contemporary Fin'l Solutions Crown Capital Securities, L.P. Cumberland Brokerage Corporation CUNA Brokerage CUSO Financial Services, L.P. Deutsche EDI Financial ePlanning Securities, Inc. Equity Services, Inc. Ferris Baker Watts, Inc. FFP Securities, Inc. Financial Network Investments Corp. Financial Planning Consultants Financial West Group Fintegra, LLC First Allied Securities, Inc. First Financial Services First Heartland Capital, Inc. First Montauk Securities Corp. First Trust Portfolios First Western Advisors Foothill Securities, Inc. Fortune Financial Services, Inc. Founders Financial Securities Fox & Co. Investments, Inc. Freedom Investors Corp. FSC Securities Corp. FSIC Garden State Securities, Inc. Gary Goldberg & Co. Geneos Wealth Management, Inc. Genworth Financial Securities Corporation Girard Securities, Inc. Goldman Sachs Asset Management Great American Advisors, Inc. GunnAllen Financial, Inc. GWN Securities, Inc. H&R Block Financial Advisors, Inc. H. Beck, Inc. Hantz Financial Services, Inc. Harbour Investments, Inc. Hazard & Siegel, Inc. HBW Securities Hornor, Townsend & Kent Huntington Investment Services ICC IFMG Securities, Inc. IMS Securities, Inc. Independent Financial Group, LLC Infinex Investments Inc. ING Financial Advisors, LLC ING Financial Partners, LLC Institutional Securities Corp. InterSecurities, Inc. Invest Financial Corporation Investacorp Investment Centers of America Investment Management Corp. Investment Planners, Inc. Investment Professionals Investors Capital Corporation Investors Security Co, Inc. ISG Equity Sales J.W. Cole Financial, Inc. Janney Montgomery Scott, LLC. JB Hanauer Jefferson Pilot Securities Co. JJB Hilliard Lyons Key Investment Services LLC KMS FINANCIAL SERVICES, INC. Kovack Securities, Inc. Leaders Group Inc. Legacy Advisors, LLC Legacy Financial Services, Inc. Legend Equities Corporation Legend Securities, Inc. Leonard & Company Lewis Financial Group, L.C. Lincoln Financial Advisors Lincoln Investment Planning Linsco Private Ledger Corp Lombard Securities Inc. M Holdings Securities, Inc. Main Street Securities, LLC MarketMax Medallion Investment Services MFS Michigan Securities, Inc. MML Investors Services, Inc. Money Concepts Capital Corp. Moors & Cabot, Inc. Morgan Keegan MTL Equity Products, Inc. Multi Financial Securities Corp. Mutual Service Corporation Mutual Trust Co.of America Sec National Planning Corporation Neuberger/Berman New England Securities Next Financial Group, Inc. NFP Securities, Inc. North Ridge Securities Corp. Oppenheimer & Co, Inc. Pacific West Securities, Inc. Packerland Brokerage Svcs, Inc. Partnervest Securities, Inc. Paulson Investment Company, Inc. Planmember Securities Corporation PNC Investment Preferred Financial Group Presidential Brokerage PrimeVest Financial Services Principal Financial Group ProEquities, Inc. Prospera Financial Svcs, Inc. Pruco Securities Prudential Annuities Prudential Financial Prudential Securities Incorporated QA3 Financial Corp. Questar Capital Corporation R. Seelaus & Co., Inc. Rampart Financial Services Inc. Raymond James & Associates Raymond James Financial Services RBC Dain Rauscher Resource Horizon Group, LLC Resource Marketing Rhodes Securities, Inc. RNR Securities, L.L.C. Robert W. Baird & Co., Inc. Royal Alliance Ryan Beck & Co, Inc. Rydex Distributors Inc. SAIC Sammons Securities Saunders Discount Brokerage Scottsdale Capital Advisors Securian Financial Services, Inc. Securities America, Inc. Securities Service Network Sentra/Spelman Sigma Financial Corporation Signator Investor, Inc. SII Investments, Inc. Silver Oaks Securities Stanford Group Company Stifel Nicolaus & Co., Inc. Summit Brokerage Services, Inc. Summit Equities, Incorporated SunAmerica Securities Sunset Financial Services, Inc. SWS Financial Services, Inc. Synergy Investment Group, LLC T. Rowe Price Associates TFS Securities, Inc. The Investment Center, Inc. Tower Square Securities Inc Transamerica Financial Advisors Triad Advisors, Inc. Trustmont Financial Group, Inc. UBS Financial Services, Inc. United Planners Financial Services of America United Securities Alliance, Inc. USA Financial Securities Corporation UVEST Financial Services Group, Inc. Valley National Investments, Inc. Veritrust Financial LLC VSR Financial Services, Inc. Wachovia Bank Wachovia Wirehouse Wall Street Financial Group Walnut Street Securities Waterstone Financial Group Inc. Waterstone Investor Services Webster Investment Services, Inc. Wellstone Securities, LLC Westcom Financial Services Wilbanks Securities, Inc. Williams Financial Group Woodbury Financial Services, Inc. World Choice Securities, Inc. World Equity Group, Inc. World Group Securities, Inc. Worth Financial Group, Inc. WRP Investments, Inc. Your Money Matters Brokerage 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 Annuity than for selling a different annuity that is not eligible for these compensation arrangements. While compensation is generally taken into account as an expense in considering the charges applicable to an annuity product, any such compensation will be paid by us or PAD and will not result in any additional charge to you. Overall compensation paid to the distributing firm does not exceed, based on actuarial assumptions, 8.5% of the total Purchase Payments made. Your registered representative can provide you with more information about the compensation arrangements that apply upon the sale of the Annuity. Prudential Annuities pays PAD an underwriting commission for its role as principal underwriter/distributor of all variable insurance products issued by Prudential Annuities. PAD is responsible for payment of commissions to the broker-dealer firms who are the ultimate sellers of the product. PAD does not retain any underwriting commissions. For the past three years, the aggregate dollar amount of underwriting commissions paid to PAD in its role as principal underwriter/distributor for Prudential Annuities variable annuities generally has been: 2007: $512,269,247; 2006: $396,341,024; 2005: $327,916,660. HOW THE UNIT PRICE IS DETERMINED For each Sub-account the initial Unit Price was $10.00. The Unit Price for each subsequent period is the net investment factor for that period, multiplied by the Unit Price for the immediately preceding Valuation Period. The Unit Price for a Valuation Period applies to each day in the period. The net investment factor is an index that measures the investment performance of, and charges assessed against, a Sub-account from one Valuation Period to the next. The net investment factor for a Valuation Period is: (a) divided by (b), less (c) where: a. is the net result of: 1. the net asset value per share of the Portfolio shares held by that Sub- account at the end of the current Valuation Period plus the per share amount of any dividend or capital gain distribution declared by the Portfolio at the end of the current Valuation Period and paid (in the case of a Portfolio that declares dividends on an annual or quarterly basis) or accrued (in the case of a money market Portfolio that pays dividends monthly); plus or minus 2. any per share charge or credit during the Valuation Period as a provision for taxes attributable to the operation or maintenance of that Sub-account. b. is the net result of: 1. the net asset value per share of the Portfolio shares held by that Sub- account at the end of the preceding Valuation Period plus the per share amount of any dividend or capital gain distribution declared and unpaid (accrued) by the Portfolio at the end of the preceding Valuation Period; plus or minus 2. any per share charge or credit during the preceding Valuation Period as a provision for taxes attributable to the operation or maintenance of that Sub- account. c. is the Insurance Charge deducted daily against the assets of the Separate Account. We value the assets in each Sub-account at their fair market value in accordance with accepted accounting practices and applicable laws and regulations. The net investment factor may be greater than, equal to, or less than one. GENERAL INFORMATION Voting Rights You have voting rights in relation to Account Value maintained in the Sub-accounts. We will vote shares of the Portfolios in which the Sub-accounts invest in the manner directed by Owners. Owners give instructions equal to the number of shares represented by the Sub-account Units attributable to their Annuity. We will vote the shares attributable to assets held in the Sub-accounts solely for us rather than on behalf of Owners, or any share as to which we have not received instructions, in the same manner and proportion as the shares for which we have received instructions. We will do so separately for each Sub-account of the Separate Account that may invest in the same Portfolio. The number of votes for a Portfolio will be determined as of the record date for such underlying mutual fund or portfolio as chosen by its board of trustees or board of directors, as applicable. We will furnish Owners with proper forms and proxies to enable them to instruct us how to vote. You may instruct us how to vote on the following matters: (a) changes to the board of trustees or board of directors, as applicable; (b) changing the independent accountant; (c) any change in the fundamental investment policy; (d) any other matter requiring a vote of the shareholders; and (e) approval of changes to the investment advisory agreement or adoption of a new investment advisory agreement. Advanced Series Trust (the "Trust") has obtained an exemption from the Securities and Exchange Commission that permits its investment adviser, AST Investment Services, Inc. ("ASISI"), subject to approval by the Board of Trustees of the Trust, to change sub-advisors for a Portfolio and to enter into new sub-advisory agreements, without obtaining shareholder approval of the changes. This exemption (which is similar to exemptions granted to other investment companies that are organized in a similar manner as the Trust) is intended to facilitate the efficient supervision and management of the sub-advisors by ASISI and the Trustees. The Trust is required, under the terms of the exemption, to provide certain information to shareholders following these types of changes.With respect to approval of changes to the investment advisory agreement, approval of a new investment advisory agreement or any change in fundamental investment policy, only Owners maintaining Account Value as of the record date in a Sub-account investing in the applicable underlying mutual fund portfolio will instruct us how to vote on the matter, pursuant to the requirements of Rule 18f-2 under the Investment Company Act. Modification We reserve the right to do any or all of the following: (a) combine a Sub-account with other Sub-accounts; (b) combine Separate Account B or a portion of it with other "unitized" separate accounts; (c) deregister Separate Account B under the Investment Company Act; (d) operate Separate Account B as a management investment company under the Investment Company Act or in any other form permitted by law; (e) make changes required by any change in the Securities Act, the Exchange Act or the Investment Company Act; (h) make changes that are necessary to maintain the tax status of your Annuity under the Code; (i) make changes required by any change in other Federal or state laws relating to retirement annuities or annuity contracts; and (j) discontinue offering any Sub-account at any time. Also, from time to time, we may make additional Sub-accounts available to you. These Sub-accounts will invest in underlying mutual funds or portfolios of underlying mutual funds we believe to be suitable for the Annuity. We may or may not make a new Sub-account available to invest in any new portfolio of one of the current underlying mutual funds should such a portfolio be made available to Separate Account B. We may eliminate Sub-accounts, combine two or more Sub-accounts or substitute one or more new underlying mutual funds or portfolios for the one in which a Sub-account is invested. Substitutions may be necessary if we believe an underlying mutual fund or portfolio no longer suits the purpose of the Annuity. This may happen due to a change in laws or regulations, or a change in the investment objectives or restrictions of an underlying mutual fund or portfolio, or because the underlying mutual fund or portfolio is no longer available for investment, or for some other reason. We would obtain prior approval from the insurance department of our state of domicile, if so required by law, before making such a substitution, deletion or addition. We also would obtain prior approval from the SEC so long as required by law, and any other required approvals before making such a substitution, deletion or addition. We reserve the right to transfer assets of Separate Account B, which we determine to be associated with the class of contracts to which your Annuity belongs, to another "unitized" separate account. We will notify you (and/or any payee during the payout phase) of any modification to your Annuity. We may endorse your Annuity to reflect the change. Deferral of Transactions We may defer any distribution or transfer from an annuity payment for a period not to exceed the lesser of 6 months or the period permitted by law. If we defer a distribution or transfer from any annuity payment for more than thirty days, or less where required by law, we pay interest at the minimum rate required by law but not less than 3% or at least 4% if required by your contract, per year on the amount deferred. We may defer payment of proceeds of any distribution from any Sub-account or any transfer from a Sub-account for a period not to exceed 7 calendar days from the date the transaction is effected. Any deferral period begins on the date such distribution or transfer would otherwise have been transacted. There may be circumstances where the NYSE is open, however, due to inclement weather, natural disaster or other circumstances beyond our control, our offices may be closed or our business processing capabilities may be restricted. Under those circumstances, your Account Value may fluctuate based on changes in the Unit Values, but you may not be able to transfer Account Value, or make a purchase or redemption request. The NYSE is closed on the following nationally recognized holidays: New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving, and Christmas. On those dates, we will not process any financial transactions involving purchase or redemption orders. Prudential Annuities will also not process financial transactions involving purchase or redemption orders or transfers on any day that:trading on the NYSE is restricted; an emergency exists making redemption or valuation of securities held in the separate account impractical; or the SEC, by order, permits the suspension or postponement for the protection of security holders. Misstatement of Age or Sex If there has been a misstatement of the age and/or sex of any person upon whose life annuity payments or the minimum death benefit are based, we make adjustments to conform to the facts. As to annuity payments: (a) any underpayments by us will be remedied on the next payment following correction; and (b) any overpayments by us will be charged against future amounts payable by us under your Annuity. Ending the Offer We may limit or discontinue offering Annuities. Existing Annuities will not be affected by any such action. ANNUITIZATION WHAT TYPES OF ANNUITY OPTIONS ARE AVAILABLE? We currently make annuity options available that provide fixed annuity payments. Fixed options provide the same amount with each payment. When you purchase an Annuity, or at a later date, you may choose an Annuity Date, an annuity option and the frequency of annuity payments. You may change your choices before the Annuity Date under the terms of your contract. A maximum Annuity Date may be required by law. The Annuity Date may depend on the annuity option you choose. Certain annuity options may not be available depending on the age of the Annuitant. Certain of these annuity options may also be available to Beneficiaries who choose to receive the Annuity's Death Benefit proceeds as a series of payments instead of a lump sum payment. Option 1 Payments for Life: Under this option, income is payable periodically until the death of the "key life". The "key life" (as used in this section) is the person or persons upon whose life annuity payments are based. No additional annuity payments are made after the death of the key life. Since no minimum number of payments is guaranteed, this option offers the largest amount of periodic payments of the life contingent annuity options. It is possible that only one payment will be payable if the death of the key life occurs before the date the second payment was due, and no other payments nor death benefits would be payable. This option is currently available on a fixed basis. Under this option, you cannot make a partial or full surrender of the annuity. Option 2 Payments Based on Joint Lives: Under this option, income is payable periodically during the joint lifetime of two key lives, and thereafter during the remaining lifetime of the survivor, ceasing with the last payment prior to the survivor's death. No minimum number of payments is guaranteed under this option. It is possible that only one payment will be payable if the death of all the key lives occurs before the date the second payment was due, and no other payments or death benefits would be payable. This option is currently available on a fixed basis. Under this option, you cannot make a partial or full surrender of the annuity. Option 3 Payments for Life with a Certain Period: Under this option, income is payable until the death of the key life. However, if the key life dies before the end of the period selected (5, 10 or 15 years), the remaining payments are paid to the Beneficiary until the end of such period. This option is currently available on a fixed basis. Option 4 Fixed Payments for a Certain Period: Under this option, income is payable periodically for a specified number of years. If the payee dies before the end of the specified number of years, the remaining payments are paid to the Beneficiary to the end of such period. Note that under this option, payments are not based on any assumptions of life expectancy. Therefore, that portion of the Insurance Charge assessed to cover the risk that key lives outlive our expectations provides no benefit to an Owner selecting this option. Under this option, you cannot make a partial or full surrender of the annuity. We may make additional annuity payment options available in the future. WHEN ARE ANNUITY PAYMENTS MADE? Each Annuity Payment is payable monthly on the Annuity Payment Date. The initial annuity payment will be on a date of your choice of the 1st through the 28th day of the month. The Annuity Payment Date may not be changed after the Annuity Date. HOW ARE ANNUITY PAYMENTS CALCULATED? Fixed Annuity Payments If you choose to receive fixed annuity payments, you will receive equal fixed-dollar payments throughout the period you select. The amount of the fixed payment will vary depending on the annuity payment option and payment frequency you select. Generally, the first annuity payment is determined by multiplying the Account Value upon the Annuity Date, minus any state premium taxes that may apply, by the factor determined from our table of annuity rates. The table of annuity rates differs based on the type of annuity chosen and the frequency of payment selected. Our rates will not be less than our guaranteed minimum rates. These guaranteed minimum rates are derived from the a2000 Individual Annuity Mortality Table with an assumed interest rate of 3% per annum. Where required by law or regulation, such annuity table will have rates that do not differ according to the gender of the key life. Otherwise, the rates will differ according to the gender of the key life. KEY TERMS Annuity Date is the date you choose for annuity payments to commence. A maximum Annuity Date may apply. Annuity Payment Date is the date each month annuity payments are payable. This date is the same day of the month as the Annuity Date which may be any date chosen by you between the 1st and the 28th day of the month. The Annuity Payment Date may not be changed on or after the Annuity Date. Inheritance Date is the date we receive, at our office, due proof satisfactory to us of the Annuitant's death and all other requirements that enable us to make payments for the benefit of a Beneficiary. If there are joint Annuitants, the Inheritance Date refers to the death of the last surviving Annuitant. Account Value on the Annuity Date you allocate to a Sub-account, the Benchmark Rate, and Annuity Factors. Subsequently, the Schedule of Units is adjusted for transfers, Adjustments, or partial surrenders. ADJUSTABLE ANNUITY PAYMENTS We may make an adjustable annuity payment option available. Adjustable annuity payments are calculated similarly to fixed annuity payments except that on every fifth (5th) anniversary of receiving annuity payments, the annuity payment amount is adjusted upward or downward depending on the rate we are currently crediting to annuity payments. The adjustment in the annuity payment amount does not affect the duration of remaining annuity payments, only the amount of each payment. EXPERTS The consolidated financial statements of Prudential Annuities Life Assurance Corporation as of December 31, 2007 and 2006 and for each of the three years in the period ended December 31, 2007 and the financial statements of Prudential Annuities Life Assurance Corporation Variable Account B as of December 31, 2007 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. LEGAL EXPERTS Counsel for Prudential Annuities Life Assurance Corporation has passed on the legal matters with respect to Federal laws and regulations applicable to the issue and sale of the Annuities and with respect to Connecticut law. FINANCIAL STATEMENTS Prudential Annuities Life Assurance Corporation and Prudential Annuities Life Assurance Corporation Variable Account B. The statements which follow in Appendix B are those of Prudential Annuities Life Assurance Corporation and Prudential Annuities Life Assurance Corporation Variable Account B Sub-accounts as of December 31, 2007 and for the years ended December 31, 2007 and 2006. There may be other Sub-accounts included in Variable Account B that are not available in the product described in the applicable prospectus. INCORPORATION BY REFERENCE To the extent and only to the extent that any statement in a document incorporated by reference into this Statement of Additional Information is modified or superseded by a statement in this Statement of Additional Information or in a later-filed document, such statement is hereby deemed so modified or superseded and not part of this Statement of Additional Information. We furnish you without charge a copy of any or all the documents incorporated by reference in this Statement of Additional Information, including any exhibits to such documents which have been specifically incorporated by reference. We do so upon receipt of your written or oral request. Please address your request to Prudential Annuities - Variable Annuities, P.O. Box 7960, Philadelphia, PA 19176. Our phone number is 1-800-752-6342. You may also forward such a request electronically to our Customer Service Department at customerservice@prudential.com. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K ANNUAL REPORT PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION Financial Statements and Report of Independent Registered Public Accounting Firm Years Ended December 31, 2007 and 2006 PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION INDEX TO FINANCIAL STATEMENTS Financial Statements Page No. -------------------- -------- PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION Management's Annual Report on Internal Control Over Financial Reporting F-2 Report of Independent Registered Public Accounting Firm F-3 Financial Statements: Statements of Financial Position December 31, 2007 and 2006 F-4 Statements of Operations and Comprehensive Income Year ended December 31, 2007, Year ended December 31, 2006, and Year ended December 31, 2005 F-5 Statements of Stockholder's Equity Year ended December 31, 2007, Year ended December 31, 2006, and Year ended December 31, 2005 F-6 Statements of Cash Flows Year ended December 31, 2007, Year ended December 31, 2006, and Year ended December 31, 2005 F-7 Notes to Financial Statements F-8 F-1 Management's Annual Report on Internal Control Over Financial Reporting Management of Prudential Annuities Life Assurance Corporation (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, 2007, 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, 2007. 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. This Annual Report does not include an attestation report of the Company's registered public accounting firm, PricewaterhouseCoopers LLP, regarding the 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 14, 2008 F-2 Report of Independent Registered Public Accounting Firm To the Board of Directors and Stockholder of Prudential Annuities Life Assurance Corporation: In our opinion, the financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Prudential Annuities Life Assurance Corporation (an indirect, wholly owned subsidiary of Prudential Financial, Inc.), formerly known as American Skandia Life Assurance Corporation, at December 31, 2007 and December 31, 2006, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007 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 financial statements, the Company 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. PricewaterhouseCoopers LLP (signed) New York, New York March 14, 2008 F-3 Prudential Annuities Life Assurance Corporation Statements of Financial Position December 31, 2007 and 2006 (in thousands, except share amounts) 2007 2006 ----------- ----------- ASSETS Fixed maturities available for sale, at fair value (amortized cost, 2007: $1,329,042 2006: $1,161,335) $ 1,335,678 $ 1,174,353 Trading account assets, at fair value 16,314 18,144 Equity securities available for sale, at fair value (cost, 2007: $12,476 2006: $18,487) 11,599 18,344 Commercial loans 38,503 40,846 Policy loans 12,965 12,638 Short-term investments 143,966 60,872 Other long-term investments (130) 6,105 ----------- ----------- Total investments 1,558,895 1,331,302 ----------- ----------- Cash and cash equivalents 697 664 Deferred policy acquisition costs 1,042,823 766,277 Accrued investment income 13,258 12,456 Reinsurance recoverable 104,083 -- Income taxes receivable 215,689 217,768 Valuation of business acquired 118,566 152,650 Deferred sales inducements 558,821 359,815 Receivables from parent and affiliates 77,693 94,221 Other assets 70,852 17,036 Separate account assets 41,538,366 35,608,409 ----------- ----------- TOTAL ASSETS $45,299,743 $38,560,598 =========== =========== LIABILITIES AND STOCKHOLDER'S EQUITY Liabilities Policyholders' account balances $ 1,135,095 $ 993,260 Future policy benefits and other policyholder liabilities 228,190 114,854 Payables to parent and affiliates 53,735 45,667 Cash collateral for loaned securities 54,077 39,962 Short-term borrowing 195,280 159,546 Long-term borrowing 680,000 405,000 Future fees payable to Prudential Annuities, Inc. ("PAI") 12,171 48,531 Other liabilities 254,554 268,497 Separate account liabilities 41,538,366 35,608,409 ----------- ----------- Total liabilities $44,151,468 $37,683,726 ----------- ----------- Commitments and Contingent Liabilities (See Note 11) Stockholder's Equity Common stock, $100 par value; 25,000 shares, authorized, issued and outstanding $ 2,500 $ 2,500 Additional paid-in capital 434,096 334,096 Retained earnings 709,142 534,899 Accumulated other comprehensive income (loss) 2,537 5,377 ----------- ----------- Total stockholder's equity $ 1,148,275 $ 876,872 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $45,299,743 $38,560,598 =========== =========== See Notes to Financial Statements F-4 Prudential Annuities Life Assurance Corporation Statements of Operations and Comprehensive Income Years ended December 31, 2007, December 31, 2006, and December 31, 2005 (in thousands) 2007 2006 2005 -------- -------- -------- REVENUES Premiums $ 28,201 $ 40,511 $ 23,756 Policy charges and fee income 707,366 561,295 455,675 Net investment income 74,625 88,291 92,881 Realized investment gains/(losses), net (40,972) (48,035) (32,121) Asset management fees 223,864 167,964 127,401 Other income 524 654 393 -------- -------- -------- Total revenues 993,608 810,680 667,985 -------- -------- -------- BENEFITS AND EXPENSES Policyholders' benefits 67,350 101,367 62,973 Interest credited to policyholders' account balances 92,088 77,137 69,901 General, administrative and other expenses 529,216 430,244 330,645 -------- -------- -------- Total benefits and expenses 688,654 608,748 463,519 -------- -------- -------- Income from operations before income taxes 304,954 201,932 204,466 -------- -------- -------- Income taxes: Current -- 67 51 Deferred 10,359 6,148 45,991 -------- -------- -------- Income tax expense 10,359 6,215 46,042 -------- -------- -------- NET INCOME 294,595 195,717 158,424 -------- -------- -------- Change in net unrealized investment gains (losses), net of taxes (2,840) 8,249 (23,562) -------- -------- -------- COMPREHENSIVE INCOME $291,755 $203,966 $134,862 ======== ======== ======== See Notes to Financial Statements F-5 Prudential Annuities Life Assurance Corporation Statements of Stockholder's Equity Years ended December 31, 2007, December 31, 2006, and December 31, 2005 (in thousands)
Accumulated Additional Other Total Common Paid-in Retained Deferred Comprehensive Stockholder's Stock Capital Earnings Compensation Income (Loss) Equity ------- ---------- --------- ------------ ------------- ------------- Balance, December 31, 2004 $ 2,500 $ 484,425 $ 180,759 $ (904) $ 20,690 $ 687,470 Net income -- -- 158,424 -- -- 158,424 Stock-based compensation -- (329) -- -- -- (329) Deferred compensation program -- -- -- 904 -- 904 Change in net unrealized investment gains (losses), net of taxes -- -- -- -- (23,562) (23,562) ------- --------- --------- ------ -------- ---------- Balance, December 31, 2005 $ 2,500 $ 484,096 $ 339,182 $ -- $ (2,872) $ 822,906 ------- --------- --------- ------ -------- ---------- Net income -- -- 195,717 -- -- 195,717 Distribution from (to) parent -- (150,000) -- -- -- (150,000) Change in net unrealized investment gains (losses), net of taxes -- -- -- -- 8,249 8,249 ------- --------- --------- ------ -------- ---------- Balance, December 31, 2006 $ 2,500 $ 334,096 $ 534,899 $ -- $ 5,377 $ 876,872 ------- --------- --------- ------ -------- ---------- Net income -- -- 294,595 -- -- 294,595 Cumulative effect of change in accounting principle, net of taxes -- -- (8,153) -- -- (8,153) Distribution from(to) parent -- 100,000 (112,199) -- -- (12,199) Change in net unrealized investment gains (losses), net of taxes (2,840) (2,840) ------- --------- --------- ------ -------- ---------- Balance, December 31, 2007 $ 2,500 $ 434,096 $ 709,142 $ -- $ 2,537 $1,148,275 ======= ========= ========= ====== ======== ==========
See Notes to Financial Statements F-6 Prudential Annuities Life Assurance Corporation Statements of Cash Flows Year ended December 31, 2007, Year ended December 31, 2006, and Year ended December 31, 2005 (in thousands) 2007 2006 2005 ----------- ----------- ----------- CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES: Net income $ 294,595 $ 195,717 $ 158,424 Adjustments to reconcile net income to net cash from operating activities: Realized investment losses, net 40,972 48,035 32,121 Amortization and depreciation 33,191 40,209 47,974 Cumulative effect of accounting change, net of taxes -- -- -- Interest credited to policyholders' account balances 67,650 60,215 60,058 Change in: Policy reserves 143,716 45,088 18,688 Accrued investment income (1,081) 4,392 5,474 Trading account assets 1,830 12,633 16,538 Net receivable/payable to affiliates 24,596 (42,150) 24,963 Deferred sales inducements (202,582) (132,400) (74,999) Deferred policy acquisition costs (285,758) (239,470) (227,619) Income taxes payable (receivable) 10,251 7,513 28,015 Other, net (199,031) (91,066) (8,487) ----------- ----------- ----------- Cash Flows From (Used In) Operating Activities (71,651) (91,283) 81,150 ----------- ----------- ----------- CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES: Proceeds from the sale/maturity of: Fixed maturities, available for sale 2,163,531 3,594,021 2,199,373 Equity securities, available for sale -- -- 1,000 Shares in equities, available for sale 5,000 -- -- Commercial loans 2,866 -- -- Policy loans 2,426 1,548 503 Other long-term investments 3,922 5,358 -- Payments for the purchase/origination of: -- -- -- Fixed maturities, available for sale (2,313,080) (3,226,546) (2,048,890) Commercial loans (675) (34,846) (6,000) Policy loans (2,753) (2,407) (1,935) Other long-term investments (4,401) (6,104) -- Other short-term investments, net (83,094) 148,819 211,762 ----------- ----------- ----------- Cash Flows From (Used in) Investing Activities (226,258) 479,843 355,813 ----------- ----------- ----------- CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES: Capital contribution from (to) Parent 100,000 (150,000) -- Dividend to parent (112,199) -- -- Decrease in future fees payable to PAI, net (36,360) (64,619) (87,447) Cash collateral for loaned securities 14,115 (134,025) (117,312) Securities sold under agreement to repurchase -- (7,147) (26,226) Proceeds from the issuance of debt (maturities longer than 90 days) 350,000 300,000 -- Repayments of debt (maturities longer than 90 days) (75,000) (30,000) -- Net increase (decrease) in short-term borrowing 35,734 (49,038) 68,221 Drafts outstanding (27,853) 38,736 (88,620) Policyholders' account balances Deposits 1,801,795 1,211,772 951,563 Withdrawals (1,752,290) (1,507,082) (1,206,489) ----------- ----------- ----------- Cash Flows From (Used in) Financing Activities 297,942 (391,403) (506,310) ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 33 (2,843) (69,347) Cash and cash equivalents, beginning of period 664 3,507 72,854 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 697 $ 664 $ 3,507 =========== =========== =========== SUPPLEMENTAL CASH FLOW INFORMATION Income taxes paid (received) $ 106 $ (1,297) $ (2,540) ----------- ----------- ----------- Interest paid $ 28,721 $ 45,689 $ 4,783 ----------- ----------- ----------- See Notes to Financial Statements F-7 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 1. BUSINESS Prudential Annuities Life Assurance Corporation (the "Company", "we", or "our"), formerly known as American Skandia Life Assurance Corporation, with its principal offices in Shelton, Connecticut, is an indirect wholly-owned subsidiary of Prudential Financial, Inc. ("Prudential Financial"), a New Jersey corporation. The Company is a wholly-owned subsidiary of Prudential Annuities, Inc., ("PAI"), formerly known as American Skandia, Inc., which in turn is an indirect wholly-owned subsidiary of Prudential Financial. On December 19, 2002, Skandia Insurance Company Ltd. (publ) ("Skandia"), an insurance company organized under the laws of the Kingdom of Sweden, and the ultimate parent company of the Company prior to May 1, 2003, entered into a definitive purchase agreement (the "Acquisition Agreement") with Prudential Financial whereby Prudential Financial would acquire the Company and certain of its affiliates (the "Acquisition") and would be authorized to use the American Skandia name through April, 2008. On May 1, 2003, the Acquisition was consummated. Thus, the Company is now an indirect wholly owned subsidiary of Prudential Financial. During 2007, we began the process of changing the Company's name and names of various legal entities that include the "American Skandia" name, as required by the terms of the Acquisition. The Company's name was changed effective January 1, 2008. The Company develops long-term savings and retirement products, which are distributed through its affiliated broker/dealer company, Prudential Annuities Distributors, Incorporated. ("PAD"), formerly known as American Skandia Marketing, Incorporated. The Company currently issues variable deferred and immediate annuities for individuals and groups in the United States of America and its territories. Prudential Annuities, Inc., ("PAI"), formerly known as American Skandia, Inc. , the direct parent of the Company, intends to make additional capital contributions to the Company, as needed, to enable it to comply with its reserve requirements and fund expenses in connection with its business. The Company has complied with the National Association of Insurance Commissioner's ("NAIC") Risk-Based Capital ("RBC") reporting requirements and has total adjusted capital well above required capital. The Company expects to maintain statutory capital above 300% of Company Action Level Risk Based Capital. Generally, PAI is under no obligation to make such contributions and its assets do not back the benefits payable under the Company's policyholder contracts. During 2007, PAI made a capital contribution of $100 million to the Company. The Company received no capital contributions during 2006 and 2005. The Company is engaged in a business that is highly competitive because of the large number of stock and mutual life insurance companies and other entities engaged in marketing insurance products, and individual and group annuities. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation The 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 Financial affiliates, as more fully described in Footnote 12. 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, in particular deferred policy acquisition costs ("DAC"), valuation of business acquired (VOBA) and future policy benefits, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The most significant estimates include those used in determining DAC, VOBA, valuation of investments including derivatives, future policy benefits including guarantees, provision for income taxes, reserves for contingent liabilities and reserves for losses in connection with unresolved legal matters. Investments Fixed maturities are comprised of bonds, notes and redeemable preferred stock. Fixed maturities classified as "available for sale" are carried at fair value. The amortized cost of fixed maturities is written down to estimated fair value if 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 impairment adjustments. Unrealized gains and losses on fixed maturities "available for sale" are included in "Accumulated other comprehensive (loss) income", net of income taxes. Trading account assets, at fair value, represent the equity securities held in support of a deferred compensation plan. Such investments are carried at fair value with changes in unrealized gains and losses reported in the Statements of Operations and Comprehensive Income, as a component of "Other income". F-8 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Equity securities, available for sale are comprised of common 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, valuation of business acquired, and future policy benefits 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 estimated 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 impairment adjustments. Commercial loans are carried at unpaid principal balances, 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. These loans are measured at 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, according to management's judgment as to the collectibility of 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 management has doubts about collectibility. When a loan is deemed 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 Company's past loan loss experience, the current credit composition of the portfolio, historical credit migration, property type diversification, default and loss severity statistics and other relevant factors. The changes in the allowance for loan losses are reported in "Realized investment (losses), net." Policy loans are carried at unpaid principal balances. 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 carried at amortized cost, which because of their short-term nature, approximates fair value. Securities loaned transactions are treated as financing arrangements and are recorded at the amount of cash received. The Company obtains collateral in an amount equal to 102% and 105% of the fair value of the domestic and foreign securities, respectively. The Company monitors the market value of the securities loaned on a daily basis with additional collateral obtained as necessary. Substantially all of the Company's securities loaned transactions are with large brokerage firms. Income and expenses associated with securities loaned transactions used to earn spread income are 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 other than operating joint ventures 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 partnership interest is so minor (generally less than 3%) 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." Derivatives are financial instruments whose values are derived from interest rates, foreign exchange rates, financial indices, or the value of securities or commodities. Derivative financial instruments 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 used in valuation models. Derivatives are used to manage the characteristics of the Company's asset/liability mix, as well as 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. F-9 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Derivatives are recorded as assets, within "Other long-term investments," or as liabilities, within "Other liabilities," in the Statement of Financial Position, except for embedded derivatives, which are recorded in the Statement of Financial Position with the associated host contract. The Company nets the fair value of all derivative financial instruments with counterparties for which a master netting arrangement has been executed pursuant to FASB Interpretation ("FIN") No. 39. As discussed in detail below, 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 or 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. During the years ended December 31, 2007, 2006 and 2005 none of the Company's derivatives qualified for hedge accounting treatment. 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. The Company is a party to financial instruments that contain derivative instruments that are "embedded" in the financial instruments. At inception, the Company assesses whether the economic characteristics of the embedded derivative are clearly and closely related to the economic characteristics of the remaining component of the financial instrument (i.e., the host contract) and whether a separate instrument with the same terms as the embedded instrument would meet the definition of a derivative instrument. When it is determined that (1) the embedded derivative possesses economic characteristics that are not clearly and closely related to the economic characteristics of the host contract, and (2) a separate instrument with the same terms would qualify as a derivative instrument, the embedded derivative is separated from the host contract, carried at fair value, and changes in its fair value are included in "Realized investment gains (losses), net." 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. Realized investment (losses), net 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 other than temporary impairments. Adjustments to the costs of fixed maturities and equity securities for other-than-temporary impairments are also included in "Realized investment (losses) gains, net." 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 (generally if greater than 20%) and the duration (generally if greater than six months) of the decline; (2) the reasons for the decline in value (credit event, interest related or market fluctuation); (3) the Company's ability and intent to hold the investment for a period of time to allow for a recovery of value; and (4) the financial condition of and near-term prospects of the issuer. In addition, for its impairment review of asset-backed fixed maturity securities with a credit rating below AA, the Company forecasts the prospective future cash flows of the security and determines if the present value of those cash flows, discounted using the effective yield of the most recent interest accrual rate, has decreased from the previous reporting period. When a decrease from the prior reporting period has occurred and the security's market value is less than its carrying value, the carrying value of the security is reduced to its fair value, with a corresponding charge to earnings. 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. Accordingly, the discount (or reduced premium) based on the new cost basis is accreted into net investment income in future periods based upon the amount and timing of expected future cash flows of the security, if the recoverable value of the investment based upon those cash flows is greater than the carrying value of the investment after the impairment. Cash and cash equivalents Cash and cash equivalents include cash on hand, money market instruments, and other debt issues with a maturity of three months or less when purchased, other than cash equivalents that are included in "Trading account assets, at fair value". Valuation of business acquired As a result of purchase accounting, the Company reports a financial asset representing the valuation of business acquired ("VOBA"). VOBA represents the present value of future profits embedded in acquired insurance and annuity contracts. VOBA is determined by estimating the net present value of future cash flows from the contracts in force at the date of acquisition. Future positive cash flows generally include fees and other charges assessed to the contracts as long as they remain in force as well as fees collected upon surrender, if applicable, while future negative cash flows include costs to administer contracts and F-10 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) benefit payments. The Company amortizes VOBA over the effective life of the acquired contracts. VOBA is amortized in proportion to estimated gross profits arising from the contracts and anticipated future experience, which is evaluated regularly. The effect of changes in estimated gross profits on unamortized VOBA is reflected in "General and administrative expenses" in the period such estimates of expected future profits are revised. Deferred policy acquisition costs Costs that vary with and that are related primarily to the production of new insurance and annuity business are deferred to the extent such costs are deemed recoverable from future profits. Such costs include commissions, costs of policy issuance and underwriting, and variable expenses. DAC is subject to recoverability testing at the end of each accounting period. 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)." DAC amortization is reflected in "General and administrative expenses." Deferred acquisition costs are amortized over the expected life of the contracts (approximately 25 years) in proportion to estimated gross profits arising principally from investment results, mortality and expense margins, and surrender charges based on historical and anticipated future experience, which is updated periodically. The effect of changes to estimated gross profits on unamortized deferred acquisition costs is reflected in "General and administrative expenses" in the period such estimated gross profits are revised. The deferred policy acquisition cost asset was assigned a fair value of zero, net of tax, as part of purchase accounting. 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. For 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. The Company adopted Statement of Position ("SOP") 05-1 "Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts" on January 1, 2007. SOP 05-1 provided more definitive guidance regarding internal replacements and clarification on what constitutes substantial changes to a contract. See "New Accounting Pronouncements" for additional information. Reinsurance recoverables Reinsurance recoverables include corresponding payables and receivables associated with reinsurance arrangements with affiliates. For additional information about these arrangements see Note 12 to the Financial Statements. 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. "Separate account assets" are predominantly shares in Advanced Series Trust formerly known as American Skandia Trust co-managed by AST Investment Services, Incorporated ("ASISI") formerly known as American Skandia Investment Services, Incorporated and Prudential Investments LLC, which utilizes various fund managers as sub-advisors. The remaining assets are shares in other mutual funds, which are managed by independent investment firms. The contract holder has the option of directing funds to a wide variety of investment options, most of which invest in mutual funds. The investment risk on the variable portion of a contract is borne by the contract holder, except to the extent of any guarantees by the Company, which are not separate account liabilities. 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. The investment income and gains or losses for separate accounts accrue to the policyholders and are not included in the Statements of Operations and Comprehensive Income. Mortality, policy administration and surrender charges on the accounts are included in "Policy charges and fee income". Asset management fees calculated on account assets are included in "Asset management fees". Separate account liabilities primarily represent the contractholder's account balance in separate account assets. Deferred sales inducements The Company provides sales inducements to contract holders, which primarily reflect an up-front bonus added to the contract holder's initial deposit for certain annuity contracts. These costs are deferred and recognized in "Deferred sales inducements". They are amortized using the same methodology and assumptions used to amortize DAC. The amortization expense is included as a component of "Interest credited to policyholders' account balances". Other assets and other liabilities "Other assets" consists primarily of accruals of fund manager income. "Other liabilities" consists primarily of accrued expenses, technical overdrafts and a liability to the participants of a deferred compensation plan. F-11 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) "Other assets" also consists of state insurance licenses. Licenses to do business in all states have been capitalized and reflected at the purchase price of $4.0 million. Due to the adoption of SFAS No. 142 "Goodwill and Other Intangible Assets", the cost of the licenses is no longer being amortized but is subjected to an annual impairment test. As of December 31, 2006, the Company estimated the fair value of the state insurance licenses to be in excess of book value and, therefore, no impairment charge was required. 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, less the present value of future net premiums. Expected mortality is generally based on the Company's historical experience or standard industry tables. Interest rate assumptions are based on factors such as market conditions and expected investment returns. Although mortality and interest rate assumptions are "locked-in" upon the issuance of new insurance or annuity business with fixed and guaranteed terms, significant changes in experience or assumptions may require the Company to provide for expected future losses on a product by establishing premium deficiency reserves. The Company's liability for future policy benefits is also inclusive of liabilities for guarantee benefits related to certain nontraditional long-duration life and annuity contracts, which are discussed more fully in Note 6. Policyholders' account balances The Company's liability for policyholders' account balances represents the contract value that has accrued to the benefit of the policyholder as of the balance sheet date. This liability is generally equal to the accumulated account deposits, plus interest credited, less policyholder withdrawals and other charges assessed against the account balance. These policyholders' account balances also include provision for benefits under non-life contingent payout annuities and certain unearned revenues. Contingent liabilities Amounts related to contingencies 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 Revenues for variable deferred annuity contracts consist of charges against contract holder account values or separate accounts for mortality and expense risks, administration fees, surrender charges and an annual maintenance fee per contract. Revenues for mortality and expense risk charges and administration fees are recognized as assessed against the contract holder. Surrender charge revenue is recognized when the surrender charge is assessed against the contract holder at the time of surrender. Benefit reserves for the variable investment options on annuity contracts represent the account value of the contracts and are included in "Separate account liabilities". Revenues for variable immediate annuity and supplementary contracts with life contingencies consist of certain charges against contract holder account values including mortality and expense risks and administration fees. These charges and fees are recognized as revenue when assessed against the contract holder. Benefit reserves for variable immediate annuity contracts represent the account value of the contracts and are included in "Separate account liabilities". Revenues for fixed immediate annuity and fixed supplementary contracts with and without life contingencies consist of net investment income. In addition, revenues for fixed immediate annuity contracts with life contingencies also consist of single premium payments recognized as annuity considerations when received. Benefit reserves for these contracts are based on applicable actuarial standards with assumed interest rates that vary by issue year. Reserves for contracts without life contingencies are included in "Policyholders' account balances" while reserves for contracts with life contingencies are included in "future policy benefits and other policyholder liabilities". Assumed interest rates ranged from 1.25% to 8.25% at December 31, 2007 and 2006. Revenues for variable life insurance contracts consist of charges against contract holder account values or separate accounts for mortality and expense risk fees, administration fees, cost of insurance fees, taxes and surrender charges. Certain contracts also include charges against premium to pay state premium taxes. All of these charges are recognized as revenue when assessed against the contract holder. Benefit reserves for variable life insurance contracts represent the account value of the contracts and are included in "Separate account liabilities". 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 6. The Company also provides contracts with certain living benefits that are considered embedded derivatives. These contracts are discussed in further detail in Note 6. F-12 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 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 management fees In accordance with an agreement with ASISI, the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series Trust. In addition, the Company receives fees calculated on contractholder separate account balances invested in funds managed by companies other than ASISI. Asset management fees are recognized as income when earned. These revenues are recorded as "Asset management fees" in the Statements of Operations and Comprehensive Income. Income taxes Due to provisions in the Internal Revenue Code, the Company will not be eligible to join in the filing of the Prudential Financial federal income tax return until 2009. As a result, the Company will file a separate federal tax return through 2008. In addition, the Company will continue to file separate state income tax returns. 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. Future fees payable to PAI In a series of transactions with PAI, the Company sold certain rights to receive a portion of future fees and contract charges expected to be realized on designated blocks of deferred annuity contracts. The proceeds from the sales have been recorded as a liability and are being amortized over the remaining surrender charge period of the designated contracts using the interest method. Share-based Payments The Company adopted Statement of Financial Accounting Standards ("SFAS") No. 123(R), "Share-based Payment" on January 1, 2006, using the modified prospective application transition method prescribed by this standard. This standard requires that the cost resulting from all share-based payments be recognized in the financial statements and requires all entities to apply the fair value based measurement method in accounting for share-based payment transactions with employees except for equity instruments held by employee share ownership plans. The Company had previously adopted the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," as amended, prospectively for all new stock options granted to employees on or after January 1, 2003. Upon adoption of SFAS No. 123(R), there were no unvested stock options issued prior to January 1, 2003, and, therefore, the adoption of SFAS No. 123(R) had no impact to the Company's financial condition or results of operations with respect to the unvested employee options. New accounting pronouncements In November 2007, the staff of the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin ("SAB") No. 109, "Written Loan Commitments Recorded at Fair Value Through Earnings." SAB 109 revises and rescinds portions of SAB 105, "Application of Accounting Principles to Loan Commitments." Specifically, SAB 109 states that the expected net future cash flows related to the associated servicing of the loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. SAB 109 is effective for all written loan commitments recorded at fair value that are entered into, or substantially modified, in fiscal quarters beginning after December 15, 2007. The Company will adopt SAB 109 effective January 1, 2008 for its loan commitments that are recorded at fair value through earnings. The Company's adoption of this guidance is not expected to have a material effect on the Company's financial position or results of operations. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." This statement provides companies with an option to report selected financial assets and liabilities at fair value, with the associated changes in fair value reflected in the Statements of Operations. The Company will adopt this guidance effective January 1, 2008. The Company's adoption of this guidance is not anticipated to have a material effect on the Company's financial position or results of operations. In April 2007, the FASB issued FSP FIN 39-1, "Amendment of FASB Interpretation No. 39." FSP FIN 39-1 modifies FIN No. 39, "Offsetting of Amounts Related to Certain Contracts," and permits companies to offset cash collateral receivables or payables with net derivative positions under certain circumstances. This FSP is effective for fiscal years beginning after November 15, 2007 and is required to be applied retrospectively to financial statements for all periods presented. The Company's adoption of this guidance is not expected to have a material effect on the Company's financial position or results of operations. F-13 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) In September 2006, the staff of the SEC issued SAB No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements." The interpretations in SAB 108 express the staff's views regarding the process of quantifying financial statement misstatements. Specifically, the SEC staff believes that registrants must quantify the impact on current period financial statements of correcting all misstatements, including both those occurring in the current period and the effect of reversing those that have accumulated from prior periods. SAB 108 is effective for fiscal years ending after November 15, 2006. Since the Company's method for quantifying financial statement misstatements already considers those occurring in the current period and the effect of reversing those that have accumulated from prior periods, the adoption of SAB 108 had no effect to the financial position or results of operations of the Company. In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing of Financial Assets." This statement requires that servicing assets or liabilities be initially measured at fair value, with subsequent changes in value reported based on either a fair value or amortized cost approach for each class of servicing assets or liabilities. Under previous guidance, such servicing assets or liabilities were initially measured at historical cost and the amortized cost method was required for subsequent reporting. The Company adopted this guidance effective January 1, 2007, and elected to continue reporting subsequent changes in value using the amortized cost approach. Adoption of this guidance had no material effect on the Company's financial position or results of operations. In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This statement defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This statement does not change which assets and liabilities are required to be recorded at fair value, but the application of this statement could change current practices in determining fair value. The Company will adopt this guidance effective January 1, 2008. The Company adoption of this guidance is not expected to have a material effect on the Company's financial position or results of operations. In June 2006, the FASB issued FIN No. 48, "Accounting for Uncertainty in Income Taxes," an Interpretation of FASB Statement No. 109. See Note 8 for details regarding the adoption of this pronouncement. In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain Hybrid Instruments." This statement 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 has not previously 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 Statements of Operations. The Company adopted this guidance effective January 1, 2007. The Company's adoption of this guidance did not have a material effect on the Company's financial position or results of operations. In November 2005, the FASB issued FSP FAS 115-1 and FAS 124-1, "The Meaning of Other-Than-Temporary Impairment and its Application to Certain Investments." This FSP provides impairment models for determining whether to record impairment losses associated with investments in certain equity and debt securities, primarily by referencing existing accounting guidance. It also requires income to be accrued on a level-yield basis following an impairment of debt securities, where reasonable estimates of the timing and amount of future cash flows can be made. The Company adopted this guidance effective January 1, 2006, and it did not have a material effect on the Company's financial position or results of operations. In September 2005, the Accounting Standards Executive Committee ("AcSEC") of the American Institute of Certified Public Accountants issued SOP 05-1, "Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection With Modifications or Exchanges of Insurance Contracts." SOP 05-1 provides guidance on accounting by insurance enterprises for deferred acquisition costs, including deferred policy acquisition costs, valuation of business acquired and deferred sales inducements, on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97. SOP 05-1 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 SOP 05-1 effective January 1, 2007. The effect of initially adopting SOP 05-1 was a charge to the opening balance of retained earnings of $14.7 million before tax, $9.5 million net of taxes, which was reported as a "Cumulative effect of a change in accounting principle, net of taxes" in the Statement of Stockholder's Equity for the twelve months ended December 31, 2007. F-14 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Reclassifications Certain amounts in the prior years have been reclassified to conform to the current year presentation. 3. INVESTMENTS Fixed Maturities and Equity Securities: The following tables provide additional information relating to fixed maturities and equity securities (excluding investments classified as trading) as of December 31: 2007 ------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- (in thousands) Fixed maturities available for sale Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 105,498 $ 971 $ -- $ 106,469 Obligations of U.S. states, and their political subdivisions 1,910 399 1 2,308 Foreign government bonds 6,043 603 96 6,550 Asset backed securities 131,315 305 7,984 123,636 Commercial mortgage backed securities 242,925 4,852 50 247,727 Residential mortgage-backed securities 192,304 3,144 1 195,447 Public utilities 136,771 1,929 752 137,948 All other corporate bonds 512,276 6,923 3,606 515,593 ---------- ------- ------- ---------- Total fixed maturities available for sale $1,329,042 $19,126 $12,490 $1,335,678 ========== ======= ======= ========== Equity securities available for sale $ 12,476 $ -- $ 877 $ 11,599 ========== ======= ======= ========== 2006 ------------------------------------------- Gross Gross Amortized Unrealized Unrealized Cost Gains Losses Fair Value ---------- ---------- ---------- ---------- (in thousands) Fixed maturities available for sale Bonds: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 20,109 $ 337 $ 11 $ 20,435 Obligations of U.S. states, and their political subdivisions 1,973 419 1 2,391 Foreign government bonds 10,821 836 -- 11,657 Asset backed securities 146,752 1,087 265 147,574 Commercial mortgage backed securities 160,048 2,827 29 162,846 Residential mortgage-backed securities 156,327 2,242 143 158,426 Public utilities 114,662 1,656 574 115,744 All other corporate bonds 550,642 8,169 3,531 555,280 ---------- ------- ------ ---------- Total fixed maturities available for sale $1,161,334 $17,573 $4,554 $1,174,353 ========== ======= ====== ========== Equity securities available for sale $ 18,487 $ 9 $ 152 $ 18,344 ========== ======= ====== ========== F-15 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 3. INVESTMENTS (continued) The amortized cost and fair value of fixed maturities, by contractual maturities at December 31, 2007 is shown below: Available for sale --------------------- Amortized Cost Fair Value ---------- ---------- (in thousands) Due in one year or less $ 31,542 $ 31,623 Due after one year through five years 524,949 530,353 Due after five years through ten years 213,077 213,276 Due after ten years 124,245 117,253 Commercial mortgage backed securities 242,925 247,727 Residential mortgage-backed securities 192,304 195,446 ---------- ---------- Total $1,329,042 $1,335,678 ========== ========== Actual maturities may differ from contractual maturities because issuers 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. The following table depicts the sources of fixed maturity proceeds and related 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: 2007 2006 2005 ---------- ---------- ---------- (in thousands) Fixed maturities, available for sale: Proceeds from sales $2,131,667 $3,573,598 $2,155,754 Proceeds from maturities/repayments 63,627 20,350 49,472 Gross investment gains from sales, prepayments and maturities 13,325 5,965 5,966 Gross investment losses from sales and maturities (4,248) (32,082) (17,397) Commercial Loans The following table provides the breakdown of the gross carrying values of commercial loans by property type as of December 31: 2007 2006 ------- ------- (in thousands) Commercial loans by property type Office buildings $ 5,971 $ 6,099 Retail stores 3,934 3,918 Apartment complexes 10,912 10,692 Agricultural properties 7,930 8,205 Other 9,924 11,932 ------- ------- Subtotal Commercial Loans $38,671 $40,846 ------- ------- Allowance for losses on collateralized loans (168) $ 0 ------- ------- Total Commercial Loans $38,503 $40,846 ======= ======= The following table sets forth the breakdown of our commercial loan portfolio by contractual maturity as of December 31: 2007 -------------- (in thousands) Maturing in 2011 $28,663 Maturing in 2013 5,451 Maturing in 2016 4,557 ------- Total Commercial Loans $38,671 ======= F-16 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 3. INVESTMENTS (continued) Other Long-Term Investments The following table provides information relating to other long-term investments as of December 31: 2007 -------------- (in thousands) Joint ventures and limited partnerships $ 2,514 Derivatives (2,644) ------- Total other long-term investments $ (130) ======= 2006 -------------- (in thousands) Joint ventures and limited partnerships $6,063 Derivatives 42 ------ Total other long-term investments $6,105 ====== Investment Income and Investment Gains and Losses Net investment income arose from the following sources for 2007, 2006, and 2005: Year ended Year ended Year ended December 31, December 31, December 31, 2007 2006 2005 ------------ ------------ ------------ (in thousands) Fixed maturities - available for sale $67,273 $82,976 $ 87,920 Equity securities - available for sale 1,226 1,254 752 Policy loans 742 702 627 Short-term investments and cash equivalents 6,345 9,937 10,495 Other 4,124 2,504 2,316 ------- ------- -------- Gross investment income 79,710 97,373 102,110 ------- ------- -------- Less: investment expenses (5,085) (9,082) (9,229) ------- ------- -------- Net investment income $74,625 $88,291 $ 92,881 ======= ======= ======== Realized investment (losses) gains, net including charges for other than temporary reductions in value, for year ended December 31, 2007, year ended December 31, 2006, and year ended December 31, 2005 were from the following sources: Year ended Year ended Year ended December 31, December 31, December 31, 2007 2006 2005 ------------ ------------ ------------ (in thousands) Fixed maturities $ 9,078 $(26,155) $(11,431) Equity securities - available for sale (1,010) (858) -- Derivatives (48,872) (21,022) (20,690) Mortgage loans (168) -- -- -------- -------- -------- Realized investment gains (losses), net $(40,972) $(48,035) $(32,121) ======== ======== ======== F-17 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 3. INVESTMENTS (continued) Net Unrealized Investment Gains (Losses) Net unrealized investment gains (losses) on securities classified as "available for sale" are included in the Statements of Financial Position as a component of "Accumulated other comprehensive (loss) income." Changes in these amounts include reclassification adjustments to exclude from "Other comprehensive (loss) income," those items that are included as part of "Net income" for a period that also had been part of "Other comprehensive (loss) income" in earlier periods. The amounts for the years ended December 31, net of tax, are as follows (in thousands):
Deferred Policy Acquisition Accumulated Other Costs and Deferred Comprehensive Income Net Unrealized Valuation of Income Tax (Loss) Related To Net Gains (Losses) Business (Liability) Unrealized Investment on Investments Acquired Benefit Gains (Losses) -------------- --------------- ----------- --------------------- Balance, December 31, 2004 $ 34,321 $(2,319) $(11,312) $ 20,690 Net investment gains (losses) on investments arising during the period (51,100) -- -- (51,100) Reclassification adjustment for losses (gains) included in net income 11,431 -- -- 11,431 Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and valuation of business acquired -- 3,221 12,886 16,107 -------- ------- -------- -------- Balance, December 31, 2005 (5,348) 902 1,574 (2,872) Net investment gains (losses) on investments arising during the period (8,789) -- -- (8,789) Reclassification adjustment for losses (gains) included in net income 27,013 -- -- 27,013 Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and valuation of business acquired -- (5,453) (4,522) (9,975) -------- ------- -------- -------- Balance, December 31, 2006 12,876 (4,551) (2,948) 5,377 Net investment gains (losses) on investments arising during the period (15,184) (15,184) Reclassification adjustment for losses (gains) included in net income 8,068 -- -- 8,068 Impact of net unrealized investment (gains) losses on deferred policy acquisition costs and valuation of business acquired 2,720 1,556 4,276 -------- ------- -------- -------- Balance, December 31, 2007 $ 5,760 $(1,831) $ (1,392) $ 2,537
The table below presents unrealized gains (losses) on investments by asset class at December 31, 2007 2006 2005 ------ ------- ------- (in thousands) Fixed maturities $6,637 $13,018 $(5,208) Equity securities, available for sale (877) (142) (140) ------ ------- ------- Unrealized gains (losses) on investments $5,760 $12,876 $(5,348) ====== ======= ======= F-18 Prudential Annuities Life Assurance Corporation Notes to 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 maturities and equity securities have been in a continuous unrealized loss position, as of December 31, 2007 and 2006:
Twelve months Less than twelve months or more Total ----------------------- ------------------ --------------------- Unrealized Fair Unrealized Unrealized Fair Value Losses Value Losses Fair Value Losses ---------- ---------- ------- ---------- ---------- ---------- (in thousands) 2007 U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 105,498 $ -- $ -- $ -- $ 105,498 $ -- State, municipalities and political subdivisions 1,858 -- 51 1 1,909 1 Foreign government bonds 5,947 96 -- -- 5,947 96 Corporate securities 589,861 1,706 54,827 2,653 644,688 4,359 Commercial mortgage-backed securities 241,309 49 1,565 1 242,874 50 Asset backed securities 123,144 7,971 189 12 123,333 7,983 Residential mortgage-backed securities 191,269 -- 1,034 1 192,303 1 ---------- ------ ------- ------ ---------- ------- Total fixed maturities, available for sale $1,258,886 $9,822 $57,666 $2,668 $1,316,552 $12,490 ========== ====== ======= ====== ========== ======= Total equity securities, available for sale $ 11,599 $ 877 $ -- $ -- $ 11,599 $ 877 ========== ====== ======= ====== ========== =======
Twelve months Less than twelve months or more Total ----------------------- --------------------- --------------------- Unrealized Unrealized Unrealized Fair Value Losses Fair Value Losses Fair Value Losses ---------- ---------- ---------- ---------- ---------- ---------- (in thousands) 2006 U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 3,784 $ 4 $ 636 $ 7 $ 4,420 $ 11 State, municipalities and political subdivisions 51 1 -- -- 51 1 Foreign government bonds -- -- -- -- -- -- Corporate securities 67,225 971 86,140 3,135 153,365 4,106 Commercial mortgage-backed securities 12,748 29 -- -- 12,748 29 Asset backed securities 10,918 13 10,006 252 20,924 265 Residential mortgage-backed securities -- -- 4,112 143 4,112 143 ------- ------ -------- ------ -------- ------ Total fixed maturities, available for sale $94,726 $1,018 $100,894 $3,537 $195,620 $4,555 ======= ====== ======== ====== ======== ====== Total equity securities, available for sale $ 6,437 $ 3 $ 11,898 $ 149 $ 18,335 $ 152 ======= ====== ======== ====== ======== ======
As of December 31, 2007, unrealized gains (losses) on fixed maturities and equity securities was comprised of $13.3 million of gross unrealized losses and $19.1 million of gross unrealized gains. Gross unrealized losses includes $2.7 million of gross losses that have been in such a position for twelve months or greater. Writedowns for impairments, which were deemed to be other than temporary were $980 thousand. Based on a review of the above information in conjunction with other factors as outlined in our policy surrounding other than temporary impairments (see Note 2 to the Consolidated Financial Statements), we have concluded that an adjustment for other than temporary impairments for these securities was not warranted at December 31, 2007. As of December 31, 2006, unrealized gains (losses) on fixed maturities and equity securities was comprised of $4.7 million of gross unrealized losses and $17.6 million of gross unrealized gains. Gross unrealized losses includes $3.5 million of gross losses that F-19 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 3. INVESTMENTS (continued) have been in such a position for twelve months or greater. Writedowns for impairments, which were deemed to be other than temporary were $896 thousand. Based on a review of the above information in conjunction with other factors as outlined in our policy surrounding other than temporary impairments (see Note 2 to the Consolidated Financial Statements), we have concluded that an adjustment for other than temporary impairments for these securities was not warranted at December 31, 2007. Securities Pledged and Special Deposits The Company pledges investment securities it owns to unaffiliated parties through securities sold under agreements to repurchase transactions. At December 31, 2007 and 2006 there were no fixed maturities available for sale pledged to third parties. Fixed maturities of $4.8 million and $4.8 million at December 31, 2007 and 2006, respectively, 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 DAC as of and for the year ended December 31, 2007, year ended December 31, 2006, and year ended December 31, 2005, are as follows (in thousands): 2007 2006 2005 ---------- --------- -------- Balance, beginning of year $ 766,277 $ 528,899 $300,901 Capitalization of commissions, sales and issue expenses 442,265 343,907 278,823 Amortization (156,507) (104,438) (51,206) Changes in unrealized investment gains and losses 323 (2,091) 381 Impact of adoption of SOP 05-1 (9,535) -- -- ---------- --------- -------- Balance, end of year $1,042,823 $ 766,277 $528,899 ========== ========= ======== 5. VALUATION OF BUSINESS ACQUIRED Details of VOBA and related interest and gross amortization for the year ended December 31, 2007, year ended December 31, 2006, and year ended December 31, 2005 is as follows (in thousands): 2007 2006 2005 -------- -------- -------- Balance, beginning of period $152,650 $196,023 $234,167 Amortization(1) (41,260) (50,154) (53,400) Interest(2) 7,743 10,143 12,416 Change in unrealized gains/losses 2,397 (3,362) 2,840 Impact of adoption of SOP 05-1 (2,964) -- -- -------- -------- -------- Balance, end of period $118,566 $152,650 $196,023 ======== ======== ======== -------- (1) The average expected life of VOBA was approximately 10 years from the date of acquisition. (2) The interest accrual rate was 5.78% for the VOBA related to the businesses acquired. Estimated future net amortization of VOBA as of December 31, 2007 is as follows (in thousands): 2008 $ 27,883 2009 20,883 2010 15,289 2011 11,483 2012 8,465 2013 and thereafter 34,563 -------- Total $118,566 ======== F-20 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 6. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS The Company issues traditional variable annuity contracts through its separate accounts for which investment income and investment gains and losses accrue directly to, and investment risk is borne by, the contractholder. The Company also issues variable annuity contracts with general and separate account options where the Company contractually guarantees to the contractholder a return of no less than (1) total deposits made to the contract less any partial withdrawals ("return of net deposits"), (2) total deposits made to the contract less any partial withdrawals plus a minimum return ("minimum return"), or (3) the highest contract value on a specified date minus any withdrawals ("contract value"). These guarantees include benefits that are payable in the event of death, annuitization or at specified dates during the accumulation period and withdrawal and income benefits payable during specified periods. The Company also issues annuity contracts with market value adjusted investment options ("MVAs"), which provide for a return of principal plus a fixed rate of return if held to maturity, or, alternatively, a "market adjusted value" if surrendered prior to maturity. 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. 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 contract holders 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 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. For guarantees of benefits that are payable at annuitization or withdrawals, the net amount at risk is generally defined as the present value of the minimum guaranteed annuity payments available to the contract holder 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 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, 2007 and 2006, the Company had the following guarantees associated with its contracts, by product and guarantee type:
December 31, 2007 December 31, 2006 --------------------------- --------------------------- At At Annuitization/ Annuitization/ In the Event Accumulation In the Event Accumulation of Death (1) of Death (1) ------------ -------------- ------------ -------------- (in thousands) Variable Annuity Contracts Return of Net Deposits Account value $34,423,177 N/A $29,966,235 N/A Net amount at risk $ 1,196,837 N/A $ 1,487,636 N/A Average attained age of contractholders 60.7 years N/A 60.4 years N/A Anniversary contract value or minimum return Account value $ 7,726,079 $ 23,836,127 $ 6,134,514 $ 16,783,019 Net amount at risk $ 486,519 $ 177,330 $ 502,628 $ 3,151 Average attained age of contractholders 62.3 years 59.4 years 62.2 years 58.7 years Average period remaining until expected annuitization N/A 4.8 years N/A 5.6 years
-------- (1) Includes income and withdrawal benefits described herein December 31, 2007 December 31, 2006 ------------------- ------------------- Unadjusted Adjusted Unadjusted Adjusted Value Value Value Value ---------- -------- ---------- -------- Market value adjusted annuities Account value $950,514 $948,983 $863,803 $871,795 F-21 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 6. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued) Account balances of variable annuity contracts with guarantees were invested in separate account investment options as follows: December 31, December 31, 2007 2006 -------------- -------------- (in thousands) (in thousands) Equity funds $16,584,770 $18,154,855 Bond funds 4,149,175 4,470,488 Balanced funds 16,108,177 8,733,521 Money market funds 1,943,205 1,630,531 Specialty funds 2,384,341 2,247,531 ----------- ----------- Total $41,169,668 $35,236,926 =========== =========== In addition to the above mentioned amounts invested in separate account investment options, $979.6 million and $863.8 million of account balances of variable annuity contracts with guarantees, inclusive of contracts with MVA features, were invested in general account investment options as of December 31, 2007 and 2006, respectively. Liabilities For Guarantee 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 accumulation benefits ("GMAB"), guaranteed minimum withdrawal benefits ("GMWB"), and guaranteed minimum income and withdrawal benefits ("GMIWB") features are considered to be bifurcated embedded derivatives under SFAS No. 133. Changes in the fair value of these derivatives, along with any fees received or payments made relating to the derivative, are recorded in "Realized investment gains (losses), net." The liabilities for GMAB, GMWB, and GMIWB are included in "Future policy benefits." The Company maintains a portfolio of derivative investments that serve as an economic hedge of the risks of these products, for which the changes in fair value are also recorded in "Realized investment gains (losses), net." This portfolio of derivatives investments does not qualify for hedge accounting treatment under U.S. GAAP. GMWB/ GMDB GMAB GMIWB GMIB Totals ------- ------ ------- ------ ------- (in thousands) Balance as of January 1, 2005 26,300 -- -- 700 27,000 ------- ------ ------- ------ ------- Incurred guarantee benefits (1) 35,500 2,500 (3,000) 1,700 36,700 Paid guarantee benefits (35,800) -- -- -- (35,800) ------- ------ ------- ------ ------- Balance as of December 31, 2005 26,000 2,500 (3,000) 2,400 27,900 ======= ====== ======= ====== ======= Incurred guarantee benefits (1) 49,510 (3,640) (28,962) 1,948 18,857 Paid guarantee benefits (31,088) -- -- -- (31,088) ------- ------ ------- ------ ------- Balance as of December 31, 2006 44,422 (1,140) (31,962) 4,348 15,669 ======= ====== ======= ====== ======= Incurred guarantee benefits (1) 28,837 8,053 128,958 (2,025) 163,823 Paid guarantee benefits (30,411) -- -- -- (30,411) ------- ------ ------- ------ ------- Balance as of December 31, 2007 42,848 6,913 96,996 2,323 149,081 ======= ====== ======= ====== ======= -------- (1) Incurred guarantee benefits include the portion of assessments established as additions to reserve as well as changes in estimates affecting the reserves. Also includes changes in the fair value of features considered to be 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 F-22 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 6. CERTAIN NONTRADITIONAL LONG-DURATION CONTRACTS (continued) 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 as the rebalancing element moves investments from variable to fixed investment options when markets experience significant or prolonged declines. If the markets subsequently recover, the rebalancing element will move investments from fixed to variable investment options. The GMAB liability is calculated as the present value of future expected payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature. The GMWB feature guarantees the contractholder's ability to withdraw amounts equal to an initial principal value (the "GMWB Protected Value"), regardless of the impact of market performance on the contractholder's account value. The GMWB Protected Value is determined as of the date that the contractholder makes his/her first withdrawal under the annuity following election of GMWB. The initial GMWB Protected Value is equal to the greater of (a) the account value on the date that GMWB is elected, plus any additional purchase payments (and credits, for bonus annuities) before the date of the first withdrawal or (b) the account value of as the date of the first withdrawal. The contractholder also has the option, after a specified period of time, to reset the GMWB Protected Value to the then-current account value, if greater. The GMIWB features predominantly present a benefit that provides a contractholder two optional methods to receive guaranteed minimum payments over time, a "withdrawal" option or an "income" option. The withdrawal option guarantees that, upon the election of such benefit, a contract holder can withdraw an amount each year until the cumulative withdrawals reach a total guaranteed balance. The guaranteed remaining balance is generally equal to the protected value under the contract, which is initially established as the greater of: (1) the account value on the date of first withdrawal; (2) cumulative deposits when withdrawals commence, less cumulative withdrawals plus a minimum return; or (3) the highest contract value on a specified date minus any withdrawals. The income option guarantees that a contract holder can, upon the election of this benefit, withdraw a lesser amount each year for the annuitant's life based on the total guaranteed balance. The withdrawal or income benefit can be elected by the contract holder upon issuance of an appropriate deferred variable annuity contract or at any time following contract issue prior to annuitization. Certain GMIWB features include an automatic investment rebalancing element that reduces the Company's exposure to these guarantees as the rebalancing element moves investments from variable to fixed investment options when markets experience significant or prolonged declines. If the markets subsequently recover, the rebalancing element will move investments from fixed to variable investment options. 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. Sales Inducements The Company defers sales inducements and amortizes them over the life of the policy using the same methodology and assumptions used to amortize deferred policy acquisition costs. These deferred sales inducements are included in "Deferred Sales Inducements" in the Company's Statements of Financial Position. The Company offers various types of sales inducements. These inducements include: (1) a bonus whereby the policyholder's initial account balance is increased by an amount equal to a specified percentage of the customer's initial deposit and (2) additional credits after a certain number of years a contract is held. Changes in deferred sales inducements are as follows: Sales Inducements -------------- (in thousands) Beginning Balance as of January 1, 2005 $144,400 Capitalization 99,600 Amortization (16,600) -------- Balance as of December 31, 2005 227,400 -------- Capitalization 167,013 Amortization (34,598) -------- Balance as of December 31, 2006 359,815 ======== Capitalization 263,992 Amortization (64,986) -------- Balance as of December 31, 2007 $558,821 ======== F-23 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 7. REINSURANCE The Company cedes insurance to other insurers in order to fund the cash strain generated from commission costs on current sales and to limit its risk exposure. The Company utilizes both affiliated and unaffiliated reinsurance arrangements. On its unaffiliated arrangements, the Company uses primarily modified coinsurance reinsurance arrangements whereby the reinsurer shares in the experience of a specified book of business. These reinsurance transactions result in the Company receiving from the reinsurer an upfront ceding commission on the book of business ceded in exchange for the reinsurer receiving in the future, a percentage of the future fees generated from that book of business. Such transfer does not relieve the Company of its primary liability and, as such, failure of reinsurers to honor their obligation could result in losses to the Company. The Company reduces this risk by evaluating the financial condition and credit worthiness of reinsurers. On its affiliated arrangements, the Company uses automatic coinsurance reinsurance arrangements. These agreements cover all significant risks under features of the policies reinsured. The Company is not relieved of its primary obligation to the policyholder as a result of these reinsurance transactions. These affiliated agreements include the reinsurance of the Company's GMWB, GMIWB, and GMAB features. These features are considered to be derivatives under SFAS No. 133, and changes in the fair value of the derivative are recognized through "Realized investment gains (losses), net." Please see Note 12 for further details around the affiliated reinsurance agreements. The effect of reinsurance for the year ended December 31, 2007, year ended December 31, 2006, and year ended December 31, 2005, was as follows (in thousands): Unaffiliated Affiliated Gross Ceded Ceded Net -------- ------------ ---------- -------- 2007 Policy charges and fee income $736,064 $(28,698) $ -- $707,366 Realized investment (losses) gains, net $(94,469) $ -- $ 53,497 $(40,972) Policyholders' benefits $ 68,212 $ (862) $ -- $ 67,350 General, administrative and other expenses $535,947 $ (5,560) $ (1,171) $529,216 2006 Policy charges and fee income $586,985 $(25,690) $ -- $561,295 Realized investment (losses) gains, net $ 31,053 $ -- $(79,088) $(48,035) Policyholders' benefits $101,748 $ (381) $ -- $101,367 General, administrative and other expenses $435,721 $ (5,450) $ (27) $430,244 2005 Policy charges and fee income $484,645 $(28,970) $ -- $455,675 Realized investment (losses) gains, net $ (8,326) $ -- $(23,795) $(32,121) Policyholders' benefits $ 67,244 $ (4,271) $ -- $ 62,973 General, administrative and other expenses $336,856 $ (6,211) $ -- $330,645 The Company's Statements of Financial Position also included a reinsurance recoverable from Pruco Re of $104.1 million at December 31, 2007. F-24 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 8. INCOME TAXES The components of income tax expense for the year ended December 31, 2007, December 31, 2006, and December 31, 2005 are as follows: 2007 2006 2005 ------- ------- -------- Current tax expense: U.S. and foreign $ 0 $ 67 $ 51 ------- ------- -------- Total $ 0 $ 67 $ 51 ------- ------- -------- Deferred tax expense: U.S. and foreign $10,056 $ 5,759 $ 45,202 State and local 303 389 789 ------- ------- -------- Total $10,359 $ 6,148 $ 45,991 ------- ------- -------- Total income tax expense on income from operations $10,359 $ 6,215 $ 46,042 Other comprehensive income (loss) (1,556) 4,521 (12,884) Cumulative effect of changes in accounting policy (6,617) 0 0 ------- ------- -------- Total income tax expense $ 2,186 $10,736 $ 33,158 ======= ======= ======== The income tax expense for the years ended December 31, 2007, December 31, 2006, and December 31, 2005, differs from the amount computed by applying the expected federal income tax rate of 35% to income from operations before income taxes for the following reasons: 2007 2006 2005 -------- -------- -------- (in thousands) Expected federal income tax expense $106,734 $ 70,676 $ 71,563 Non taxable investment income (78,437) (56,133) (22,747) Tax credits (7,367) (9,463) (4,841) Prior year adjustments (11,094) 565 899 State income taxes, net of federal benefit 197 253 513 Other 326 317 655 -------- -------- -------- Total income tax expense $ 10,359 $ 6,215 $ 46,042 ======== ======== ======== Deferred tax assets and liabilities at December 31, resulted from the items listed in the following table: 2007 2006 -------- -------- (in thousands) Deferred tax assets Insurance reserves $318,649 $290,768 Net operating loss carryforwards 188,038 114,662 Tax credit carryforwards 27,823 22,007 Compensation reserves 6,428 8,198 Income taxed in advance 4,777 15,734 Other 10,424 21,045 -------- -------- Deferred tax assets $556,139 $472,414 -------- -------- Deferred tax liabilities VOBA and deferred acquisition cost $340,577 $250,757 Net unrealized gains 2,039 4,558 Other 191 193 -------- -------- Deferred tax liabilities $342,807 $255,508 -------- -------- Net deferred tax asset $213,332 $216,906 ======== ======== F-25 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 8. INCOME TAXES (continued) The Company's federal and state net operating loss carryforwards, totaling approximately $531 million, will expire if not used, between 2019 and 2022. The company's tax credit carryforwards, totaling approximately $28 million, will expire if not used, between 2014 and 2017. Management believes that based on its historical pattern of taxable income, the Company will produce sufficient income in the future to realize its deferred tax assets. It is intended that the Company will join in the federal income tax return of Prudential Financial once it becomes an eligible company. A valuation allowance would be recorded in the event of a change in management's assessment of the amount of the deferred tax asset that is realizable. On January 1, 2007, the Company adopted FIN No. 48, "Accounting for Uncertainty in Income Taxes," an Interpretation of FASB Statement No. 109. This interpretation 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 a tax return. Adoption of FIN No. 48 resulted in a decrease to the Company's income tax liability and an increase to retained earnings of $1.4 million as of January 1, 2007. The Company had no unrecognized tax benefits as of the date of adoption of FIN No. 48 and as of December 31, 2007. The Company classifies all interest and penalties related to tax uncertainties as income tax expense. In 2007, the Company recognized nothing in the statement of operations and recognized no liabilities in the statement of financial position for tax-related interest and penalties. The Company's liability for income taxes does not include a liability for unrecognized tax benefits, interest and penalties which relate to tax years still subject to review by the Internal Revenue Service (the Service) 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 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 our liability for income taxes. Any such adjustment could be material to our results of operations for any given quarterly or annual period based, in part, upon the results of operations for the given period. The Company does not anticipate any significant changes to its total unrecognized tax benefits within the next 12 months. In August 2007, the Service issued Revenue Ruling 2007-54. Revenue Ruling 2007-54 included among other items, guidance on the methodology to be followed in calculating the dividends received deduction related to variable life insurance and annuity contracts. In September 2007, the Service released Revenue Ruling 2007-61. Revenue Ruling 2007-61 suspended Revenue Ruling 2007-54 and informed taxpayers that the U.S. Treasury Department and the Service intend to address through new regulations the issues considered in Revenue Ruling 2007-54, including the methodology to be followed in determining the dividends received deduction related to variable life insurance and annuity contracts. These activities had no impact on the Company's 2007 results. In January 2007, the Service began an examination of tax years 2004 through 2006. For tax year 2007, the Company participated in the Service's new Compliance Assurance Program (CAP). Under CAP, the Service assigns an examination team to review completed transactions contemporaneously during the 2007 tax year in order to reach agreement with the Company on how they should be reported in the tax return. If disagreements arise, accelerated resolutions programs are available to resolve the disagreements in a timely manner before the tax return is filed It is management's expectation this new program will significantly shorten the time period between the Company's filing of its federal income tax return and the Service's completion of its examination of the return. 9. 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 State of Connecticut Insurance Department. Prescribed statutory accounting practices include publications of the NAIC, as well as state laws, regulations and general administrative rules. Statutory accounting practices primarily differ from U.S. GAAP by charging policy acquisition costs to expense as incurred, establishing future policy benefit liabilities using different actuarial assumptions and valuing investments, deferred taxes, and certain assets on a different basis. Statutory net income (loss) of the Company amounted to $106.0 million, $110.2 million, and $(31.4) million, for the years ended December 31, 2007, 2006, and 2005, respectively. Statutory surplus of the Company amounted to $438.3 million and $327.2 million at December 31, 2007 and 2006, respectively. F-26 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 9. STATUTORY NET INCOME AND SURPLUS AND DIVIDEND RESTRICTIONS (continued) Without prior approval of its domiciliary commissioner, dividends to shareholders are limited by the laws of the Company's state of incorporation, Connecticut. The State of Connecticut restricts dividend payments to the greater of 10% of the prior year's surplus or net gain from operations from the prior year. Net gain from operations is defined as income after taxes but prior to realized capital gains, as reported on the Summary of Operations. Based on 2007 earnings, there is capacity to pay a dividend of $105.0 million without prior approval in 2008. 10. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair values presented below have been determined using available market information and by applying valuation methodologies. Considerable judgment is applied in interpreting data to develop the estimates of fair value. These fair values may not be realized in a current market exchange. The use of different market assumptions and/or estimation methodologies could have a material effect on the fair values. The methods and assumptions discussed below were used in calculating the fair values of the instruments. Fixed maturities and Equity securities The fair values of public fixed maturity securities are based on quoted market prices or estimates from independent pricing services. However, for investments in private placement fixed maturity securities, this information is not available. For these private investments, the fair value is determined typically by using a discounted cash flow model, which considers current market credit spreads for publicly traded issues with similar terms by companies of comparable credit quality, and an additional spread component for the reduced liquidity associated with private placements. This additional spread component is determined based on surveys of various third party financial institutions. Historically, changes in estimated future cash flows or the assessment of an issuer's credit quality have been the more significant factors in determining fair values. In determining the fair value of certain fixed maturity securities, the discounted cash flow model may also use unobservable inputs, which reflect the Company's own assumptions about the inputs market participants would use in pricing the security. Commercial Loans The fair value of commercial loans, other than those held by the Company's commercial mortgage operations, is primarily based upon the present value of the expected future cash flows discounted at the appropriate U.S. Treasury rate, and adjusted for the current market spread for similar quality loans. The fair value of commercial loans held by the Company's commercial mortgage operations is based upon various factors, including the terms of the loans, the intended exit strategy for the loans based upon either a securitization pricing model or commitments from investors, prevailing interest rates, and credit risk. The carrying amount approximates or equals fair value for the following instruments: fixed maturities, equity securities, policy loans, trading securities, short-term investments, cash and cash equivalents, separate account assets and liabilities, and long-term and short-term borrowing. The following table discloses the carrying amounts and estimated fair values of the Company's financial instruments at December 31: 2007 2006 -------------------------- -------------------------- Estimated Estimated Carrying Value Fair Value Carrying Value Fair Value -------------- ----------- -------------- ----------- (in thousands) Financial assets: Fixed maturities $ 1,335,678 $ 1,335,678 $ 1,174,353 $ 1,174,353 Trading securities 16,314 16,314 18,144 18,144 Equity securities 11,599 11,599 18,344 18,344 Commercial Loans 38,503 39,514 40,846 41,104 Policy loans 12,965 12,965 12,638 12,638 Short-term investments 143,966 143,966 60,872 60,872 Cash and cash equivalents 697 697 664 664 Separate account assets 41,538,366 41,538,366 35,608,409 35,608,409 Financial liabilities: Short-term borrowing $ 195,280 $ 195,280 $ 159,546 $ 159,546 Long-term borrowing 680,000 680,000 405,000 405,000 Separate account liabilities 41,538,366 41,538,366 35,608,409 35,608,409 F-27 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 11. CONTINGENT LIABILITIES AND LITIGATION Contingent Liabilities On an ongoing basis, our 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 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, we may offer customers appropriate remediation and may incur charges, including the costs of such remediation, administrative costs and regulatory fines. Litigation and Regulatory Matters The Company is subject to legal and regulatory actions in the ordinary course of our businesses, including class action lawsuits. Our pending legal and regulatory actions include proceedings specific to the Company and proceedings generally applicable to business practices in the industry in which we operate. We are subject to class action lawsuits and other litigation alleging, among other things, that we made improper or inadequate disclosures in connection with the sale of annuity products or charged excessive or impermissible fees on these products, recommended unsuitable products to customers, mishandled customer accounts or breached fiduciary duties to customers. We are also subject to litigation arising out of our general business activities, such as our investments and contracts, and could be exposed to claims or litigation concerning certain business or process patents. Regulatory authorities from time to time make inquiries and conduct investigations and examinations relating particularly to us and our products. In addition, we, along with other participants in the business in which we engage, may be subject from time to time to investigations, examinations and inquiries, in some cases industry-wide, concerning issues or matters upon which such regulators have determined to focus. In some of our pending legal and regulatory actions, parties are seeking large and/or indeterminate amounts, including punitive or exemplary damages. The outcome of a litigation or regulatory matter, and the amount or range of potential loss at any particular time, is inherently uncertain. The following is a summary of certain pending proceedings: The Company has commenced a remediation program to correct errors in the administration of approximately 11,000 annuity contracts issued by the Company. The owners of these contracts did not receive notification that the contracts were approaching or past their designated annuitization date or default annuitization date (both dates referred to as the "contractual annuity date") and the contracts were not annuitized at their contractual annuity dates. Some of these contracts also were affected by data integrity errors resulting in incorrect contractual annuity dates. The lack of notice and the data integrity errors, as reflected on the annuities administrative system, all occurred before the Acquisition. The remediation and administrative costs of the remediation program are subject to the indemnification provisions of the Acquisition Agreement. Commencing in 2003, the Company received formal requests for information from the SEC and the New York Attorney General ("NYAG") relating to market timing in variable annuities by the Company and certain affiliated companies. In connection with these investigations, with the approval of Skandia an offer was made by the Company to the authorities investigating its companies, the SEC and NYAG, to settle these matters by paying restitution and a civil penalty of $95 million in the aggregate. While not assured, the Company believes these discussions are likely to lead to settlements with these authorities by it or its affiliates. Any regulatory settlement involving the Company and certain affiliates would be subject to the indemnification provisions of the Acquisition Agreement pursuant to which Prudential Financial purchased the Company and certain affiliates in May 2003 from Skandia. If achieved, settlement of the matters relating to the Company and certain affiliates also could involve continuing monitoring, changes to and/or supervision of business practices, findings that may adversely affect existing or cause additional litigation, adverse publicity and other adverse impacts to the Company's businesses. During the third quarter of 2004, the Company identified a system-generated calculation error in its annuity contract administration system that existed prior to the Acquisition. This error related to the calculation of amounts due to customers for certain transactions subject to a market value adjustment upon the surrender or transfer of monies out of their annuity contract's fixed allocation options. The error resulted in an underpayment to policyholders, as well as additional anticipated costs to the Company associated with remediation, breakage and other costs. The Company's consultants have developed the systems functionality to compute remediation amounts and are in the process of running the computations on affected contracts. The Company contacted state insurance regulators and commenced Phase I of its outreach to customers on November 12, 2007. The Company has advised Skandia that a portion of the remediation and related administrative costs are subject to the indemnification provisions of the Acquisition Agreement. From January 2006 to May 2007, thirty complaints were filed in 17th Judicial Circuit Court, Broward County, Florida alleging misrepresentations in the sale of annuities against the Company and in certain of the cases the two brokers who sold the annuities. The complaints allege that the brokers represented that any losses in the annuities would be insured or paid by a state guaranty fund and purport to state claims of breach of fiduciary duty, negligence, fraud, fraudulent inducement, negligent misrepresentation and seek damages in unspecified amounts but in excess of $15,000 per case. The matter is subject to the indemnification provisions of the Acquisition Agreement. F-28 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 11. CONTINGENT LIABILITIES AND LITIGATION (continued) The Company's litigation and regulatory matters are subject to many uncertainties, and given their complexity and scope, the outcomes cannot be predicted. It is possible that the results of operations or the cash flow of the Company in a particular quarterly or annual period could be materially affected by an ultimate unfavorable resolution of pending litigation and regulatory matters depending, in part, upon the results of operations or cash flow for such period. 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 our 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 our financial position. It should be noted that the judgments, settlements and expenses associated with many of these lawsuits, administrative and regulatory matters, and contingencies, including certain claims described above, may, in whole or in part, after satisfaction of certain retention requirements, fall within Skandia's indemnification obligations to Prudential Financial and its subsidiaries under the terms of the Acquisition Agreement. Those obligations of Skandia provide for indemnification of certain judgments, settlements, and costs and expenses associated with lawsuits and other claims against the Company ("matters"), and apply only to matters, or groups of related matters, for which the costs and expenses exceed $25,000 individually. Additionally, those obligations only apply to such otherwise indemnifiable losses that exceed $10 million in the aggregate, subject to reduction for insurance proceeds, certain accruals and any realized tax benefit applicable to such amounts, and those obligations do not apply to the extent that such aggregate exceeds $1 billion. We are in discussions with Skandia regarding the satisfaction of the $10 million deductible. 12. RELATED PARTY TRANSACTIONS In addition to the following related party transactions, the Company has extensive transactions and relationships with PAI and other affiliates. It is possible that the terms of these transactions are not the same as those that would result from transactions among unrelated parties. Affiliated Asset Management Fee Income In accordance with an agreement with ASISI, the Company receives fee income calculated on contractholder separate account balances invested in the Advanced Series Trust. Income received from ASISI related to this agreement was $178.5 million, $121.9 million, and $82.3 million, for the year ended December 31 2007, year ended December 31, 2006, and year ended December 31, 2005, respectively. These revenues are recorded as "Asset management fees" in the Statements of Operations and Comprehensive Income. Cost Allocation Agreements with Affiliates Certain operating costs (including rental of office space, furniture, and equipment) have been charged to the Company at cost by Prudential Annuities Information Services and Technology Corporation ("PAIST"), formerly known as American Skandia Information Services and Technology Corporation, an affiliated company. PALAC signed a written service agreement with PAIST for these services executed and approved by the Connecticut Insurance Department in 1995. This agreement automatically continues in effect from year to year and may be terminated by either party upon 30 days written notice. Allocated lease expense was $5.3 million, $6.5 million, and $8.6 million, for the year ended December 31, 2007, year ended December 31, 2006, and year ended December 31, 2005, respectively. Allocated sub-lease rental income, recorded as a reduction to lease expense, was $3.9 million, $3.1 million, and $2.5 million, for the year ended December 31, 2007, year ended December 31, 2006, and year ended December 31, 2005, respectively. Assuming that the written service agreement between PALAC and PAIST continues indefinitely, PALAC's allocated future minimum lease payments and sub-lease receipts per year and in aggregate as of December 31, 2007 are as follows (in thousands): Lease Sub-Lease ------- --------- 2008 $ 8,603 $ 3,895 2009 8,565 3,296 2010 8,377 3,126 2011 8,377 3,015 2012 7,377 1,231 2013 and thereafter 11,532 1,069 ------- ------- Total $52,831 $15,632 ======= ======= F-29 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 12. RELATED PARTY TRANSACTIONS (continued) The Company pays commissions and certain other fees to PAD in consideration for PAD's marketing and underwriting of the Company's products, which commissions and fees are paid by PAD to unaffiliated broker-dealers who sell the Company's products. Commissions and fees paid by the Company to PAD during the year ended December 31, 2007, year ended December 31, 2006, and year ended December 31, 2005 were $498.1 million, $384.4 million, and $312.3 million, respectively. Reinsurance Agreements During 2007, the Company amended the reinsurance agreements it entered into in 2005 covering its Lifetime Five benefit ("LT5"). The coinsurance agreement entered into with The Prudential Insurance Company of America ("Prudential Insurance") in 2005 provided for the 100% reinsurance of its LT5 feature sold on new business prior to May 6, 2005. This agreement was recaptured effective August 1, 2007. Effective July 1, 2005, the Company entered into a coinsurance agreement with Pruco Reinsurance, Ltd. ("Pruco Re") providing for the 100% reinsurance of its LT5 feature sold on new business after May 5, 2005 as well as for riders issued on or after March 15, 2005 forward on business in-force before March 15, 2005. This agreement was amended effective August 1, 2007 to include the reinsurance of business sold prior to May 6, 2005 that was previously reinsured to Prudential Insurance. Fees ceded under these agreements, included in "Realized investments (losses) gains, net" on the financial statements, were $38.3 million, $20.8 million, and $3.8 million for 2007, 2006, and 2005, 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, included in "Realized investments (losses) gains, net" on the financial statements, were $7.9 million as of December 31, 2007 and $42 thousand as of December 2006. 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, included in "Realized investments (losses) gains, net" on the financial statements, were $9.5 million as of December 31, 2007 and $2.0 million as of December 2006. During 2004, the Company entered into two reinsurance agreements with affiliates as part of our risk management and capital management strategies. We entered into a 100% coinsurance agreement with Prudential Insurance providing for the reinsurance of its guaranteed minimum withdrawal benefit feature ("GMWB"). Fees ceded on this agreement, included in "Realized investments (losses) gains, net" on the financial statements, were $3.5 million, $3.1 million, and $2.4 million for 2007, 2006, and 2005, respectively. The Company also entered into a 100% coinsurance agreement with Pruco Re providing for the reinsurance of its guaranteed return option ("GRO"). In prior years, the Company entered into reinsurance agreements to provide additional capacity for growth in supporting the cash flow strain from the Company's variable annuity and variable life insurance business. Fees ceded on this agreement, included in "Realized investments (losses) gains, net" on the financial statements, were $23.5 million, $19.1 million, and $16.2 million for 2007, 2006, and 2005, respectively. Debt Agreements Short-term and Long-term borrowings On December 31, 2007 the Company entered into a $350 million loan with Prudential Funding LLC. This loan had an interest rate of 5.47%. The loan was subsequently rolled over on January 11, 2008 as a PFI loan with a new interest rate of 5.26% and new maturity date of January 15, 2013. Accrued interest payable was $53 thousand as of December 31, 2007. On December 14, 2006, the Company entered into a $300 million loan with Prudential Financial. This loan has an interest rate of 5.18% and matures on December 14, 2011. The total related interest expense to the Company was $15.6 million as of December 31, 2007. Accrued interest payable was $777 thousand as of December 31, 2007 and $734 thousand as of December 31, 2006. On March 10, 2005, the Company entered into a $30 million loan with Prudential Funding, LLC. This loan has an interest rate of 5.52% and matures on March 11, 2008. The total related interest expense to the Company was $1.8 million for the year ended December 31, 2007 and $1.6 million for the year ended December 31, 2006. Accrued interest payable was and $101 thousand as of December 31, 2007 and $96 thousand as of December 31, 2006. On March 12, 2004, the Company entered into a $45 million loan with Prudential Funding LLC. This loan had an interest rate of 2.78% and matured on March 10, 2005. The loan was subsequently rolled over with a new interest rate of 5.67% and new maturity date of March 12, 2007. Interest paid related to these borrowings was $503 thousand for the year ended December 31, 2007, $2.4 million for the year ended December 31, 2006, $1.6 million for the year ended December 31, 2005 and $248 thousand for the year ended December 31, 2004. Accrued interest payable was $142 thousand as of December 31, 2006. F-30 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 12. RELATED PARTY TRANSACTIONS (continued) On March 10, 2005, the Company entered into a $30 million loan with Prudential Funding, LLC. This loan had an interest rate of 5.67% and matured on March 12, 2007. The total related interest expense to the Company was $336 thousand for the year ended December 31, 2007 and $1.6 million for the year ended December 31, 2006. Accrued interest payable was $95 thousand as of December 31, 2006. On May 1, 2004, the Company entered into a $500 million credit facility agreement with Prudential Funding LLC. Effective December 1, 2004, the credit facility agreement was increased to $750 million. Interest paid related to these borrowings was $2.8 million, $8.7 million, $1.7 million, and $678 thousand for the year ended December 31, 2007, December 31, 2006, December 31, 2005, and December 31, 2004, respectively. As of December 31, 2007 and 2006, $195.3 million and $159.5 million, respectively, was outstanding under this credit facility. Accrued interest payable was $824 thousand and $515 thousand as of December 31, 2007 and 2006, respectively. Future fees payable to PAI In a series of transactions with PAI, the Company sold certain rights to receive a portion of future fees and contract charges expected to be realized on designated blocks of deferred annuity contracts. The proceeds from the sales have been recorded as a liability and are being amortized over the remaining surrender charge period of the designated contracts using the interest method. The Company did not sell the right to receive future fees and charges after the expiration of the surrender charge period. In connection with these sales, PAI through special purpose trusts, issued collateralized notes in private placements, which were secured by the rights to receive future fees and charges purchased from the Company. As part of the Acquisition, the notes issued by PAI were repaid. Under the terms of the securitization purchase agreements, the rights sold provide for PAI to receive a percentage (60%, 80% or 100% depending on the underlying commission option) of future mortality and expense charges and contingent deferred sales charges, after reinsurance, expected to be realized over the remaining surrender charge period of the designated contracts (generally 6 to 8 years). As a result of purchase accounting, the liability was reduced to reflect the discounted estimated future payments to be made and has been subsequently reduced by amortization according to a revised schedule. If actual mortality and expense charges and contingent deferred sales charges are less than those projected in the original amortization schedules, calculated on a transaction by transaction basis, PAI has no recourse against the Company. The Company has determined, using assumptions for lapses, mortality, free withdrawals and a long-term fund growth rate of 8% on the Company's assets under management, that the discounted estimated future payments to PAI would be $14.2 million and $56.2 million as of December 31, 2007 and 2006, respectively. Payments, representing fees and charges in the aggregate amount, respectively of $46.7 million, $74.8 million, $96.6 million, were made by the Company to PAI during the year ended December 31 2007, year ended December 31, 2006 and year ended December 31, 2005. Related expense of $10.4 million, $10.1 million and $9.2 million, respectively has been included in the Statements of Operations and Comprehensive Income for the year ended December 31, 2007, year ended December 31, 2006, and year ended December 31, 2005. The Commissioner of the State of Connecticut has approved the transfer of future fees and charges; however, in the event that the Company becomes subject to an order of liquidation or rehabilitation, the Commissioner has the ability to restrict the payments due to PAI, into a restricted account, under the Purchase Agreement subject to certain terms and conditions. The present values of the transactions that are still active as of 12/31/2007 as of the respective effective date were as follows (dollars in thousands): Closing Effective Contract Issue Discount Present Transaction Date Date Period Rate Value ----------- ---------- ---------- ------------------ ---------- ---------- 2000-1 3/22/00 2/1/00 8/1/99 - 1/31/00 7.5% 169,459 2000-2 7/18/00 6/1/00 2/1/00 - 4/30/00 7.25% 92,399 2000-3 1/18/01 12/1/00 5/1/00 - 10/31/00 7.25% 107,138 2000-4 12/28/00 12/1/00 1/1/98 - 10/31/00 7.25% 107,291 2002-1 4/12/02 3/1/02 11/1/00 - 12/31/01 6.0% 101,713 F-31 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 12. RELATED PARTY TRANSACTIONS (continued) Future amortization of future fees payable to PAI as of December 31, 2007, according to a revised amortization schedule, are as follows (in thousands): Year Amount ---- ------- 2008 $11,421 2009 750 ------- Total $12,171 ======= 13. LEASES The Company entered into an eleven-year lease agreement for office space in Westminster, Colorado, effective January 1, 2001. Lease expense for the year ended December 31, 2007, year ended December 31, 2006, and year ended December 31 2005, was $4.0 million, $3.3 million, and $3.0 million, respectively. Sub-lease rental income was $1.0 million, $635 thousand, and $405 thousand for the year ended December 31, 2007, year ended December 31, 2006, and year ended December 31 2005. Future minimum lease payments and sub-lease receipts per year and in aggregate as of December 31, 2007 are as follows (in thousands): Lease Sub-Lease ------- --------- 2008 $ 3,491 $1,462 2009 3,492 1,210 2010 3,492 1,242 2011 3,201 1,270 2012 0 0 2013 and thereafter 0 0 ------- ------ Total $13,676 $5,184 ======= ====== 14. EMPLOYEE BENEFITS The Company's employees are covered by funded non-contributory defined benefit pension plans of Prudential Insurance. Prudential Insurance also has several non-funded non-contributory defined benefit plans covering certain executives. Benefits for transitioned former employees of the Company are based on a notional account balance that takes into consideration age, service and salary during their careers. Prudential Insurance's funding policy is to contribute annually an amount necessary to satisfy the Internal Revenue Code contribution guidelines, but no contributions have been required in recent years. The Company has no legal obligation for benefits under these plans. Substantially all of the Company's employees may become eligible to receive postretirement benefits under Prudential Insurance plans if they retire after age 55 with at least 10 years of service. These benefits are funded as considered necessary. Postretirement benefits are accounted for in accordance with SFAS No. 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans. The Company's share of net expense for the pension plans was $3.9 million, $4.3 million and $3.1 million for the twelve months ended December 31, 2007, twelve months ended December 31, 2006, and twelve months ended December 31, 2005, respectively. Prudential Insurance sponsors voluntary savings plan 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 expense charged the Company for the matching contribution to the plans was $1.9 million, $1.5 million, and $1.4 million in 2007, 2006, and 2005, respectively. 15. CONTRACT WITHDRAWAL PROVISIONS Approximately 99% of the Company's separate account liabilities are subject to discretionary withdrawal by contract holders at market value or with market value adjustment. Separate account assets, which are carried at fair value, are adequate to pay such withdrawals, which are generally subject to surrender charges ranging from 9% to 1% for contracts held less than 10 years. F-32 Prudential Annuities Life Assurance Corporation Notes to Financial Statements 16. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The unaudited quarterly results of operations for the years ended December 31, 2007 and 2006 are summarized in the table below: Three months ended ------------------------------------------ March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- (in thousands) 2007 Total revenues $229,508 $246,402 $247,236 $270,462 Total benefits and expenses 168,875 181,004 148,166 190,609 Income (loss) from operations before income taxes and cumulative effect of accounting change 60,633 65,398 99,070 79,853 Net income (loss) $ 52,033 $ 66,211 $ 89,735 $ 86,616 Three months ended ------------------------------------------ March 31 June 30 September 30 December 31 -------- -------- ------------ ----------- (in thousands) 2006 Total revenues $178,823 $191,201 $217,304 $223,352 Total benefits and expenses 136,437 134,426 169,589 168,295 Income (loss) from operations before income taxes and cumulative effect of accounting change 42,386 56,775 47,715 55,057 Net income (loss) $ 37,555 $ 54,551 $ 41,170 $ 62,441 F-33 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS -------------------------------------------------------------------------- AST American AST American AST AST T. Rowe Century Century AllianceBernstein Price Large- Income & Strategic AST Money Growth & Income Cap Growth Growth Allocation Market Portfolio Portfolio Portfolio Portfolio Portfolio ----------------- ------------ ------------ ------------ -------------- ASSETS Investment in the portfolios, at value.. $1,903,008,754 $412,631,001 $292,154,087 $191,018,068 $1,920,245,372 -------------- ------------ ------------ ------------ -------------- Net Assets.............................. $1,903,008,754 $412,631,001 $292,154,087 $191,018,068 $1,920,245,372 ============== ============ ============ ============ ============== NET ASSETS, representing: Accumulation units...................... $1,903,008,754 $412,631,001 $292,154,087 $191,018,068 $1,920,245,372 -------------- ------------ ------------ ------------ -------------- $1,903,008,754 $412,631,001 $292,154,087 $191,018,068 $1,920,245,372 ============== ============ ============ ============ ============== Units outstanding....................... 100,698,285 33,935,991 18,554,889 12,598,695 161,788,166 ============== ============ ============ ============ ============== Portfolio shares held................... 80,567,686 35,147,445 18,983,371 12,460,409 1,920,245,371 Portfolio net asset value per share..... $ 23.62 $ 11.74 $ 15.39 $ 15.33 $ 1.00 Investment in portfolio shares, at cost. $1,538,402,174 $349,764,788 $242,530,260 $170,917,320 $1,920,245,372 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS -------------------------------------------------------------------------- AST American AST American AST AST T. Rowe Century Century AllianceBernstein Price Large- Income & Strategic AST Money Growth & Income Cap Growth Growth Allocation Market Portfolio Portfolio Portfolio Portfolio Portfolio ----------------- ------------ ------------ ------------ -------------- INVESTMENT INCOME Dividend income......................... $ 18,579,317 $ 499,209 $ 5,689,438 $ 3,186,095 $ 92,748,204 -------------- ------------ ------------ ------------ -------------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............ 36,283,899 6,700,067 5,410,130 2,853,323 30,506,605 -------------- ------------ ------------ ------------ -------------- NET INVESTMENT INCOME (LOSS).............. (17,704,582) (6,200,858) 279,308 332,772 62,241,599 -------------- ------------ ------------ ------------ -------------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 61,979,608 0 0 8,573,630 0 Realized gain (loss) on shares redeemed............................... 205,486,914 15,546,208 33,228,197 10,418,660 0 Net change in unrealized gain (loss) on investments............................ (179,786,786) 8,833,754 (38,308,671) (7,383,339) 0 -------------- ------------ ------------ ------------ -------------- NET GAIN (LOSS) ON INVESTMENTS............................ 87,679,736 24,379,962 (5,080,474) 11,608,951 0 -------------- ------------ ------------ ------------ -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 69,975,154 $ 18,179,104 $ (4,801,166) $ 11,941,723 $ 62,241,599 ============== ============ ============ ============ ==============
The accompanying notes are an integral part of these financial statements. A1
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------- AST AST AST UBS AST DeAm Neuberger AST DeAm Federated AST Cohen & Dynamic Large-Cap Berman Small- Small-Cap Aggressive Steers Realty Alpha Value Cap Growth Value AST High Growth AST Mid-Cap Portfolio Portfolio Portfolio Portfolio Portfolio Yield Portfolio Portfolio Value Portfolio ------------- ------------ ------------ ------------- ------------ --------------- ------------ --------------- $ 249,537,967 $391,123,904 $284,269,989 $197,276,964 $ 71,379,944 $380,466,535 $462,627,358 $111,950,360 ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 249,537,967 $391,123,904 $284,269,989 $197,276,964 $ 71,379,944 $380,466,535 $462,627,358 $111,950,360 ============= ============ ============ ============ ============ ============ ============ ============ $ 249,537,967 $391,123,904 $284,269,989 $197,276,964 $ 71,379,944 $380,466,535 $462,627,358 $111,950,360 ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 249,537,967 $391,123,904 $284,269,989 $197,276,964 $ 71,379,944 $380,466,535 $462,627,358 $111,950,360 ============= ============ ============ ============ ============ ============ ============ ============ 10,854,854 28,098,154 17,719,513 15,777,446 5,256,032 24,063,690 25,503,060 7,636,631 ============= ============ ============ ============ ============ ============ ============ ============ 20,588,941 28,404,060 22,632,961 18,402,701 7,843,950 49,092,456 40,054,317 9,282,783 $ 12.12 $ 13.77 $ 12.56 $ 10.72 $ 9.10 $ 7.75 $ 11.55 $ 12.06 $ 335,779,401 $370,442,996 $294,016,063 $142,177,065 $ 92,726,458 $402,713,688 $415,856,892 $108,441,014 SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------- AST AST AST UBS AST DeAm Neuberger AST DeAm Federated AST Cohen & Dynamic Large-Cap Berman Small- Small-Cap Aggressive Steers Realty Alpha Value Cap Growth Value AST High Growth AST Mid-Cap Portfolio Portfolio Portfolio Portfolio Portfolio Yield Portfolio Portfolio Value Portfolio ------------- ------------ ------------ ------------- ------------ --------------- ------------ --------------- $ 11,883,249 $ 2,931,623 $ 3,261,876 $ 0 $ 760,492 $ 39,269,843 $ 0 $ 391,224 ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ 6,671,169 4,525,746 5,623,831 2,894,604 1,674,541 7,004,873 8,876,442 2,101,400 ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ 5,212,080 (1,594,123) (2,361,955) (2,894,604) (914,049) 32,264,970 (8,876,442) (1,710,176) ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ 57,495,321 0 20,764,434 0 11,775,750 0 43,708,510 2,960,211 70,759,071 10,478,546 31,996,682 18,259,056 565,112 15,388,911 31,725,418 10,234,600 (217,246,755) (15,562,553) (52,808,883) 14,724,170 (31,427,929) (42,645,431) (25,417,898) (8,757,874) ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ (88,992,363) (5,084,007) (47,767) 32,983,226 (19,087,067) (27,256,520) 50,016,030 4,436,937 ------------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (83,780,283) $ (6,678,130) $ (2,409,722) $ 30,088,622 $(20,001,116) $ 5,008,450 $ 41,139,588 $ 2,726,761 ============= ============ ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A2 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS --------------------------------------------------------------------- AST Goldman Sachs AST Goldman AST Goldman AST Small- Concentrated Sachs Mid- Sachs Small- AST Large- Cap Value Growth Cap Growth Cap Value Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio ------------- ------------ ------------ ------------ ------------ ASSETS Investment in the portfolios, at value.. $ 775,320,844 $558,899,934 $307,676,958 $144,928,908 $581,478,708 ------------- ------------ ------------ ------------ ------------ Net Assets.............................. $ 775,320,844 $558,899,934 $307,676,958 $144,928,908 $581,478,708 ============= ============ ============ ============ ============ NET ASSETS, representing: Accumulation units...................... $ 775,320,844 $558,899,934 $307,676,958 $144,928,908 $581,478,708 ------------- ------------ ------------ ------------ ------------ $ 775,320,844 $558,899,934 $307,676,958 $144,928,908 $581,478,708 ============= ============ ============ ============ ============ Units outstanding....................... 42,346,830 23,248,044 31,877,979 6,019,044 33,133,629 ============= ============ ============ ============ ============ Portfolio shares held................... 54,948,323 20,061,017 52,504,600 12,365,947 30,979,153 Portfolio net asset value per share..... $ 14.11 $ 27.86 $ 5.86 $ 11.72 $ 18.77 Investment in portfolio shares, at cost. $ 827,041,788 $378,192,870 $240,530,434 $184,746,545 $473,692,438 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS --------------------------------------------------------------------- AST Goldman Sachs AST Goldman AST Goldman AST Small- Concentrated Sachs Mid- Sachs Small- AST Large- Cap Value Growth Cap Growth Cap Value Cap Value Portfolio Portfolio Portfolio Portfolio Portfolio ------------- ------------ ------------ ------------ ------------ INVESTMENT INCOME Dividend income......................... $ 7,866,244 $ 0 $ 0 $ 1,082,384 $ 7,069,631 ------------- ------------ ------------ ------------ ------------ EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............ 15,381,138 8,679,853 5,668,398 2,695,047 10,733,993 ------------- ------------ ------------ ------------ ------------ NET INVESTMENT INCOME (LOSS).............. (7,514,894) (8,679,853) (5,668,398) (1,612,663) (3,664,362) ------------- ------------ ------------ ------------ ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 87,320,424 0 0 45,242,043 16,352,550 Realized gain (loss) on shares redeemed............................... 30,944,371 53,368,886 30,817,137 15,544,218 47,974,576 Net change in unrealized gain (loss) on investments............................ (170,942,010) 25,650,999 23,794,436 (68,565,413) (88,823,133) ------------- ------------ ------------ ------------ ------------ NET GAIN (LOSS) ON INVESTMENTS............................ (52,677,215) 79,019,885 54,611,573 (7,779,152) (24,496,007) ------------- ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $ (60,192,109) $ 70,340,032 $ 48,943,175 $ (9,391,815) $(28,160,369) ============= ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A3
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------------ AST AST AST Lord AST Marsico Neuberger Neuberger AST PIMCO Abbett Bond- Capital AST MFS Berman Mid- Berman Mid- Limited AST PIMCO Debenture Growth Growth Cap Growth Cap Value AST Small-Cap Maturity Bond Total Return Portfolio Portfolio Portfolio Portfolio Portfolio Growth Portfolio Portfolio Bond Portfolio ------------ -------------- ------------ ------------ -------------- ---------------- -------------- -------------- $494,617,468 $2,388,547,340 $394,445,179 $696,088,365 $ 967,175,672 $157,937,574 $1,209,317,130 $1,562,280,077 ------------ -------------- ------------ ------------ -------------- ------------ -------------- -------------- $494,617,468 $2,388,547,340 $394,445,179 $696,088,365 $ 967,175,672 $157,937,574 $1,209,317,130 $1,562,280,077 ============ ============== ============ ============ ============== ============ ============== ============== $494,617,468 $2,388,547,340 $394,445,179 $696,088,365 $ 967,175,672 $157,937,574 $1,209,317,130 $1,562,280,077 ------------ -------------- ------------ ------------ -------------- ------------ -------------- -------------- $494,617,468 $2,388,547,340 $394,445,179 $696,088,365 $ 967,175,672 $157,937,574 $1,209,317,130 $1,562,280,077 ============ ============== ============ ============ ============== ============ ============== ============== 35,946,281 143,872,257 36,835,941 29,930,663 39,786,261 9,715,533 98,431,059 105,807,761 ============ ============== ============ ============ ============== ============ ============== ============== 42,676,227 101,770,231 36,387,931 30,923,517 57,297,136 9,166,429 106,453,973 129,114,055 $ 11.59 $ 23.47 $ 10.84 $ 22.51 $ 16.88 $ 17.23 $ 11.36 $ 12.10 $492,072,451 $1,747,628,799 $258,433,145 $544,933,065 $1,048,641,077 $137,454,710 $1,180,221,609 $1,504,333,313 SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------------ AST AST AST Lord AST Marsico Neuberger Neuberger AST PIMCO Abbett Bond- Capital AST MFS Berman Mid- Berman Mid- Limited AST PIMCO Debenture Growth Growth Cap Growth Cap Value AST Small-Cap Maturity Bond Total Return Portfolio Portfolio Portfolio Portfolio Portfolio Growth Portfolio Portfolio Bond Portfolio ------------ -------------- ------------ ------------ -------------- ---------------- -------------- -------------- $ 31,631,844 $ 4,117,702 $ 119,680 $ 0 $ 7,592,022 $ 0 $ 59,115,663 $ 34,939,831 ------------ -------------- ------------ ------------ -------------- ------------ -------------- -------------- 9,933,787 42,853,872 6,560,456 10,330,391 18,191,377 2,743,442 22,650,408 25,615,402 ------------ -------------- ------------ ------------ -------------- ------------ -------------- -------------- 21,698,057 (38,736,170) (6,440,776) (10,330,391) (10,599,355) (2,743,442) 36,465,255 9,324,429 ------------ -------------- ------------ ------------ -------------- ------------ -------------- -------------- 2,142,252 0 0 0 141,415,432 0 0 0 22,641,911 241,187,163 43,643,008 80,859,795 94,644,150 6,839,331 9,874,467 3,156,267 (21,939,467) 86,368,081 14,311,645 47,230,162 (206,006,188) 4,887,742 14,669,964 84,839,281 ------------ -------------- ------------ ------------ -------------- ------------ -------------- -------------- 2,844,696 327,555,244 57,954,653 128,089,957 30,053,394 11,727,073 24,544,431 87,995,548 ------------ -------------- ------------ ------------ -------------- ------------ -------------- -------------- $ 24,542,753 $ 288,819,074 $ 51,513,877 $117,759,566 $ 19,454,039 $ 8,983,631 $ 61,009,686 $ 97,319,977 ============ ============== ============ ============ ============== ============ ============== ==============
The accompanying notes are an integral part of these financial statements. A4 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS ------------------------------------------------------------------------------ AST AST AST T. Rowe AST T. Rowe AllianceBernstein AllianceBernstein Price Natural Price Asset AST Core Value Managed Index 500 Resources Allocation International Portfolio Portfolio Portfolio Portfolio Value Portfolio ----------------- ----------------- ------------- ------------ --------------- ASSETS Investment in the portfolios, at value.. $372,910,344 $345,823,595 $567,927,153 $838,230,216 $418,511,242 ------------ ------------ ------------ ------------ ------------ Net Assets.............................. $372,910,344 $345,823,595 $567,927,153 $838,230,216 $418,511,242 ============ ============ ============ ============ ============ NET ASSETS, representing: Accumulation units...................... $372,910,344 $345,823,595 $567,927,153 $838,230,216 $418,511,242 ------------ ------------ ------------ ------------ ------------ $372,910,344 $345,823,595 $567,927,153 $838,230,216 $418,511,242 ============ ============ ============ ============ ============ Units outstanding....................... 25,318,749 24,739,776 13,323,238 52,178,275 20,459,495 ============ ============ ============ ============ ============ Portfolio shares held................... 29,666,694 25,242,598 14,622,223 46,439,347 19,031,889 Portfolio net asset value per share..... $ 12.57 $ 13.70 $ 38.84 $ 18.05 $ 21.99 Investment in portfolio shares, at cost. $373,175,003 $304,113,267 $447,868,924 $777,060,107 $324,204,411 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS ------------------------------------------------------------------------------ AST AST AST T. Rowe AST T. Rowe AllianceBernstein AllianceBernstein Price Natural Price Asset AST Core Value Managed Index 500 Resources Allocation International Portfolio Portfolio Portfolio Portfolio Value Portfolio ----------------- ----------------- ------------- ------------ --------------- INVESTMENT INCOME Dividend income......................... $ 5,950,738 $ 5,336,401 $ 2,759,101 $ 7,753,802 $ 3,810,671 ------------ ------------ ------------ ------------ ------------ EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............ 7,745,335 6,204,977 7,529,627 11,339,117 6,498,939 ------------ ------------ ------------ ------------ ------------ NET INVESTMENT INCOME (LOSS).............. (1,794,597) (868,576) (4,770,526) (3,585,315) (2,688,268) ------------ ------------ ------------ ------------ ------------ NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 18,651,905 0 29,576,761 22,512,899 0 Realized gain (loss) on shares redeemed............................... 28,573,468 28,940,111 46,252,591 5,702,790 37,297,323 Net change in unrealized gain (loss) on investments............................ (69,144,018) (24,304,585) 75,090,181 (3,062,461) 17,561,850 ------------ ------------ ------------ ------------ ------------ NET GAIN (LOSS) ON INVESTMENTS............................ (21,918,645) 4,635,526 150,919,533 25,153,228 54,859,173 ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $(23,713,242) $ 3,766,950 $146,149,007 $ 21,567,913 $ 52,170,905 ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A5
SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------------------------- AST AST AST JPMorgan AST Aggressive AST Capital AST Balanced Conservative AST MFS International AST T. Rowe International Asset Growth Asset Asset Asset Global Equity Equity Price Global Growth Allocation Allocation Allocation Allocation Portfolio Portfolio Bond Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------- ------------- -------------- -------------- ------------ -------------- -------------- -------------- $175,143,549 $466,812,375 $461,638,336 $1,450,280,781 $506,044,451 $5,234,700,606 $3,809,076,484 $1,143,187,943 ------------ ------------ ------------ -------------- ------------ -------------- -------------- -------------- $175,143,549 $466,812,375 $461,638,336 $1,450,280,781 $506,044,451 $5,234,700,606 $3,809,076,484 $1,143,187,943 ============ ============ ============ ============== ============ ============== ============== ============== $175,143,549 $466,812,375 $461,638,336 $1,450,280,781 $506,044,451 $5,234,700,606 $3,809,076,484 $1,143,187,943 ------------ ------------ ------------ -------------- ------------ -------------- -------------- -------------- $175,143,549 $466,812,375 $461,638,336 $1,450,280,781 $506,044,451 $5,234,700,606 $3,809,076,484 $1,143,187,943 ============ ============ ============ ============== ============ ============== ============== ============== 10,147,170 18,705,177 33,380,778 59,910,708 41,419,918 437,914,459 324,958,850 98,553,829 ============ ============ ============ ============== ============ ============== ============== ============== 12,682,371 17,763,028 37,349,380 79,423,920 40,162,258 420,795,869 312,732,059 94,791,703 $ 13.81 $ 26.28 $ 12.36 $ 18.26 $ 12.60 $ 12.44 $ 12.18 $ 12.06 $178,017,881 $363,526,392 $432,171,787 $ 997,377,392 $460,967,908 $4,681,017,659 $3,413,226,841 $1,045,047,023 SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------------------------- AST AST AST JPMorgan AST Aggressive AST Capital AST Balanced Conservative AST MFS International AST T. Rowe International Asset Growth Asset Asset Asset Global Equity Equity Price Global Growth Allocation Allocation Allocation Allocation Portfolio Portfolio Bond Portfolio Portfolio Portfolio Portfolio Portfolio Portfolio ------------- ------------- -------------- -------------- ------------ -------------- -------------- -------------- $ 3,929,193 $ 7,006,676 $ 12,047,969 $ 6,021,869 $ 674,711 $ 9,336,949 $ 11,174,119 $ 2,810,192 ------------ ------------ ------------ -------------- ------------ -------------- -------------- -------------- 3,235,643 7,888,166 8,015,028 25,458,582 7,980,657 90,328,590 64,582,770 17,580,106 ------------ ------------ ------------ -------------- ------------ -------------- -------------- -------------- 693,550 (881,490) 4,032,941 (19,436,713) (7,305,946) (80,991,641) (53,408,651) (14,769,914) ------------ ------------ ------------ -------------- ------------ -------------- -------------- -------------- 19,847,135 0 0 99,688,621 2,728,801 14,583,579 10,877,421 2,456,706 30,285,396 72,727,635 2,381,362 176,261,626 14,556,485 25,705,846 10,954,491 5,866,997 (37,131,974) (36,759,487) 27,365,025 (28,175,778) 15,542,202 309,219,189 225,680,868 62,009,167 ------------ ------------ ------------ -------------- ------------ -------------- -------------- -------------- 13,000,557 35,968,148 29,746,387 247,774,469 32,827,488 349,508,614 247,512,780 70,332,870 ------------ ------------ ------------ -------------- ------------ -------------- -------------- -------------- $ 13,694,107 $ 35,086,658 $ 33,779,328 $ 228,337,756 $ 25,521,542 $ 268,516,973 $ 194,104,129 $ 55,562,956 ============ ============ ============ ============== ============ ============== ============== ==============
The accompanying notes are an integral part of these financial statements. A6 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS ----------------------------------------------------------------- AST CLS AST Horizon AST AST CLS Moderate AST Horizon Moderate Preservation Growth Asset Asset Growth Asset Asset Asset Allocation Allocation Allocation Allocation Allocation Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ------------ ---------- ------------ ----------- ASSETS Investment in the portfolios, at value.. $568,795,602 $13,542,812 $7,898,994 $4,932,255 $2,827,577 ------------ ----------- ---------- ---------- ---------- Net Assets.............................. $568,795,602 $13,542,812 $7,898,994 $4,932,255 $2,827,577 ============ =========== ========== ========== ========== NET ASSETS, representing: Accumulation units...................... $568,795,602 $13,542,812 $7,898,994 $4,932,255 $2,827,577 ------------ ----------- ---------- ---------- ---------- $568,795,602 $13,542,812 $7,898,994 $4,932,255 $2,827,577 ============ =========== ========== ========== ========== Units outstanding....................... 50,337,854 1,177,501 787,150 484,269 278,218 ============ =========== ========== ========== ========== Portfolio shares held................... 48,284,856 1,174,572 785,188 483,081 277,213 Portfolio net asset value per share..... $ 11.78 $ 11.53 $ 10.06 $ 10.21 $ 10.20 Investment in portfolio shares, at cost. $539,114,916 $13,459,249 $7,883,501 $4,901,523 $2,811,944 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS ----------------------------------------------------------------- AST CLS AST Horizon AST AST CLS Moderate AST Horizon Moderate Preservation Growth Asset Asset Growth Asset Asset Asset Allocation Allocation Allocation Allocation Allocation Portfolio Portfolio Portfolio Portfolio Portfolio ---------------- ------------ ---------- ------------ ----------- INVESTMENT INCOME Dividend income......................... $ 1,194,799 $ 0 $ 0 $ 0 $ 0 ------------ ----------- ---------- ---------- ---------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............ 8,350,799 15,681 10,309 5,604 3,389 ------------ ----------- ---------- ---------- ---------- NET INVESTMENT INCOME (LOSS).............. (7,156,000) (15,681) (10,309) (5,604) (3,389) ------------ ----------- ---------- ---------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 0 0 0 0 0 Realized gain (loss) on shares redeemed............................... 18,894,570 (28,693) 7,508 8,482 3 Net change in unrealized gain (loss) on investments............................ 16,874,669 83,563 15,493 30,732 15,633 ------------ ----------- ---------- ---------- ---------- NET GAIN (LOSS) ON INVESTMENTS............................ 35,769,239 54,870 23,001 39,214 15,636 ------------ ----------- ---------- ---------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 28,613,239 $ 39,189 $ 12,692 $ 33,610 $ 12,247 ============ =========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements. A7
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------- AST Niemann Capital AST Western Evergreen VA Growth Asset Asset Core Evergreen VA Evergreen VA Fundamental Allocation Plus Bond Davis Value Balanced Evergreen VA International Large Cap Evergreen VA Portfolio Portfolio Portfolio Fund Growth Fund Equity Fund Fund Omega Fund ------------ ----------- ----------- ------------ ------------ ------------- ------------ ------------ $5,016,439 $31,861,467 $12,664,219 $5,549,534 $41,697,454 $112,461,091 $8,513,645 $21,935,258 ---------- ----------- ----------- ---------- ----------- ------------ ---------- ----------- $5,016,439 $31,861,467 $12,664,219 $5,549,534 $41,697,454 $112,461,091 $8,513,645 $21,935,258 ========== =========== =========== ========== =========== ============ ========== =========== $5,016,439 $31,861,467 $12,664,219 $5,549,534 $41,697,454 $112,461,091 $8,513,645 $21,935,258 ---------- ----------- ----------- ---------- ----------- ------------ ---------- ----------- $5,016,439 $31,861,467 $12,664,219 $5,549,534 $41,697,454 $112,461,091 $8,513,645 $21,935,258 ========== =========== =========== ========== =========== ============ ========== =========== 502,005 3,194,572 967,569 504,798 3,052,468 5,408,779 591,659 2,125,961 ========== =========== =========== ========== =========== ============ ========== =========== 500,143 3,186,147 874,601 358,266 2,974,141 6,678,212 440,437 1,106,723 $ 10.03 $ 10.00 $ 14.48 $ 15.49 $ 14.02 $ 16.84 $ 19.33 $ 19.82 $5,050,004 $31,766,557 $11,021,396 $4,795,354 $43,975,761 $110,946,797 $7,492,601 $20,046,457 SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------- AST Niemann Capital AST Western Evergreen VA Growth Asset Asset Core Evergreen VA Evergreen VA Fundamental Allocation Plus Bond Davis Value Balanced Evergreen VA International Large Cap Evergreen VA Portfolio Portfolio Portfolio Fund Growth Fund Equity Fund Fund Omega Fund ------------ ----------- ----------- ------------ ------------ ------------- ------------ ------------ $ 0 $ 0 $ 146,493 $ 244,159 $ 0 $ 2,727,280 $ 95,778 $ 120,208 ---------- ----------- ----------- ---------- ----------- ------------ ---------- ----------- 6,671 48,096 196,791 85,977 711,470 1,736,142 132,300 354,300 ---------- ----------- ----------- ---------- ----------- ------------ ---------- ----------- (6,671) (48,096) (50,298) 158,182 (711,470) 991,138 (36,522) (234,092) ---------- ----------- ----------- ---------- ----------- ------------ ---------- ----------- 0 0 508,895 0 8,359,322 8,182,510 674,528 0 (5,736) 0 1,474,486 123,941 3,010,088 9,494,317 695,681 3,313,947 (33,565) 94,910 (1,476,311) 26,398 (6,960,318) (6,309,111) (695,066) (975,111) ---------- ----------- ----------- ---------- ----------- ------------ ---------- ----------- (39,301) 94,910 507,070 150,339 4,409,092 11,367,716 675,143 2,338,836 ---------- ----------- ----------- ---------- ----------- ------------ ---------- ----------- $ (45,972) $ 46,814 $ 456,772 $ 308,521 $ 3,697,622 $ 12,358,854 $ 638,621 $ 2,104,744 ========== =========== =========== ========== =========== ============ ========== ===========
The accompanying notes are an integral part of these financial statements. A8 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS ------------------------------------------------------------------ Columbia Evergreen VA Small Columbia Evergreen VA Diversified Columbia Company Large Cap Special Values Income Money Market Growth Fund, Growth Stock, Fund Builder Fund Fund, VS VS VS -------------- ------------ ------------ ------------ ------------- ASSETS Investment in the portfolios, at value.. $ 6,903,311 $5,989,186 $2,568,441 $1,069,300 $10,477,992 ----------- ---------- ---------- ---------- ----------- Net Assets.............................. $ 6,903,311 $5,989,186 $2,568,441 $1,069,300 $10,477,992 =========== ========== ========== ========== =========== NET ASSETS, representing: Accumulation units...................... $ 6,903,311 $5,989,186 $2,568,441 $1,069,300 $10,477,992 ----------- ---------- ---------- ---------- ----------- $ 6,903,311 $5,989,186 $2,568,441 $1,069,300 $10,477,992 =========== ========== ========== ========== =========== Units outstanding....................... 315,639 401,513 234,422 50,726 799,831 =========== ========== ========== ========== =========== Portfolio shares held................... 507,970 595,939 2,568,442 73,745 334,226 Portfolio net asset value per share..... $ 13.59 $ 10.05 $ 1.00 $ 14.50 $ 31.35 Investment in portfolio shares, at cost. $ 8,168,453 $6,258,712 $2,568,441 $ 622,466 $ 7,947,602 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS ------------------------------------------------------------------ Columbia Evergreen VA Small Columbia Evergreen VA Diversified Columbia Company Large Cap Special Values Income Money Market Growth Fund, Growth Stock, Fund Builder Fund Fund, VS VS VS -------------- ------------ ------------ ------------ ------------- INVESTMENT INCOME Dividend income......................... $ 111,673 $ 320,469 $ 128,856 $ 0 $ 40,303 ----------- ---------- ---------- ---------- ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............ 121,476 95,923 26,516 11,179 110,371 ----------- ---------- ---------- ---------- ----------- NET INVESTMENT INCOME (LOSS).............. (9,803) 224,546 102,340 (11,179) (70,068) ----------- ---------- ---------- ---------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 1,034,019 60,729 0 0 0 Realized gain (loss) on shares redeemed............................... 591,009 89,376 0 128,089 531,919 Net change in unrealized gain (loss) on investments............................ (2,305,094) (220,473) 0 13,100 1,040,669 ----------- ---------- ---------- ---------- ----------- NET GAIN (LOSS) ON INVESTMENTS............................ (680,066) (70,368) 0 141,189 1,572,588 ----------- ---------- ---------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $ (689,869) $ 154,178 $ 102,340 $ 130,010 $ 1,502,520 =========== ========== ========== ========== ===========
The accompanying notes are an integral part of these financial statements. A9
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------ Prudential SP Gartmore International NVIT First Trust First Trust First Trust Growth Developing First Trust The Target Focus First Trust Financial PharmHealth First Trust Portfolio Markets Dow Target 10 Four Portfolio Energy Sector Services Sector Technology ------------- ------------ --------------- -------------- ------------- ----------- ----------- ----------- $51,415,115 $478,757,546 $16,177,157 $12,697,701 $ 0 $ 0 $ 0 $ 0 ----------- ------------ ----------- ----------- ----------- ----------- --------- --------- $51,415,115 $478,757,546 $16,177,157 $12,697,701 $ 0 $ 0 $ 0 $ 0 =========== ============ =========== =========== =========== =========== ========= ========= $51,415,115 $478,757,546 $16,177,157 $12,697,701 $ 0 $ 0 $ 0 $ 0 ----------- ------------ ----------- ----------- ----------- ----------- --------- --------- $51,415,115 $478,757,546 $16,177,157 $12,697,701 $ 0 $ 0 $ 0 $ 0 =========== ============ =========== =========== =========== =========== ========= ========= 3,043,271 14,104,129 1,360,710 1,491,846 0 0 0 0 =========== ============ =========== =========== =========== =========== ========= ========= 6,034,638 24,754,785 1,521,840 2,208,296 0 0 0 0 $ 8.52 $ 19.34 $ 10.63 $ 5.75 $ 0.00 $ 0.00 $ 0.00 $ 0.00 $53,568,395 $404,211,666 $16,240,742 $12,305,944 $ 0 $ 0 $ 0 $ 0 SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------ Prudential SP Gartmore International NVIT First Trust First Trust First Trust Growth Developing First Trust The Target Focus First Trust Financial PharmHealth First Trust Portfolio Markets Dow Target 10 Four Portfolio Energy Sector Services Sector Technology ------------- ------------ --------------- -------------- ------------- ----------- ----------- ----------- $ 332,923 $ 1,710,065 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 ----------- ------------ ----------- ----------- ----------- ----------- --------- --------- 730,558 6,116,067 359,001 80,220 9,177 7,089 6,030 2,479 ----------- ------------ ----------- ----------- ----------- ----------- --------- --------- (397,635) (4,406,002) (359,001) (80,220) (9,177) (7,089) (6,030) (2,479) ----------- ------------ ----------- ----------- ----------- ----------- --------- --------- 6,884,448 51,064,989 0 0 0 0 0 0 6,012,268 44,763,374 2,229,490 447,884 1,556,749 1,168,057 677,159 328,330 (5,465,838) 27,984,471 (2,151,440) (212,530) (1,596,090) (1,266,852) (650,523) (344,074) ----------- ------------ ----------- ----------- ----------- ----------- --------- --------- 7,430,878 123,812,834 78,050 235,354 (39,341) (98,795) 26,636 (15,744) ----------- ------------ ----------- ----------- ----------- ----------- --------- --------- $ 7,033,243 $119,406,832 $ (280,951) $ 155,134 $ (48,518) $ (105,884) $ 20,606 $ (18,223) =========== ============ =========== =========== =========== =========== ========= =========
The accompanying notes are an integral part of these financial statements. A10 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS ------------------------------------------------------------------ First Trust Global First Trust First Trust Dividend NASDAQ First Trust First Trust Value Line Target 15 Target 15 S&P Target 24 Managed VIP Target 25 ------------ ----------- ------------- ------------ ----------- ASSETS Investment in the portfolios, at value.. $173,717,090 $11,316,956 $15,797,835 $174,192,519 $44,021,012 ------------ ----------- ----------- ------------ ----------- Net Assets.............................. $173,717,090 $11,316,956 $15,797,835 $174,192,519 $44,021,012 ============ =========== =========== ============ =========== NET ASSETS, representing: Accumulation units...................... $173,717,090 $11,316,956 $15,797,835 $174,192,519 $44,021,012 ------------ ----------- ----------- ------------ ----------- $173,717,090 $11,316,956 $15,797,835 $174,192,519 $44,021,012 ============ =========== =========== ============ =========== Units outstanding....................... 8,705,117 856,515 1,424,893 12,029,440 3,219,457 ============ =========== =========== ============ =========== Portfolio shares held................... 7,250,296 914,132 1,635,387 13,576,970 7,448,564 Portfolio net asset value per share..... $ 23.96 $ 12.38 $ 9.66 $ 12.83 $ 5.91 Investment in portfolio shares, at cost. $159,874,422 $10,570,994 $15,078,560 $147,749,404 $38,613,564 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS ------------------------------------------------------------------ First Trust Global First Trust First Trust Dividend NASDAQ First Trust First Trust Value Line Target 15 Target 15 S&P Target 24 Managed VIP Target 25 ------------ ----------- ------------- ------------ ----------- INVESTMENT INCOME Dividend income......................... $ 0 $ 0 $ 0 $ 0 $ 0 ------------ ----------- ----------- ------------ ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............ 2,761,248 126,996 261,488 3,285,388 611,353 ------------ ----------- ----------- ------------ ----------- NET INVESTMENT INCOME (LOSS).............. (2,761,248) (126,996) (261,488) (3,285,388) (611,353) ------------ ----------- ----------- ------------ ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 0 0 0 0 0 Realized gain (loss) on shares redeemed............................... 25,019,980 1,471,731 741,588 17,576,113 3,333,434 Net change in unrealized gain (loss) on investments............................ (9,583,405) 83,416 (151,056) (1,161,311) 3,430,262 ------------ ----------- ----------- ------------ ----------- NET GAIN (LOSS) ON INVESTMENTS............................ 15,436,575 1,555,147 590,532 16,414,802 6,763,696 ------------ ----------- ----------- ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 12,675,327 $ 1,428,151 $ 329,044 $ 13,129,414 $ 6,152,343 ============ =========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements. A11
SUBACCOUNTS (Continued) ---------------------------------------------------------------------------------------------------------- First Trust ProFund VP Dow Target ProFund VP ProFund VP ProFund VP ProFund VP Basic ProFund VP ProFund VP Dividend Asia 30 Banks Bear Biotechnology Materials UltraBull Bull ----------- ------------ ----------- ----------- ------------- ------------ ----------- ------------ $82,923,224 $229,468,373 $ 9,868,250 $29,520,523 $16,585,585 $111,823,806 $49,950,234 $128,911,345 ----------- ------------ ----------- ----------- ----------- ------------ ----------- ------------ $82,923,224 $229,468,373 $ 9,868,250 $29,520,523 $16,585,585 $111,823,806 $49,950,234 $128,911,345 =========== ============ =========== =========== =========== ============ =========== ============ $82,923,224 $229,468,373 $ 9,868,250 $29,520,523 $16,585,585 $111,823,806 $49,950,234 $128,911,345 ----------- ------------ ----------- ----------- ----------- ------------ ----------- ------------ $82,923,224 $229,468,373 $ 9,868,250 $29,520,523 $16,585,585 $111,823,806 $49,950,234 $128,911,345 =========== ============ =========== =========== =========== ============ =========== ============ 7,364,976 7,318,886 978,439 4,416,686 1,762,789 6,010,400 4,135,400 10,228,754 =========== ============ =========== =========== =========== ============ =========== ============ 7,033,352 2,522,462 406,101 1,184,612 805,126 2,163,355 2,374,061 4,171,888 $ 11.79 $ 90.97 $ 24.30 $ 24.92 $ 20.60 $ 51.69 $ 21.04 $ 30.90 $80,648,569 $231,025,039 $10,119,067 $30,080,716 $18,079,854 $109,582,332 $51,350,263 $128,828,625 SUBACCOUNTS (Continued) ---------------------------------------------------------------------------------------------------------- First Trust ProFund VP Dow Target ProFund VP ProFund VP ProFund VP ProFund VP Basic ProFund VP ProFund VP Dividend Asia 30 Banks Bear Biotechnology Materials UltraBull Bull ----------- ------------ ----------- ----------- ------------- ------------ ----------- ------------ $ 0 $ 125,133 $ 300,303 $ 1,647,634 $ 0 $ 320,251 $ 257,033 $ 601,274 ----------- ------------ ----------- ----------- ----------- ------------ ----------- ------------ 1,649,125 2,775,948 153,267 652,321 201,487 1,282,146 734,463 1,886,773 ----------- ------------ ----------- ----------- ----------- ------------ ----------- ------------ (1,649,125) (2,650,815) 147,036 995,313 (201,487) (961,895) (477,430) (1,285,499) ----------- ------------ ----------- ----------- ----------- ------------ ----------- ------------ 0 0 0 0 0 0 4,237,192 1,322,855 7,004,619 77,228,833 (2,352,518) (4,551,808) (911,792) 11,983,636 (2,471,728) 6,424,520 (6,204,445) (22,040,130) (585,082) (158,292) (1,218,303) 933,227 (2,251,381) (3,650,949) ----------- ------------ ----------- ----------- ----------- ------------ ----------- ------------ 800,174 55,188,703 (2,937,600) (4,710,100) (2,130,095) 12,916,863 (485,917) 4,096,426 ----------- ------------ ----------- ----------- ----------- ------------ ----------- ------------ $ (848,951) $ 52,537,888 $(2,790,564) $(3,714,787) $(2,331,582) $ 11,954,968 $ (963,347) $ 2,810,927 =========== ============ =========== =========== =========== ============ =========== ============
The accompanying notes are an integral part of these financial statements. A12 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS --------------------------------------------------------------- ProFund VP ProFund VP Consumer Consumer ProFund VP ProFund VP ProFund VP Services Goods Oil & Gas Europe 30 Financials ---------- ----------- ------------ ----------- ----------- ASSETS Investment in the portfolios, at value.. $2,446,978 $30,124,280 $188,297,744 $92,831,733 $20,400,301 ---------- ----------- ------------ ----------- ----------- Net Assets.............................. $2,446,978 $30,124,280 $188,297,744 $92,831,733 $20,400,301 ========== =========== ============ =========== =========== NET ASSETS, representing: Accumulation units...................... $2,446,978 $30,124,280 $188,297,744 $92,831,733 $20,400,301 ---------- ----------- ------------ ----------- ----------- $2,446,978 $30,124,280 $188,297,744 $92,831,733 $20,400,301 ========== =========== ============ =========== =========== Units outstanding....................... 239,644 2,348,631 7,070,957 5,887,592 1,779,162 ========== =========== ============ =========== =========== Portfolio shares held................... 83,287 848,571 2,823,478 2,612,770 630,028 Portfolio net asset value per share..... $ 29.38 $ 35.50 $ 66.69 $ 35.53 $ 32.38 Investment in portfolio shares, at cost. $2,471,751 $30,422,635 $177,549,034 $94,377,200 $21,783,251 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS --------------------------------------------------------------- ProFund VP ProFund VP Consumer Consumer ProFund VP ProFund VP ProFund VP Services Goods Oil & Gas Europe 30 Financials ---------- ----------- ------------ ----------- ----------- INVESTMENT INCOME Dividend income......................... $ 0 $ 126,886 $ 0 $ 2,123,649 $ 283,799 ---------- ----------- ------------ ----------- ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............ 101,955 254,417 2,715,646 1,859,653 498,347 ---------- ----------- ------------ ----------- ----------- NET INVESTMENT INCOME (LOSS).............. (101,955) (127,531) (2,715,646) 263,996 (214,548) ---------- ----------- ------------ ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 0 0 4,189,010 865,529 0 Realized gain (loss) on shares redeemed............................... (226,149) 1,539,797 26,880,300 14,793,820 (2,242,419) Net change in unrealized gain (loss) on investments............................ (155,137) (861,787) 10,665,648 (7,985,579) (3,139,583) ---------- ----------- ------------ ----------- ----------- NET GAIN (LOSS) ON INVESTMENTS............................ (381,286) 678,010 41,734,958 7,673,770 (5,382,002) ---------- ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $ (483,241) $ 550,479 $ 39,019,312 $ 7,937,766 $(5,596,550) ========== =========== ============ =========== ===========
The accompanying notes are an integral part of these financial statements. A13
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- ProFund VP U.S. ACCESS VP ProFund VP ProFund VP Government ProFund VP High Yield ProFund VP ProFund VP Precious Mid-Cap Plus Health Care Fund Industrials Internet ProFund VP Japan Metals Growth ----------- ----------- ----------- ----------- ----------- ---------------- ------------ ----------- $87,800,417 $57,795,006 $26,923,864 $23,481,158 $13,298,831 $24,755,484 $155,610,072 $64,542,009 ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- $87,800,417 $57,795,006 $26,923,864 $23,481,158 $13,298,831 $24,755,484 $155,610,072 $64,542,009 =========== =========== =========== =========== =========== =========== ============ =========== $87,800,417 $57,795,006 $26,923,864 $23,481,158 $13,298,831 $24,755,484 $155,610,072 $64,542,009 ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- $87,800,417 $57,795,006 $26,923,864 $23,481,158 $13,298,831 $24,755,484 $155,610,072 $64,542,009 =========== =========== =========== =========== =========== =========== ============ =========== 7,086,946 5,321,093 2,274,168 1,594,141 647,306 1,734,202 8,057,488 4,690,015 =========== =========== =========== =========== =========== =========== ============ =========== 2,735,216 1,839,434 930,334 561,213 248,576 1,023,800 3,002,896 1,836,711 $ 32.10 $ 31.42 $ 28.94 $ 41.84 $ 53.50 $ 24.18 $ 51.82 $ 35.14 $86,879,934 $58,165,716 $26,775,499 $23,966,953 $13,874,471 $26,755,364 $151,655,284 $64,057,938 SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- ProFund VP U.S. ACCESS VP ProFund VP ProFund VP Government ProFund VP High Yield ProFund VP ProFund VP Precious Mid-Cap Plus Health Care Fund Industrials Internet ProFund VP Japan Metals Growth ----------- ----------- ----------- ----------- ----------- ---------------- ------------ ----------- $ 2,359,085 $ 0 $ 1,585,400 $ 0 $ 67,368 $ 2,365,134 $ 4,293,940 $ 0 ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- 1,062,530 829,605 336,113 379,939 164,444 834,261 1,999,321 1,298,722 ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- 1,296,555 (829,605) 1,249,287 (379,939) (97,076) 1,530,873 2,294,619 (1,298,722) ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- 0 0 253,447 0 0 0 0 6,386,740 2,612,621 6,344,500 (751,288) 1,623,314 373,841 (2,844,520) 12,704,273 210,042 1,768,134 (3,064,569) (341,674) (691,733) (266,008) (2,831,176) 1,642,755 (129,354) ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- 4,380,755 3,279,931 (839,515) 931,581 107,833 (5,675,696) 14,347,028 6,467,428 ----------- ----------- ----------- ----------- ----------- ----------- ------------ ----------- $ 5,677,310 $ 2,450,326 $ 409,772 $ 551,642 $ 10,757 $(4,144,823) $ 16,641,647 $ 5,168,706 =========== =========== =========== =========== =========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements. A14 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS -------------------------------------------------------------------- ProFund VP ProFund VP ProFund VP ProFund VP Rising Rates ProFund VP Mid-Cap Value Pharmaceuticals Real Estate Opportunity NASDAQ-100 ------------- --------------- ------------ ------------ ----------- ASSETS Investment in the portfolios, at value.. $65,127,246 $12,439,058 $ 28,410,648 $35,125,766 $94,213,373 ----------- ----------- ------------ ----------- ----------- Net Assets.............................. $65,127,246 $12,439,058 $ 28,410,648 $35,125,766 $94,213,373 =========== =========== ============ =========== =========== NET ASSETS, representing: Accumulation units...................... $65,127,246 $12,439,058 $ 28,410,648 $35,125,766 $94,213,373 ----------- ----------- ------------ ----------- ----------- $65,127,246 $12,439,058 $ 28,410,648 $35,125,766 $94,213,373 =========== =========== ============ =========== =========== Units outstanding....................... 4,472,653 1,426,223 1,572,169 5,406,511 8,873,160 =========== =========== ============ =========== =========== Portfolio shares held................... 2,066,876 488,381 574,649 1,895,616 5,059,795 Portfolio net asset value per share..... $ 31.51 $ 25.47 $ 49.44 $ 18.53 $ 18.62 Investment in portfolio shares, at cost. $70,691,533 $12,701,282 $ 32,273,707 $35,725,013 $95,277,910 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS -------------------------------------------------------------------- ProFund VP ProFund VP ProFund VP ProFund VP Rising Rates ProFund VP Mid-Cap Value Pharmaceuticals Real Estate Opportunity NASDAQ-100 ------------- --------------- ------------ ------------ ----------- INVESTMENT INCOME Dividend income......................... $ 340,414 $ 216,287 $ 538,138 $ 2,421,435 $ 0 ----------- ----------- ------------ ----------- ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............ 1,413,410 335,523 982,773 862,555 1,363,571 ----------- ----------- ------------ ----------- ----------- NET INVESTMENT INCOME (LOSS).............. (1,072,996) (119,236) (444,635) 1,558,880 (1,363,571) ----------- ----------- ------------ ----------- ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 1,841,381 0 1,688,286 0 0 Realized gain (loss) on shares redeemed............................... 8,068,195 (9,955) (8,535,690) (5,411,250) 9,225,791 Net change in unrealized gain (loss) on investments............................ (7,128,681) 118,656 (4,826,580) (1,752,421) (1,158,932) ----------- ----------- ------------ ----------- ----------- NET GAIN (LOSS) ON INVESTMENTS............................ 2,780,895 108,701 (11,673,984) (7,163,671) 8,066,859 ----------- ----------- ------------ ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 1,707,899 $ (10,535) $(12,118,619) $(5,604,791) $ 6,703,288 =========== =========== ============ =========== ===========
The accompanying notes are an integral part of these financial statements. A15
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------- ProFund VP ProFund VP ProFund VP ProFund VP Small-Cap ProFund VP Short ProFund VP Short Small-Cap ProFund VP ProFund VP Semiconductor Growth Short Mid-Cap NASDAQ-100 Small-Cap Value Technology Telecommunications ------------- ------------ ------------- ----------- ---------------- ----------- ----------- ------------------ $5,296,440 $ 36,924,801 $1,436,856 $11,446,026 $12,741,860 $30,153,917 $27,214,619 $35,538,019 ---------- ------------ ---------- ----------- ----------- ----------- ----------- ----------- $5,296,440 $ 36,924,801 $1,436,856 $11,446,026 $12,741,860 $30,153,917 $27,214,619 $35,538,019 ========== ============ ========== =========== =========== =========== =========== =========== $5,296,440 $ 36,924,801 $1,436,856 $11,446,026 $12,741,860 $30,153,917 $27,214,619 $35,538,019 ---------- ------------ ---------- ----------- ----------- ----------- ----------- ----------- $5,296,440 $ 36,924,801 $1,436,856 $11,446,026 $12,741,860 $30,153,917 $27,214,619 $35,538,019 ========== ============ ========== =========== =========== =========== =========== =========== 707,006 2,403,287 183,108 2,314,336 1,562,566 2,208,392 3,423,035 3,377,679 ========== ============ ========== =========== =========== =========== =========== =========== 243,067 1,301,085 59,869 807,195 858,038 1,046,648 1,609,380 1,840,395 $ 21.79 $ 28.38 $ 24.00 $ 14.18 $ 14.85 $ 28.81 $ 16.91 $ 19.31 $5,481,185 $ 37,698,793 $1,421,212 $11,343,138 $12,702,002 $34,592,382 $27,555,063 $36,573,050 SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------- ProFund VP ProFund VP ProFund VP ProFund VP Small-Cap ProFund VP Short ProFund VP Short Small-Cap ProFund VP ProFund VP Semiconductor Growth Short Mid-Cap NASDAQ-100 Small-Cap Value Technology Telecommunications ------------- ------------ ------------- ----------- ---------------- ----------- ----------- ------------------ $ 0 $ 0 $ 256,460 $ 1,924,263 $ 644,485 $ 0 $ 0 $ 445,206 ---------- ------------ ---------- ----------- ----------- ----------- ----------- ----------- 111,218 1,233,892 67,135 454,057 302,376 790,784 271,632 1,009,351 ---------- ------------ ---------- ----------- ----------- ----------- ----------- ----------- (111,218) (1,233,892) 189,325 1,470,206 342,109 (790,784) (271,632) (564,145) ---------- ------------ ---------- ----------- ----------- ----------- ----------- ----------- 0 10,679,126 0 0 0 5,396,689 0 154,513 148,468 (10,525,394) (373,955) (5,794,133) 841,733 (3,075,722) 1,904,584 6,993,715 (314) (1,715,420) (15,226) (288,413) (38,503) (5,752,978) (461,432) (3,026,516) ---------- ------------ ---------- ----------- ----------- ----------- ----------- ----------- 148,154 (1,561,688) (389,181) (6,082,546) 803,230 (3,432,011) 1,443,152 4,121,712 ---------- ------------ ---------- ----------- ----------- ----------- ----------- ----------- $ 36,936 $ (2,795,580) $ (199,856) $(4,612,340) $ 1,145,339 $(4,222,795) $ 1,171,520 $ 3,557,567 ========== ============ ========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. A16 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS --------------------------------------------------------------------- ProFund VP ProFund VP ProFund VP ProFund VP ProFund VP Large-Cap UltraMid-Cap UltraNASDAQ-100 UltraSmall-Cap Utilities Growth ------------ --------------- -------------- ------------ ----------- ASSETS Investment in the portfolios, at value.. $64,811,745 $94,290,483 $22,491,958 $183,429,130 $74,680,616 ----------- ----------- ----------- ------------ ----------- Net Assets.............................. $64,811,745 $94,290,483 $22,491,958 $183,429,130 $74,680,616 =========== =========== =========== ============ =========== NET ASSETS, representing: Accumulation units...................... $64,811,745 $94,290,483 $22,491,958 $183,429,130 $74,680,616 ----------- ----------- ----------- ------------ ----------- $64,811,745 $94,290,483 $22,491,958 $183,429,130 $74,680,616 =========== =========== =========== ============ =========== Units outstanding....................... 3,252,355 39,701,568 1,630,340 10,701,461 6,418,447 =========== =========== =========== ============ =========== Portfolio shares held................... 1,879,691 3,501,318 968,229 4,663,848 2,073,310 Portfolio net asset value per share..... $ 34.48 $ 26.93 $ 23.23 $ 39.33 $ 36.02 Investment in portfolio shares, at cost. $66,659,714 $98,705,486 $22,746,035 $181,587,934 $74,734,488 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS --------------------------------------------------------------------- ProFund VP ProFund VP ProFund VP ProFund VP ProFund VP Large-Cap UltraMid-Cap UltraNASDAQ-100 UltraSmall-Cap Utilities Growth ------------ --------------- -------------- ------------ ----------- INVESTMENT INCOME Dividend income......................... $ 218,803 $ 0 $ 334,157 $ 1,379,868 $ 0 ----------- ----------- ----------- ------------ ----------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............ 1,369,905 975,140 502,601 2,148,183 1,177,562 ----------- ----------- ----------- ------------ ----------- NET INVESTMENT INCOME (LOSS).............. (1,151,102) (975,140) (168,444) (768,315) (1,177,562) ----------- ----------- ----------- ------------ ----------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 1,657,662 0 0 1,109,981 1,384,240 Realized gain (loss) on shares redeemed............................... (3,683,462) 14,380,129 (6,022,267) 14,467,941 6,085,460 Net change in unrealized gain (loss) on investments............................ (265,895) (3,407,379) 63,409 (4,092,928) (3,722,468) ----------- ----------- ----------- ------------ ----------- NET GAIN (LOSS) ON INVESTMENTS............................ (2,291,695) 10,972,750 (5,958,858) 11,484,994 3,747,232 ----------- ----------- ----------- ------------ ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $(3,442,797) $ 9,997,610 $(6,127,302) $ 10,716,679 $ 2,569,670 =========== =========== =========== ============ ===========
The accompanying notes are an integral part of these financial statements. A17
SUBACCOUNTS (Continued) -------------------------------------------------------------------------------------------------------- ProFund VP Rydex Inverse AIM V.I. AIM V.I. AIM V.I. AIM V.I. Large-Cap Rydex Nova Rydex OTC S&P 500 Dynamics Financial Global Health Technology Value Fund Fund Strategy Fund Fund Services Fund Care Fund Fund ----------- ---------- ----------- ------------- ----------- ------------- ------------- ----------- $69,711,468 $5,108,783 $20,181,336 $ 480,422 $61,006,736 $ 39,354,939 $90,893,321 $51,563,167 ----------- ---------- ----------- --------- ----------- ------------ ----------- ----------- $69,711,468 $5,108,783 $20,181,336 $ 480,422 $61,006,736 $ 39,354,939 $90,893,321 $51,563,167 =========== ========== =========== ========= =========== ============ =========== =========== $69,711,468 $5,108,783 $20,181,336 $ 480,422 $61,006,736 $ 39,354,939 $90,893,321 $51,563,167 ----------- ---------- ----------- --------- ----------- ------------ ----------- ----------- $69,711,468 $5,108,783 $20,181,336 $ 480,422 $61,006,736 $ 39,354,939 $90,893,321 $51,563,167 =========== ========== =========== ========= =========== ============ =========== =========== 5,753,874 670,258 2,687,008 56,187 4,321,211 3,134,693 6,150,509 8,248,236 =========== ========== =========== ========= =========== ============ =========== =========== 1,862,449 507,831 1,113,760 11,382 3,170,828 3,210,028 3,777,777 3,414,779 $ 37.43 $ 10.06 $ 18.12 $ 42.21 $ 19.24 $ 12.26 $ 24.06 $ 15.10 $73,626,316 $3,501,040 $24,747,746 $ 699,061 $55,315,895 $ 50,031,499 $75,381,011 $41,210,981 SUBACCOUNTS (Continued) -------------------------------------------------------------------------------------------------------- ProFund VP Rydex Inverse AIM V.I. AIM V.I. AIM V.I. AIM V.I. Large-Cap Rydex Nova Rydex OTC S&P 500 Dynamics Financial Global Health Technology Value Fund Fund Strategy Fund Fund Services Fund Care Fund Fund ----------- ---------- ----------- ------------- ----------- ------------- ------------- ----------- $ 570,321 $ 74,233 $ 14,694 $ 22,383 $ 0 $ 868,840 $ 0 $ 0 ----------- ---------- ----------- --------- ----------- ------------ ----------- ----------- 1,814,936 86,987 315,434 7,424 1,114,077 909,558 1,522,979 826,324 ----------- ---------- ----------- --------- ----------- ------------ ----------- ----------- (1,244,615) (12,754) (300,740) 14,959 (1,114,077) (40,718) (1,522,979) (826,324) ----------- ---------- ----------- --------- ----------- ------------ ----------- ----------- 5,037,853 0 0 0 0 3,280,015 0 0 3,180,466 633,954 (3,069,291) (156,980) 6,621,123 6,054,077 11,989,367 4,939,710 (7,973,921) (571,755) 6,810,575 136,665 947,861 (22,776,808) (1,461,035) (636,723) ----------- ---------- ----------- --------- ----------- ------------ ----------- ----------- 244,398 62,199 3,741,284 (20,315) 7,568,984 (13,442,716) 10,528,332 4,302,987 ----------- ---------- ----------- --------- ----------- ------------ ----------- ----------- $(1,000,217) $ 49,445 $ 3,440,544 $ (5,356) $ 6,454,907 $(13,483,434) $ 9,005,353 $ 3,476,663 =========== ========== =========== ========= =========== ============ =========== ===========
The accompanying notes are an integral part of these financial statements. A18 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS ----------------------------------------------------------------- Wells Fargo Wells Fargo Wells Fargo Advantage VT Wells Fargo Advantage VT Advantage VT Wells Fargo Asset Advantage VT C&B Large Large Advantage VT Allocation Equity Income Cap Value Company International Fund Fund Fund Core Fund Core Fund ------------ ------------- ------------ ------------ ------------- ASSETS Investment in the portfolios, at value.. $73,917,312 $28,699,296 $12,736,660 $16,323,095 $2,740,167 ----------- ----------- ----------- ----------- ---------- Net Assets.............................. $73,917,312 $28,699,296 $12,736,660 $16,323,095 $2,740,167 =========== =========== =========== =========== ========== NET ASSETS, representing: Accumulation units...................... $73,917,312 $28,699,296 $12,736,660 $16,323,095 $2,740,167 ----------- ----------- ----------- ----------- ---------- $73,917,312 $28,699,296 $12,736,660 $16,323,095 $2,740,167 =========== =========== =========== =========== ========== Units outstanding....................... 2,721,353 2,029,147 1,162,646 822,836 227,655 =========== =========== =========== =========== ========== Portfolio shares held................... 5,048,997 1,531,446 1,158,932 1,022,750 264,495 Portfolio net asset value per share..... $ 14.64 $ 18.74 $ 10.99 $ 15.96 $ 10.36 Investment in portfolio shares, at cost. $64,211,517 $28,086,567 $10,260,565 $15,823,446 $2,400,803 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS ----------------------------------------------------------------- Wells Fargo Wells Fargo Wells Fargo| Advantage VT Wells Fargo Advantage VT Advantage VT Wells Fargo Asset Advantage VT C&B Large Large Advantage VT Allocation Equity Income Cap Value Company International Fund Fund Fund Core Fund Core Fund ------------ ------------- ------------ ------------ ------------- INVESTMENT INCOME Dividend income......................... $ 1,888,267 $ 476,888 $ 159,410 $ 0 $ 379 ----------- ----------- ----------- ----------- ---------- EXPENSES Charges to contract owners for assuming mortality risk and expense risk and for administration............ 1,240,411 539,467 220,874 274,159 42,141 ----------- ----------- ----------- ----------- ---------- NET INVESTMENT INCOME (LOSS).............. 647,856 (62,579) (61,464) (274,159) (41,762) ----------- ----------- ----------- ----------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 1,325,177 2,155,192 0 0 207,783 Realized gain (loss) on shares redeemed............................... 39,212 3,826,425 2,285,767 (2,019,701) 394,270 Net change in unrealized gain (loss) on investments............................ 3,434,674 (5,510,395) (2,495,401) 2,675,937 (239,318) ----------- ----------- ----------- ----------- ---------- NET GAIN (LOSS) ON INVESTMENTS............................ 4,799,063 471,222 (209,634) 656,236 362,735 ----------- ----------- ----------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 5,446,919 $ 408,643 $ (271,098) $ 382,077 $ 320,973 =========== =========== =========== =========== ==========
The accompanying notes are an integral part of these financial statements. A19
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------- Wells Fargo AST First AST First Advantage VT Wells Fargo Wells Fargo Wells Fargo Trust Trust Capital Large Advantage VT Advantage VT Advantage VT Balanced Appreciation AST Advanced Columbia Company Money Market Small Cap Total Return Target Target Strategies High Yield Growth Fund Fund Growth Fund Bond Fund Portfolio Portfolio Portfolio Fund VS ------------ ------------ ------------ ------------ -------------- -------------- -------------- ---------- $8,643,925 $24,425,651 $4,545,477 $10,374,997 $1,144,841,327 $1,390,642,534 $1,216,235,940 $411,604 ---------- ----------- ---------- ----------- -------------- -------------- -------------- -------- $8,643,925 $24,425,651 $4,545,477 $10,374,997 $1,144,841,327 $1,390,642,534 $1,216,235,940 $411,604 ========== =========== ========== =========== ============== ============== ============== ======== $8,643,925 $24,425,651 $4,545,477 $10,374,997 $1,144,841,327 $1,390,642,534 $1,216,235,940 $411,604 ---------- ----------- ---------- ----------- -------------- -------------- -------------- -------- $8,643,925 $24,425,651 $4,545,477 $10,374,997 $1,144,841,327 $1,390,642,534 $1,216,235,940 $411,604 ========== =========== ========== =========== ============== ============== ============== ======== 891,899 1,804,364 336,563 726,344 102,271,015 122,278,610 106,913,305 38,085 ========== =========== ========== =========== ============== ============== ============== ======== 837,589 24,425,649 469,089 1,043,762 98,778,372 117,851,062 103,421,423 36,948 $ 10.32 $ 1.00 $ 9.69 $ 9.94 $ 11.59 $ 11.80 $ 11.76 $ 11.14 $6,777,350 $24,425,651 $3,422,684 $10,639,133 $1,071,196,419 $1,296,470,467 $1,120,059,936 $408,860 SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------- Wells Fargo AST First AST First Advantage VT Wells Fargo Wells Fargo Wells Fargo Trust Trust Capital Large Advantage VT Advantage VT Advantage VT Balanced Appreciation AST Advanced Columbia Company Money Market Small Cap Total Return Target Target Strategies High Yield Growth Fund Fund Growth Fund Bond Fund Portfolio Portfolio Portfolio Fund VS ------------ ------------ ------------ ------------ -------------- -------------- -------------- ---------- $ 0 $ 1,146,595 $ 0 $ 538,955 $ 4,141,067 $ 2,692,895 $ 4,233,141 $ 21,590 ---------- ----------- ---------- ----------- -------------- -------------- -------------- -------- 145,679 355,791 74,289 168,122 17,732,016 19,847,217 19,058,919 4,434 ---------- ----------- ---------- ----------- -------------- -------------- -------------- -------- (145,679) 790,804 (74,289) 370,833 (13,590,949) (17,154,322) (14,825,778) 17,156 ---------- ----------- ---------- ----------- -------------- -------------- -------------- -------- 0 0 778,814 0 363,764 988,883 1,428,984 0 276,367 0 113,297 (213,183) 3,377,195 6,094,020 2,988,920 2,502 514,174 0 (204,670) 354,473 47,974,997 64,620,842 65,925,385 (15,598) ---------- ----------- ---------- ----------- -------------- -------------- -------------- -------- 790,541 0 687,441 141,290 51,715,956 71,703,745 70,343,289 (13,096) ---------- ----------- ---------- ----------- -------------- -------------- -------------- -------- $ 644,862 $ 790,804 $ 613,152 $ 512,123 $ 38,125,007 $ 54,549,423 $ 55,517,511 $ 4,060 ========== =========== ========== =========== ============== ============== ============== ========
The accompanying notes are an integral part of these financial statements. A20 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("VARIABLE ACCOUNT B") STATEMENT OF NET ASSETS December 31, 2007
SUBACCOUNTS -------------------------------------- Columbia Asset Columbia Federal Allocation Fund, VS Securities Fund, VS ------------------- ------------------- ASSETS Investment in the portfolios, at value.. $11,609,273 $1,941,380 Receivable from Prudential Annuities Life Assurance Corporation............. 833,259 409,094 ----------- ---------- Total Assets............................ 12,442,532 2,350,474 LIABILITIES Payable to former unitholders........... 566,245 313,384 ----------- ---------- NET ASSETS Attributable to accumulation units...... $11,876,287 $2,037,090 =========== ========== Units outstanding....................... 719,278 178,440 =========== ========== Portfolio shares held................... 761,264 185,423 Portfolio net asset value per share..... $ 15.25 $ 10.47 Investment in portfolio shares, at cost................................... $ 9,474,124 $1,997,554 STATEMENT OF OPERATIONS For the period ended December 31, 2007 SUBACCOUNTS -------------------------------------- Columbia Asset Columbia Federal Allocation Fund, VS Securities Fund, VS ------------------- ------------------- INVESTMENT INCOME Dividend income......................... $ 352,824 $ 138,860 ----------- ---------- EXPENSES Charges to the Contract owners for assuming mortality risk and expense risk and for administration............ 123,119 20,463 ----------- ---------- NET INVESTMENT INCOME (LOSS).............. 229,705 118,397 ----------- ---------- NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Capital gains distributions received.... 1,177,684 0 Realized gain (loss) on shares redeemed............................... 692,486 (21,012) Net change in unrealized gain (loss) on investments............................ (1,041,317) 22,860 ----------- ---------- NET GAIN (LOSS) ON INVESTMENTS............................ 828,853 1,848 ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS............................. $ 1,058,558 $ 120,245 =========== ==========
The accompanying notes are an integral part of these financial statements. A21 [THIS PAGE INTENTIONALLY LEFT BLANK] A22 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS -------------------------------------------------------------------------------------- AST AllianceBernstein Growth AST T. Rowe Price Large-Cap AST American Century Income & Income Portfolio Growth Portfolio & Growth Portfolio ------------------------------ -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 -------------- -------------- ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)..................... $ (17,704,582) $ (16,181,954) $ (6,200,858) $ (4,371,904) $ 279,308 $ 1,113,509 Capital gains distributions received................... 61,979,608 0 0 0 0 0 Realized gain (loss) on shares redeemed............ 205,486,914 200,478,461 15,546,208 17,561,796 33,228,197 28,841,039 Net change in unrealized gain (loss) on investments................ (179,786,786) 140,289,258 8,833,754 (1,423,663) (38,308,671) 20,219,074 -------------- -------------- ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 69,975,154 324,585,765 18,179,104 11,766,229 (4,801,166) 50,173,622 -------------- -------------- ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 50,187,874 72,467,757 100,676,819 78,480,816 16,831,924 11,098,124 Surrenders, withdrawals and death benefits............. (262,444,505) (260,393,296) (39,696,476) (32,763,238) (60,253,133) (52,544,977) Net transfers between other subaccounts or fixed rate option..................... (211,396,986) (610,591,030) 21,852,543 6,443,025 (31,808,647) (18,286,628) Withdrawal and other charges.................... (1,304,181) (1,539,243) (190,930) (183,373) (278,495) (307,511) -------------- -------------- ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (424,957,798) (800,055,812) 82,641,956 51,977,230 (75,508,351) (60,040,992) -------------- -------------- ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (354,982,644) (475,470,047) 100,821,060 63,743,459 (80,309,517) (9,867,370) NET ASSETS Beginning of period......... 2,257,991,398 2,733,461,445 311,809,941 248,066,482 372,463,604 382,330,974 -------------- -------------- ------------ ------------ ------------ ------------ End of period............... $1,903,008,754 $2,257,991,398 $412,631,001 $311,809,941 $292,154,087 $372,463,604 ============== ============== ============ ============ ============ ============ Beginning units............. 119,941,388 167,796,720 25,617,789 18,693,659 23,133,067 27,143,236 -------------- -------------- ------------ ------------ ------------ ------------ Units issued................ 35,945,663 48,015,062 26,618,403 22,925,833 7,123,140 6,764,829 Units redeemed.............. (55,188,766) (95,870,394) (18,300,201) (16,001,703) (11,701,318) (10,774,998) -------------- -------------- ------------ ------------ ------------ ------------ Ending units................ 100,698,285 119,941,388 33,935,991 25,617,789 18,554,889 23,133,067 ============== ============== ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A23
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------------ AST American Century AST Cohen & Steers Realty AST UBS Dynamic Alpha Strategic Allocation Portfolio AST Money Market Portfolio Portfolio Portfolio ----------------------------- -------------------------------- --------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ --------------- --------------- ------------- ------------ ------------ ------------ $ 332,772 $ 943,753 $ 62,241,599 $ 56,250,272 $ 5,212,080 $ (1,004,035) $ (1,594,123) $ 2,432,160 8,573,630 4,489,838 0 0 57,495,321 60,422,848 0 0 10,418,660 11,836,286 0 0 70,759,071 34,735,414 10,478,546 980,470 (7,383,339) (3,872,371) 0 0 (217,246,755) 39,522,547 (15,562,553) 13,141,544 ------------ ------------ --------------- --------------- ------------- ------------ ------------ ------------ 11,941,723 13,397,506 62,241,599 56,250,272 (83,780,283) 133,676,774 (6,678,130) 16,554,174 ------------ ------------ --------------- --------------- ------------- ------------ ------------ ------------ 43,202,064 8,805,872 560,828,375 638,642,435 28,670,821 31,805,661 150,471,579 6,213,317 (30,072,931) (31,390,146) (1,049,233,555) (863,310,055) (60,730,635) (59,117,248) (34,426,441) (31,220,838) (2,730,522) (21,741,949) 744,842,473 161,633,520 (168,212,687) 27,874,779 101,765,537 (9,864,015) (115,664) (129,391) (1,148,688) (1,201,239) (234,724) (273,604) (131,948) (144,530) ------------ ------------ --------------- --------------- ------------- ------------ ------------ ------------ 10,282,947 (44,455,614) 255,288,605 (64,235,339) (200,507,225) 289,588 217,678,727 (35,016,066) ------------ ------------ --------------- --------------- ------------- ------------ ------------ ------------ 22,224,670 (31,058,108) 317,530,204 (7,985,067) (284,287,508) 133,966,362 211,000,597 (18,461,892) 168,793,398 199,851,506 1,602,715,168 1,610,700,235 533,825,475 399,859,113 180,123,307 198,585,199 ------------ ------------ --------------- --------------- ------------- ------------ ------------ ------------ $191,018,068 $168,793,398 $ 1,920,245,372 $ 1,602,715,168 $ 249,537,967 $533,825,475 $391,123,904 $180,123,307 ============ ============ =============== =============== ============= ============ ============ ============ 11,073,684 13,906,692 137,602,272 139,358,491 18,291,923 18,373,743 9,286,978 10,921,390 ------------ ------------ --------------- --------------- ------------- ------------ ------------ ------------ 9,118,217 3,615,205 1,020,147,680 1,054,255,094 8,544,554 12,127,342 39,681,870 2,198,703 (7,593,206) (6,448,213) (995,961,786) (1,056,011,313) (15,981,623) (12,209,162) (20,870,694) (3,833,115) ------------ ------------ --------------- --------------- ------------- ------------ ------------ ------------ 12,598,695 11,073,684 161,788,166 137,602,272 10,854,854 18,291,923 28,098,154 9,286,978 ============ ============ =============== =============== ============= ============ ============ ============
The accompanying notes are an integral part of these financial statements. A24 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ---------------------------------------------------------------------------------- AST DeAm Large-Cap Value AST Neuberger Berman AST DeAm Small-Cap Value Portfolio Small-Cap Growth Portfolio Portfolio -------------------------- -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)..................... $ (2,361,955) $ (1,602,179) $ (2,894,604) $ (3,427,658) $ (914,049) $ (1,443,921) Capital gains distributions received................... 20,764,434 18,920,075 0 0 11,775,750 6,570,928 Realized gain (loss) on shares redeemed............ 31,996,682 9,805,114 18,259,056 30,652,148 565,112 3,472,631 Net change in unrealized gain (loss) on investments................ (52,808,883) 13,676,224 14,724,170 (14,654,965) (31,427,929) 9,155,835 ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. (2,409,722) 40,799,234 30,088,622 12,569,525 (20,001,116) 17,755,473 ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 28,144,451 23,259,948 5,112,819 6,079,677 8,759,293 10,331,432 Surrenders, withdrawals and death benefits............. (46,888,977) (26,319,847) (34,261,383) (39,230,876) (12,586,673) (10,990,621) Net transfers between other subaccounts or fixed rate option..................... (20,732,931) 119,981,532 (8,671,977) (24,080,643) (20,253,303) (8,512,466) Withdrawal and other charges.................... (177,259) (133,610) (144,560) (182,454) (65,134) (68,669) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (39,654,716) 116,788,023 (37,965,101) (57,414,296) (24,145,817) (9,240,324) ------------ ------------ ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (42,064,438) 157,587,257 (7,876,479) (44,844,771) (44,146,933) 8,515,149 NET ASSETS Beginning of period......... 326,334,427 168,747,170 205,153,443 249,998,214 115,526,877 107,011,728 ------------ ------------ ------------ ------------ ------------ ------------ End of period............... $284,269,989 $326,334,427 $197,276,964 $205,153,443 $ 71,379,944 $115,526,877 ============ ============ ============ ============ ============ ============ Beginning units............. 20,638,243 12,951,926 19,450,742 25,315,162 6,905,652 7,609,139 ------------ ------------ ------------ ------------ ------------ ------------ Units issued................ 18,032,697 17,771,303 3,440,685 5,488,644 4,128,389 4,729,371 Units redeemed.............. (20,951,427) (10,084,986) (7,113,981) (11,353,064) (5,778,009) (5,432,858) ------------ ------------ ------------ ------------ ------------ ------------ Ending units................ 17,719,513 20,638,243 15,777,446 19,450,742 5,256,032 6,905,652 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A25
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------------- AST Federated Aggressive AST High Yield Portfolio Growth Portfolio AST Mid-Cap Value Portfolio AST Small-Cap Value Portfolio --------------------------- --------------------------- -------------------------- ----------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------- ------------ ------------ ------------- ------------ ------------ ------------- -------------- $ 32,264,970 $ 40,888,100 $ (8,876,442) $ (8,885,385) $ (1,710,176) $ (1,414,124) $ (7,514,894) $ (12,052,591) 0 0 43,708,510 15,277,767 2,960,211 24,113,938 87,320,424 49,106,520 15,388,911 (24,419,950) 31,725,418 35,408,830 10,234,600 9,068,100 30,944,371 75,487,984 (42,645,431) 27,574,932 (25,417,898) 10,141,868 (8,757,874) (15,319,813) (170,942,010) 51,938,311 ------------- ------------ ------------ ------------- ------------ ------------ ------------- -------------- 5,008,450 44,043,082 41,139,588 51,943,080 2,726,761 16,448,101 (60,192,109) 164,480,224 ------------- ------------ ------------ ------------- ------------ ------------ ------------- -------------- 25,952,781 20,666,739 35,912,222 43,134,381 9,937,247 4,978,659 55,049,120 61,812,652 (73,622,532) (85,722,235) (45,758,984) (37,787,182) (20,756,194) (21,521,588) (110,291,107) (103,871,205) (109,144,924) (22,338,500) (53,975,949) (102,944,252) (23,777,232) (12,451,009) (65,267,402) (204,126,557) (243,685) (297,617) (272,688) (288,959) (102,252) (107,008) (531,434) (614,763) ------------- ------------ ------------ ------------- ------------ ------------ ------------- -------------- (157,058,360) (87,691,613) (64,095,399) (97,886,012) (34,698,431) (29,100,946) (121,040,823) (246,799,873) ------------- ------------ ------------ ------------- ------------ ------------ ------------- -------------- (152,049,910) (43,648,531) (22,955,811) (45,942,932) (31,971,670) (12,652,845) (181,232,932) (82,319,649) 532,516,445 576,164,976 485,583,169 531,526,101 143,922,030 156,574,875 956,553,776 1,038,873,425 ------------- ------------ ------------ ------------- ------------ ------------ ------------- -------------- $ 380,466,535 $532,516,445 $462,627,358 $ 485,583,169 $111,950,360 $143,922,030 $ 775,320,844 $ 956,553,776 ============= ============ ============ ============= ============ ============ ============= ============== 33,761,176 39,066,844 29,587,042 36,135,866 10,059,684 12,416,153 47,594,398 60,672,388 ------------- ------------ ------------ ------------- ------------ ------------ ------------- -------------- 25,796,047 30,713,191 14,133,809 19,688,730 4,106,563 3,653,302 20,335,375 21,103,354 (35,493,533) (36,018,859) (18,217,791) (26,237,554) (6,529,616) (6,009,771) (25,582,943) (34,181,344) ------------- ------------ ------------ ------------- ------------ ------------ ------------- -------------- 24,063,690 33,761,176 25,503,060 29,587,042 7,636,631 10,059,684 42,346,830 47,594,398 ============= ============ ============ ============= ============ ============ ============= ==============
The accompanying notes are an integral part of these financial statements. A26 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ------------------------------------------------------------------------------------ AST Goldman Sachs AST Goldman Sachs Mid-Cap AST Goldman Sachs Concentrated Growth Portfolio Growth Portfolio Small-Cap Value Portfolio ---------------------------- -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------- ------------- ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)..................... $ (8,679,853) $ (9,467,304) $ (5,668,398) $ (5,820,374) $ (1,612,663) $ (2,476,547) Capital gains distributions received................... 0 0 0 0 45,242,043 40,861,131 Realized gain (loss) on shares redeemed............ 53,368,886 2,233,701 30,817,137 37,821,668 15,544,218 6,638,358 Net change in unrealized gain (loss) on investments................ 25,650,999 58,960,243 23,794,436 (17,480,348) (68,565,413) (11,558,393) ------------- ------------- ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 70,340,032 51,726,640 48,943,175 14,520,946 (9,391,815) 33,464,549 ------------- ------------- ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 10,457,253 8,795,662 14,548,383 16,661,910 622,700 886,002 Surrenders, withdrawals and death benefits............. (119,941,238) (122,540,564) (30,717,825) (25,906,242) (36,229,906) (38,038,229) Net transfers between other subaccounts or fixed rate option..................... (19,752,402) (47,614,579) (32,146,850) (86,761,342) (26,331,852) (28,704,675) Withdrawal and other charges.................... (530,745) (629,260) (203,279) (220,119) (132,794) (166,133) ------------- ------------- ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (129,767,132) (161,988,741) (48,519,571) (96,225,793) (62,071,852) (66,023,035) ------------- ------------- ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (59,427,100) (110,262,101) 423,604 (81,704,847) (71,463,667) (32,558,486) NET ASSETS Beginning of period......... 618,327,034 728,589,135 307,253,354 388,958,201 216,392,575 248,951,061 ------------- ------------- ------------ ------------ ------------ ------------ End of period............... $ 558,899,934 $ 618,327,034 $307,676,958 $307,253,354 $144,928,908 $216,392,575 ============= ============= ============ ============ ============ ============ Beginning units............. 27,074,050 33,370,561 38,464,330 52,067,714 8,373,435 11,096,171 ------------- ------------- ------------ ------------ ------------ ------------ Units issued................ 8,681,149 4,746,190 15,233,252 14,009,387 593,577 864,432 Units redeemed.............. (12,507,155) (11,042,701) (21,819,603) (27,612,771) (2,947,968) (3,587,168) ------------- ------------- ------------ ------------ ------------ ------------ Ending units................ 23,248,044 27,074,050 31,877,979 38,464,330 6,019,044 8,373,435 ============= ============= ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A27
SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------------------------- AST Lord Abbett Bond- AST Marsico Capital Growth AST Large-Cap Value Portfolio Debenture Portfolio Portfolio AST MFS Growth Portfolio ---------------------------- ---------------------------- ------------------------------ --------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------- ------------- ------------- ------------- -------------- -------------- ------------ ------------- $ (3,664,362) $ (4,840,018) $ 21,698,057 $ 18,794,122 $ (38,736,170) $ (42,748,603) $ (6,440,776) $ (7,504,298) 16,352,550 15,703,898 2,142,252 7,573,032 0 0 0 0 47,974,576 24,034,460 22,641,911 (4,551,585) 241,187,163 262,016,869 43,643,008 17,053,776 (88,823,133) 69,111,136 (21,939,467) 22,619,799 86,368,081 (93,062,055) 14,311,645 25,215,420 ------------- ------------- ------------- ------------- -------------- -------------- ------------ ------------- (28,160,369) 104,009,476 24,542,753 44,435,368 288,819,074 126,206,211 51,513,877 34,764,898 ------------- ------------- ------------- ------------- -------------- -------------- ------------ ------------- 92,196,623 90,802,172 18,796,090 24,146,633 142,564,142 173,793,008 8,688,601 22,856,978 (101,000,333) (100,802,220) (62,181,441) (59,868,207) (288,425,950) (265,019,710) (70,130,084) (76,246,045) (76,307,728) (58,492,297) (68,898,804) (88,472,891) (239,445,933) (491,191,220) (36,152,671) (89,715,806) (354,779) (408,685) (317,324) (341,997) (1,442,850) (1,633,360) (295,892) (351,539) ------------- ------------- ------------- ------------- -------------- -------------- ------------ ------------- (85,466,217) (68,901,030) (112,601,479) (124,536,462) (386,750,591) (584,051,282) (97,890,046) (143,456,412) ------------- ------------- ------------- ------------- -------------- -------------- ------------ ------------- (113,626,586) 35,108,446 (88,058,726) (80,101,094) (97,931,517) (457,845,071) (46,376,169) (108,691,514) 695,105,294 659,996,848 582,676,194 662,777,288 2,486,478,857 2,944,323,928 440,821,348 549,512,862 ------------- ------------- ------------- ------------- -------------- -------------- ------------ ------------- $ 581,478,708 $ 695,105,294 $ 494,617,468 $ 582,676,194 $2,388,547,340 $2,486,478,857 $394,445,179 $ 440,821,348 ============= ============= ============= ============= ============== ============== ============ ============= 34,653,644 34,769,059 44,058,082 54,113,090 166,628,186 206,075,734 47,011,478 63,684,303 ------------- ------------- ------------- ------------- -------------- -------------- ------------ ------------- 17,180,239 19,723,298 27,826,878 24,890,491 64,349,256 71,907,548 6,828,200 9,362,958 (18,700,254) (19,838,713) (35,938,679) (34,945,499) (87,105,185) (111,355,096) (17,003,737) (26,035,783) ------------- ------------- ------------- ------------- -------------- -------------- ------------ ------------- 33,133,629 34,653,644 35,946,281 44,058,082 143,872,257 166,628,186 36,835,941 47,011,478 ============= ============= ============= ============= ============== ============== ============ =============
The accompanying notes are an integral part of these financial statements. A28 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ---------------------------------------------------------------------------------------- AST Neuberger Berman AST Neuberger Berman Mid-Cap AST Small-Cap Growth Mid-Cap Growth Portfolio Value Portfolio Portfolio ---------------------------- ------------------------------ -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------- ------------- -------------- -------------- ------------ ------------ OPERATIONS Net investment income (loss)..................... $ (10,330,391) $ (9,983,892) $ (10,599,355) $ (13,993,200) $ (2,743,442) $ (2,662,732) Capital gains distributions received................... 0 0 141,415,432 200,189,759 0 0 Realized gain (loss) on shares redeemed............ 80,859,795 69,822,006 94,644,150 90,952,564 6,839,331 4,450,327 Net change in unrealized gain (loss) on investments................ 47,230,162 13,812,271 (206,006,188) (171,640,658) 4,887,742 16,116,645 ------------- ------------- -------------- -------------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 117,759,566 73,650,385 19,454,039 105,508,465 8,983,631 17,904,240 ------------- ------------- -------------- -------------- ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 30,895,857 26,627,565 35,613,369 48,399,430 18,572,251 16,719,431 Surrenders, withdrawals and death benefits............. (112,087,611) (100,094,041) (163,613,869) (168,794,587) (26,918,971) (28,232,094) Net transfers between other subaccounts or fixed rate option..................... 27,635,577 (64,493,038) (117,927,751) (236,782,327) (12,452,912) (18,581,335) Withdrawal and other charges.................... (476,991) (526,886) (698,095) (814,066) (117,467) (141,864) ------------- ------------- -------------- -------------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (54,033,168) (138,486,400) (246,626,346) (357,991,550) (20,917,099) (30,235,862) ------------- ------------- -------------- -------------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 63,726,398 (64,836,015) (227,172,307) (252,483,085) (11,933,468) (12,331,622) NET ASSETS Beginning of period......... 632,361,967 697,197,982 1,194,347,979 1,446,831,064 169,871,042 182,202,664 ------------- ------------- -------------- -------------- ------------ ------------ End of period............... $ 696,088,365 $ 632,361,967 $ 967,175,672 $1,194,347,979 $157,937,574 $169,871,042 ============= ============= ============== ============== ============ ============ Beginning units............. 31,115,955 37,762,308 48,463,355 63,124,177 10,694,531 12,336,754 ------------- ------------- -------------- -------------- ------------ ------------ Units issued................ 20,316,289 14,754,712 18,993,941 20,947,586 4,854,414 5,415,764 Units redeemed.............. (21,501,581) (21,401,065) (27,671,035) (35,608,408) (5,833,412) (7,057,987) ------------- ------------- -------------- -------------- ------------ ------------ Ending units................ 29,930,663 31,115,955 39,786,261 48,463,355 9,715,533 10,694,531 ============= ============= ============== ============== ============ ============
The accompanying notes are an integral part of these financial statements. A29
SUBACCOUNTS (Continued) ---------------------------------------------------------------------------------------------------------------------- AST PIMCO Limited Maturity Bond AST PIMCO Total Return Bond AST AllianceBernstein Core AST AllianceBernstein Portfolio Portfolio Value Portfolio Managed Index 500 Portfolio ------------------------------ ------------------------------ -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 -------------- -------------- -------------- -------------- ------------ ------------ ------------ ------------ $ 36,465,255 $ 19,631,263 $ 9,324,429 $ 32,324,611 $ (1,794,597) $ (1,611,963) $ (868,576) $ (1,814,848) 0 0 0 0 18,651,905 18,228,551 0 0 9,874,467 (8,175,115) 3,156,267 (22,416,888) 28,573,468 9,563,671 28,940,111 24,311,918 14,669,964 17,789,482 84,839,281 20,150,595 (69,144,018) 37,339,548 (24,304,585) 20,983,810 -------------- -------------- -------------- -------------- ------------ ------------ ------------ ------------ 61,009,686 29,245,630 97,319,977 30,058,318 (23,713,242) 63,519,807 3,766,950 43,480,880 -------------- -------------- -------------- -------------- ------------ ------------ ------------ ------------ 69,976,415 120,944,150 170,448,859 147,779,897 88,397,350 87,462,533 23,560,907 25,808,202 (167,657,146) (163,831,780) (216,068,642) (222,898,900) (43,698,000) (33,989,236) (68,919,610) (72,179,564) (106,302,648) (306,027,713) (21,252,881) (28,633,961) (98,314,508) 53,527,793 (50,689,738) (49,574,524) (682,342) (792,147) (821,939) (929,242) (190,557) (174,607) (274,303) (334,276) -------------- -------------- -------------- -------------- ------------ ------------ ------------ ------------ (204,665,721) (349,707,490) (67,694,603) (104,682,206) (53,805,715) 106,826,483 (96,322,744) (96,280,162) -------------- -------------- -------------- -------------- ------------ ------------ ------------ ------------ (143,656,035) (320,461,860) 29,625,374 (74,623,888) (77,518,957) 170,346,290 (92,555,794) (52,799,282) 1,352,973,165 1,673,435,025 1,532,654,703 1,607,278,591 450,429,301 280,083,011 438,379,389 491,178,671 -------------- -------------- -------------- -------------- ------------ ------------ ------------ ------------ $1,209,317,130 $1,352,973,165 $1,562,280,077 $1,532,654,703 $372,910,344 $450,429,301 $345,823,595 $438,379,389 ============== ============== ============== ============== ============ ============ ============ ============ 113,952,602 142,947,781 106,510,754 109,302,587 28,555,762 21,260,157 31,311,242 38,737,867 -------------- -------------- -------------- -------------- ------------ ------------ ------------ ------------ 44,868,895 54,578,286 55,432,228 55,051,257 17,732,612 21,053,152 9,295,399 9,807,903 (60,390,438) (83,573,465) (56,135,221) (57,843,090) (20,969,625) (13,757,547) (15,866,865) (17,234,528) -------------- -------------- -------------- -------------- ------------ ------------ ------------ ------------ 98,431,059 113,952,602 105,807,761 106,510,754 25,318,749 28,555,762 24,739,776 31,311,242 ============== ============== ============== ============== ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A30 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ---------------------------------------------------------------------------------- AST T. Rowe Price Natural AST T. Rowe Price Asset AST International Value Resources Portfolio Allocation Portfolio Portfolio -------------------------- -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)..................... $ (4,770,526) $ (4,930,380) $ (3,585,315) $ 1,179,950 $ (2,688,268) $ (1,802,187) Capital gains distributions received................... 29,576,761 30,810,148 22,512,899 29,241,880 0 0 Realized gain (loss) on shares redeemed............ 46,252,591 58,241,724 5,702,790 (2,533,767) 37,297,323 20,568,797 Net change in unrealized gain (loss) on investments................ 75,090,181 (38,064,015) (3,062,461) 14,990,803 17,561,850 33,662,745 ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 146,149,007 46,057,477 21,567,913 42,878,866 52,170,905 52,429,355 ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 41,759,160 41,668,675 397,277,733 31,960,127 67,785,127 49,513,230 Surrenders, withdrawals and death benefits............. (64,542,343) (47,152,264) (80,196,062) (65,693,748) (45,095,626) (27,147,948) Net transfers between other subaccounts or fixed rate option..................... 66,979,192 (43,396,410) 45,955,253 23,307,943 36,849,512 44,740,207 Withdrawal and other charges.................... (271,020) (255,301) (292,447) (286,973) (207,502) (141,497) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... 43,924,989 (49,135,300) 362,744,477 (10,712,651) 59,331,511 66,963,992 ------------ ------------ ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 190,073,996 (3,077,823) 384,312,390 32,166,215 111,502,416 119,393,347 NET ASSETS Beginning of period......... 377,853,157 380,930,980 453,917,826 421,751,611 307,008,826 187,615,479 ------------ ------------ ------------ ------------ ------------ ------------ End of period............... $567,927,153 $377,853,157 $838,230,216 $453,917,826 $418,511,242 $307,008,826 ============ ============ ============ ============ ============ ============ Beginning units............. 11,346,551 12,695,727 23,736,273 22,882,365 16,917,509 12,494,641 ------------ ------------ ------------ ------------ ------------ ------------ Units issued................ 13,857,446 11,909,653 60,077,602 12,361,101 18,665,459 14,140,436 Units redeemed.............. (11,880,759) (13,258,829) (31,635,600) (11,507,193) (15,123,473) (9,717,568) ------------ ------------ ------------ ------------ ------------ ------------ Ending units................ 13,323,238 11,346,551 52,178,275 23,736,273 20,459,495 16,917,509 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A31
SUBACCOUNTS (Continued) -------------------------------------------------------------------------------------------------------------------- AST MFS Global Equity AST JPMorgan International AST T. Rowe Price Global Bond AST International Growth Portfolio Equity Portfolio Portfolio Portfolio -------------------------- -------------------------- ---------------------------- ------------------------------ 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- $ 693,550 $ (1,865,951) $ (881,490) $ (1,553,580) $ 4,032,941 $ (510,275) $ (19,436,713) $ (5,778,597) 19,847,135 14,326,966 0 0 0 4,651,359 99,688,621 0 30,285,396 13,459,335 72,727,635 52,492,530 2,381,362 (3,905,923) 176,261,626 183,799,140 (37,131,974) 9,780,085 (36,759,487) 37,732,770 27,365,025 19,367,994 (28,175,778) 91,107,539 ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- 13,694,107 35,700,435 35,086,658 88,671,720 33,779,328 19,603,155 228,337,756 269,128,082 ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- 11,988,874 9,559,875 22,214,985 18,359,088 24,792,881 23,989,815 70,445,262 90,616,430 (29,167,500) (21,198,074) (70,775,688) (60,152,203) (48,156,070) (41,147,237) (192,902,729) (178,084,311) (62,056,371) 67,955,379 (21,644,143) (5,004,501) (874,891) (64,697,733) (190,908,879) (354,328,822) (127,010) (112,789) (297,762) (304,673) (232,816) (248,462) (871,834) (971,074) ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- (79,362,007) 56,204,391 (70,502,608) (47,102,289) (24,470,896) (82,103,617) (314,238,180) (442,767,777) ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- (65,667,900) 91,904,826 (35,415,950) 41,569,431 9,308,432 (62,500,462) (85,900,424) (173,639,695) 240,811,449 148,906,623 502,228,325 460,658,894 452,329,904 514,830,366 1,536,181,205 1,709,820,900 ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- $175,143,549 $240,811,449 $466,812,375 $502,228,325 $461,638,336 $452,329,904 $1,450,280,781 $1,536,181,205 ============ ============ ============ ============ ============ ============ ============== ============== 14,954,097 11,542,613 20,776,118 22,661,386 35,160,659 41,855,611 74,075,677 98,133,364 ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- 7,822,766 11,914,212 14,061,306 13,807,158 23,378,020 21,412,879 25,167,864 34,052,827 (12,629,693) (8,502,728) (16,132,247) (15,692,426) (25,157,901) (28,107,831) (39,332,833) (58,110,514) ------------ ------------ ------------ ------------ ------------ ------------ -------------- -------------- 10,147,170 14,954,097 18,705,177 20,776,118 33,380,778 35,160,659 59,910,708 74,075,677 ============ ============ ============ ============ ============ ============ ============== ==============
The accompanying notes are an integral part of these financial statements. A32 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ------------------------------------------------------------------------------------------ AST Aggressive Asset AST Capital Growth Asset AST Balanced Asset Allocation Allocation Portfolio Allocation Portfolio Portfolio -------------------------- ------------------------------ ------------------------------ 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ -------------- -------------- -------------- -------------- OPERATIONS Net investment income (loss)..................... $ (7,305,946) $ (3,701,687) $ (80,991,641) $ (36,057,684) $ (53,408,651) $ (27,934,427) Capital gains distributions received................... 2,728,801 0 14,583,579 0 10,877,421 0 Realized gain (loss) on shares redeemed............ 14,556,485 994,409 25,705,846 (711,980) 10,954,491 1,432,365 Net change in unrealized gain (loss) on investments................ 15,542,202 29,630,043 309,219,189 244,855,287 225,680,868 170,438,653 ------------ ------------ -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 25,521,542 26,922,765 268,516,973 208,085,623 194,104,129 143,936,591 ------------ ------------ -------------- -------------- -------------- -------------- CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 160,413,749 127,376,546 2,015,830,885 1,700,743,711 1,390,847,386 1,269,277,796 Surrenders, withdrawals and death benefits............. (23,729,491) (9,193,916) (175,825,481) (70,134,881) (175,301,959) (73,710,326) Net transfers between other subaccounts or fixed rate option..................... 6,043,249 158,929,497 70,573,422 999,815,222 97,813,870 772,649,199 Withdrawal and other charges.................... (219,795) (103,726) (1,124,258) (438,025) (833,013) (366,297) ------------ ------------ -------------- -------------- -------------- -------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... 142,507,712 277,008,401 1,909,454,568 2,629,986,027 1,312,526,284 1,967,850,372 ------------ ------------ -------------- -------------- -------------- -------------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 168,029,254 303,931,166 2,177,971,541 2,838,071,650 1,506,630,413 2,111,786,963 NET ASSETS Beginning of period......... 338,015,197 34,084,031 3,056,729,065 218,657,415 2,302,446,071 190,659,108 ------------ ------------ -------------- -------------- -------------- -------------- End of period............... $506,044,451 $338,015,197 $5,234,700,606 $3,056,729,065 $3,809,076,484 $2,302,446,071 ============ ============ ============== ============== ============== ============== Beginning units............. 29,758,635 3,409,311 274,471,163 21,855,191 209,952,238 19,037,082 ------------ ------------ -------------- -------------- -------------- -------------- Units issued................ 47,683,825 46,147,821 416,597,034 382,158,761 278,937,880 279,070,825 Units redeemed.............. (36,022,542) (19,798,497) (253,153,738) (129,542,789) (163,931,268) (88,155,669) ------------ ------------ -------------- -------------- -------------- -------------- Ending units................ 41,419,918 29,758,635 437,914,459 274,471,163 324,958,850 209,952,238 ============ ============ ============== ============== ============== ==============
The accompanying notes are an integral part of these financial statements. A33
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------------- AST Conservative Asset AST Preservation Asset Allocation Portfolio Allocation Portfolio Davis Value Portfolio Evergreen VA Balanced Fund ---------------------------- -------------------------- ------------------------ --------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 -------------- ------------ ------------ ------------ ----------- ----------- ---------- ----------- $ (14,769,914) $ (6,468,078) $ (7,156,000) $ (2,639,197) $ (50,298) $ (70,886) $ 158,182 $ 66,414 2,456,706 0 0 0 508,895 0 0 0 5,866,997 1,947,545 18,894,570 857,830 1,474,486 450,826 123,941 (36,554) 62,009,167 36,156,421 16,874,669 12,796,758 (1,476,311) 1,167,108 26,398 468,130 -------------- ------------ ------------ ------------ ----------- ----------- ---------- ----------- 55,562,956 31,635,888 28,613,239 11,015,391 456,772 1,547,048 308,521 497,990 -------------- ------------ ------------ ------------ ----------- ----------- ---------- ----------- 453,400,089 299,523,900 228,973,369 129,076,642 3,114 12,580 3,896 3,311 (56,825,592) (23,854,174) (32,421,611) (10,684,516) (2,113,963) (1,368,209) (936,068) (572,072) 129,479,706 212,951,392 93,752,664 109,499,246 633,349 3,373,312 14,398 (528,899) (233,183) (118,196) (129,253) (55,863) (20,617) (20,827) (15,449) (16,599) -------------- ------------ ------------ ------------ ----------- ----------- ---------- ----------- 525,821,020 488,502,922 290,175,169 227,835,509 (1,498,117) 1,996,856 (933,223) (1,114,259) -------------- ------------ ------------ ------------ ----------- ----------- ---------- ----------- 581,383,976 520,138,810 318,788,408 238,850,900 (1,041,345) 3,543,904 (624,702) (616,269) 561,803,967 41,665,157 250,007,194 11,156,294 13,705,564 10,161,660 6,174,236 6,790,505 -------------- ------------ ------------ ------------ ----------- ----------- ---------- ----------- $1,143,187,943 $561,803,967 $568,795,602 $250,007,194 $12,664,219 $13,705,564 $5,549,534 $ 6,174,236 ============== ============ ============ ============ =========== =========== ========== =========== 51,724,638 4,156,115 23,553,542 1,111,640 1,082,056 911,967 590,857 704,369 -------------- ------------ ------------ ------------ ----------- ----------- ---------- ----------- 103,329,126 77,180,222 83,601,551 44,533,338 259,921 408,006 40,492 25,286 (56,499,935) (29,611,699) (56,817,239) (22,091,436) (374,408) (237,917) (126,551) (138,798) -------------- ------------ ------------ ------------ ----------- ----------- ---------- ----------- 98,553,829 51,724,638 50,337,854 23,553,542 967,569 1,082,056 504,798 590,857 ============== ============ ============ ============ =========== =========== ========== ===========
The accompanying notes are an integral part of these financial statements. A34 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ---------------------------------------------------------------------------- Evergreen VA International Evergreen VA Fundamental Evergreen VA Growth Fund Equity Fund Large Cap Fund ------------------------ ------------------------- ----------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2007 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ----------- ----------- ------------ ----------- ----------- ---------- OPERATIONS Net investment income (loss)..................... $ (711,470) $ (747,600) $ 991,138 $ 1,797,832 $ (36,522) $ (14,303) Capital gains distributions received................... 8,359,322 2,423,286 8,182,510 3,992,333 674,528 151,870 Realized gain (loss) on shares redeemed............ 3,010,088 3,353,571 9,494,317 7,845,472 695,681 380,652 Net change in unrealized gain (loss) on investments................ (6,960,318) (1,672,998) (6,309,111) (153,768) (695,066) 430,298 ----------- ----------- ------------ ----------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 3,697,622 3,356,259 12,358,854 13,481,869 638,621 948,517 ----------- ----------- ------------ ----------- ----------- ---------- CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 3,746,033 3,826,544 11,207,927 10,177,879 8,216 10,631 Surrenders, withdrawals and death benefits............. (5,451,331) (5,052,087) (12,987,070) (6,810,978) (1,210,200) (988,930) Net transfers between other subaccounts or fixed rate option..................... (4,084,260) (4,266,678) 10,908,784 10,175,999 (382,058) 250,287 Withdrawal and other charges.................... (37,019) (39,322) (79,138) (51,386) (23,170) (24,461) ----------- ----------- ------------ ----------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (5,826,577) (5,531,543) 9,050,503 13,491,514 (1,607,212) (752,473) ----------- ----------- ------------ ----------- ----------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (2,128,955) (2,175,284) 21,409,357 26,973,383 (968,591) 196,044 NET ASSETS Beginning of period......... 43,826,409 46,001,693 91,051,734 64,078,351 9,482,236 9,286,192 ----------- ----------- ------------ ----------- ----------- ---------- End of period............... $41,697,454 $43,826,409 $112,461,091 $91,051,734 $ 8,513,645 $9,482,236 =========== =========== ============ =========== =========== ========== Beginning units............. 3,503,745 4,018,842 5,001,170 4,304,433 703,512 765,339 ----------- ----------- ------------ ----------- ----------- ---------- Units issued................ 1,749,567 2,664,047 5,621,093 5,048,825 65,084 110,075 Units redeemed.............. (2,200,844) (3,179,144) (5,213,484) (4,352,088) (176,937) (171,902) ----------- ----------- ------------ ----------- ----------- ---------- Ending units................ 3,052,468 3,503,745 5,408,779 5,001,170 591,659 703,512 =========== =========== ============ =========== =========== ==========
The accompanying notes are an integral part of these financial statements. A35
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- Evergreen VA Special Values Evergreen VA Diversified Columbia Money Market Fund, Evergreen VA Omega Fund Fund Income Builder Fund VS ------------------------ -------------------------- ----------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ----------- ----------- ----------- ---------- ----------- ---------- ----------- ----------- $ (234,092) $ (367,065) $ (9,803) $ (55,731) $ 224,546 $ 141,673 $ 102,340 $ 107,113 0 0 1,034,019 986,910 60,729 0 0 0 3,313,947 1,018,253 591,009 456,046 89,376 100,173 0 0 (975,111) 363,971 (2,305,094) 131,595 (220,473) 54,419 0 0 ----------- ----------- ----------- ---------- ----------- ---------- ----------- ----------- 2,104,744 1,015,159 (689,869) 1,518,820 154,178 296,265 102,340 107,113 ----------- ----------- ----------- ---------- ----------- ---------- ----------- ----------- 1,390,887 1,115,513 8,598 24,610 1,155 20,905 (7,819) 1,096 (3,198,089) (2,646,531) (918,077) (952,430) (670,281) (740,698) (2,860,059) (2,987,383) (608,072) (5,655,643) (329,513) 387,939 (349,384) 568,602 2,740,338 2,221,290 (35,365) (38,656) (19,921) (21,169) (15,202) (16,457) (3,631) (3,610) ----------- ----------- ----------- ---------- ----------- ---------- ----------- ----------- (2,450,639) (7,225,317) (1,258,913) (561,050) (1,033,712) (167,648) (131,171) (768,607) ----------- ----------- ----------- ---------- ----------- ---------- ----------- ----------- (345,895) (6,210,158) (1,948,782) 957,770 (879,534) 128,617 (28,831) (661,494) 22,281,153 28,491,311 8,852,093 7,894,323 6,868,720 6,740,103 2,597,272 3,258,766 ----------- ----------- ----------- ---------- ----------- ---------- ----------- ----------- $21,935,258 $22,281,153 $ 6,903,311 $8,852,093 $ 5,989,186 $6,868,720 $ 2,568,441 $ 2,597,272 =========== =========== =========== ========== =========== ========== =========== =========== 2,450,162 3,270,392 368,393 393,403 468,336 479,922 246,470 320,640 ----------- ----------- ----------- ---------- ----------- ---------- ----------- ----------- 1,462,945 859,483 49,710 89,751 88,691 84,134 270,236 258,787 (1,787,146) (1,679,713) (102,464) (114,761) (155,514) (95,720) (282,284) (332,957) ----------- ----------- ----------- ---------- ----------- ---------- ----------- ----------- 2,125,961 2,450,162 315,639 368,393 401,513 468,336 234,422 246,470 =========== =========== =========== ========== =========== ========== =========== ===========
The accompanying notes are an integral part of these financial statements. A36 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ---------------------------------------------------------------------------- Columbia Small Company Columbia Large Cap Growth Prudential SP International Growth Fund, VS Stock, VS Growth Portfolio ---------------------- ------------------------ -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ---------- ---------- ----------- ----------- ----------- ----------- OPERATIONS Net investment income (loss)..................... $ (11,179) $ (13,420) $ (70,068) $ (82,796) $ (397,635) $ 78,615 Capital gains distributions received................... 0 0 0 0 6,884,448 2,834,880 Realized gain (loss) on shares redeemed............ 128,089 191,550 531,919 292,249 6,012,268 3,090,899 Net change in unrealized gain (loss) on investments................ 13,100 (29,935) 1,040,669 901,382 (5,465,838) (126,050) ---------- ---------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 130,010 148,195 1,502,520 1,110,835 7,033,243 5,878,344 ---------- ---------- ----------- ----------- ----------- ----------- CONTRACT OWNER TRANSACTIONS Contract owner net payments................... (207) 353 3,406 3,814 451,787 1,322,197 Surrenders, withdrawals and death benefits............. (131,215) (358,812) (1,491,334) (3,195,091) (6,862,153) (4,297,948) Net transfers between other subaccounts or fixed rate option..................... (82,318) (19,223) (1,278,161) (384,921) 7,655,455 7,615,678 Withdrawal and other charges.................... (1,617) (2,188) (13,489) (17,115) (29,112) (23,879) ---------- ---------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (215,357) (379,870) (2,779,578) (3,593,313) 1,215,977 4,616,048 ---------- ---------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (85,347) (231,675) (1,277,058) (2,482,478) 8,249,220 10,494,392 NET ASSETS Beginning of period......... 1,154,647 1,386,322 11,755,050 14,237,528 43,165,895 32,671,503 ---------- ---------- ----------- ----------- ----------- ----------- End of period............... $1,069,300 $1,154,647 $10,477,992 $11,755,050 $51,415,115 $43,165,895 ========== ========== =========== =========== =========== =========== Beginning units............. 61,522 82,198 1,028,389 1,359,332 3,003,554 2,708,809 ---------- ---------- ----------- ----------- ----------- ----------- Units issued................ 1,017 673 5,880 4,776 3,781,478 4,134,159 Units redeemed.............. (11,813) (21,349) (234,438) (335,719) (3,741,761) (3,839,414) ---------- ---------- ----------- ----------- ----------- ----------- Ending units................ 50,726 61,522 799,831 1,028,389 3,043,271 3,003,554 ========== ========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. A37
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------------- Gartmore NVIT Developing First Trust Target Focus Four Markets First Trust The Dow Target 10 Portfolio First Trust Energy Sector -------------------------- ---------------------------- ---------------------------- ----------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 3/16/2007* 12/31/2006 ------------ ------------ ------------ ----------- ----------- ----------- ----------- ---------- $ (4,406,002) $ (3,020,361) $ (359,001) $ (298,508) $ (80,220) $ (85,887) $ (9,177) $ (49,420) 51,064,989 24,511,856 0 0 0 0 0 0 44,763,374 38,701,978 2,229,490 1,983,148 447,884 394,365 1,556,749 1,061,121 27,984,471 14,192,813 (2,151,440) 2,149,270 (212,530) (138,785) (1,596,090) (514,292) ------------ ------------ ------------ ----------- ----------- ----------- ----------- ---------- 119,406,832 74,386,286 (280,951) 3,833,910 155,134 169,693 (48,518) 497,409 ------------ ------------ ------------ ----------- ----------- ----------- ----------- ---------- 39,356,712 33,488,032 1,849,118 2,580,959 248,350 226,520 4,057 40,698 (53,564,679) (37,834,276) (2,437,444) (2,221,051) (1,070,540) (995,856) (95,809) (490,003) 50,203,241 (39,629,985) (10,887,401) 12,155,804 7,638,026 (664,232) (4,218,784) (343,684) (215,114) (184,649) (16,136) (14,093) (5,192) (5,751) (896) (5,512) ------------ ------------ ------------ ----------- ----------- ----------- ----------- ---------- 35,780,160 (44,160,878) (11,491,863) 12,501,619 6,810,644 (1,439,319) (4,311,432) (798,501) ------------ ------------ ------------ ----------- ----------- ----------- ----------- ---------- 155,186,992 30,225,408 (11,772,814) 16,335,529 6,965,778 (1,269,626) (4,359,950) (301,092) 323,570,554 293,345,146 27,949,971 11,614,442 5,731,923 7,001,549 4,359,950 4,661,042 ------------ ------------ ------------ ----------- ----------- ----------- ----------- ---------- $478,757,546 $323,570,554 $ 16,177,157 $27,949,971 $12,697,701 $ 5,731,923 $ 0 $4,359,950 ============ ============ ============ =========== =========== =========== =========== ========== 14,181,235 17,520,729 2,310,852 1,226,145 1,128,706 1,468,037 148,976 177,562 ------------ ------------ ------------ ----------- ----------- ----------- ----------- ---------- 17,637,155 17,333,824 1,612,884 3,176,937 946,307 173,572 2,476 47,393 (17,714,261) (20,673,318) (2,563,026) (2,092,230) (583,167) (512,903) (151,452) (75,979) ------------ ------------ ------------ ----------- ----------- ----------- ----------- ---------- 14,104,129 14,181,235 1,360,710 2,310,852 1,491,846 1,128,706 0 148,976 ============ ============ ============ =========== =========== =========== =========== ==========
* Date subaccount was no longer available for investment. The accompanying notes are an integral part of these financial statements. A38 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ------------------------------------------------------------------------------- First Trust PharmHealth First Trust Financial Services Sector First Trust Technology ----------------------------- ----------------------- ----------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 3/16/2007* 12/31/2006 3/16/2007* 12/31/2006 3/16/2007* 12/31/2006 ----------- ---------- ----------- ---------- ----------- ---------- OPERATIONS Net investment income (loss)..................... $ (7,089) $ (36,314) $ (6,030) $ (30,053) $ (2,479) $ (13,703) Capital gains distributions received................... 0 0 0 0 0 0 Realized gain (loss) on shares redeemed............ 1,168,057 263,908 677,159 81,707 328,330 (1,396) Net change in unrealized gain (loss) on investments................ (1,266,852) 284,263 (650,523) 152,819 (344,074) 42,161 ----------- ---------- ----------- ---------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. (105,884) 511,857 20,606 204,473 (18,223) 27,062 ----------- ---------- ----------- ---------- ----------- ---------- CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 5,033 34,242 4,873 39,005 1,456 11,578 Surrenders, withdrawals and death benefits............. (181,765) (447,833) (110,276) (330,115) (44,771) (253,974) Net transfers between other subaccounts or fixed rate option..................... (3,192,808) (216,153) (2,782,812) (103,053) (1,226,228) (27,238) Withdrawal and other charges.................... (774) (4,446) (589) (4,024) (258) (1,690) ----------- ---------- ----------- ---------- ----------- ---------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (3,370,314) (634,190) (2,888,804) (398,187) (1,269,801) (271,324) ----------- ---------- ----------- ---------- ----------- ---------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (3,476,198) (122,333) (2,868,198) (193,714) (1,288,024) (244,262) NET ASSETS Beginning of period......... 3,476,198 3,598,531 2,868,198 3,061,912 1,288,024 1,532,286 ----------- ---------- ----------- ---------- ----------- ---------- End of period............... $ (0) $3,476,198 $ (0) $2,868,198 $ 0 $1,288,024 =========== ========== =========== ========== =========== ========== Beginning units............. 192,834 230,880 245,114 282,129 254,686 308,467 ----------- ---------- ----------- ---------- ----------- ---------- Units issued................ 2,292 20,885 1,697 28,329 1,237 24,414 Units redeemed.............. (195,126) (58,931) (246,811) (65,344) (255,923) (78,195) ----------- ---------- ----------- ---------- ----------- ---------- Ending units................ 0 192,834 0 245,114 0 254,686 =========== ========== =========== ========== =========== ==========
* Date subaccount was no longer available for investment. The accompanying notes are an integral part of these financial statements. A39
SUBACCOUNTS (Continued) --------------------------------------------------------------------------------------------------------- First Trust Global Dividend First Trust NASDAQ Target 15 Target 15 First Trust S&P Target 24 First Trust Managed VIP -------------------------- ----------------------- ------------------------ -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ----------- ---------- ----------- ----------- ------------ ------------ $ (2,761,248) $ (1,112,432) $ (126,996) $ (87,502) $ (261,488) $ (261,352) $ (3,285,388) $ (3,214,208) 0 0 0 0 0 0 0 0 25,019,980 2,824,074 1,471,731 359,256 741,588 678,407 17,576,113 11,127,745 (9,583,405) 20,443,439 83,416 193,480 (151,056) (313,802) (1,161,311) 8,160,773 ------------ ------------ ----------- ---------- ----------- ----------- ------------ ------------ 12,675,327 22,155,081 1,428,151 465,234 329,044 103,253 13,129,414 16,074,310 ------------ ------------ ----------- ---------- ----------- ----------- ------------ ------------ 35,807,455 16,109,982 903,050 567,638 2,994,280 3,225,482 20,126,283 39,414,454 (20,460,276) (9,122,089) (1,235,474) (831,400) (1,315,152) (2,071,338) (16,252,184) (15,883,091) 16,954,640 62,924,819 2,910,865 568,600 (2,250,495) (3,225,910) (46,553,690) (18,405,304) (85,597) (42,010) (6,094) (5,705) (16,208) (17,214) (155,112) (175,098) ------------ ------------ ----------- ---------- ----------- ----------- ------------ ------------ 32,216,222 69,870,702 2,572,347 299,133 (587,575) (2,088,980) (42,834,703) 4,950,961 ------------ ------------ ----------- ---------- ----------- ----------- ------------ ------------ 44,891,549 92,025,783 4,000,498 764,367 (258,531) (1,985,727) (29,705,289) 21,025,271 128,825,541 36,799,758 7,316,458 6,552,091 16,056,366 18,042,093 203,897,808 182,872,537 ------------ ------------ ----------- ---------- ----------- ----------- ------------ ------------ $173,717,090 $128,825,541 $11,316,956 $7,316,458 $15,797,835 $16,056,366 $174,192,519 $203,897,808 ============ ============ =========== ========== =========== =========== ============ ============ 7,224,534 2,795,376 686,462 673,491 1,496,950 1,715,684 15,281,221 15,095,695 ------------ ------------ ----------- ---------- ----------- ----------- ------------ ------------ 12,861,370 8,549,490 1,236,164 338,442 990,858 995,338 8,620,725 12,146,732 (11,380,787) (4,120,332) (1,066,111) (325,471) (1,062,915) (1,214,072) (11,872,506) (11,961,206) ------------ ------------ ----------- ---------- ----------- ----------- ------------ ------------ 8,705,117 7,224,534 856,515 686,462 1,424,893 1,496,950 12,029,440 15,281,221 ============ ============ =========== ========== =========== =========== ============ ============
The accompanying notes are an integral part of these financial statements. A40 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ------------------------------------------------------------------------------------- First Trust Value Line Target 25 First Trust Dow Target Dividend ProFund VP Asia 30 ------------------------- ------------------------------ -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ----------- ------------ ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)..................... $ (611,353) $ (696,726) $ (1,649,125) $ (1,424,166) $ (2,650,815) $ (1,132,327) Capital gains distributions received................... 0 0 0 0 0 0 Realized gain (loss) on shares redeemed............ 3,333,434 4,454,883 7,004,619 1,436,917 77,228,833 11,950,842 Net change in unrealized gain (loss) on investments................ 3,430,262 (3,444,443) (6,204,445) 11,986,715 (22,040,130) 19,090,406 ----------- ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 6,152,343 313,714 (848,951) 11,999,466 52,537,888 29,908,921 ----------- ------------ ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 5,419,985 8,556,417 16,958,884 33,060,165 20,195,180 9,611,397 Surrenders, withdrawals and death benefits............. (5,240,270) (6,069,926) (8,010,283) (5,234,254) (20,001,165) (10,689,096) Net transfers between other subaccounts or fixed rate option..................... (6,045,029) (13,054,303) (26,042,618) 2,722,430 4,539,932 75,005,994 Withdrawal and other charges.................... (26,325) (30,166) (55,679) (49,560) (77,426) (53,418) ----------- ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (5,891,639) (10,597,978) (17,149,696) 30,498,781 4,656,521 73,874,877 ----------- ------------ ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 260,704 (10,284,264) (17,998,647) 42,498,247 57,194,409 103,783,798 NET ASSETS Beginning of period......... 43,760,308 54,044,572 100,921,871 58,423,624 172,273,964 68,490,166 ----------- ------------ ------------ ------------ ------------ ------------ End of period............... $44,021,012 $ 43,760,308 $ 82,923,224 $100,921,871 $229,468,373 $172,273,964 =========== ============ ============ ============ ============ ============ Beginning units............. 3,690,582 4,713,454 8,908,522 5,988,499 8,238,599 4,504,345 ----------- ------------ ------------ ------------ ------------ ------------ Units issued................ 1,593,740 2,094,912 7,564,240 11,940,423 34,400,771 24,207,820 Units redeemed.............. (2,064,865) (3,117,784) (9,107,786) (9,020,400) (35,320,484) (20,473,566) ----------- ------------ ------------ ------------ ------------ ------------ Ending units................ 3,219,457 3,690,582 7,364,976 8,908,522 7,318,886 8,238,599 =========== ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A41
SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------------- ProFund VP Banks ProFund VP Bear ProFund VP Biotechnology ProFund VP Basic Materials ------------------------ -------------------------- ------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ----------- ----------- ------------ ------------ ----------- ------------ ------------ ------------ $ 147,036 $ (130,831) $ 995,313 $ 68,135 $ (201,487) $ (236,581) $ (961,895) $ (414,668) 0 0 0 0 0 0 0 0 (2,352,518) 1,615,941 (4,551,808) (6,840,982) (911,792) (1,139,217) 11,983,636 12,486 (585,082) 354,754 (158,292) (65,361) (1,218,303) 30,875 933,227 885,483 ----------- ----------- ------------ ------------ ----------- ------------ ------------ ------------ (2,790,564) 1,839,864 (3,714,787) (6,838,208) (2,331,582) (1,344,923) 11,954,968 483,301 ----------- ----------- ------------ ------------ ----------- ------------ ------------ ------------ 1,329,100 805,117 987,250 2,866,249 512,539 1,088,033 8,864,895 3,763,433 (1,211,579) (1,736,311) (5,232,670) (6,606,733) (2,573,473) (1,869,232) (9,072,221) (3,381,536) (744,406) 519,234 9,118,682 (9,453,008) 8,696,611 (10,577,422) 69,507,252 (4,351,131) (5,519) (8,502) (25,975) (33,936) (8,021) (9,965) (40,198) (18,845) ----------- ----------- ------------ ------------ ----------- ------------ ------------ ------------ (632,404) (420,462) 4,847,287 (13,227,428) 6,627,656 (11,368,586) 69,259,728 (3,988,079) ----------- ----------- ------------ ------------ ----------- ------------ ------------ ------------ (3,422,968) 1,419,402 1,132,500 (20,065,636) 4,296,074 (12,713,509) 81,214,696 (3,504,778) 13,291,218 11,871,816 28,388,023 48,453,659 12,289,511 25,003,020 30,609,110 34,113,888 ----------- ----------- ------------ ------------ ----------- ------------ ------------ ------------ $ 9,868,250 $13,291,218 $ 29,520,523 $ 28,388,023 $16,585,585 $ 12,289,511 $111,823,806 $ 30,609,110 =========== =========== ============ ============ =========== ============ ============ ============ 961,152 974,635 4,204,752 6,309,273 1,291,025 2,502,807 2,130,572 2,618,695 ----------- ----------- ------------ ------------ ----------- ------------ ------------ ------------ 6,315,686 7,818,471 99,137,778 86,655,952 7,899,874 8,576,871 32,416,176 15,108,971 (6,298,399) (7,831,954) (98,925,844) (88,760,473) (7,428,110) (9,788,653) (28,536,348) (15,597,094) ----------- ----------- ------------ ------------ ----------- ------------ ------------ ------------ 978,439 961,152 4,416,686 4,204,752 1,762,789 1,291,025 6,010,400 2,130,572 =========== =========== ============ ============ =========== ============ ============ ============
The accompanying notes are an integral part of these financial statements. A42 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ---------------------------------------------------------------------------------- ProFund VP Consumer ProFund VP UltraBull ProFund VP Bull Services -------------------------- ---------------------------- ------------------------ 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------- ------------- ----------- ----------- OPERATIONS Net investment income (loss)..................... $ (477,430) $ (488,082) $ (1,285,499) $ (2,013,790) $ (101,955) $ (93,040) Capital gains distributions received................... 4,237,192 2,056,721 1,322,855 6,981,569 0 0 Realized gain (loss) on shares redeemed............ (2,471,728) 4,958,959 6,424,520 10,459,900 (226,149) 684,732 Net change in unrealized gain (loss) on investments................ (2,251,381) 1,292,214 (3,650,949) 3,245,814 (155,137) 169,135 ------------ ------------ ------------- ------------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. (963,347) 7,819,812 2,810,927 18,673,493 (483,241) 760,827 ------------ ------------ ------------- ------------- ----------- ----------- CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 2,760,719 991,825 3,545,828 5,284,700 530,210 451,825 Surrenders, withdrawals and death benefits............. (6,147,562) (6,450,986) (17,791,653) (21,022,983) (451,651) (652,663) Net transfers between other subaccounts or fixed rate option..................... 437,128 10,132,148 (86,624,455) 1,646,990 (3,643,498) 2,421,623 Withdrawal and other charges.................... (29,853) (30,752) (83,552) (95,873) (3,389) (4,100) ------------ ------------ ------------- ------------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (2,979,568) 4,642,235 (100,953,832) (14,187,166) (3,568,328) 2,216,685 ------------ ------------ ------------- ------------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (3,942,915) 12,462,047 (98,142,905) 4,486,327 (4,051,569) 2,977,512 NET ASSETS Beginning of period......... 53,893,149 41,431,102 227,054,250 222,567,923 6,498,547 3,521,035 ------------ ------------ ------------- ------------- ----------- ----------- End of period............... $ 49,950,234 $ 53,893,149 $ 128,911,345 $ 227,054,250 $ 2,446,978 $ 6,498,547 ============ ============ ============= ============= =========== =========== Beginning units............. 4,654,736 4,472,352 18,245,182 20,271,654 601,586 348,500 ------------ ------------ ------------- ------------- ----------- ----------- Units issued................ 26,579,294 36,289,359 74,417,266 98,057,582 4,166,245 5,324,786 Units redeemed.............. (27,098,630) (36,106,975) (82,433,694) (100,084,054) (4,528,187) (5,071,700) ------------ ------------ ------------- ------------- ----------- ----------- Ending units................ 4,135,400 4,654,736 10,228,754 18,245,182 239,644 601,586 ============ ============ ============= ============= =========== ===========
The accompanying notes are an integral part of these financial statements. A43
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------ ProFund VP Consumer Goods ProFund VP Oil & Gas ProFund VP Europe 30 ProFund VP Financials ------------------------ -------------------------- -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ $ (127,531) $ (193,414) $ (2,715,646) $ (2,487,719) $ 263,996 $ (1,111,216) $ (214,548) $ (384,774) 0 0 4,189,010 12,004,097 865,529 2,102,028 0 0 1,539,797 1,183,557 26,880,300 6,809,884 14,793,820 7,039,898 (2,242,419) 3,353,809 (861,787) 603,230 10,665,648 2,711,001 (7,985,579) 4,950,596 (3,139,583) 1,209,156 ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ 550,479 1,593,373 39,019,312 19,037,263 7,937,766 12,981,306 (5,596,550) 4,178,191 ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ 719,302 708,459 15,536,260 17,209,959 7,105,755 5,018,601 2,810,645 3,452,373 (1,851,758) (1,250,964) (19,198,537) (19,872,744) (16,481,204) (13,072,615) (4,179,991) (4,175,292) 12,139,607 10,617,189 9,515,726 (20,941,350) (31,791,285) 39,904,295 (17,300,745) 9,824,301 (7,539) (6,506) (94,786) (99,002) (56,329) (53,286) (13,873) (17,701) ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ 10,999,612 10,068,178 5,758,663 (23,703,137) (41,223,063) 31,796,995 (18,683,964) 9,083,681 ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ 11,550,091 11,661,551 44,777,975 (4,665,874) (33,285,297) 44,778,301 (24,280,514) 13,261,872 18,574,189 6,912,638 143,519,769 148,185,643 126,117,030 81,338,729 44,680,815 31,418,943 ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ $30,124,280 $18,574,189 $188,297,744 $143,519,769 $ 92,831,733 $126,117,030 $ 20,400,301 $ 44,680,815 =========== =========== ============ ============ ============ ============ ============ ============ 1,569,847 630,384 7,128,072 8,943,170 9,520,644 7,480,817 3,162,737 2,568,147 ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ 9,361,091 8,120,128 30,040,226 32,538,390 43,234,150 31,519,947 10,228,546 14,173,650 (8,582,307) (7,180,665) (30,097,341) (34,353,488) (46,867,202) (29,480,120) (11,612,121) (13,579,060) ----------- ----------- ------------ ------------ ------------ ------------ ------------ ------------ 2,348,631 1,569,847 7,070,957 7,128,072 5,887,592 9,520,644 1,779,162 3,162,737 =========== =========== ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A44 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ---------------------------------------------------------------------------------- ProFund VP U.S. Government Plus ProFund VP Health Care ACCESS VP High Yield Fund -------------------------- -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)..................... $ 1,296,555 $ 1,142,506 $ (829,605) $ (713,005) $ 1,249,287 $ 1,319,237 Capital gains distributions received................... 0 0 0 0 253,447 0 Realized gain (loss) on shares redeemed............ 2,612,621 (1,281,442) 6,344,500 588,598 (751,288) 344,924 Net change in unrealized gain (loss) on investments................ 1,768,134 (2,707,111) (3,064,569) 2,510,295 (341,674) 712,106 ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 5,677,310 (2,846,047) 2,450,326 2,385,888 409,772 2,376,267 ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 1,186,022 2,163,150 2,747,762 3,908,183 557,453 1,027,442 Surrenders, withdrawals and death benefits............. (8,561,714) (7,947,199) (7,150,639) (5,154,146) (4,055,193) (4,111,844) Net transfers between other subaccounts or fixed rate option..................... 58,128,356 (49,051,686) (4,148,277) 8,928,346 (1,338,235) (2,928,414) Withdrawal and other charges.................... (45,033) (35,766) (25,478) (25,582) (7,161) (7,535) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... 50,707,631 (54,871,501) (8,576,632) 7,656,801 (4,843,136) (6,020,351) ------------ ------------ ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 56,384,941 (57,717,548) (6,126,306) 10,042,689 (4,433,364) (3,644,084) NET ASSETS Beginning of period......... 31,415,476 89,133,024 63,921,312 53,878,623 31,357,228 35,001,312 ------------ ------------ ------------ ------------ ------------ ------------ End of period............... $ 87,800,417 $ 31,415,476 $ 57,795,006 $ 63,921,312 $ 26,923,864 $ 31,357,228 ============ ============ ============ ============ ============ ============ Beginning units............. 2,703,814 7,185,063 6,342,850 5,510,838 2,745,535 3,307,694 ------------ ------------ ------------ ------------ ------------ ------------ Units issued................ 55,034,044 40,852,685 19,306,974 14,601,538 11,509,725 10,215,031 Units redeemed.............. (50,650,912) (45,333,934) (20,328,731) (13,769,526) (11,981,092) (10,777,190) ------------ ------------ ------------ ------------ ------------ ------------ Ending units................ 7,086,946 2,703,814 5,321,093 6,342,850 2,274,168 2,745,535 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A45
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------- ProFund VP Industrials ProFund VP Internet ProFund VP Japan ProFund VP Precious Metals -------------------------- ------------------------- -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ $ (379,939) $ (258,408) $ (97,076) $ (167,029) $ 1,530,873 $ (633,485) $ 2,294,619 $ (1,208,694) 0 0 0 1,363,886 0 18,287,139 0 0 1,623,314 852,573 373,841 (1,629,737) (2,844,520) (2,689,478) 12,704,273 12,193,224 (691,733) 196,213 (266,008) (126,298) (2,831,176) (15,705,535) 1,642,755 (9,537,818) ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ 551,642 790,378 10,757 (559,178) (4,144,823) (741,359) 16,641,647 1,446,712 ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ 1,139,306 790,844 1,669,222 403,057 3,676,297 9,576,882 10,607,776 19,681,728 (2,915,594) (1,963,996) (1,687,210) (1,271,082) (5,935,533) (9,106,732) (14,277,815) (12,060,967) 15,135,347 (129,549) 4,036,044 (14,629,847) (36,643,066) (60,983,061) 17,962,260 2,635,346 (10,252) (8,784) (5,246) (6,925) (23,921) (43,521) (68,809) (77,917) ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ 13,348,807 (1,311,485) 4,012,810 (15,504,797) (38,926,223) (60,556,432) 14,223,412 10,178,190 ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ 13,900,449 (521,107) 4,023,567 (16,063,975) (43,071,046) (61,297,791) 30,865,059 11,624,902 9,580,709 10,101,816 9,275,264 25,339,239 67,826,530 129,124,321 124,745,013 113,120,111 ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ $ 23,481,158 $ 9,580,709 $13,298,831 $ 9,275,264 $ 24,755,484 $ 67,826,530 $155,610,072 $124,745,013 ============ ============ =========== ============ ============ ============ ============ ============ 738,445 828,032 487,568 1,329,255 4,321,658 9,015,574 7,735,448 7,463,733 ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ 13,430,608 13,560,890 4,369,018 3,257,672 17,346,877 30,467,605 34,486,182 39,950,437 (12,574,912) (13,650,477) (4,209,280) (4,099,359) (19,934,333) (35,161,521) (34,164,142) (39,678,722) ------------ ------------ ----------- ------------ ------------ ------------ ------------ ------------ 1,594,141 738,445 647,306 487,568 1,734,202 4,321,658 8,057,488 7,735,448 ============ ============ =========== ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A46 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ---------------------------------------------------------------------------------- ProFund VP Mid-Cap Growth ProFund VP Mid-Cap Value ProFund VP Pharmaceuticals -------------------------- -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------ ------------ ------------ ------------ OPERATIONS Net investment income (loss)..................... $ (1,298,722) $ (1,265,176) $ (1,072,996) $ (1,438,131) $ (119,236) $ (273,085) Capital gains distributions received................... 6,386,740 3,054,267 1,841,381 14,030,368 0 0 Realized gain (loss) on shares redeemed............ 210,042 2,754,112 8,068,195 (4,556,685) (9,955) 1,499,730 Net change in unrealized gain (loss) on investments................ (129,354) (283,403) (7,128,681) 970,217 118,656 (555,287) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 5,168,706 4,259,800 1,707,899 9,005,769 (10,535) 671,358 ------------ ------------ ------------ ------------ ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 3,436,635 2,895,500 5,376,018 3,994,756 2,117,907 2,329,011 Surrenders, withdrawals and death benefits............. (10,455,388) (11,337,324) (11,672,406) (12,369,034) (2,198,128) (1,969,570) Net transfers between other subaccounts or fixed rate option..................... (661,847) (84,413,191) (34,672,699) 4,732,940 (8,535,100) 9,272,299 Withdrawal and other charges.................... (38,465) (38,338) (41,675) (45,407) (10,452) (10,519) ------------ ------------ ------------ ------------ ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (7,719,065) (92,893,353) (41,010,762) (3,686,745) (8,625,773) 9,621,221 ------------ ------------ ------------ ------------ ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (2,550,359) (88,633,553) (39,302,863) 5,319,024 (8,636,308) 10,292,579 NET ASSETS Beginning of period......... 67,092,368 155,725,921 104,430,109 99,111,085 21,075,366 10,782,787 ------------ ------------ ------------ ------------ ------------ ------------ End of period............... $ 64,542,009 $ 67,092,368 $ 65,127,246 $104,430,109 $ 12,439,058 $ 21,075,366 ============ ============ ============ ============ ============ ============ Beginning units............. 5,245,813 12,851,561 6,923,953 7,506,708 2,412,795 1,377,678 ------------ ------------ ------------ ------------ ------------ ------------ Units issued................ 46,075,271 60,057,424 27,042,120 48,380,955 12,044,838 16,323,829 Units redeemed.............. (46,631,069) (67,663,172) (29,493,420) (48,963,710) (13,031,410) (15,288,712) ------------ ------------ ------------ ------------ ------------ ------------ Ending units................ 4,690,015 5,245,813 4,472,653 6,923,953 1,426,223 2,412,795 ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A47
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------- ProFund VP Rising Rates ProFund VP Real Estate Opportunity ProFund VP NASDAQ-100 ProFund VP Semiconductor -------------------------- -------------------------- -------------------------- ------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------ $ (444,635) $ (631,215) $ 1,558,880 $ (208,606) $ (1,363,571) $ (1,237,003) $ (111,218) $ (137,267) 1,688,286 3,423,208 0 0 0 0 0 99,030 (8,535,690) 8,427,031 (5,411,250) 4,441,437 9,225,791 814,666 148,468 (1,665,247) (4,826,580) 1,937,485 (1,752,421) 2,893,448 (1,158,932) 397,615 (314) 441,315 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------ (12,118,619) 13,156,509 (5,604,791) 7,126,279 6,703,288 (24,722) 36,936 (1,262,169) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------ 7,343,219 6,467,388 2,556,856 4,104,489 3,375,601 4,170,114 86,736 488,759 (7,200,460) (7,190,419) (6,336,299) (8,591,341) (11,202,446) (9,077,807) (1,748,051) (1,356,844) (29,298,928) 22,887,072 (26,421,499) (3,627,057) 28,110,472 (17,106,599) 971,248 (5,596,137) (31,585) (35,828) (38,765) (64,890) (50,618) (50,982) (3,664) (5,164) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------ (29,187,754) 22,128,213 (30,239,707) (8,178,799) 20,233,009 (22,065,274) (693,731) (6,469,386) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------ (41,306,373) 35,284,722 (35,844,498) (1,052,520) 26,936,297 (22,089,996) (656,795) (7,731,555) 69,717,021 34,432,299 70,970,264 72,022,784 67,277,076 89,367,072 5,953,235 13,684,790 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------ $ 28,410,648 $ 69,717,021 $ 35,125,766 $ 70,970,264 $ 94,213,373 $ 67,277,076 $ 5,296,440 $ 5,953,235 ============ ============ ============ ============ ============ ============ =========== ============ 3,041,223 1,948,512 10,313,304 11,308,697 7,599,738 11,466,225 842,301 1,777,840 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------ 21,750,815 33,359,668 55,340,107 60,154,786 82,514,143 66,133,245 9,672,802 13,245,330 (23,219,869) (32,266,957) (60,246,900) (61,150,179) (81,240,721) (69,999,732) (9,808,097) (14,180,869) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ------------ 1,572,169 3,041,223 5,406,511 10,313,304 8,873,160 7,599,738 707,006 842,301 ============ ============ ============ ============ ============ ============ =========== ============
The accompanying notes are an integral part of these financial statements. A48 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ------------------------------------------------------------------------------------- ProFund VP Small-Cap Growth ProFund VP Short Mid-Cap ProFund VP Short NASDAQ-100 --------------------------- -------------------------- ---------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------- ------------ ------------ ------------- ------------- OPERATIONS Net investment income (loss)..................... $ (1,233,892) $ (1,726,667) $ 189,325 $ (52,404) $ 1,470,206 $ (456,628) Capital gains distributions received................... 10,679,126 17,365,750 0 0 0 0 Realized gain (loss) on shares redeemed............ (10,525,394) (3,469,243) (373,955) (2,071,813) (5,794,133) (3,199,061) Net change in unrealized gain (loss) on investments................ (1,715,420) (857,842) (15,226) 29,034 (288,413) (473,315) ------------ ------------- ------------ ------------ ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. (2,795,580) 11,311,998 (199,856) (2,095,183) (4,612,340) (4,129,004) ------------ ------------- ------------ ------------ ------------- ------------- CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 3,734,214 4,669,105 208,172 351,365 780,260 2,875,673 Surrenders, withdrawals and death benefits............. (10,703,202) (14,040,390) (470,016) (1,555,009) (3,161,015) (7,580,337) Net transfers between other subaccounts or fixed rate option..................... (32,518,721) (107,391,872) (3,203,297) 4,324,910 (5,244,240) 1,333,425 Withdrawal and other charges.................... (39,091) (54,371) (1,862) (2,621) (20,651) (44,979) ------------ ------------- ------------ ------------ ------------- ------------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (39,526,800) (116,817,528) (3,467,003) 3,118,645 (7,645,646) (3,416,218) ------------ ------------- ------------ ------------ ------------- ------------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (42,322,380) (105,505,530) (3,666,859) 1,023,462 (12,257,986) (7,545,222) NET ASSETS Beginning of period......... 79,247,181 184,752,711 5,103,715 4,080,253 23,704,012 31,249,234 ------------ ------------- ------------ ------------ ------------- ------------- End of period............... $ 36,924,801 $ 79,247,181 $ 1,436,856 $ 5,103,715 $ 11,446,026 $ 23,704,012 ============ ============= ============ ============ ============= ============= Beginning units............. 5,414,930 13,796,968 616,685 471,870 4,161,359 5,301,419 ------------ ------------- ------------ ------------ ------------- ------------- Units issued................ 31,898,795 54,775,100 16,996,708 16,490,081 133,681,404 157,650,754 Units redeemed.............. (34,910,438) (63,157,138) (17,430,285) (16,345,266) (135,528,427) (158,790,814) ------------ ------------- ------------ ------------ ------------- ------------- Ending units................ 2,403,287 5,414,930 183,108 616,685 2,314,336 4,161,359 ============ ============= ============ ============ ============= =============
The accompanying notes are an integral part of these financial statements. A49
SUBACCOUNTS (Continued) -------------------------------------------------------------------------------------------------------------- ProFund VP ProFund VP Short Small-Cap ProFund VP Small-Cap Value ProFund VP Technology Telecommunications -------------------------- -------------------------- -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 342,109 $ (170,866) $ (790,784) $ (1,206,043) $ (271,632) $ (215,221) $ (564,145) $ (287,180) 0 0 5,396,689 3,789,620 0 1,215,827 154,513 0 841,733 (4,889,151) (3,075,722) 4,788,329 1,904,584 (751,448) 6,993,715 4,414,990 (38,503) 45,479 (5,752,978) 820,990 (461,432) 719,026 (3,026,516) 2,414,952 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 1,145,339 (5,014,538) (4,222,795) 8,192,896 1,171,520 968,184 3,557,567 6,542,762 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 379,674 427,599 4,025,061 4,195,940 607,692 341,533 6,969,294 2,380,193 (2,566,465) (4,038,682) (5,839,730) (9,516,809) (3,502,191) (2,173,905) (7,846,075) (3,442,196) 1,343,659 14,431,368 (64,297,653) 36,468,814 14,421,097 154,210 (11,213,581) 29,837,254 (8,133) (12,198) (25,638) (38,080) (7,453) (6,740) (30,250) (17,093) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ (851,265) 10,808,087 (66,137,960) 31,109,865 11,519,145 (1,684,902) (12,120,612) 28,758,158 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 294,074 5,793,549 (70,360,755) 39,302,761 12,690,665 (716,718) (8,563,045) 35,300,920 12,447,786 6,654,237 100,514,672 61,211,911 14,523,954 15,240,672 44,101,064 8,800,144 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 12,741,860 $ 12,447,786 $ 30,153,917 $100,514,672 $ 27,214,619 $ 14,523,954 $ 35,538,019 $ 44,101,064 ============ ============ ============ ============ ============ ============ ============ ============ 1,564,369 726,430 6,877,715 4,739,545 2,300,676 2,697,378 5,122,795 1,288,772 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 70,775,536 62,360,428 17,639,985 38,801,365 19,884,883 12,347,314 28,928,530 32,035,431 (70,777,339) (61,522,489) (22,309,308) (36,663,195) (18,762,524) (12,744,016) (30,673,646) (28,201,408) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 1,562,566 1,564,369 2,208,392 6,877,715 3,423,035 2,300,676 3,377,679 5,122,795 ============ ============ ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A50 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ------------------------------------------------------------------------------------ ProFund VP UltraMid-Cap ProFund VP UltraNASDAQ-100 ProFund VP UltraSmall-Cap -------------------------- ---------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------- ------------- ------------ ------------ OPERATIONS Net investment income (loss)..................... $ (1,151,102) $ (1,316,406) $ (975,140) $ (937,357) $ (168,444) $ (801,087) Capital gains distributions received................... 1,657,662 11,946,631 0 26,656,831 0 0 Realized gain (loss) on shares redeemed............ (3,683,462) (7,174,886) 14,380,129 (30,314,358) (6,022,267) 7,310,972 Net change in unrealized gain (loss) on investments................ (265,895) (124,376) (3,407,379) 5,426,521 63,409 1,149,610 ------------ ------------ ------------- ------------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. (3,442,797) 3,330,963 9,997,610 831,637 (6,127,302) 7,659,495 ------------ ------------ ------------- ------------- ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 7,237,442 7,971,265 1,901,053 2,992,138 1,091,284 1,354,285 Surrenders, withdrawals and death benefits............. (9,273,569) (9,046,713) (7,232,539) (7,920,855) (4,906,882) (7,110,358) Net transfers between other subaccounts or fixed rate option..................... (8,382,163) (11,154,567) 24,979,371 (27,330,439) (24,540,597) 15,407,407 Withdrawal and other charges.................... (44,035) (46,611) (59,897) (68,578) (18,645) (30,967) ------------ ------------ ------------- ------------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (10,462,325) (12,276,626) 19,587,988 (32,327,734) (28,374,840) 9,620,367 ------------ ------------ ------------- ------------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (13,905,122) (8,945,663) 29,585,598 (31,496,097) (34,502,142) 17,279,862 NET ASSETS Beginning of period......... 78,716,867 87,662,530 64,704,885 96,200,982 56,994,100 39,714,238 ------------ ------------ ------------- ------------- ------------ ------------ End of period............... $ 64,811,745 $ 78,716,867 $ 94,290,483 $ 64,704,885 $ 22,491,958 $ 56,994,100 ============ ============ ============= ============= ============ ============ Beginning units............. 4,459,972 5,482,307 40,480,462 55,241,779 3,417,950 3,106,543 ------------ ------------ ------------- ------------- ------------ ------------ Units issued................ 44,823,444 46,373,947 194,852,292 204,489,672 18,150,861 41,972,438 Units redeemed.............. (46,031,061) (47,396,282) (195,631,186) (219,250,989) (19,938,471) (41,661,031) ------------ ------------ ------------- ------------- ------------ ------------ Ending units................ 3,252,355 4,459,972 39,701,568 40,480,462 1,630,340 3,417,950 ============ ============ ============= ============= ============ ============
The accompanying notes are an integral part of these financial statements. A51
SUBACCOUNTS (Continued) ------------------------------------------------------------------------------------------------------------ ProFund VP Utilities ProFund VP Large-Cap Growth ProFund VP Large-Cap Value Rydex Nova Fund -------------------------- -------------------------- -------------------------- ------------------------ 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- $ (768,315) $ 149,097 $ (1,177,562) $ (1,037,442) $ (1,244,615) $ (1,181,661) $ (12,754) $ (12,584) 1,109,981 0 1,384,240 888,115 5,037,853 1,264,432 0 0 14,467,941 4,195,668 6,085,460 3,316,938 3,180,466 11,576,445 633,954 316,369 (4,092,928) 8,419,690 (3,722,468) 1,705,934 (7,973,921) 2,659,173 (571,755) 864,041 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 10,716,679 12,764,455 2,569,670 4,873,545 (1,000,217) 14,318,389 49,445 1,167,826 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 13,215,301 7,866,830 3,315,205 2,221,056 2,703,968 2,754,118 (4,932) 49,790 (15,163,779) (9,673,572) (11,191,105) (8,897,501) (16,150,222) (12,532,283) (1,354,724) (772,071) 70,815,459 17,157,280 4,372,555 (5,575,517) (67,923,315) 69,401,237 (830,019) (924,996) (64,234) (45,728) (35,830) (29,414) (50,896) (41,009) (6,484) (7,773) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 68,802,747 15,304,810 (3,539,175) (12,281,376) (81,420,465) 59,582,063 (2,196,159) (1,655,050) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 79,519,426 28,069,265 (969,505) (7,407,831) (82,420,682) 73,900,452 (2,146,714) (487,224) 103,909,704 75,840,439 75,650,121 83,057,952 152,132,150 78,231,698 7,255,497 7,742,721 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- $183,429,130 $103,909,704 $ 74,680,616 $ 75,650,121 $ 69,711,468 $152,132,150 $ 5,108,783 $ 7,255,497 ============ ============ ============ ============ ============ ============ =========== =========== 7,381,263 6,382,647 6,835,604 8,052,293 12,385,897 7,436,771 949,995 1,194,218 ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 32,754,129 25,602,151 28,411,156 20,635,318 41,025,923 39,828,056 23,146 53,843 (29,433,931) (24,603,535) (28,828,313) (21,852,007) (47,657,946) (34,878,930) (302,883) (298,066) ------------ ------------ ------------ ------------ ------------ ------------ ----------- ----------- 10,701,461 7,381,263 6,418,447 6,835,604 5,753,874 12,385,897 670,258 949,995 ============ ============ ============ ============ ============ ============ =========== ===========
The accompanying notes are an integral part of these financial statements. A52 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS --------------------------------------------------------------------------- Rydex Inverse S&P 500 Rydex OTC Fund Strategy Fund AIM V.I. Dynamics Fund ------------------------ --------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ----------- ----------- ---------- ---------- ------------ ------------ OPERATIONS Net investment income (loss)..................... $ (300,740) $ (364,781) $ 14,959 $ 44,636 $ (1,114,077) $ (1,183,230) Capital gains distributions received................... 0 0 0 0 0 0 Realized gain (loss) on shares redeemed............ (3,069,291) (6,335,698) (156,980) (135,002) 6,621,123 14,160,822 Net change in unrealized gain (loss) on investments................ 6,810,575 7,628,032 136,665 16,020 947,861 (5,944,075) ----------- ----------- --------- ---------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 3,440,544 927,553 (5,356) (74,346) 6,454,907 7,033,517 ----------- ----------- --------- ---------- ------------ ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 44,680 116,008 (1,671) 6,405 4,421,233 4,337,447 Surrenders, withdrawals and death benefits............. (4,363,125) (3,629,112) (83,646) (329,717) (11,256,403) (10,667,286) Net transfers between other subaccounts or fixed rate option..................... (2,910,701) (3,579,403) (164,685) (46,507) (4,635,697) 4,770,189 Withdrawal and other charges.................... (40,688) (46,596) (563) (779) (61,002) (70,418) ----------- ----------- --------- ---------- ------------ ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (7,269,834) (7,139,103) (250,565) (370,598) (11,531,869) (1,630,068) ----------- ----------- --------- ---------- ------------ ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (3,829,290) (6,211,550) (255,921) (444,944) (5,076,962) 5,403,449 NET ASSETS Beginning of period......... 24,010,626 30,222,176 736,343 1,181,287 66,083,698 60,680,249 ----------- ----------- --------- ---------- ------------ ------------ End of period............... $20,181,336 $24,010,626 $ 480,422 $ 736,343 $ 61,006,736 $ 66,083,698 =========== =========== ========= ========== ============ ============ Beginning units............. 3,716,598 4,873,588 85,606 125,308 5,239,057 5,599,675 ----------- ----------- --------- ---------- ------------ ------------ Units issued................ 84,173 123,069 25,594 3,821 3,197,483 6,395,132 Units redeemed.............. (1,113,763) (1,280,059) (55,013) (43,523) (4,115,329) (6,755,750) ----------- ----------- --------- ---------- ------------ ------------ Ending units................ 2,687,008 3,716,598 56,187 85,606 4,321,211 5,239,057 =========== =========== ========= ========== ============ ============
The accompanying notes are an integral part of these financial statements. A53
SUBACCOUNTS (Continued) -------------------------------------------------------------------------------------------------------------- AIM V.I. Financial Services AIM V.I. Global Health Care Wells Fargo Advantage VT Fund Fund AIM V.I. Technology Fund Asset Allocation Fund -------------------------- -------------------------- -------------------------- -------------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ (40,718) $ 46,038 $ (1,522,979) $ (1,648,441) $ (826,324) $ (927,085) $ 647,856 $ 903,363 3,280,015 431,961 0 0 0 0 1,325,177 1,193,735 6,054,077 9,181,399 11,989,367 10,463,229 4,939,710 3,518,452 39,212 (1,410,178) (22,776,808) (248,852) (1,461,035) (5,351,631) (636,723) 3,057,764 3,434,674 9,617,815 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ (13,483,434) 9,410,546 9,005,353 3,463,157 3,476,663 5,649,131 5,446,919 10,304,735 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 3,037,088 4,614,474 3,768,535 5,787,774 864,689 914,541 (6,589) 71,600 (8,850,724) (9,160,474) (15,489,160) (14,462,406) (9,813,625) (8,770,855) (25,746,288) (24,903,994) (16,855,108) (10,798,717) (8,624,657) (8,972,276) (5,286,227) (7,695,052) (4,472,432) (5,680,234) (46,190) (59,559) (84,166) (93,849) (64,227) (77,837) (50,090) (60,752) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ (22,714,934) (15,404,276) (20,429,448) (17,740,757) (14,299,390) (15,629,203) (30,275,399) (30,573,380) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ (36,198,368) (5,993,730) (11,424,095) (14,277,600) (10,822,727) (9,980,072) (24,828,480) (20,268,645) 75,553,307 81,547,037 102,317,416 116,595,016 62,385,894 72,365,966 98,745,792 119,014,437 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ $ 39,354,939 $ 75,553,307 $ 90,893,321 $102,317,416 $ 51,563,167 $ 62,385,894 $ 73,917,312 $ 98,745,792 ============ ============ ============ ============ ============ ============ ============ ============ 4,622,845 5,701,538 7,589,339 8,908,929 10,801,420 13,664,681 3,848,459 5,123,162 ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 2,007,292 2,604,962 3,839,422 3,693,931 2,721,160 1,858,442 80,017 104,011 (3,495,444) (3,683,655) (5,278,252) (5,013,521) (5,274,344) (4,721,703) (1,207,123) (1,378,714) ------------ ------------ ------------ ------------ ------------ ------------ ------------ ------------ 3,134,693 4,622,845 6,150,509 7,589,339 8,248,236 10,801,420 2,721,353 3,848,459 ============ ============ ============ ============ ============ ============ ============ ============
The accompanying notes are an integral part of these financial statements. A54 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS -------------------------------------------------------------------------------- Wells Fargo Advantage VT Wells Fargo Advantage VT C&B Wells Fargo Advantage VT Equity Income Fund Large Cap Value Fund Large Company Core Fund ------------------------- --------------------------- ------------------------ 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ----------- ----------- ----------- ----------- ----------- OPERATIONS Net investment income (loss)..................... $ (62,579) $ (2,596) $ (61,464) $ 10,014 $ (274,159) $ (163,931) Capital gains distributions received................... 2,155,192 63,843 0 0 0 0 Realized gain (loss) on shares redeemed............ 3,826,425 1,618,833 2,285,767 1,054,385 (2,019,701) (4,106,694) Net change in unrealized gain (loss) on investments................ (5,510,395) 3,325,673 (2,495,401) 2,183,118 2,675,937 6,963,692 ------------ ----------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 408,643 5,005,753 (271,098) 3,247,517 382,077 2,693,067 ------------ ----------- ----------- ----------- ----------- ----------- CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 3,276,975 3,055,029 58,054 0 7,984 21,279 Surrenders, withdrawals and death benefits............. (5,221,258) (4,373,151) (4,174,932) (3,407,537) (4,310,572) (5,097,416) Net transfers between other subaccounts or fixed rate option..................... (8,743,494) 3,809,930 (676,916) 91,360 (949,959) (647,596) Withdrawal and other charges.................... (19,870) (22,546) (6,850) (7,898) (8,786) (8,695) ------------ ----------- ----------- ----------- ----------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (10,707,647) 2,469,262 (4,800,644) (3,324,075) (5,261,333) (5,732,428) ------------ ----------- ----------- ----------- ----------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (10,299,004) 7,475,015 (5,071,742) (76,558) (4,879,256) (3,039,361) NET ASSETS Beginning of period......... 38,998,300 31,523,285 17,808,402 17,884,960 21,202,351 24,241,712 ------------ ----------- ----------- ----------- ----------- ----------- End of period............... $ 28,699,296 $38,998,300 $12,736,660 $17,808,402 $16,323,095 $21,202,351 ============ =========== =========== =========== =========== =========== Beginning units............. 2,821,977 2,707,129 1,591,535 1,933,881 1,079,378 1,406,297 ------------ ----------- ----------- ----------- ----------- ----------- Units issued................ 1,592,635 1,885,796 167,293 317,756 14,344 27,457 Units redeemed.............. (2,385,465) (1,770,948) (596,182) (660,102) (270,886) (354,376) ------------ ----------- ----------- ----------- ----------- ----------- Ending units................ 2,029,147 2,821,977 1,162,646 1,591,535 822,836 1,079,378 ============ =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements. A55
SUBACCOUNTS (Continued) ----------------------------------------------------------------------------------------------------- Wells Fargo Advantage VT Wells Fargo Advantage VT Wells Fargo Advantage VT Wells Fargo Advantage VT International Core Fund Large Company Growth Fund Money Market Fund Small Cap Growth Fund ---------------------- ------------------------ -------------------------- ----------------------- 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 01/01/2007 01/01/2006 to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ---------- ---------- ----------- ----------- ------------ ------------ ----------- ---------- $ (41,762) $ 3,599 $ (145,679) $ (164,276) $ 790,804 $ 761,331 $ (74,289) $ (76,334) 207,783 102,448 0 0 0 0 778,814 130,376 394,270 304,265 276,367 (575,186) 0 0 113,297 (224,048) (239,318) 43,521 514,174 729,877 0 0 (204,670) 1,172,977 ---------- ---------- ----------- ----------- ------------ ------------ ----------- ---------- 320,973 453,833 644,862 (9,585) 790,804 761,331 613,152 1,002,971 ---------- ---------- ----------- ----------- ------------ ------------ ----------- ---------- (7,111) 7,194 1,580 81,941 (34,331) 7,860 3,364 42,367 (636,914) (412,862) (2,020,084) (1,880,122) (24,232,850) (27,257,897) (1,026,761) (758,856) 399,413 (30,589) (605,042) (578,153) 22,643,587 24,804,135 (343,476) (191,396) (2,122) (2,037) (6,638) (8,060) (9,686) (10,187) (3,730) (3,757) ---------- ---------- ----------- ----------- ------------ ------------ ----------- ---------- (246,734) (438,294) (2,630,184) (2,384,394) (1,633,280) (2,456,089) (1,370,603) (911,642) ---------- ---------- ----------- ----------- ------------ ------------ ----------- ---------- 74,239 15,539 (1,985,322) (2,393,979) (842,476) (1,694,758) (757,451) 91,329 2,665,928 2,650,389 10,629,247 13,023,226 25,268,127 26,962,885 5,302,928 5,211,599 ---------- ---------- ----------- ----------- ------------ ------------ ----------- ---------- $2,740,167 $2,665,928 $ 8,643,925 $10,629,247 $ 24,425,651 $ 25,268,127 $ 4,545,477 $5,302,928 ========== ========== =========== =========== ============ ============ =========== ========== 240,001 288,646 1,164,432 1,455,694 1,926,769 2,115,112 441,783 529,844 ---------- ---------- ----------- ----------- ------------ ------------ ----------- ---------- 105,462 67,520 122,619 178,777 2,166,245 2,333,625 35,643 55,802 (117,808) (116,165) (395,152) (470,039) (2,288,650) (2,521,968) (140,863) (143,863) ---------- ---------- ----------- ----------- ------------ ------------ ----------- ---------- 227,655 240,001 891,899 1,164,432 1,804,364 1,926,769 336,563 441,783 ========== ========== =========== =========== ============ ============ =========== ==========
The accompanying notes are an integral part of these financial statements. A56 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS -------------------------------------------------------------------------------------- Wells Fargo Advantage VT AST First Trust Balanced Target AST First Trust Capital Total Return Bond Fund Portfolio Appreciation Target Portfolio ------------------------ ------------------------------ ---------------------------- 01/01/2007 01/01/2006 01/01/2007 3/20/2006* 01/01/2007 3/20/2006* to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ----------- ----------- -------------- ------------ -------------- ------------ OPERATIONS Net investment income (loss)..................... $ 370,833 $ 445,806 $ (13,590,949) $ (3,177,503) $ (17,154,322) $ (3,612,451) Capital gains distributions received................... 0 0 363,764 0 988,883 0 Realized gain (loss) on shares redeemed............ (213,183) (132,080) 3,377,195 (194,131) 6,094,020 (612,530) Net change in unrealized gain (loss) on investments................ 354,473 (5,224) 47,974,997 25,669,911 64,620,842 29,551,225 ----------- ----------- -------------- ------------ -------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. 512,123 308,502 38,125,007 22,298,277 54,549,423 25,326,244 ----------- ----------- -------------- ------------ -------------- ------------ CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 10,183 125,116 552,844,037 279,088,386 681,538,652 290,352,077 Surrenders, withdrawals and death benefits............. (2,953,602) (2,903,869) (36,077,943) (6,350,075) (37,356,892) (5,893,901) Net transfers between other subaccounts or fixed rate option..................... (900,319) (1,591,085) 130,672,423 164,424,068 193,124,716 189,231,119 Withdrawal and other charges.................... (7,203) (5,993) (160,173) (22,680) (189,948) (38,956) ----------- ----------- -------------- ------------ -------------- ------------ NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... (3,850,941) (4,375,831) 647,278,344 437,139,699 837,116,528 473,650,339 ----------- ----------- -------------- ------------ -------------- ------------ TOTAL INCREASE (DECREASE) IN NET ASSETS..................... (3,338,818) (4,067,329) 685,403,351 459,437,976 891,665,951 498,976,583 NET ASSETS Beginning of period......... 13,713,815 17,781,144 459,437,976 0 498,976,583 0 ----------- ----------- -------------- ------------ -------------- ------------ End of period............... $10,374,997 $13,713,815 $1,144,841,327 $459,437,976 $1,390,642,534 $498,976,583 =========== =========== ============== ============ ============== ============ Beginning units............. 1,003,059 1,328,686 43,588,111 0 47,802,399 0 ----------- ----------- -------------- ------------ -------------- ------------ Units issued................ 20,802 30,934 117,598,802 55,896,702 152,194,988 66,429,015 Units redeemed.............. (297,517) (356,561) (58,915,898) (12,308,591) (77,718,777) (18,626,616) ----------- ----------- -------------- ------------ -------------- ------------ Ending units................ 726,344 1,003,059 102,271,015 43,588,111 122,278,610 47,802,399 =========== =========== ============== ============ ============== ============
* Date subaccount became available for investment The accompanying notes are an integral part of these financial statements. A57
SUBACCOUNTS (Continued) ---------------------------------------------------------------------------------------------------------- AST CLS AST CLS AST Horizon AST Horizon Growth Asset Moderate Asset Growth Asset Moderate Asset AST Advanced Strategies Columbia High Yield Allocation Allocation Allocation Allocation Portfolio Fund VS Portfolio Portfolio Portfolio Portfolio ---------------------------- -------------------- ------------ -------------- ------------ -------------- 01/01/2007 3/20/2006* 01/01/2007 5/1/2006* 11/19/2007* 11/19/2007* 11/19/2007* 11/19/2007* to to to to to to to to 12/31/2007 12/31/2006 12/31/2007 12/31/2006 12/31/2007 12/31/2007 12/31/2007 12/31/2007 -------------- ------------ ---------- ---------- ------------ -------------- ------------ -------------- $ (14,825,778) $ (3,845,600) $ 17,156 $ 8,625 $ (15,681) $ (10,309) $ (5,604) $ (3,389) 1,428,984 0 0 4,037 0 0 0 0 2,988,920 40,436 2,502 220 (28,693) 7,508 8,482 3 65,925,385 30,250,619 (15,598) 18,342 83,563 15,493 30,732 15,633 -------------- ------------ -------- -------- ----------- ----------- ---------- ---------- 55,517,511 26,445,455 4,060 31,224 39,189 12,692 33,610 12,247 -------------- ------------ -------- -------- ----------- ----------- ---------- ---------- 580,951,644 308,256,141 353 36 3,695,286 2,275,332 1,725,204 1,163,392 (41,405,070) (7,887,144) (58,025) (83,076) (12,049) (1,065,062) (1,153) (32,341) 83,929,680 210,629,997 2,267 515,249 9,820,670 6,676,054 3,174,633 1,684,298 (170,411) (31,863) (276) (208) (284) (22) (39) (19) -------------- ------------ -------- -------- ----------- ----------- ---------- ---------- 623,305,843 510,967,131 (55,681) 432,001 13,503,623 7,886,302 4,898,645 2,815,330 -------------- ------------ -------- -------- ----------- ----------- ---------- ---------- 678,823,354 537,412,586 (51,621) 463,225 13,542,812 7,898,994 4,932,255 2,827,577 537,412,586 0 463,225 0 0 0 0 0 -------------- ------------ -------- -------- ----------- ----------- ---------- ---------- $1,216,235,940 $537,412,586 $411,604 $463,225 $13,542,812 $ 7,898,994 $4,932,255 $2,827,577 ============== ============ ======== ======== =========== =========== ========== ========== 50,595,548 0 43,213 0 0 0 0 0 -------------- ------------ -------- -------- ----------- ----------- ---------- ---------- 112,381,079 65,783,412 553 56,309 1,895,177 938,813 601,445 294,105 (56,063,322) (15,187,864) (5,681) (13,096) (717,676) (151,663) (117,176) (15,887) -------------- ------------ -------- -------- ----------- ----------- ---------- ---------- 106,913,305 50,595,548 38,085 43,213 1,177,501 787,150 484,269 278,218 ============== ============ ======== ======== =========== =========== ========== ==========
* Date subaccount became available for investment The accompanying notes are an integral part of these financial statements. A58 FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") STATEMENT OF CHANGES IN NET ASSETS For the periods ended December 31, 2007 and 2006
SUBACCOUNTS ------------------------------------------------------------------------------ AST Niemann Capital AST Western Growth Asset Asset Core Allocation Plus Bond Columbia Asset Allocation Columbia Federal Securities Portfolio Portfolio Fund, VS Fund, VS ------------ ----------- ------------------------ -------------------------- 11/19/2007* 11/19/2007* 1/1/2007 1/1/2006 1/1/2007 1/1/2006 to to to to to to 12/31/2007 12/31/2007 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ------------ ----------- ----------- ----------- ---------- ----------- OPERATIONS Net investment income (loss)..................... $ (6,671) $ (48,096) $ 229,705 $ 221,268 $ 118,397 $ 126,397 Capital gains distributions received................... 0 0 1,177,684 785,932 0 0 Realized gain (loss) on shares redeemed............ (5,736) 0 692,486 964,540 (21,012) (45,189) Net change in unrealized gain (loss) on investments................ (33,565) 94,910 (1,041,317) (505,816) 22,860 (4,842) ---------- ----------- ----------- ----------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS................. (45,972) 46,814 1,058,558 1,465,924 120,245 76,366 ---------- ----------- ----------- ----------- ---------- ----------- CONTRACT OWNER TRANSACTIONS Contract owner net payments................... 2,159,147 14,648,253 16,624 0 915 0 Surrenders, withdrawals and death benefits............. (7,666) (50,908) (1,978,147) (2,886,576) (134,758) (1,177,209) Net transfers between other subaccounts or fixed rate option..................... 2,911,056 17,217,560 (363,933) (518,226) (62,842) (216,761) Withdrawal and other charges.................... (126) (252) (13,599) (16,341) (2,268) (2,744) ---------- ----------- ----------- ----------- ---------- ----------- NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM CONTRACT OWNER TRANSACTIONS............... 5,062,411 31,814,653 (2,339,055) (3,421,143) (198,953) (1,396,714) ---------- ----------- ----------- ----------- ---------- ----------- TOTAL INCREASE (DECREASE) IN NET ASSETS..................... 5,016,439 31,861,467 (1,280,497) (1,955,219) (78,708) (1,320,348) NET ASSETS Beginning of period......... 0 0 13,156,784 15,112,003 2,115,798 3,436,146 ---------- ----------- ----------- ----------- ---------- ----------- End of period............... $5,016,439 $31,861,467 $11,876,287 $13,156,784 $2,037,090 $ 2,115,798 ========== =========== =========== =========== ========== =========== Beginning units............. 0 0 861,185 1,094,741 194,823 324,887 ---------- ----------- ----------- ----------- ---------- ----------- Units issued................ 824,545 3,468,998 9,909 3,206 18,018 363 Units redeemed.............. (322,540) (274,426) (151,816) (236,762) (34,401) (130,427) ---------- ----------- ----------- ----------- ---------- ----------- Ending units................ 502,005 3,194,572 719,278 861,185 178,440 194,823 ========== =========== =========== =========== ========== ===========
* Date subaccount became available for investment The accompanying notes are an integral part of these financial statements. A59 NOTES TO FINANCIAL STATEMENTS OF PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B ("Variable Account B") Note 1: General Prudential Annuities Life Assurance Corporation Variable Account B, also referred to as the "Separate Account", is organized as a unit investment trust, a type of investment company, and is registered with the Securities and Exchange Commission under the Investment Company Act of 1940. Prudential Annuities Life Assurance Corporation ("Prudential Annuities" or the "Company"), which became a majority owned subsidiary of Prudential Financial, Inc. on May 1, 2003, commenced operations of the Separate Account, pursuant to Connecticut law on November 25, 1987. Under (S)38a-433 of the Connecticut General Statutes, the assets and liabilities of the Separate Account are clearly identified and distinguished from the other assets and liabilities of the Company. The assets of the Separate Account will not be charged with any liabilities arising out of any other business conducted by Prudential Annuities. However, the Separate Account's obligations, including insurance benefits related to the annuities, are the obligations of Prudential Annuities. Effective May 1, 2007, American Skandia Trust and American Skandia Investment Services, Inc. were renamed Advanced Series Trust and AST Investment Services, Inc., respectively. On January 1, 2008 American Skandia Life Assurance Corporation (ASLAC) was renamed Prudential Annuities Life Assurance Corporation (PALAC). On January 28, 2008, any product name that contained "American Skandia" was updated with "Advanced Series." The Separate Account is used as a funding vehicle for several flexible premium deferred variable annuity contracts, as well as two immediate variable annuities issued by Prudential Annuities. The following is a list of each variable annuity product funded through the Separate Account. LifeVest Personal Advanced Series XTra Security Annuity ("PSA") Credit Premier ("XTra Alliance Capital Credit Premier") Navigator ("ACN") Advanced Series XTra Advanced Series Advisor Credit FOUR ("XTtra Plan ("ASAP") Credit FOUR") Advanced Series Advisor Advanced Series XTra Plan II ("ASAP II") Credit FOUR Premier Harvester Variable ("XTra Credit FOUR Annuity ("Harvester Premier") Variable Annuity") Advanced Series XTra Advanced Series Advisor Credit SIX ("XTra Plan II Premier ("ASAP Credit SIX") II Premier") Advanced Series Advanced Series Advisor Protector ("AS Plan III ("ASAP III") Protector") Advanced Series Apex Wells Fargo Stagecoach ("Apex") Variable Annuity Wells Fargo Stagecoach ("Stagecoach") Apex Wells Fargo Stagecoach Advanced Series Apex II Variable Annuity Plus ("Apex II") ("Stagecoach VA+") Advanced Series LifeVest Advanced Series Advisors ("ASL") Choice ("Choice") Wells Fargo Stagecoach Advanced Series Advisors Variable Annuity Flex Choice 2000 ("Choice ("Stagecoach Flex") 2000") Advanced Series LifeVest Advanced Series Impact Premier ("ASL Premier") ("AS Impact") Advanced Series LifeVest Defined Investments II ("ASL II") Annuity Advanced Series LifeVest Galaxy Variable Annuity II Premier (ASL II III ("Galaxy III") Premier") Advanced Series Advisors Advanced Series XTra Income Annuity ("ASAIA") Credit ("XTra Credit") Advanced Series Variable Stagecoach Apex II Immediate Annuity Stagecoach ASAP III ("ASVIA") Stagecoach XTra Credit Advanced Series Optimum SIX Advanced Series Optimum Wells Fargo Stagecoach Plus Extra Credit Advanced Series Optimum ("Stagecoach Extra Four Credit") Harvester XTra Credit ("Harvester XTra Credit") The Annuities named above may be used as an investment vehicle for "qualified" investments, including an IRA, SEP-IRA, Roth IRA or Tax Sheltered Annuity (or 403(b)) or as an investment vehicle for "non-qualified" investments. When an Annuity is purchased as A60 Note 1: General (Continued) a "qualified" investment, it does not provide any tax advantages in addition to the preferential treatment already available under the Internal Revenue Code. The Separate Account consists of one hundred and twenty-eight subaccounts, each of which invests in either a corresponding portfolio of The Prudential Series Fund, Advanced Series Trust, (collectively the "Series Funds") or one of the non-Prudential administered funds (collectively, the "portfolios"). Certain subaccounts are available with only certain variable annuities offered through the Separate Account. The name of each Portfolio and the corresponding subaccount name are as follows: Advanced Series Trust AST MFS Global Equity Evergreen Variable AST AllianceBernstein Portfolio Annuity Growth & Income AST JPMorgan Balanced Fund Portfolio International Equity Growth Fund AST T. Rowe Price Portfolio International Equity Fund Large-Cap Growth AST T. Rowe Price Global Fundamental Large Cap Portfolio Bond Portfolio Fund AST American Century AST International Growth Omega Fund Income & Growth Portfolio Special Values Fund Portfolio AST Aggressive Asset Diversified Income AST American Century Allocation Portfolio Builder Fund Strategic Allocation AST Capital Growth Asset Portfolio Allocation Portfolio First Trust AST Money Market AST Balanced Asset Managed VIP Portfolio Allocation Portfolio The Dow Target 10 AST Cohen & Steers AST Conservative Asset Global DividendTarget 15 Realty Portfolio Allocation Portfolio S&P Target 24 AST UBS Dynamic Alpha AST Preservation Asset NASDAQ Target 15 Portfolio Allocation Portfolio Value Line Target 25 AST DeAm Large-Cap Value AST First Trust Balanced Target Focus Four Portfolio Target Portfolio Dow Target Dividend AST Neuberger Berman AST First Trust Capital Small-Cap Growth Appreciation Target AIM Variable Insurance Portfolio Portfolio Dynamics Fund AST DeAm Small-Cap Value AST Advanced Strategies Financial Services Fund Portfolio Portfolio Global Health Care Fund AST High Yield Bond AST CLS Growth Asset Technology Fund Portfolio Allocation Portfolio AST Federated Aggressive AST CLS Moderate Asset Columbia Growth Portfolio Allocation Portfolio Large Cap Growth Stock AST Mid-Cap Value AST Horizon Growth Asset Fund, VS Portfolio Allocation Portfolio Asset Allocation Fund, VS AST Small-Cap Value AST Horizon Moderate Federal Securities Fund, Portfolio Asset Allocation VS AST Goldman Sachs Portfolio Money Market Fund, VS Concentrated Growth AST Nieman Capital Small Company Growth Portfolio Growth Asset Allocation Fund, VS AST Goldman Sachs AST Western Asset Core High Yield Fund, VS Mid-Cap Growth Portfolio Plus Bond Portfolio AST Goldman Sachs ProFunds VP Small-Cap Value Gartmore NVIT Asia 30 Portfolio Developing Markets Banks AST Large-Cap Value Bear Portfolio Prudential Series Funds Biotechnology AST Lord Abbett SP International Growth Basic Materials Bond-Debenture Portfolio UltraBull AST Marsico Capital Wells Fargo Advantage Bull Growth Portfolio Variable Trust Consumer Services AST MFS Growth Portfolio Asset Allocation Fund Consumer Goods AST Neuberger Berman Equity Income Fund Oil & Gas Mid-Cap Growth Portfolio C&B Large Cap Value Fund Europe 30 AST Neuberger Berman Large Company Core Fund Financials Mid-Cap Value Portfolio International Core Fund U.S. Government Plus AST Small-Cap Growth Large Company Growth Fund Health Care Portfolio Money Market Fund Industrials AST PIMCO Limited Small Cap Growth Fund Internet Maturity Bond Portfolio Total Return Bond Fund Japan AST PIMCO Total Return Bond Portfolio AST AllianceBernstein Core Value Portfolio AST AllianceBernstein Managed Index 500 Portfolio AST T. Rowe Price Natural Resources Portfolio AST T. Rowe Price Asset Allocation Portfolio AST International Value Portfolio A61 Note 1: General (Continued) Precious Metals Short Small-Cap Rydex Variable Trust Mid-Cap Growth Small-Cap Value Nova Fund Mid-Cap Value Technology Inverse S&P 500 Strategy Pharmaceuticals Telecommunications Fund Real Estate UltraMid-Cap OTC Fund Rising Rates Opportunity UltraNASDAQ-100 NASDAQ-100 UltraSmall-Cap Davis Semiconductor Utilities Value Portfolio Small-Cap Growth Large-Cap Growth Short Mid-Cap Large-Cap Value Access One Trust Short NASDAQ-100 VP High Yield Fund On March 16, 2007, four First Trust funds were merged into the existing AST Money Market fund. The transfer from the old subaccount to the new subaccount is reflected in the Statement of Changes in the year 2007 as a transfers in.
Retired Portfolios Existing Portfolio Assets Moved ------------------ ------------------ ------------ First Trust Energy Sector..... AST Money Market $4,153,431 First Trust Financial Services AST Money Market $2,975,668 First Trust PharmHealth Sector AST Money Market $2,644,671 First Trust Technology........ AST Money Market $1,098,820
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 September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements." This Statement defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and requires additional disclosures about fair value measurements. This Statement does not require any new fair value measurements, but the application of this Statement could change current practices in determining fair value. The Account expects to adopt this guidance effective January 1, 2008. The Account's adoption of this guidance is not expected to have a material effect on the Account's financial position and results of operations. 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 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: Taxes Prudential Annuities Life Assurance Corporation is taxed as a "life insurance company" as defined by the Internal Revenue Code. The results of operations of the Account form a part of PFI's consolidated federal tax return. Under current federal law, no federal income taxes are payable by the Account. As such, no provision for tax liability has been recorded in these financial statements. Prudential Management will review periodically the status of 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. A62 Note 4: Purchases and Sales of Investments The aggregate costs of purchases and proceeds from sales, excluding distributions received and reinvested, of investments in the portfolios for the year ended December 31, 2007 were as follows:
Purchases Sales -------------- --------------- AST AllianceBernstein Growth & Income Portfolio...... $ 172,481,683 $ (633,723,379) AST T. Rowe Price Large-Cap Growth Portfolio......... $ 177,395,359 $ (101,453,470) AST American Century Income & Growth Portfolio....... $ 53,347,836 $ (134,266,318) AST American Century Strategic Allocation Portfolio.. $ 82,479,803 $ (75,050,179) AST Money Market Portfolio........................... $5,210,495,780 $(4,985,713,780) AST Cohen & Steers Realty Portfolio.................. $ 83,693,626 $ (290,872,022) AST UBS Dynamic Alpha Portfolio...................... $ 336,993,142 $ (123,840,162) AST DeAm Large-Cap Value Portfolio................... $ 147,008,039 $ (192,286,586) AST Neuberger Berman Small-Cap Growth Portfolio...... $ 27,432,561 $ (68,292,266) AST DeAm Small-Cap Value Portfolio................... $ 36,950,619 $ (62,770,976) AST High Yield Portfolio............................. $ 248,991,843 $ (413,055,076) AST Federated Aggressive Growth Portfolio............ $ 97,081,810 $ (170,053,651) AST Mid-Cap Value Portfolio.......................... $ 35,079,192 $ (71,879,023) AST Small-Cap Value Portfolio........................ $ 140,468,283 $ (276,890,246) AST Goldman Sachs Concentrated Growth Portfolio...... $ 63,629,569 $ (202,076,555) AST Goldman Sachs Mid-Cap Growth Portfolio........... $ 77,003,521 $ (131,191,489) AST Goldman Sachs Small-Cap Value Portfolio.......... $ 4,192,810 $ (68,959,709) AST Large-Cap Value Portfolio........................ $ 124,405,047 $ (220,605,257) AST Lord Abbett Bond-Debenture Portfolio............. $ 241,360,099 $ (363,895,365) AST Marsico Capital Growth Portfolio................. $ 291,838,200 $ (721,442,664) AST MFS Growth Portfolio............................. $ 36,896,510 $ (141,347,014) AST Neuberger Berman Mid-Cap Growth Portfolio........ $ 209,743,131 $ (274,106,691) AST Neuberger Berman Mid-Cap Value Portfolio......... $ 129,671,637 $ (394,489,360) AST Small-Cap Growth Portfolio....................... $ 38,500,250 $ (62,160,790) AST PIMCO Limited Maturity Bond Portfolio............ $ 201,376,687 $ (428,692,816) AST PIMCO Total Return Bond Portfolio................ $ 285,017,216 $ (378,327,222) AST AllianceBernstein Core Value Portfolio........... $ 134,790,236 $ (196,341,285) AST AllianceBernstein Managed Index 500 Portfolio.... $ 65,512,475 $ (168,040,195) AST T. Rowe Price Natural Resources Portfolio........ $ 238,382,415 $ (201,987,054) AST T. Rowe Price Asset Allocation Portfolio......... $ 522,610,204 $ (171,204,845) AST International Value Portfolio.................... $ 181,203,725 $ (128,371,153) AST MFS Global Equity Portfolio...................... $ 74,952,971 $ (157,550,620) AST JPMorgan International Equity Portfolio.......... $ 142,414,001 $ (220,804,774) AST T. Rowe Price Global Bond Portfolio.............. $ 149,341,135 $ (181,827,059) AST International Growth Portfolio................... $ 183,005,200 $ (522,701,961) AST Aggressive Asset Allocation Portfolio............ $ 344,351,497 $ (209,824,442) AST Capital Growth Asset Allocation Portfolio........ $2,343,758,470 $ (524,632,493) AST Balanced Asset Allocation Portfolio.............. $1,621,297,974 $ (373,354,460) AST Conservative Asset Allocation Portfolio.......... $ 717,012,854 $ (208,771,939) AST Preservation Asset Allocation Portfolio.......... $ 601,177,511 $ (319,353,140) AST CLS Growth Asset Allocation Portfolio............ $ 20,208,608 $ (6,720,667) AST CLS Moderate Asset Allocation Portfolio.......... $ 9,300,996 $ (1,425,003) AST Horizon Growth Asset Allocation Portfolio........ $ 5,786,779 $ (893,740) AST Horizon Moderate Asset Allocation Portfolio...... $ 2,854,224 $ (42,281) AST Niemann Capital Growth Asset Allocation Portfolio $ 7,791,197 $ (2,735,457) AST Western Asset Core Plus Bond Portfolio........... $ 32,637,932 $ (871,374) Davis Value Portfolio................................ $ 2,244,912 $ (3,939,821) Evergreen VA Balanced Fund........................... $ 300,881 $ (1,320,080) Evergreen VA Growth Fund............................. $ 14,975,135 $ (21,513,181) Evergreen VA International Equity Fund............... $ 69,068,677 $ (61,754,317) Evergreen VA Fundamental Large Cap Fund.............. $ 688,806 $ (2,428,318) Evergreen VA Omega Fund.............................. $ 14,983,839 $ (17,788,779) Evergreen VA Special Values Fund..................... $ 741,553 $ (2,121,942) Evergreen VA Diversified Income Builder Fund......... $ 1,067,030 $ (2,196,664) Columbia Asset Allocation Fund, VS................... $ 78,782 $ (2,415,350) Columbia Federal Securities Fund, VS................. $ 181,596 $ (374,406) Columbia Money Market Fund, VS....................... $ 2,206,365 $ (2,364,052) Columbia Small Company Growth Fund, VS............... $ 19,680 $ (246,216) Columbia Large Cap Growth Stock, VS.................. $ 21,524 $ (2,911,474) Prudential SP International Growth Portfolio......... $ 45,963,263 $ (45,477,846)
A63 Note 4: Purchases and Sales of Investments (Continued)
Purchases Sales ------------ ------------- Gartmore NVIT Developing Markets................. $320,056,223 $(290,392,129) First Trust The Dow Target 10.................... $ 14,171,166 $ (26,022,031) First Trust Target Focus Four Portfolio.......... $ 9,965,575 $ (3,235,150) First Trust Energy Sector........................ $ 35,414 $ (4,356,025) First Trust Financal Services.................... $ 27,643 $ (3,405,041) First Trust PharmHealth Sector................... $ 8,515 $ (2,903,348) First Trust Technology........................... $ 2,481 $ (1,274,760) First Trust Global Dividend Target 15............ $151,225,810 $(121,770,836) First Trust NASDAQ Target 15..................... $ 13,731,684 $ (11,286,332) First Trust S&P Target 24........................ $ 9,430,305 $ (10,279,368) First Trust Managed VIP.......................... $ 72,017,232 $(118,137,323) First Trust Value Line Target 25................. $ 17,649,705 $ (24,152,697) First Trust Dow Target Dividend.................. $ 55,564,547 $ (74,363,366) ProFund VP Asia 30............................... $549,533,202 $(547,652,629) ProFund VP Banks................................. $ 66,216,463 $ (67,002,135) ProFund VP Bear.................................. $431,125,467 $(426,930,501) ProFund VP Biotechnology......................... $ 68,351,209 $ (61,925,041) ProFund VP Basic Materials....................... $357,621,924 $(289,644,343) ProFund VP UltraBull............................. $235,396,016 $(239,110,047) ProFund VP Bull.................................. $701,377,689 $(804,218,294) ProFund VP Consumer Services..................... $ 38,332,353 $ (42,002,636) ProFund VP Consumer Goods........................ $ 93,015,909 $ (82,270,714) ProFund VP Oil & Gas............................. $387,120,474 $(384,077,456) ProFund VP Europe 30............................. $456,913,091 $(499,995,806) ProFund VP Financials............................ $ 97,280,917 $(116,463,229) ProFund VP U.S. Government Plus.................. $454,628,312 $(404,983,211) ProFund VP Health Care........................... $155,718,088 $(165,124,325) ACCESS VP High Yield Fund........................ $121,762,487 $(126,941,736) ProFund VP Industrials........................... $156,945,728 $(143,976,860) ProFund VP Internet.............................. $ 63,699,728 $ (59,851,362) ProFund VP Japan................................. $174,716,592 $(214,477,075) ProFund VP Precious Metals....................... $340,212,895 $(327,988,804) ProFund VP Mid-Cap Growth........................ $525,266,525 $(534,284,310) ProFund VP Mid-Cap Value......................... $313,191,602 $(355,615,774) ProFund VP Pharmaceuticals....................... $ 87,111,455 $ (96,072,751) ProFund VP Real Estate........................... $381,140,210 $(411,310,737) ProFund VP Rising Rates Opportunity.............. $299,243,498 $(330,345,758) ProFund VP NASDAQ-100............................ $530,806,452 $(511,937,015) ProFund VP Semiconductor......................... $ 58,337,036 $ (59,141,986) ProFund VP Small-Cap Growth...................... $373,036,827 $(413,797,519) ProFund VP Short Mid-Cap......................... $103,489,626 $(107,023,764) ProFund VP Short NASDAQ-100...................... $529,400,929 $(537,500,632) ProFund VP Short Small-Cap....................... $419,594,509 $(420,748,150) ProFund VP Small-Cap Value....................... $182,350,384 $(249,279,126) ProFund VP Technology............................ $109,938,364 $ (98,690,851) ProFund VP Telecommunications.................... $204,128,757 $(217,258,719) ProFund VP UltraMid-Cap.......................... $650,735,975 $(662,568,204) ProFund VP UltraNASDAQ-100....................... $429,936,535 $(411,323,687) ProFund VP UltraSmall-Cap........................ $219,984,509 $(248,861,950) ProFund VP Utilities............................. $361,796,103 $(295,141,539) ProFund VP Large-Cap Growth...................... $257,171,317 $(261,888,055) ProFund VP Large-Cap Value....................... $354,917,590 $(438,152,991) Rydex Nova Fund.................................. $ 62,697 $ (2,345,844) Rydex OTC Fund................................... $ 82,699 $ (7,667,966) Rydex Inverse S&P 500 Strategy Fund.............. $ 8,797 $ (266,786) AIM V.I. Dynamics Fund........................... $ 32,038,187 $ (44,684,134) AIM V.I. Financial Services Fund................. $ 17,755,839 $ (41,380,332) AIM V.I. Global Health Care Fund................. $ 31,555,082 $ (53,507,509) AIM V.I. Technology Fund......................... $ 12,992,186 $ (28,117,900) Wells Fargo Advantage VT Asset Allocation Fund... $ 584,548 $ (32,100,357) Wells Fargo Advantage VT Equity Income Fund...... $ 14,062,076 $ (25,309,191) Wells Fargo Advantage VT C&B Large Cap Value Fund $ 1,074,162 $ (6,095,681) Wells Fargo Advantage VT Large Company Core Fund. $ 104,436 $ (5,639,928) Wells Fargo Advantage VT International Core Fund. $ 962,512 $ (1,251,388)
A64 Note 4: Purchases and Sales of Investments (Continued)
Purchases Sales -------------- ------------- Wells Fargo Advantage VT Large Company Growth Fund... $ 765,469 $ (3,541,333) Wells Fargo Advantage VT Money Market Fund........... $ 13,294,639 $ (15,283,710) Wells Fargo Advantage VT Small Cap Growth Fund....... $ 298,057 $ (1,742,949) Wells Fargo Advantage VT Total Return Bond Fund...... $ 135,851 $ (4,154,915) AST First Trust Balanced Target Portfolio............ $ 765,027,675 $(135,481,346) AST First Trust Capital Appreciation Target Portfolio $1,018,328,043 $(201,058,733) AST Advanced Strategies Portfolio.................... $ 739,847,565 $(135,600,642) Columbia High Yield Fund VS.......................... $ 5,197 $ (65,312)
Note 5: Related Party Transactions Prudential 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, shareholder communications, preparation, postage, fund transfer agency and various other record keeping 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 Prudential (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 Prudential. The Prudential Series Fund has a distribution agreement with Prudential Investment Management Services LLC ("PIMS"), an indirect, wholly-owned subsidiary of Prudential, which acts as the distributor of the Class I and Class II 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, and brokerage commissions) exceeds various agreed upon percentages of the portfolio's average daily net assets. Note 6: Financial Highlights Prudential Annuities Life Assurance Corporation sells a number of variable annuity 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 Prudential Annuities Life Assurance Corporation and funded by the Account have the lowest and highest expense ratio. Only product designs within each subaccount that had units outstanding throughout 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 Prudential Annuities Life Assurance Corporation as contract owners may not have selected all available and applicable contract options.
At year ended For year ended --------------------------------------------- --------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ---------------- AST AllianceBernstein Growth & Income Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 100,698 $11.85905 to $37.71457 $1,903,009 0.89% 0.65 - 2.75% 2.22% to 4.44% December 31, 2006 119,941 $11.60125 to $36.38702 $2,257,991 1.04% 0.65 - 2.75% 14.05% to 16.51% December 31, 2005 167,797 $11.74580 to $28.96918 $2,733,461 1.08% 0.65 - 2.50% 2.16% to 4.09% December 31, 2004 111,669 $11.49737 to $27.83006 $2,126,109 0.70% 0.65 - 2.50% 10.29% to 14.97% December 31, 2003 90,205 $12.70091 to $25.23419 $1,806,873 1.11% 0.65 - 2.40% 29.25% to 31.57%
A65 Note 6: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ------------------ AST T. Rowe Price Large-Cap Growth Portfolio --------------------------------------------------------------------------------------------- December 31, 2007 33,936 $ 7.34782 to $17.57996 $ 412,631 0.13% 0.65 - 2.75% 5.24% to 7.53% December 31, 2006 25,618 $ 6.94589 to $16.34919 $ 311,810 0.00% 0.65 - 2.75% 2.74% to 4.96% December 31, 2005 18,694 $11.99910 to $15.57709 $ 248,066 0.00% 0.65 - 2.50% 13.52% to 15.67% December 31, 2004 17,249 $10.56992 to $13.46712 $ 204,984 0.00% 0.65 - 2.50% 5.06% to 5.70% December 31, 2003 19,858 $11.27094 to $12.81863 $ 230,630 0.00% 0.65 - 2.40% 22.90% to 20.74% AST American Century Income & Growth Portfolio --------------------------------------------------------------------------------------------- December 31, 2007 18,555 $10.31462 to $18.20953 $ 292,154 1.62% 0.65 - 2.75% -2.87% to -0.76% December 31, 2006 23,133 $10.56467 to $18.34880 $ 372,464 1.81% 0.65 - 2.75% 13.65% to 16.10% December 31, 2005 27,143 $11.95769 to $15.80446 $ 382,331 1.73% 0.65 - 2.50% 2.02% to 3.95% December 31, 2004 32,369 $11.72086 to $15.20389 $ 444,889 0.92% 0.65 - 2.50% 11.85% to 17.21% December 31, 2003 23,661 $12.42720 to $13.59275 $ 297,694 1.25% 0.65 - 2.40% 25.69% to 27.94% AST American Century Strategic Allocation Portfolio --------------------------------------------------------------------------------------------- December 31, 2007 12,599 $11.54620 to $19.67187 $ 191,018 1.80% 0.65 - 2.75% 5.91% to 8.21% December 31, 2006 11,074 $11.04670 to $18.17968 $ 168,793 2.06% 0.65 - 2.50% 6.93% to 8.96% December 31, 2005 13,907 $11.19489 to $16.68539 $ 199,852 1.70% 0.65 - 2.50% 2.00% to 3.93% December 31, 2004 15,965 $10.97516 to $16.05433 $ 226,427 1.41% 0.65 - 2.50% 8.28% to 9.75% December 31, 2003 16,878 $11.55842 to $14.82731 $ 226,926 2.10% 0.65 - 2.40% 16.02% to 18.10% AST Money Market Portfolio --------------------------------------------------------------------------------------------- December 31, 2007 161,788 $10.11124 to $15.28249 $1,920,245 4.78% 0.65 - 2.75% 2.00% to 4.22% December 31, 2006 137,602 $ 9.87678 to $14.66380 $1,602,715 4.50% 0.65 - 2.75% 1.71% to 3.90% December 31, 2005 139,358 $ 9.80561 to $14.11325 $1,610,700 2.68% 0.65 - 2.50% 0.18% to 2.07% December 31, 2004 113,670 $ 9.78845 to $13.82701 $1,340,662 0.85% 0.65 - 2.50% 0.18% to -2.12% December 31, 2003 142,666 $ 9.80452 to $13.80160 $1,735,627 0.64% 0.65 - 2.40% -0.03% to -1.79% AST Cohen & Steers Realty Portfolio --------------------------------------------------------------------------------------------- December 31, 2007 10,855 $12.32711 to $26.66162 $ 249,538 2.87% 0.65 - 2.75% -22.15% to -20.46% December 31, 2006 18,292 $15.83481 to $33.72469 $ 533,825 1.34% 0.65 - 2.75% 32.99% to 35.85% December 31, 2005 18,374 $15.75675 to $23.64628 $ 399,859 1.49% 0.65 - 2.50% 11.96% to 14.08% December 31, 2004 21,624 $14.07377 to $20.72860 $ 417,810 2.35% 0.65 - 2.50% 37.05% to 40.74% December 31, 2003 19,867 $13.84411 to $15.12485 $ 284,339 3.24% 0.65 - 2.40% 34.14% to 36.54% AST UBS Dynamic Alpha Portfolio --------------------------------------------------------------------------------------------- December 31, 2007 28,098 $10.31616 to $22.85438 $ 391,124 1.11% 0.65 - 2.90% -1.03% to 1.28% December 31, 2006 9,287 $10.35382 to $22.56635 $ 180,123 2.76% 0.65 - 2.75% 8.09% to 10.42% December 31, 2005 10,921 $11.70740 to $20.43690 $ 198,585 3.48% 0.65 - 2.50% 4.27% to 6.24% December 31, 2004 12,928 $11.22783 to $19.23581 $ 227,847 1.17% 0.65 - 2.50% 10.37% to 12.28% December 31, 2003 15,841 $11.58375 to $17.42916 $ 260,113 1.26% 0.65 - 2.40% 18.76% to 16.66% AST DeAm Large-Cap Value Portfolio --------------------------------------------------------------------------------------------- December 31, 2007 17,720 $12.36544 to $19.23120 $ 284,270 0.95% 0.65 - 2.75% -1.62% to 0.52% December 31, 2006 20,638 $12.56881 to $19.18071 $ 326,334 0.87% 0.65 - 2.75% 18.39% to 20.94% December 31, 2005 12,952 $12.46025 to $ 13.0630 $ 168,747 0.89% 0.65 - 2.50% 6.60% to 8.62% December 31, 2004 11,312 $11.47150 to $12.25374 $ 135,506 0.73% 0.65 - 2.50% 17.40% to 22.54% December 31, 2003 7,016 $ 9.77171 to $12.32055 $ 70,285 0.70% 0.65 - 2.40% 25.77% to 23.56% AST Neuberger Berman Small-Cap Growth Portfolio --------------------------------------------------------------------------------------------- December 31, 2007 15,777 $ 8.48266 to $19.27534 $ 197,277 0.00% 0.65 - 2.75% 15.43% to 17.94% December 31, 2006 19,451 $ 7.31073 to $16.38481 $ 205,153 0.00% 0.65 - 2.75% 4.80% to 7.06% December 31, 2005 25,315 $10.04561 to $10.79424 $ 249,998 0.00% 0.65 - 2.50% -2.14% to -0.29% December 31, 2004 33,206 $10.07492 to $11.03040 $ 329,275 0.00% 0.65 - 2.50% 8.72% to 10.30% December 31, 2003 43,078 $ 9.26658 to $13.98439 $ 390,757 0.00% 0.65 - 2.40% 46.62% to 44.04% AST DeAm Small-Cap Value Portfolio --------------------------------------------------------------------------------------------- December 31, 2007 5,256 $ 9.25847 to $16.86885 $ 71,380 0.76% 0.65 - 2.75% -20.04% to -18.30% December 31, 2006 6,906 $11.57921 to $20.70077 $ 115,527 0.27% 0.65 - 2.75% 16.66% to 19.17% December 31, 2005 7,609 $12.54150 to $13.41301 $ 107,012 0.14% 0.65 - 2.50% -1.33% to 0.53% December 31, 2004 7,655 $12.71086 to $13.34194 $ 106,466 0.17% 0.65 - 2.50% 21.32% to 27.11% December 31, 2003 4,136 $10.99748 to $14.10712 $ 46,727 0.06% 0.65 - 2.40% 42.52% to 40.02%
A66 Note 6: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- --------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ---------------- AST High Yield Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 24,064 $10.44649 to $19.68057 $ 380,467 8.75% 0.65 - 2.75% -0.35% to 1.81% December 31, 2006 33,761 $10.48319 to $19.33036 $ 532,516 9.16% 0.65 - 2.75% 7.33% to 9.64% December 31, 2005 39,067 $11.08735 to $17.63140 $ 576,165 7.99% 0.65 - 2.50% -1.40% to 0.47% December 31, 2004 53,427 $11.24489 to $17.54975 $ 798,600 7.93% 0.65 - 2.50% 10.36% to 12.45% December 31, 2003 61,278 $12.17247 to $15.90287 $ 860,658 6.36% 0.65 - 2.40% 20.80% to 18.67% AST Federated Aggressive Growth Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 25,503 $12.44805 to $27.04882 $ 462,627 0.00% 0.65 - 2.75% 8.14% to 10.49% December 31, 2006 29,587 $11.45211 to $24.54379 $ 485,583 0.00% 0.65 - 2.75% 9.81% to 12.18% December 31, 2005 36,136 $11.28778 to $13.48578 $ 531,526 0.00% 0.65 - 2.50% 6.71% to 8.73% December 31, 2004 24,666 $10.38145 to $12.64000 $ 346,354 0.00% 0.65 - 2.50% 22.26% to 26.40% December 31, 2003 17,697 $ 8.49102 to $16.30280 $ 186,698 0.00% 0.65 - 2.40% 68.39% to 65.43% AST Mid-Cap Value Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 7,637 $11.38711 to $18.63248 $ 111,950 0.29% 0.65 - 2.75% -0.09% to 2.08% December 31, 2006 10,060 $12.82794 to $18.29892 $ 143,922 0.54% 0.65 - 2.50% 11.40% to 13.50% December 31, 2005 12,416 $12.44692 to $12.49605 $ 156,575 0.42% 0.65 - 2.50% 2.80% to 4.74% December 31, 2004 15,879 $11.92999 to $12.10784 $ 191,481 0.27% 0.65 - 2.50% 14.57% to 21.08% December 31, 2003 17,029 $10.41282 to $13.30741 $ 178,004 0.68% 0.65 - 2.40% 34.97% to 32.60% AST Small-Cap Value Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 42,347 $11.30363 to $24.31821 $ 775,321 0.88% 0.65 - 2.75% -8.22% to -6.22% December 31, 2006 47,594 $12.31589 to $25.93237 $ 956,554 0.45% 0.65 - 2.75% 16.75% to 19.27% December 31, 2005 60,672 $12.59028 to $21.74339 $1,038,873 0.08% 0.65 - 2.50% 3.99% to 5.95% December 31, 2004 53,139 $12.10770 to $20.52193 $ 909,575 0.01% 0.65 - 2.50% 15.68% to 21.08% December 31, 2003 49,565 $13.35296 to $17.74013 $ 763,348 0.18% 0.65 - 2.40% 32.53% to 34.90% AST Goldman Sachs Concentrated Growth Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 23,248 $ 5.39999 to $30.06012 $ 558,900 0.00% 0.65 - 2.50% 11.13% to 13.25% December 31, 2006 27,074 $ 4.84678 to $26.74648 $ 618,327 0.00% 0.65 - 2.50% 7.25% to 9.28% December 31, 2005 33,371 $10.62353 to $23.28207 $ 728,589 0.54% 0.65 - 2.50% 0.75% to 2.65% December 31, 2004 42,899 $10.54471 to $22.68033 $ 941,719 0.00% 0.65 - 2.50% 3.02% to 5.45% December 31, 2003 49,868 $11.55992 to $22.01610 $1,118,525 0.34% 0.65 - 2.40% 24.43% to 22.24% AST Goldman Sachs Mid-Cap Growth Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 31,878 $ 5.26189 to $19.22684 $ 307,677 0.00% 0.65 - 2.75% 16.05% to 18.57% December 31, 2006 38,464 $ 4.47207 to $16.25689 $ 307,253 0.00% 0.65 - 2.75% 3.36% to 5.59% December 31, 2005 52,068 $ 4.45507 to $12.16699 $ 388,958 0.00% 0.65 - 2.50% 2.15% to 4.08% December 31, 2004 38,744 $ 4.28036 to $11.91091 $ 273,819 0.00% 0.65 - 2.50% 15.60% to 19.11% December 31, 2003 30,465 $ 3.70271 to $12.67532 $ 158,036 0.00% 0.65 - 2.40% 30.74% to 28.44% AST Goldman Sachs Small-Cap Value Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 6,019 $11.00312 to $27.31110 $ 144,929 0.57% 0.65 - 2.75% -7.75% to -5.74% December 31, 2006 8,373 $11.92689 to $28.97468 $ 216,393 0.35% 0.65 - 2.75% 14.02% to 16.48% December 31, 2005 11,096 $16.69493 to $24.87582 $ 248,951 0.34% 0.65 - 2.40% 2.47% to 4.30% December 31, 2004 14,436 $19.57911 to $23.85041 $ 314,031 0.22% 0.65 - 2.25% 19.39% to 17.47% December 31, 2003 18,000 $16.66798 to $19.97660 $ 334,076 0.81% 0.65 - 2.25% 40.17% to 37.91% AST Large-Cap Value Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 33,134 $11.17043 to $27.94403 $ 581,479 1.08% 0.65 - 2.75% -5.67% to -3.62% December 31, 2006 34,654 $11.78079 to $28.99375 $ 695,105 0.81% 0.65 - 2.75% 15.21% to 17.69% December 31, 2005 34,769 $12.19413 to $24.63567 $ 659,997 0.88% 0.65 - 2.50% 3.80% to 5.77% December 31, 2004 31,863 $11.74725 to $23.29235 $ 621,342 1.54% 0.65 - 2.50% 14.70% to 17.47% December 31, 2003 34,632 $11.58059 to $20.30746 $ 624,660 2.46% 0.65 - 2.40% 19.16% to 17.06% AST Lord Abbett Bond-Debenture Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 35,946 $10.85945 to $15.05922 $ 494,617 5.68% 0.65 - 2.75% 3.16% to 5.39% December 31, 2006 44,058 $10.52727 to $14.28842 $ 582,676 5.00% 0.65 - 2.75% 6.79% to 9.09% December 31, 2005 54,113 $10.73312 to $13.09818 $ 662,777 3.54% 0.65 - 2.50% -1.36% to 0.51% December 31, 2004 34,381 $10.88128 to $13.03231 $ 430,122 3.22% 0.65 - 2.50% 6.72% to 8.81% December 31, 2003 29,164 $11.85070 to $12.21222 $ 345,377 3.32% 0.65 - 2.40% 17.97% to 15.90%
A67 Note 6: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- --------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ---------------- AST Marsico Capital Growth Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 143,872 $11.34517 to $23.09247 $2,388,547 0.17% 0.65 - 2.75% 11.79% to 14.21% December 31, 2006 166,628 $10.09670 to $20.21861 $2,486,479 0.06% 0.65 - 2.75% 4.30% to 6.54% December 31, 2005 206,076 $12.09065 to $18.97741 $2,944,324 0.00% 0.65 - 2.50% 4.17% to 6.14% December 31, 2004 153,174 $11.60677 to $17.87989 $2,275,906 0.00% 0.65 - 2.50% 14.92% to 16.07% December 31, 2003 124,378 $12.22664 to $15.55853 $1,688,228 0.00% 0.65 - 2.40% 30.88% to 28.58% AST MFS Growth Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 36,836 $ 8.42015 to $16.54009 $ 394,445 0.03% 0.65 - 2.75% 11.93% to 14.36% December 31, 2006 47,011 $ 7.48410 to $14.50009 $ 440,821 0.00% 0.65 - 2.75% 6.66% to 8.95% December 31, 2005 63,684 $ 8.25189 to $11.40772 $ 549,513 0.01% 0.65 - 2.50% 3.67% to 5.63% December 31, 2004 66,404 $ 7.81177 to $11.00344 $ 529,399 0.00% 0.65 - 2.50% 9.96% to 10.03% December 31, 2003 82,051 $ 7.10395 to $11.34898 $ 587,305 0.00% 0.65 - 2.40% 22.10% to 19.95% AST Neuberger Berman Mid-Cap Growth Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 29,931 $10.06697 to $31.52655 $ 696,088 0.00% 0.65 - 2.75% 18.83% to 21.41% December 31, 2006 31,116 $ 8.42839 to $25.96795 $ 632,362 0.00% 0.65 - 2.75% 10.93% to 13.32% December 31, 2005 37,762 $12.95087 to $22.91637 $ 697,198 0.00% 0.65 - 2.50% 10.66% to 12.76% December 31, 2004 24,055 $11.70285 to $20.32356 $ 391,202 0.00% 0.65 - 2.50% 15.31% to 17.03% December 31, 2003 23,387 $12.11333 to $17.62481 $ 350,660 0.00% 0.65 - 2.40% 29.72% to 27.43% AST Neuberger Berman Mid-Cap Value Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 39,786 $11.65359 to $36.83127 $ 967,176 0.68% 0.65 - 2.75% 0.32% to 2.50% December 31, 2006 48,463 $11.61672 to $35.93418 $1,194,348 0.51% 0.65 - 2.75% 7.71% to 10.03% December 31, 2005 63,124 $14.17677 to $32.65772 $1,446,831 0.14% 0.65 - 2.50% 9.26% to 11.33% December 31, 2004 57,066 $12.97478 to $29.33422 $1,293,638 0.10% 0.65 - 2.50% 22.04% to 29.75% December 31, 2003 49,660 $13.26742 to $24.03736 $1,011,755 0.21% 0.65 - 2.40% 35.44% to 33.05% AST Small-Cap Growth Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 9,716 $10.54500 to $21.70159 $ 157,938 0.00% 0.65 - 2.75% 4.19% to 6.45% December 31, 2006 10,695 $10.00731 to $20.38629 $ 169,871 0.00% 0.65 - 2.75% 9.52% to 11.88% December 31, 2005 12,337 $ 9.22813 to $18.22237 $ 182,203 0.00% 0.65 - 2.50% -1.04% to 0.83% December 31, 2004 14,656 $ 9.32482 to $18.07152 $ 221,444 0.00% 0.65 - 2.50% -7.55% to 6.75% December 31, 2003 19,782 $13.42627 to $19.54762 $ 328,021 0.00% 0.65 - 2.40% 41.76% to 44.30% AST PIMCO Limited Maturity Bond Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 98,431 $10.40058 to $17.27843 $1,209,317 4.60% 0.65 - 2.75% 3.85% to 6.10% December 31, 2006 113,953 $ 9.98960 to $16.28462 $1,352,973 3.08% 0.65 - 2.75% 0.98% to 3.15% December 31, 2005 142,948 $ 9.86775 to $15.78739 $1,673,435 1.15% 0.65 - 2.50% -0.90% to 0.97% December 31, 2004 98,739 $ 9.95764 to $15.63518 $1,227,262 3.16% 0.65 - 2.50% 1.40% to -0.42% December 31, 2003 74,966 $10.15911 to $15.41935 $ 998,795 2.15% 0.65 - 2.40% 2.61% to 0.81% AST PIMCO Total Return Bond Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 105,808 $10.68542 to $21.66391 $1,562,280 2.28% 0.65 - 2.75% 5.32% to 7.60% December 31, 2006 106,511 $10.14614 to $20.13354 $1,532,655 3.72% 0.65 - 2.75% 0.89% to 3.07% December 31, 2005 109,303 $10.30972 to $19.53471 $1,607,279 3.73% 0.65 - 2.50% -0.05% to 1.84% December 31, 2004 153,053 $10.31507 to $19.18174 $2,195,640 3.96% 0.65 - 2.50% 4.28% to 3.15% December 31, 2003 138,373 $10.44618 to $18.39444 $2,076,469 3.64% 0.65 - 2.40% 4.64% to 2.79% AST AllianceBernstein Core Value Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 25,319 $11.30608 to $17.40971 $ 372,910 1.38% 0.65 - 2.75% -6.23% to -4.20% December 31, 2006 28,556 $12.05765 to $18.21836 $ 450,429 1.21% 0.65 - 2.75% 18.02% to 20.56% December 31, 2005 21,260 $12.20566 to $13.16051 $ 280,083 1.21% 0.65 - 2.50% 2.88% to 4.83% December 31, 2004 22,498 $12.55472 to $11.86399 $ 285,690 1.31% 0.65 - 2.50% 13.18% to 18.64% December 31, 2003 17,015 $11.09275 to $12.61690 $ 190,736 0.72% 0.65 - 2.40% 27.48% to 25.23% AST AllianceBernstein Managed Index 500 Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 24,740 $ 9.53992 to $15.76502 $ 345,824 1.33% 0.65 - 2.75% -0.74% to 1.42% December 31, 2006 31,311 $ 9.56159 to $15.54492 $ 438,379 1.10% 0.65 - 2.75% 9.51% to 11.87% December 31, 2005 38,738 $11.42202 to $13.89566 $ 491,179 1.37% 0.65 - 2.50% 0.96% to 2.87% December 31, 2004 43,544 $13.50788 to $11.31331 $ 544,672 0.84% 0.65 - 2.50% 9.27% to 13.13% December 31, 2003 44,902 $12.36228 to $12.18203 $ 520,582 1.20% 0.65 - 2.40% 26.49% to 24.26%
A68 Note 6: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- --------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ---------------- AST T. Rowe Price Natural Resources Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 13,323 $17.90678 to $70.20328 $ 567,927 0.58% 0.65 - 2.75% 36.63% to 39.59% December 31, 2006 11,347 $13.10637 to $50.29168 $ 377,853 0.33% 0.65 - 2.75% 12.69% to 15.11% December 31, 2005 12,696 $18.39757 to $43.68918 $ 380,931 0.23% 0.65 - 2.50% 28.13% to 30.55% December 31, 2004 9,328 $14.35838 to $33.46498 $ 235,650 0.98% 0.65 - 2.50% 30.34% to 43.58% December 31, 2003 8,215 $13.59594 to $25.67566 $ 168,885 1.40% 0.65 - 2.40% 32.65% to 30.32% AST T. Rowe Price Asset Allocation Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 52,178 $11.60522 to $28.45091 $ 838,230 1.21% 0.65 - 2.75% 3.38% to 5.63% December 31, 2006 23,736 $11.22531 to $26.93478 $ 453,918 1.80% 0.65 - 2.75% 9.41% to 11.76% December 31, 2005 22,882 $11.58355 to $24.09982 $ 421,752 1.86% 0.65 - 2.50% 2.07% to 4.00% December 31, 2004 22,590 $11.34848 to $23.17239 $ 422,821 1.49% 0.65 - 2.50% 10.45% to 13.48% December 31, 2003 19,493 $12.05097 to $20.98013 $ 353,143 2.41% 0.65 - 2.40% 23.21% to 21.04% AST International Value Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 20,459 $10.66136 to $25.92537 $ 418,511 0.98% 0.65 - 2.75% 14.55% to 17.04% December 31, 2006 16,918 $ 9.25940 to $22.20794 $ 307,009 0.82% 0.65 - 2.75% 23.96% to 26.63% December 31, 2005 12,495 $14.08614 to $16.78896 $ 187,615 1.51% 0.65 - 2.50% 10.87% to 12.97% December 31, 2004 12,660 $12.70454 to $14.86117 $ 173,233 1.33% 0.65 - 2.50% 20.25% to 27.05% December 31, 2003 12,065 $12.35885 to $12.78833 $ 139,255 0.55% 0.65 - 2.40% 30.70% to 33.04% AST MFS Global Equity Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 10,147 $13.35080 to $20.79180 $ 175,144 1.95% 0.65 - 2.75% 6.38% to 8.69% December 31, 2006 14,954 $12.55031 to $19.17844 $ 240,811 0.50% 0.65 - 2.75% 20.89% to 23.49% December 31, 2005 11,543 $12.58753 to $13.00551 $ 148,907 0.28% 0.65 - 2.50% 4.89% to 6.87% December 31, 2004 13,548 $11.77784 to $12.39912 $ 164,748 0.18% 0.65 - 2.50% 17.62% to 23.99% December 31, 2003 10,003 $10.01332 to $12.23714 $ 101,775 0.16% 0.65 - 2.40% 26.31% to 24.09% AST JPMorgan International Equity Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 18,705 $10.95909 to $41.53619 $ 466,812 1.42% 0.65 - 2.75% 6.42% to 8.73% December 31, 2006 20,776 $10.24548 to $38.49496 $ 502,228 1.24% 0.65 - 2.75% 19.43% to 22.00% December 31, 2005 22,661 $13.33803 to $21.16585 $ 460,659 1.07% 0.65 - 2.50% 8.25% to 10.29% December 31, 2004 17,054 $12.32188 to $19.19038 $ 373,796 1.11% 0.65 - 2.50% 16.35% to 23.22% December 31, 2003 15,962 $12.67966 to $16.49397 $ 332,696 0.78% 0.65 - 2.40% 29.75% to 27.47% AST T. Rowe Price Global Bond Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 33,381 $10.31681 to $16.82426 $ 461,638 2.66% 0.65 - 2.75% 6.62% to 8.93% December 31, 2006 35,161 $ 9.67663 to $15.44498 $ 452,330 1.66% 0.65 - 2.75% 3.36% to 5.58% December 31, 2005 41,856 $10.18964 to $14.62839 $ 514,830 3.18% 0.65 - 2.50% -6.87% to -5.10% December 31, 2004 26,802 $10.94108 to $15.41527 $ 360,549 5.66% 0.65 - 2.50% 7.93% to 9.41% December 31, 2003 17,475 $11.35220 to $14.28210 $ 227,917 3.34% 0.65 - 2.40% 12.13% to 10.15% AST International Growth Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 59,911 $15.23165 to $27.41378 $1,450,281 0.41% 0.65 - 2.75% 15.76% to 18.28% December 31, 2006 74,076 $13.15766 to $23.17793 $1,536,181 1.32% 0.65 - 2.75% 17.66% to 20.19% December 31, 2005 98,133 $13.56645 to $19.28436 $1,709,821 0.96% 0.65 - 2.50% 13.66% to 15.80% December 31, 2004 85,371 $11.93649 to $16.65262 $1,326,329 0.73% 0.65 - 2.50% 15.40% to 19.36% December 31, 2003 46,082 $13.27734 to $14.43084 $ 628,233 0.00% 0.65 - 2.40% 39.17% to 36.72% AST Aggressive Asset Allocation Portfolio (available December 5, 2005) ------------------------------------------------------------------------------------------- December 31, 2007 41,420 $11.97230 to $12.51606 $ 506,044 0.15% 0.65 - 2.75% 6.53% to 8.84% December 31, 2006 29,759 $11.26947 to $11.49911 $ 338,015 0.00% 0.65 - 2.50% 12.80% to 14.93% December 31, 2005 3,409 $ 9.99132 to $10.00500 $ 34,084 0.00% 0.65 - 2.40% -0.07% to 0.06% AST Capital Growth Asset Allocation Portfolio (available December 5, 2005) ------------------------------------------------------------------------------------------- December 31, 2007 437,914 $11.73121 to $12.33007 $5,234,701 0.22% 0.65 - 3.00% 6.42% to 9.01% December 31, 2006 274,471 $11.02337 to $11.31058 $3,056,729 0.00% 0.65 - 3.00% 10.27% to 12.94% December 31, 2005 21,855 $10.00055 to $10.01499 $ 218,657 0.00% 0.65 - 2.50% 0.05% to 0.16% AST Balanced Asset Allocation Portfolio (available December 5, 2005) ------------------------------------------------------------------------------------------- December 31, 2007 324,959 $11.49114 to $12.07747 $3,809,076 0.36% 0.65 - 3.00% 5.92% to 8.50% December 31, 2006 209,952 $10.84925 to $11.13179 $2,302,446 0.00% 0.65 - 3.00% 8.42% to 11.04% December 31, 2005 19,037 $10.01052 to $10.02498 $ 190,659 0.00% 0.65 - 2.50% 0.13% to 0.26%
A69 Note 6: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- --------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ---------------- AST Conservative Asset Allocation Portfolio (available December 5, 2005) ------------------------------------------------------------------------------------------- December 31, 2007 98,554 $11.36451 to $11.94439 $1,143,188 0.33% 0.65 - 3.00% 5.79% to 8.36% December 31, 2006 51,725 $10.77257 to $11.02254 $ 561,804 0.00% 0.65 - 2.75% 7.53% to 9.84% December 31, 2005 4,156 $10.02051 to $10.03225 $ 41,665 0.00% 1.00 - 2.50% 0.23% to 0.33% AST Preservation Asset Allocation Portfolio (available December 5, 2005) ------------------------------------------------------------------------------------------- December 31, 2007 50,338 $11.13156 to $11.63721 $ 568,796 0.29% 0.65 - 2.75% 5.71% to 8.01% December 31, 2006 23,554 $10.52984 to $10.77434 $ 250,007 0.00% 0.65 - 2.75% 5.00% to 7.26% December 31, 2005 1,112 $10.03049 to $10.04496 $ 11,156 0.00% 0.65 - 2.50% 0.33% to 0.46% Davis Value Portfolio ------------------------------------------------------------------------------------------- December 31, 2007 968 $12.91696 to $17.70411 $ 12,664 1.06% 1.40 - 1.65% 2.90% to 3.16% December 31, 2006 1,082 $12.52070 to $17.20481 $ 13,706 0.82% 1.40 - 2.15% 12.54% to 13.40% December 31, 2005 912 $11.04159 to $15.21083 $ 10,162 1.09% 1.40 - 1.65% 7.64% to 7.92% December 31, 2004 773 $10.23170 to $14.13079 $ 7,961 0.87% 1.40 - 1.65% 10.47% to 10.75% December 31, 2003 737 $ 9.23818 to $12.79116 $ 6,827 0.86% 1.40 - 1.65% 27.62% to 27.94% Evergreen VA Balanced Fund ------------------------------------------------------------------------------------------- December 31, 2007 505 $10.96366 to $12.76662 $ 5,550 4.04% 1.40 - 1.65% 4.91% to 5.18% December 31, 2006 591 $10.42346 to $12.16865 $ 6,174 2.45% 1.40 - 1.65% 8.04% to 8.31% December 31, 2005 704 $ 9.62335 to $11.26309 $ 6,791 2.34% 1.40 - 1.65% 3.56% to 3.82% December 31, 2004 809 $ 9.26928 to $10.87628 $ 7,495 0.88% 1.40 - 1.65% 4.55% to 4.82% December 31, 2003 887 $ 8.84327 to $10.40282 $ 7,842 2.25% 1.40 - 1.65% 13.86% to 14.15% Evergreen VA Growth Fund (available April 15, 2005) ------------------------------------------------------------------------------------------- December 31, 2007 3,052 $13.32397 to $14.02140 $ 41,697 0.00% 0.65 - 2.50% 8.25% to 10.32% December 31, 2006 3,504 $12.25417 to $12.70979 $ 43,826 0.00% 0.65 - 2.75% 7.99% to 10.32% December 31, 2005 4,019 $11.36821 to $11.52122 $ 46,002 0.00% 0.65 - 2.50% 15.79% to 17.34% Evergreen VA International Equity Fund ------------------------------------------------------------------------------------------- December 31, 2007 5,409 $14.60200 to $23.17876 $ 112,461 2.56% 0.65 - 2.75% 11.82% to 14.25% December 31, 2006 5,001 $13.05828 to $20.54770 $ 91,052 4.02% 0.65 - 2.75% 19.78% to 22.36% December 31, 2005 4,304 $13.97774 to $14.27529 $ 64,078 3.12% 0.65 - 2.50% 13.11% to 15.24% December 31, 2004 2,417 $12.38709 to $12.35815 $ 31,264 1.57% 0.65 - 2.50% 18.43% to 23.58% December 31, 2003 1,730 $10.45925 to $12.70623 $ 18,721 8.52% 0.65 - 2.40% 0.34% to 28.03% Evergreen VA Fundamental Large Cap Fund ------------------------------------------------------------------------------------------- December 31, 2007 592 $14.24555 to $14.39332 $ 8,514 1.03% 1.40 - 1.65% 6.49% to 6.77% December 31, 2006 704 $13.37676 to $13.48107 $ 9,482 1.25% 1.40 - 1.65% 10.82% to 11.10% December 31, 2005 765 $12.07080 to $12.13421 $ 9,286 1.02% 1.40 - 1.65% 7.22% to 7.49% December 31, 2004 555 $11.25809 to $11.28865 $ 6,261 1.19% 1.40 - 1.65% 7.40% to 7.68% December 31, 2003 575 $10.48384 to $10.48210 $ 6,027 0.03% 1.40 - 1.65% 0.36% to 0.36% Evergreen VA Omega Fund ------------------------------------------------------------------------------------------- December 31, 2007 2,126 $ 8.50981 to $17.02269 $ 21,935 0.53% 0.65 - 2.50% 9.15% to 11.23% December 31, 2006 2,450 $ 7.70917 to $15.34297 $ 22,281 0.00% 0.65 - 2.50% 3.37% to 5.33% December 31, 2005 3,270 $10.28912 to $11.05312 $ 28,491 0.22% 0.65 - 2.50% 1.26% to 3.17% December 31, 2004 4,624 $ 9.97258 to $10.91573 $ 39,972 0.00% 0.65 - 2.50% 6.52% to 9.16% December 31, 2003 3,868 $ 9.36260 to $13.12988 $ 28,768 0.00% 0.65 - 2.40% 36.68% to 39.13% Evergreen VA Special Values Fund ------------------------------------------------------------------------------------------- December 31, 2007 316 $18.03551 to $22.21472 $ 6,903 1.32% 1.40 - 1.90% -9.28% to -8.82% December 31, 2006 368 $19.88133 to $24.36340 $ 8,852 0.76% 1.40 - 1.90% 19.25% to 19.85% December 31, 2005 393 $16.67261 to $20.32795 $ 7,894 1.09% 1.40 - 1.90% 8.66% to 9.22% December 31, 2004 322 $15.42626 to $18.61254 $ 5,914 1.03% 1.40 - 1.65% 18.38% to 18.69% December 31, 2003 312 $13.03070 to $15.68227 $ 4,887 0.12% 1.40 - 1.65% 27.38% to 27.70% Evergreen VA Diversified Income Builder Fund ------------------------------------------------------------------------------------------- December 31, 2007 402 $13.02529 to $15.03981 $ 5,989 4.76% 1.40 - 1.65% 1.99% to 2.25% December 31, 2006 468 $12.77150 to $14.70915 $ 6,869 3.50% 1.40 - 1.65% 4.20% to 4.46% December 31, 2005 480 $12.16009 to $14.08098 $ 6,740 4.97% 1.40 - 1.90% -2.57% to -2.07% December 31, 2004 476 $12.54808 to $14.37891 $ 6,826 4.60% 1.40 - 1.65% 6.62% to 6.89% December 31, 2003 521 $11.76889 to $13.45177 $ 7,002 0.00% 1.40 - 1.65% 14.47% to 14.76%
A70 Note 6: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- --------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ---------------- Columbia Money Market Fund, VS ----------------------------------------------------------------------------------------- December 31, 2007 234 $10.95647 to $10.95647 $ 2,568 4.91% 1.00 - 1.00% 3.97% to 3.97% December 31, 2006 246 $10.53788 to $10.53788 $ 2,597 4.61% 1.00 - 1.00% 3.69% to 3.69% December 31, 2005 321 $10.16333 to $10.16333 $ 3,259 2.96% 1.00 - 1.00% 2.03% to 2.03% December 31, 2004 400 $ 9.96100 to $ 9.96100 $ 3,988 0.83% 1.00 - 1.00% -0.14% to -0.14% December 31, 2003 591 $ 9.97455 to $ 9.97455 $ 5,895 0.13% 1.00 - 1.00% -0.19% to -0.19% Columbia Small Company Growth Fund, VS ----------------------------------------------------------------------------------------- December 31, 2007 51 $21.07999 to $21.07999 $ 1,069 0.00% 1.00 - 1.00% 12.32% to 12.32% December 31, 2006 62 $18.76807 to $18.76807 $ 1,155 0.00% 1.00 - 1.00% 11.28% to 11.28% December 31, 2005 82 $16.86565 to $16.86565 $ 1,386 0.01% 1.00 - 1.00% 1.69% to 1.69% December 31, 2004 114 $16.58595 to $16.58595 $ 1,892 0.00% 1.00 - 1.00% 10.36% to 10.36% December 31, 2003 152 $15.02855 to $15.02855 $ 2,278 0.00% 1.00 - 1.00% 36.51% to 36.51% Columbia Large Cap Growth Stock, VS (available February 25, 2005) ----------------------------------------------------------------------------------------- December 31, 2007 800 $13.00621 to $13.10033 $ 10,478 0.37% 1.00 - 1.25% 14.32% to 14.61% December 31, 2006 1,028 $11.37734 to $11.43058 $ 11,755 0.36% 1.00 - 1.25% 8.86% to 9.13% December 31, 2005 1,359 $10.45138 to $10.47393 $ 14,238 0.68% 1.00 - 1.25% 3.81% to 4.04% Prudential SP International Growth Portfolio ----------------------------------------------------------------------------------------- December 31, 2007 3,043 $15.32754 to $17.39805 $ 51,415 0.73% 0.65 - 2.75% 16.24% to 18.76% December 31, 2006 3,004 $13.18590 to $14.64915 $ 43,166 1.77% 0.65 - 2.75% 17.73% to 20.26% December 31, 2005 2,709 $11.94145 to $12.18096 $ 32,672 0.56% 0.65 - 2.50% 13.49% to 15.63% December 31, 2004 1,458 $10.52413 to $10.53434 $ 15,350 0.00% 0.65 - 2.50% 33.82% to 39.61% December 31, 2003 2,705 $ 7.53808 to $ 7.87202 $ 23,292 0.00% 0.65 - 2.25% 36.02% to 38.24% Gartmore NVIT Developing Markets ----------------------------------------------------------------------------------------- December 31, 2007 14,104 $21.82742 to $46.18441 $478,758 0.45% 0.65 - 2.75% 39.55% to 42.57% December 31, 2006 14,181 $15.64163 to $32.47568 $323,571 0.56% 0.65 - 2.75% 30.88% to 33.70% December 31, 2005 17,521 $14.97909 to $16.29013 $293,345 0.53% 0.65 - 2.50% 28.24% to 30.66% December 31, 2004 15,105 $11.46381 to $12.70271 $185,833 0.55% 0.65 - 2.50% 19.00% to 27.03% December 31, 2003 16,007 $ 9.63331 to $15.47360 $157,916 0.08% 0.65 - 2.40% 55.87% to 58.66% First Trust The Dow Target 10 ----------------------------------------------------------------------------------------- December 31, 2007 1,361 $ 9.78319 to $14.55047 $ 16,177 0.00% 0.65 -2.50% -1.87% to 0.00% December 31, 2006 2,311 $ 9.81749 to $14.63859 $ 27,950 0.00% 0.65 - 2.50% 22.44% to 24.75% December 31, 2005 1,226 $ 9.83399 to $10.14565 $ 11,614 0.00% 0.65 - 2.50% -5.63% to -3.85% December 31, 2004 1,295 $10.55000 to $10.42110 $ 12,754 0.00% 0.65 - 2.50% 4.21% to 31.55% December 31, 2003 527 $ 8.01942 to $12.04852 $ 4,270 0.00% 1.00 - 1.25% 18.42% to 18.72% First Trust Target Focus Four Portfolio ----------------------------------------------------------------------------------------- December 31, 2007 1,492 $ 4.61460 to $15.33676 $ 12,698 0.00% 0.65 - 1.90% 3.68% to 5.01% December 31, 2006 1,129 $ 4.42816 to $10.14977 $ 5,732 0.00% 0.65 - 1.65% 2.30% to 3.34% December 31, 2005 1,468 $ 4.50117 to $14.19739 $ 7,002 0.00% 0.65 - 1.90% -1.33% to -0.07% December 31, 2004 2,085 $ 4.50450 to $14.38846 $ 9,808 0.00% 0.65 - 1.90% 9.23% to 10.62% December 31, 2003 2,247 $ 4.07190 to $13.17279 $ 9,486 0.00% 0.65 - 1.90% 34.35% to 36.06% First Trust Energy Sector (expired March 16, 2007) ----------------------------------------------------------------------------------------- December 31, 2007 0 $ 0.00000 to $ 0.00000 $ 0 0.00% 1.00 - 2.60% -1.06% to -1.00% December 31, 2006 149 $29.15491 to $29.28749 $ 4,360 0.00% 1.00 - 1.25% 11.26% to 11.54% December 31, 2005 178 $26.20508 to $26.25795 $ 4,661 0.00% 1.00 - 1.25% 47.27% to 47.64% December 31, 2004 211 $17.78562 to $17.79448 $ 3,746 0.00% 1.00 - 1.25% 30.39% to 30.72% December 31, 2003 209 $13.60587 to $13.64716 $ 2,839 0.00% 1.00 - 1.25% 30.08% to 30.41% First Trust Financal Services (expired March 16, 2007) ----------------------------------------------------------------------------------------- December 31, 2007 0 $ 0.00000 to $ 0.00000 $ 0 0.00% 1.00 - 2.60% -3.50% to -3.45% December 31, 2006 193 $17.95519 to $18.03676 $ 3,476 0.00% 1.00 - 1.25% 15.41% to 15.70% December 31, 2005 231 $15.55762 to $15.58893 $ 3,599 0.00% 1.00 - 1.25% 6.80% to 7.07% December 31, 2004 319 $14.56013 to $14.56756 $ 4,641 0.00% 1.00 - 1.25% 13.97% to 14.26% December 31, 2003 374 $12.74336 to $12.78215 $ 4,761 0.00% 1.00 - 1.25% 31.34% to 31.67%
A71 Note 6: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ First Trust PharmHealth Sector (expired March 16, 2007) ------------------------------------------------------------------------------------------- December 31, 2007 0 $ 0.00000 to $ 0.00000 $ 0 0.00% 1.00 - 2.60% 0.54% to 0.59% December 31, 2006 245 $11.54688 to $13.26605 $ 2,868 0.00% 1.00 - 1.25% 7.21% to 7.48% December 31, 2005 282 $10.74296 to $12.37366 $ 3,062 0.00% 1.00 - 1.25% 9.90% to 10.17% December 31, 2004 359 $ 9.75000 to $11.26000 $ 3,536 0.00% 1.00 - 1.25% -1.92% to -1.71% December 31, 2003 412 $ 9.91681 to $11.47981 $ 4,119 0.00% 1.00 - 1.25% 18.16% to 18.46% First Trust Technology (expired March 16, 2007) ------------------------------------------------------------------------------------------- December 31, 2007 0 $ 0.00000 to $ 0.00000 $ 0 0.00% 1.00 - 2.60% -1.68% to -1.68% December 31, 2006 255 $ 5.05730 to $ 5.05730 $ 1,288 0.00% 1.00 - 1.00% 1.81% to 1.81% December 31, 2005 308 $ 4.96742 to $ 4.96742 $ 1,532 0.00% 1.00 - 1.00% 4.12% to 4.12% December 31, 2004 355 $ 4.77077 to $ 4.77077 $ 1,694 0.00% 1.00 - 1.00% 0.19% to 0.19% December 31, 2003 435 $ 4.76159 to $ 4.76159 $ 2,073 0.00% 1.00 -1.00% 45.14% to 45.14% First Trust Global Dividend Target 15 ------------------------------------------------------------------------------------------- December 31, 2007 8,705 $16.10195 to $26.71430 $173,717 0.00% 0.65 - 2.75% 10.21% to 12.60% December 31, 2006 7,225 $17.08339 to $23.86991 $128,826 0.00% 0.65 - 2.50% 34.99% to 37.54% December 31, 2005 2,795 $12.65511 to $13.05592 $ 36,800 0.00% 0.65 - 2.50% 7.43% to 9.46% December 31, 2004 1,858 $11.93000 to $11.78007 $ 22,624 0.00% 0.65 - 2.50% 12.65% to 17.80% December 31, 2003 286 $10.58760 to $12.95598 $ 3,049 0.00% 1.00 - 1.25% 32.43% to 32.76% First Trust NASDAQ Target 15 ------------------------------------------------------------------------------------------- December 31, 2007 857 $11.39370 to $16.53539 $ 11,317 0.00% 0.65 - 1.90% 19.41% to 20.94% December 31, 2006 686 $ 9.45483 to $13.75647 $ 7,316 0.00% 0.65 - 1.65% 7.09% to 8.18% December 31, 2005 673 $10.78336 to $11.01244 $ 6,552 0.00% 0.65 - 1.90% 1.36% to 2.65% December 31, 2004 748 $10.63850 to $10.72820 $ 7,024 0.00% 0.65 - 1.90% 19.52% to 20.53% December 31, 2003 570 $ 8.90087 to $ 8.90087 $ 5,070 0.00% 1.00 - 1.00% 34.66% to 34.66% First Trust S&P Target 24 ------------------------------------------------------------------------------------------- December 31, 2007 1,425 $ 8.89991 to $14.34653 $ 15,798 0.00% 0.65 - 2.50% 1.58% to 3.52% December 31, 2006 1,497 $ 8.62770 to $13.94316 $ 16,056 0.00% 0.65 - 2.50% 0.32% to 2.22% December 31, 2005 1,716 $10.85174 to $11.19548 $ 18,042 0.00% 0.65 - 2.50% 1.56% to 3.48% December 31, 2004 1,433 $10.68490 to $10.81888 $ 14,152 0.00% 0.65 - 2.50% 6.85% to 48.18% December 31, 2003 757 $ 7.30103 to $11.88873 $ 5,553 0.00% 1.00 - 1.25% 22.55% to 22.86% First Trust Managed VIP ------------------------------------------------------------------------------------------- December 31, 2007 12,029 $11.80803 to $18.45100 $174,193 0.00% 0.65 - 2.75% 6.44% to 8.76% December 31, 2006 15,281 $10.89598 to $17.06925 $203,898 0.00% 0.65 - 2.50% 8.73% to 10.79% December 31, 2005 15,096 $11.77287 to $12.14584 $182,873 0.00% 0.65 - 2.50% 4.57% to 6.55% December 31, 2004 9,571 $11.25812 to $11.39923 $108,508 0.00% 0.65 - 2.50% 12.58% to 36.28% December 31, 2003 2,175 $ 8.36444 to $13.20277 $ 20,497 0.00% 1.00 - 1.25% 33.25% to 33.58% First Trust Value Line Target 25 ------------------------------------------------------------------------------------------- December 31, 2007 3,219 $ 5.43929 to $23.28349 $ 44,021 0.00% 0.65 - 1.90% 15.94% to 17.43% December 31, 2006 3,691 $ 4.64840 to $19.94915 $ 43,760 0.00% 0.65 - 2.75% 0.06% to 2.21% December 31, 2005 4,713 $14.75809 to $15.07130 $ 54,045 0.00% 0.65 - 1.90% 17.44% to 18.93% December 31, 2004 2,730 $12.67240 to $12.56662 $ 21,764 0.00% 0.65 - 1.90% 292.72% to 296.02% December 31, 2003 1,541 $ 3.19993 to $ 3.19993 $ 4,932 0.00% 1.00 - 1.00% 39.52% to 39.52% First Trust Dow Target Dividend (available May 2, 2005) ------------------------------------------------------------------------------------------- December 31, 2007 7,365 $10.94328 to $11.58623 $ 82,923 0.00% 0.65 - 2.75% -1.68% to 0.45% December 31, 2006 8,909 $11.17799 to $11.53380 $100,922 0.00% 0.65 - 2.50% 15.19% to 17.37% December 31, 2005 5,988 $ 9.70374 to $ 9.82689 $ 58,424 0.00% 0.65 - 2.50% -2.94% to -1.73% ProFund VP Asia 30 ------------------------------------------------------------------------------------------- December 31, 2007 7,319 $21.64038 to $38.08052 $229,468 0.07% 0.65 - 2.75% 43.66% to 46.78% December 31, 2006 8,239 $15.06343 to $26.01023 $172,274 0.41% 0.65 - 2.75% 35.47% to 38.39% December 31, 2005 4,504 $11.77381 to $14.99956 $ 68,490 0.30% 0.65 - 2.50% 16.53% to 18.73% December 31, 2004 3,205 $12.63287 to $10.10342 $ 40,955 0.29% 0.65 - 2.50% -1.19% to 1.03% December 31, 2003 3,845 $12.78466 to $10.42506 $ 49,127 0.07% 0.65 - 2.25% 0.93% to 63.85%
A72 Note 6: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ ProFund VP Banks ------------------------------------------------------------------------------------------- December 31, 2007 978 $ 8.96638 to $11.75272 $ 9,868 3.33% 0.65 - 2.50% -29.10% to -27.75% December 31, 2006 961 $12.64709 to $16.30793 $ 13,291 0.82% 0.65 - 2.50% 12.53% to 14.66% December 31, 2005 975 $11.23895 to $12.20988 $ 11,872 2.58% 0.65 - 2.50% -2.63% to -0.79% December 31, 2004 1,047 $11.54299 to $12.30741 $ 13,102 0.45% 0.65 - 2.50% 11.04% to 15.43% December 31, 2003 517 $11.08359 to $12.78925 $ 5,759 0.90% 0.65 - 2.40% 26.28% to 28.55% ProFund VP Bear ------------------------------------------------------------------------------------------- December 31, 2007 4,417 $ 5.56702 to $ 8.38154 $ 29,521 4.17% 0.65 - 2.50% -1.93% to -0.06% December 31, 2006 4,205 $ 5.67078 to $ 8.38655 $ 28,388 1.80% 0.65 - 2.50% -9.81% to -8.10% December 31, 2005 6,309 $ 7.81248 to $ 9.12581 $ 48,454 0.00% 0.65 - 2.50% -3.82% to -2.00% December 31, 2004 3,448 $ 8.12302 to $ 9.31230 $ 28,157 0.00% 0.65 - 2.50% -12.53% to -10.87% December 31, 2003 5,783 $ 9.28716 to $10.44809 $ 53,662 0.00% 0.65 - 2.50% -25.08% to -7.13% ProFund VP Biotechnology ------------------------------------------------------------------------------------------- December 31, 2007 1,763 $ 8.32997 to $16.36489 $ 16,586 0.00% 0.65 - 1.90% -3.04% to -1.80% December 31, 2006 1,291 $ 8.54742 to $16.70677 $ 12,290 0.00% 0.65 - 1.90% -5.91% to -4.72% December 31, 2005 2,503 $ 9.38369 to $17.03129 $ 25,003 0.00% 0.65 - 1.90% 16.98% to 18.47% December 31, 2004 2,930 $ 7.92074 to $14.55869 $ 24,751 0.00% 0.65 - 1.90% 7.64% to 9.01% December 31, 2003 1,929 $ 7.26607 to $13.52589 $ 14,279 0.00% 0.65 - 1.90% 37.13% to 38.88% ProFund VP Basic Materials ------------------------------------------------------------------------------------------- December 31, 2007 6,010 $13.55624 to $22.18935 $111,824 0.42% 0.65 - 2.75% 27.10% to 29.86% December 31, 2006 2,131 $13.57865 to $17.13093 $ 30,609 0.27% 0.65 - 2.50% 12.60% to 14.73% December 31, 2005 2,619 $12.38177 to $12.40714 $ 34,114 0.06% 0.65 - 2.50% -0.11% to 1.77% December 31, 2004 2,088 $12.19078 to $12.39593 $ 25,614 0.29% 0.65 - 2.50% 9.51% to 23.96% December 31, 2003 4,606 $11.13250 to $13.30914 $ 50,922 0.27% 0.65 - 2.15% 28.75% to 30.72% ProFund VP UltraBull ------------------------------------------------------------------------------------------- December 31, 2007 4,135 $10.00785 to $20.99317 $ 49,950 0.53% 0.65 - 1.90% -1.07% to 0.20% December 31, 2006 4,655 $10.06481 to $21.00543 $ 53,893 0.33% 0.65 - 1.90% 20.73% to 22.26% December 31, 2005 4,472 $ 8.61103 to $16.68766 $ 41,431 0.13% 0.65 - 1.90% 0.66% to 1.94% December 31, 2004 8,988 $ 8.44700 to $16.57769 $ 83,929 0.00% 0.65 - 1.90% 14.95% to 16.41% December 31, 2003 7,766 $ 7.25597 to $14.42210 $ 59,635 0.00% 0.65 - 1.90% 50.03% to 51.94% ProFund VP Bull ------------------------------------------------------------------------------------------- December 31, 2007 10,229 $12.11519 to $15.41660 $128,911 0.50% 0.65 - 2.50% 0.95% to 2.87% December 31, 2006 18,245 $11.89713 to $15.02392 $227,054 0.23% 0.65 - 2.50% 10.82% to 12.92% December 31, 2005 20,272 $11.04492 to $11.23459 $222,568 0.26% 0.65 - 2.50% 0.18% to 2.07% December 31, 2004 26,232 $10.82090 to $11.21483 $284,797 0.00% 0.65 - 2.50% 8.12% to 12.15% December 31, 2003 13,721 $10.00845 to $11.94242 $137,284 0.00% 0.65 - 2.40% 22.57% to 24.77% ProFund VP Consumer Services ------------------------------------------------------------------------------------------- December 31, 2007 240 $ 8.91144 to $11.98752 $ 2,447 0.00% 0.65 - 2.50% -10.55% to -8.85% December 31, 2006 602 $ 9.87614 to $13.18401 $ 6,499 0.00% 0.65 - 2.50% 9.21% to 11.27% December 31, 2005 349 $ 9.30453 to $ 9.90834 $ 3,521 0.00% 0.65 - 2.50% -7.04% to -5.29% December 31, 2004 1,192 $ 9.82392 to $10.65926 $ 11,879 0.00% 0.65 - 2.50% 6.59% to 6.90% December 31, 2003 403 $ 9.18941 to $11.59131 $ 3,777 0.00% 0.65 - 2.40% 23.76% to 25.97% ProFund VP Consumer Goods ------------------------------------------------------------------------------------------- December 31, 2007 2,349 $11.90105 to $14.80676 $ 30,124 0.81% 0.65 - 2.50% 4.89% to 6.89% December 31, 2006 1,570 $11.24740 to $13.88705 $ 18,574 0.10% 0.65 - 2.50% 9.81% to 11.89% December 31, 2005 630 $10.53789 to $11.03962 $ 6,913 0.34% 0.65 - 2.50% -2.85% to -1.01% December 31, 2004 921 $10.64584 to $12.20066 $ 9,972 0.03% 0.65 - 2.40% 8.54% to 14.30% December 31, 2003 245 $ 9.80789 to $10.67427 $ 2,406 0.38% 0.65 - 2.25% 1.48% to 17.69% ProFund VP Oil & Gas ------------------------------------------------------------------------------------------- December 31, 2007 7,071 $16.54018 to $32.13077 $188,298 0.00% 0.65 - 2.75% 28.81% to 31.61% December 31, 2006 7,128 $12.84063 to $24.47578 $143,520 0.00% 0.65 - 2.75% 17.32% to 19.84% December 31, 2005 8,943 $15.53164 to $17.61397 $148,186 0.00% 0.65 - 2.50% 28.04% to 30.46% December 31, 2004 6,640 $11.90553 to $13.75686 $ 85,038 0.00% 0.65 - 2.50% 28.51% to 37.57% December 31, 2003 4,640 $ 9.26400 to $12.06634 $ 44,342 0.00% 0.65 - 2.40% 19.34% to 21.48%
A73 Note 6: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ ProFund VP Europe 30 ------------------------------------------------------------------------------------------- December 31, 2007 5,888 $11.07157 to $21.41832 $ 92,832 1.86% 0.65 - 2.50% 11.70% to 13.83% December 31, 2006 9,521 $ 9.78576 to $18.86370 $126,117 0.39% 0.65 - 2.50% 14.58% to 16.74% December 31, 2005 7,481 $ 9.92756 to $13.01970 $ 81,339 0.14% 0.65 - 2.50% 5.40% to 7.39% December 31, 2004 10,431 $ 9.24454 to $12.35313 $102,514 0.14% 0.65 - 2.50% 13.58% to 23.53% December 31, 2003 12,852 $ 8.13940 to $11.08926 $108,778 0.20% 0.65 - 2.25% 2.39% to 37.83% ProFund VP Financials ------------------------------------------------------------------------------------------- December 31, 2007 1,779 $10.12613 to $13.22887 $ 20,400 0.97% 0.65 - 2.50% -21.15% to -19.64% December 31, 2006 3,163 $12.12850 to $16.50435 $ 44,681 0.50% 0.65 - 2.50% 14.42% to 16.59% December 31, 2005 2,568 $11.38546 to $11.39228 $ 31,419 0.72% 0.65 - 2.50% 1.39% to 3.31% December 31, 2004 2,337 $11.02715 to $13.33338 $ 27,138 0.28% 0.65 - 2.40% 7.38% to 9.62% December 31, 2003 1,707 $10.05949 to $12.41737 $ 17,791 0.17% 0.65 - 2.15% 26.21% to 28.15% ProFund VP U.S. Government Plus ------------------------------------------------------------------------------------------- December 31, 2007 7,087 $10.53295 to $13.60595 $ 87,800 3.52% 0.65 - 2.65% 7.19% to 9.40% December 31, 2006 2,704 $ 9.82620 to $12.43644 $ 31,415 3.44% 0.65 - 2.65% -7.07% to -5.17% December 31, 2005 7,185 $11.44316 to $13.11433 $ 89,133 2.31% 0.65 - 2.50% 6.29% to 8.31% December 31, 2004 3,732 $10.23058 to $12.10868 $ 43,240 0.86% 0.65 - 2.40% 5.28% to 7.48% December 31, 2003 3,342 $ 9.71767 to $11.26614 $ 36,696 3.92% 0.65 - 2.15% -4.64% to -3.18% ProFund VP Health Care ------------------------------------------------------------------------------------------- December 31, 2007 5,321 $ 9.49653 to $13.12280 $ 57,795 0.00% 0.65 - 2.50% 3.90% to 5.88% December 31, 2006 6,343 $ 9.03730 to $12.42496 $ 63,921 0.00% 0.65 - 2.50% 2.62% to 4.56% December 31, 2005 5,511 $ 9.04054 to $10.97896 $ 53,879 0.00% 0.65 - 2.50% 3.37% to 5.33% December 31, 2004 4,053 $ 8.58298 to $10.97696 $ 37,119 0.00% 0.65 - 2.40% -0.10% to 1.70% December 31, 2003 2,642 $ 8.43984 to $10.98801 $ 23,349 0.00% 0.65 - 2.40% 14.61% to 16.66% ACCESS VP High Yield Fund (available May 2, 2005) ------------------------------------------------------------------------------------------- December 31, 2007 2,274 $11.58477 to $12.09846 $ 26,924 7.03% 0.65 - 2.25% 2.81% to 4.50% December 31, 2006 2,746 $11.23960 to $11.57769 $ 31,357 6.19% 0.65 - 2.40% 6.95% to 8.86% December 31, 2005 3,308 $10.54502 to $10.63499 $ 35,001 3.74% 0.65 - 1.90% 5.47% to 6.36% ProFund VP Industrials ------------------------------------------------------------------------------------------- December 31, 2007 1,594 $13.55087 to $18.13551 $ 23,481 0.00% 0.65 - 2.50% 8.92% to 10.99% December 31, 2006 738 $12.33357 to $16.38084 $ 9,581 0.00% 0.65 - 2.50% 8.87% to 10.93% December 31, 2005 828 $11.65524 to $12.02792 $ 10,102 0.00% 0.65 - 2.50% -0.12% to 1.77% December 31, 2004 808 $11.45243 to $12.04227 $ 9,459 0.00% 0.65 - 2.50% 12.48% to 20.42% December 31, 2003 1,160 $10.18189 to $12.81438 $ 11,752 0.00% 0.65 - 2.15% 25.64% to 27.57% ProFund VP Internet ------------------------------------------------------------------------------------------- December 31, 2007 647 $20.41623 to $23.66106 $ 13,299 0.62% 0.65 - 1.90% 8.08% to 9.47% December 31, 2006 488 $18.84122 to $21.66964 $ 9,275 0.00% 0.65 - 1.90% -0.56% to 0.70% December 31, 2005 1,329 $19.61413 to $20.90237 $ 25,339 0.00% 0.65 - 1.90% 5.40% to 6.74% December 31, 2004 2,334 $18.37524 to $19.83065 $ 41,983 0.00% 0.65 - 1.90% 18.95% to 20.47% December 31, 2003 986 $15.25273 to $16.67093 $ 14,857 0.00% 0.65 - 1.90% 74.61% to 76.83% ProFund VP Japan ------------------------------------------------------------------------------------------- December 31, 2007 1,734 $12.84546 to $18.85032 $ 24,755 4.66% 0.65 - 2.50% -12.26% to -10.58% December 31, 2006 4,322 $14.47744 to $21.13429 $ 67,827 0.79% 0.65 - 2.65% 7.89% to 10.10% December 31, 2005 9,016 $13.81772 to $14.27008 $129,124 0.00% 0.65 - 2.50% 38.25% to 40.86% December 31, 2004 2,766 $ 9.80926 to $13.25999 $ 27,662 0.00% 0.65 - 2.40% 4.68% to 6.86% December 31, 2003 2,740 $ 9.17953 to $12.66775 $ 25,192 0.00% 0.65 - 2.15% 24.05% to 25.95% ProFund VP Precious Metals ------------------------------------------------------------------------------------------- December 31, 2007 8,057 $14.94561 to $22.52410 $155,610 3.56% 0.65 - 2.75% 19.07% to 21.66% December 31, 2006 7,735 $12.55178 to $18.56096 $124,745 0.69% 0.65 - 2.75% 4.42% to 6.67% December 31, 2005 7,464 $12.49053 to $15.17761 $113,120 0.00% 0.65 - 2.50% 23.15% to 25.48% December 31, 2004 5,015 $10.14273 to $12.09584 $ 60,442 0.00% 0.65 - 2.50% -12.17% to -10.50% December 31, 2003 5,643 $11.54866 to $13.51554 $ 76,189 0.00% 0.65 - 2.50% 15.49% to 38.33%
A74 Note 6: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ ProFund VP Mid-Cap Growth ------------------------------------------------------------------------------------------- December 31, 2007 4,690 $11.84301 to $17.24942 $ 64,542 0.00% 0.65 - 2.75% 8.66% to 11.01% December 31, 2006 5,246 $10.89955 to $15.57741 $ 67,092 0.00% 0.65 - 2.75% 1.12% to 3.30% December 31, 2005 12,852 $12.01395 to $12.02225 $155,726 0.00% 0.65 - 2.50% 8.45% to 10.50% December 31, 2004 6,821 $10.87246 to $11.08578 $ 75,036 0.00% 0.65 - 2.50% 10.36% to 10.86% December 31, 2003 4,689 $ 9.85186 to $12.24894 $ 46,543 0.00% 0.65 - 2.40% 24.84% to 27.08% ProFund VP Mid-Cap Value ------------------------------------------------------------------------------------------- December 31, 2007 4,473 $13.70000 to $18.70876 $ 65,127 0.40% 0.65 - 2.50% -1.57% to 0.31% December 31, 2006 6,924 $13.79740 to $18.69833 $104,430 0.02% 0.65 - 2.50% 9.50% to 11.57% December 31, 2005 7,507 $12.91090 to $12.96407 $ 99,111 0.00% 0.65 - 2.50% 6.13% to 8.14% December 31, 2004 10,344 $11.98840 to $12.16502 $125,392 0.00% 0.65 - 2.50% 15.21% to 21.65% December 31, 2003 4,742 $10.40614 to $13.32549 $ 50,523 0.00% 0.65 - 2.40% 34.86% to 32.49% ProFund VP Pharmaceuticals ------------------------------------------------------------------------------------------- December 31, 2007 1,426 $ 8.33325 to $10.00645 $ 12,439 1.10% 0.65 - 2.50% -0.25% to 1.65% December 31, 2006 2,413 $ 8.28177 to $ 9.93954 $ 21,075 0.37% 0.65 - 2.50% 9.38% to 11.45% December 31, 2005 1,378 $ 7.79007 to $ 8.82252 $ 10,783 0.29% 0.65 - 2.50% -6.21% to -4.44% December 31, 2004 1,435 $ 8.15189 to $ 8.78326 $ 11,802 0.00% 0.65 - 2.40% -11.40% to -9.81% December 31, 2003 1,316 $ 9.03855 to $ 9.91382 $ 11,850 0.00% 0.65 - 2.40% 3.06% to 4.91% ProFund VP Real Estate ------------------------------------------------------------------------------------------- December 31, 2007 1,572 $13.72045 to $20.07626 $ 28,411 0.91% 0.65 - 2.50% -21.63% to -20.14% December 31, 2006 3,041 $14.53445 to $25.13870 $ 69,717 0.57% 0.65 - 2.50% 29.19% to 31.63% December 31, 2005 1,949 $13.55256 to $19.09812 $ 34,432 2.04% 0.65 - 2.50% 4.09% to 6.06% December 31, 2004 4,720 $13.02029 to $18.00747 $ 79,438 1.89% 0.65 - 2.50% 26.37% to 30.20% December 31, 2003 2,564 $13.29130 to $14.24964 $ 35,196 2.00% 0.65 - 2.15% 30.29% to 32.29% ProFund VP Rising Rates Opportunity ------------------------------------------------------------------------------------------- December 31, 2007 5,407 $ 6.06214 to $ 7.67436 $ 35,126 4.72% 0.65 - 2.50% -7.58% to -5.82% December 31, 2006 10,313 $ 6.50235 to $ 8.22730 $ 70,970 1.36% 0.65 - 2.50% 7.40% to 9.43% December 31, 2005 11,309 $ 6.22921 to $ 7.43736 $ 72,023 0.00% 0.65 - 2.50% -10.19% to -8.49% December 31, 2004 16,152 $ 6.80694 to $ 8.28113 $112,263 0.00% 0.65 - 2.50% -17.19% to -11.47% December 31, 2003 5,316 $ 7.68911 to $ 9.06711 $ 41,218 0.00% 0.65 - 2.40% -6.41% to -4.74% ProFund VP NASDAQ-100 ------------------------------------------------------------------------------------------- December 31, 2007 8,873 $ 6.43605 to $17.72715 $ 94,213 0.00% 0.65 - 2.50% 14.67% to 16.86% December 31, 2006 7,600 $ 5.54980 to $15.20854 $ 67,277 0.00% 0.65 - 2.50% 2.83% to 4.78% December 31, 2005 11,466 $ 5.54081 to $10.62917 $ 89,367 0.00% 0.65 - 2.50% -2.32% to -0.47% December 31, 2004 20,721 $ 5.56695 to $10.88139 $156,073 0.00% 0.65 - 2.50% 7.82% to 8.81% December 31, 2003 25,158 $ 5.16310 to $13.43592 $153,444 0.00% 0.65 - 2.15% 43.59% to 45.79% ProFund VP Semiconductor ------------------------------------------------------------------------------------------- December 31, 2007 707 $ 7.35362 to $12.83893 $ 5,296 0.00% 0.65 - 1.90% 5.03% to 6.38% December 31, 2006 842 $ 6.98349 to $12.09994 $ 5,953 0.00% 0.65 - 1.90% -8.85% to -7.69% December 31, 2005 1,778 $ 7.93141 to $12.73195 $ 13,685 0.00% 0.65 - 1.90% 6.58% to 7.94% December 31, 2004 1,507 $ 7.34818 to $11.94555 $ 10,853 0.00% 0.65 - 1.90% -25.00% to -24.04% December 31, 2003 1,915 $ 9.67397 to $15.92764 $ 18,307 0.00% 0.65 - 1.90% 84.74% to 87.10% ProFund VP Small-Cap Growth ------------------------------------------------------------------------------------------- December 31, 2007 2,403 $11.22750 to $18.54517 $ 36,925 0.00% 0.65 - 2.75% 1.18% to 3.38% December 31, 2006 5,415 $11.09652 to $17.98465 $ 79,247 0.00% 0.65 - 2.75% 5.67% to 7.95% December 31, 2005 13,797 $12.77991 to $13.14465 $184,753 0.00% 0.65 - 2.50% 4.86% to 6.84% December 31, 2004 16,741 $12.18762 to $12.30294 $208,744 0.00% 0.65 - 2.50% 19.02% to 21.88% December 31, 2003 14,600 $10.33685 to $12.97770 $153,408 0.00% 0.65 - 2.40% 31.10% to 33.45% ProFund VP Short Mid-Cap (available November 22, 2004) ------------------------------------------------------------------------------------------- December 31, 2007 183 $ 7.75791 to $ 8.06997 $ 1,437 5.33% 0.65 - 1.90% -4.71% to -3.49% December 31, 2006 617 $ 8.14103 to $ 8.36143 $ 5,104 0.68% 0.65 - 1.90% -5.46% to -4.26% December 31, 2005 472 $ 8.61142 to $ 8.73367 $ 4,080 0.00% 0.65 - 1.90% -11.18% to -10.05% December 31, 2004 53 $ 9.69807 to $ 9.70092 $ 515 0.00% 1.00 - 1.65% -0.35% to -0.34%
A75 Note 6: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ ProFund VP Short NASDAQ-100 ------------------------------------------------------------------------------------------- December 31, 2007 2,314 $ 4.52611 to $ 6.96446 $ 11,446 6.82% 0.65 - 2.50% -13.78% to -12.13% December 31, 2006 4,161 $ 5.24385 to $ 8.00285 $ 23,704 0.86% 0.65 - 2.50% -3.83% to -2.01% December 31, 2005 5,301 $ 6.10193 to $ 8.07924 $ 31,249 0.00% 0.65 - 2.50% -1.70% to 0.16% December 31, 2004 2,547 $ 5.53538 to $ 6.09211 $ 15,078 0.00% 0.65 - 2.40% -13.25% to -11.69% December 31, 2003 4,453 $ 6.38053 to $ 6.89824 $ 30,229 0.76% 0.65 - 2.40% -38.81% to -37.71% ProFund VP Short Small-Cap (available November 22, 2004) ------------------------------------------------------------------------------------------- December 31, 2007 1,563 $ 8.06040 to $ 8.38481 $ 12,742 3.07% 0.65 - 1.90% 2.54% to 3.85% December 31, 2006 1,564 $ 7.86107 to $ 8.07403 $ 12,448 0.90% 0.65 - 1.90% -13.46% to -12.36% December 31, 2005 726 $ 9.08360 to $ 9.21260 $ 6,654 0.00% 0.65 - 1.90% -4.76% to -3.55% December 31, 2004 268 $ 9.54341 to $ 9.54061 $ 2,559 0.00% 1.00 - 1.65% -0.53% to -0.52% ProFund VP Small-Cap Value ------------------------------------------------------------------------------------------- December 31, 2007 2,208 $10.62939 to $17.79955 $ 30,154 0.00% 0.65 - 2.75% -9.79% to -7.83% December 31, 2006 6,878 $11.78269 to $19.36027 $100,515 0.00% 0.65 - 2.75% 14.21% to 16.67% December 31, 2005 4,740 $11.77792 to $12.66318 $ 61,212 0.00% 0.65 - 2.50% 1.40% to 3.32% December 31, 2004 14,281 $11.39922 to $12.48776 $175,602 0.00% 0.65 - 2.50% 19.34% to 24.88% December 31, 2003 14,978 $ 9.55207 to $13.33056 $147,142 0.00% 0.65 - 2.40% 31.45% to 33.81% ProFund VP Technology ------------------------------------------------------------------------------------------- December 31, 2007 3,423 $ 5.86031 to $16.16945 $ 27,215 0.00% 0.65 - 1.90% 12.23% to 13.66% December 31, 2006 2,301 $ 5.19529 to $14.26170 $ 14,524 0.00% 0.65 - 1.90% 6.02% to 7.37% December 31, 2005 2,697 $ 5.06142 to $12.90161 $ 15,241 0.60% 0.65 - 1.90% -0.69% to 0.57% December 31, 2004 3,442 $ 5.03294 to $12.99168 $ 19,542 0.00% 0.65 - 1.90% -2.33% to -1.08% December 31, 2003 3,795 $ 5.08790 to $13.30122 $ 20,788 0.00% 0.65 - 1.90% 43.19% to 45.02% ProFund VP Telecommunications ------------------------------------------------------------------------------------------- December 31, 2007 3,378 $ 6.52098 to $16.36117 $ 35,538 0.73% 0.65 - 2.75% 5.40% to 7.69% December 31, 2006 5,123 $ 6.10191 to $15.34089 $ 44,101 0.69% 0.65 - 2.50% 30.94% to 33.41% December 31, 2005 1,289 $ 4.78437 to $11.37557 $ 8,800 2.21% 0.65 - 2.50% -8.97% to -7.25% December 31, 2004 2,863 $ 5.15817 to $12.49641 $ 17,888 1.22% 0.65 - 2.50% 14.81% to 24.96% December 31, 2003 1,363 $ 4.49290 to $10.05273 $ 7,490 0.00% 0.65 - 2.15% 0.26% to 1.80% ProFund VP UltraMid-Cap ------------------------------------------------------------------------------------------- December 31, 2007 3,252 $15.77244 to $28.33786 $ 64,812 0.27% 0.65 - 2.50% 3.30% to 5.28% December 31, 2006 4,460 $15.13524 to $26.98605 $ 78,717 0.00% 0.65 - 2.50% 7.88% to 9.92% December 31, 2005 5,482 $14.43434 to $15.87782 $ 87,663 0.00% 0.65 - 2.50% 14.96% to 17.13% December 31, 2004 6,891 $12.32354 to $13.81214 $ 88,422 0.00% 0.65 - 2.50% 26.87% to 38.12% December 31, 2003 3,833 $ 9.71365 to $16.36516 $ 38,352 0.00% 0.65 - 2.40% 66.02% to 68.99% ProFund VP UltraNASDAQ-100 ------------------------------------------------------------------------------------------- December 31, 2007 39,702 $ 1.08370 to $24.97224 $ 94,290 0.00% 0.65 - 1.90% 26.03% to 27.64% December 31, 2006 40,480 $ 0.85424 to $19.61369 $ 64,705 0.00% 0.65 - 1.90% 2.89% to 4.19% December 31, 2005 55,242 $ 1.30702 to $18.28341 $ 96,201 0.00% 0.65 - 1.90% -5.58% to -4.38% December 31, 2004 80,485 $ 1.36684 to $19.36302 $146,750 0.00% 0.65 - 1.90% 11.93% to 13.36% December 31, 2003 77,398 $ 1.20574 to $17.29931 $110,190 0.00% 0.65 - 1.90% 98.82% to 98.82% ProFund VP UltraSmall-Cap ------------------------------------------------------------------------------------------- December 31, 2007 1,630 $12.58880 to $27.11850 $ 22,492 1.00% 0.65 - 1.90% -14.84% to -13.75% December 31, 2006 3,418 $14.70667 to $31.51979 $ 56,994 0.03% 0.65 - 1.90% 23.61% to 25.19% December 31, 2005 3,107 $12.40722 to $24.45672 $ 39,714 0.00% 0.65 - 1.90% -2.10% to -0.86% December 31, 2004 12,861 $12.51485 to $24.98207 $173,324 0.00% 0.65 - 1.90% 28.58% to 30.22% December 31, 2003 8,428 $ 9.61073 to $19.42973 $ 83,335 0.00% 0.65 - 1.90% 95.67% to 98.16% ProFund VP Utilities ------------------------------------------------------------------------------------------- December 31, 2007 10,701 $13.01933 to $23.28866 $183,429 1.08% 0.65 - 2.75% 12.60% to 15.04% December 31, 2006 7,381 $11.40328 to $20.29430 $103,910 1.78% 0.65 - 2.50% 16.25% to 18.45% December 31, 2005 6,383 $10.07028 to $13.74600 $ 75,840 0.68% 0.65 - 2.50% 10.24% to 12.33% December 31, 2004 5,238 $ 8.96510 to $12.46874 $ 51,953 1.01% 0.65 - 2.50% 20.29% to 24.69% December 31, 2003 2,838 $ 7.45318 to $12.59701 $ 22,638 2.27% 0.65 - 2.15% 18.76% to 20.58%
A76 Note 6: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- ----------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ------------------ ProFund VP Large-Cap Growth (available November 22, 2004) ------------------------------------------------------------------------------------------- December 31, 2007 6,418 $11.31071 to $11.99261 $ 74,681 0.00% 0.65 - 2.50% 4.27% to 6.26% December 31, 2006 6,836 $10.84734 to $11.28595 $ 75,650 0.00% 0.65 - 2.50% 6.34% to 8.35% December 31, 2005 8,052 $10.20039 to $10.41581 $ 83,058 0.00% 0.65 - 2.50% -1.58% to 0.28% December 31, 2004 337 $10.36577 to $10.38693 $ 3,498 0.00% 0.65 - 2.40% 0.42% to 0.44% ProFund VP Large-Cap Value (available November 22, 2004) ------------------------------------------------------------------------------------------- December 31, 2007 5,754 $11.48634 to $12.46217 $ 69,711 0.50% 0.65 - 2.75% -2.62% to -0.51% December 31, 2006 12,386 $11.79581 to $12.52595 $152,132 0.17% 0.65 - 2.75% 15.41% to 17.90% December 31, 2005 7,437 $10.40456 to $10.62437 $ 78,232 0.00% 0.65 - 2.50% 0.46% to 2.36% December 31, 2004 440 $10.37933 to $10.35694 $ 4,561 0.00% 0.65 - 2.40% 0.41% to 0.44% Rydex Nova Fund ------------------------------------------------------------------------------------------- December 31, 2007 670 $ 7.57123 to $17.65749 $ 5,109 1.17% 0.65 - 1.65% -0.55% to 0.47% December 31, 2006 950 $ 7.59388 to $17.75553 $ 7,255 1.18% 0.65 - 1.65% 17.31% to 18.50% December 31, 2005 1,194 $ 6.79147 to $15.13531 $ 7,743 0.31% 0.65 - 1.65% 2.26% to 3.29% December 31, 2004 1,584 $ 6.57506 to $14.80144 $ 10,006 0.05% 0.65 - 1.65% 13.87% to 165.58% December 31, 2003 2,051 $ 5.57318 to $ 5.77394 $ 11,452 0.00% 0.65 - 1.40% 37.24% to 38.28% Rydex OTC Fund ------------------------------------------------------------------------------------------- December 31, 2007 2,687 $ 5.09569 to $17.25647 $ 20,181 0.07% 0.65 - 1.65% 15.87% to 17.05% December 31, 2006 3,717 $ 4.37993 to $14.89301 $ 24,011 0.00% 0.65 - 1.65% 4.03% to 5.09% December 31, 2005 4,874 $ 6.49742 to $14.31564 $ 30,222 0.00% 0.65 - 1.65% -0.55% to 0.46% December 31, 2004 6,736 $ 6.46788 to $14.39508 $ 41,864 0.00% 0.65 - 1.65% 7.54% to 8.63% December 31, 2003 8,737 $ 5.95385 to $13.38605 $ 50,307 0.00% 0.65 - 1.65% 43.02% to 44.47% Rydex Inverse S&P 500 Strategy Fund ------------------------------------------------------------------------------------------- December 31, 2007 56 $ 8.54195 to $ 8.84708 $ 480 4.26% 1.00 - 1.40% -0.59% to -0.18% December 31, 2006 86 $ 5.97071 to $ 8.86347 $ 736 6.26% 1.00 - 1.65% -9.03% to -8.43% December 31, 2005 125 $ 6.56305 to $ 9.67905 $ 1,181 0.00% 1.00 - 1.65% -2.40% to -1.76% December 31, 2004 149 $ 9.62902 to $ 9.85245 $ 1,435 0.00% 1.00 - 1.40% -11.47% to -11.11% December 31, 2003 186 $10.87639 to $11.08367 $ 2,028 0.00% 1.00 - 1.40% -24.72% to -24.41% AIM V.I. Dynamics Fund ------------------------------------------------------------------------------------------- December 31, 2007 4,321 $ 9.66892 to $20.92249 $ 61,007 0.00% 0.65 - 2.75% 9.08% to 11.45% December 31, 2006 5,239 $ 8.72831 to $18.82001 $ 66,084 0.00% 0.65 - 2.75% 12.93% to 15.36% December 31, 2005 5,600 $10.48172 to $12.55791 $ 60,680 0.00% 0.65 - 2.50% 7.96% to 10.00% December 31, 2004 7,133 $ 9.52867 to $11.63192 $ 70,632 0.00% 0.65 - 2.50% 12.60% to 16.32% December 31, 2003 9,813 $ 8.46233 to $13.04653 $ 85,022 0.00% 0.65 - 2.40% 34.52% to 36.93% AIM V.I. Financial Services Fund ------------------------------------------------------------------------------------------- December 31, 2007 3,135 $ 9.11943 to $14.02284 $ 39,355 1.50% 0.65 - 2.75% -24.37% to -22.72% December 31, 2006 4,623 $12.14731 to $18.14659 $ 75,553 1.59% 0.65 - 2.50% 13.54% to 15.69% December 31, 2005 5,702 $11.44169 to $15.68589 $ 81,547 1.50% 0.65 - 2.50% 3.27% to 5.22% December 31, 2004 6,188 $11.07969 to $14.90782 $ 86,730 0.66% 0.65 - 2.50% 7.97% to 10.80% December 31, 2003 7,447 $12.53928 to $13.80766 $ 98,078 0.51% 0.65 - 2.40% 26.47% to 28.74% AIM V.I. Global Health Care Fund ------------------------------------------------------------------------------------------- December 31, 2007 6,151 $12.88139 to $16.25993 $ 90,893 0.00% 0.65 - 2.50% 9.04% to 11.12% December 31, 2006 7,589 $11.41050 to $14.63226 $102,317 0.00% 0.65 - 2.50% 2.61% to 4.55% December 31, 2005 8,909 $11.99567 to $13.99520 $116,595 0.00% 0.65 - 2.50% 5.45% to 7.45% December 31, 2004 9,914 $11.37535 to $13.02517 $122,422 0.00% 0.65 - 2.50% 6.87% to 13.75% December 31, 2003 11,072 $10.85273 to $12.18804 $129,595 0.00% 0.65 - 2.25% 8.53% to 26.95% AIM V.I. Technology Fund ------------------------------------------------------------------------------------------- December 31, 2007 8,248 $ 3.88682 to $16.06382 $ 51,563 0.00% 0.65 - 1.90% 5.65% to 7.00% December 31, 2006 10,801 $ 3.65474 to $15.14319 $ 62,386 0.00% 0.65 - 1.90% 8.39% to 9.76% December 31, 2005 13,665 $ 5.45039 to $13.73947 $ 72,366 0.00% 0.65 - 1.90% 0.24% to 1.51% December 31, 2004 18,010 $ 5.36926 to $13.70690 $ 94,451 0.00% 0.65 - 1.90% 2.64% to 3.95% December 31, 2003 18,239 $ 5.16515 to $13.35425 $ 92,924 0.00% 0.65 - 1.90% 42.53% to 44.34%
A77 Note 6: Financial Highlights (Continued)
At year ended For year ended ------------------------------------------- --------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- -------- ---------- ----------------- ---------------- Wells Fargo Advantage VT Asset Allocation Fund ----------------------------------------------------------------------------------------- December 31, 2007 2,721 $13.19876 to $27.46722 $ 73,917 2.17% 1.40 - 2.25% 5.16% to 6.08% December 31, 2006 3,848 $12.51877 to $25.89275 $ 98,746 2.26% 1.40 - 2.25% 9.62% to 10.57% December 31, 2005 5,123 $11.53381 to $23.41668 $119,014 2.03% 1.40 - 2.25% 2.63% to 3.52% December 31, 2004 6,331 $11.23801 to $22.62013 $142,216 2.00% 1.40 - 2.25% 7.81% to 12.38% December 31, 2003 7,245 $11.75271 to $20.98180 $151,438 1.73% 1.40 - 1.90% 19.78% to 20.39% Wells Fargo Advantage VT Equity Income Fund ----------------------------------------------------------------------------------------- December 31, 2007 2,029 $12.51883 to $22.38205 $ 28,699 1.45% 0.65 - 2.50% 0.25% to 2.16% December 31, 2006 2,822 $11.65173 to $21.90813 $ 38,998 1.58% 0.65 - 2.75% 15.30% to 17.78% December 31, 2005 2,707 $11.92936 to $18.60046 $ 31,523 1.45% 0.65 - 2.50% 2.75% to 4.69% December 31, 2004 2,903 $11.61020 to $17.76678 $ 31,951 1.64% 0.65 - 2.50% 10.36% to 16.10% December 31, 2003 2,328 $15.28644 to $16.09924 $ 23,153 1.58% 0.65 - 2.25% 23.37% to 25.39% Wells Fargo Advantage VT C&B Large Cap Value Fund ----------------------------------------------------------------------------------------- December 31, 2007 1,163 $10.69777 to $15.95050 $ 12,737 1.02% 0.65 - 2.25% -3.41% to -1.82% December 31, 2006 1,592 $10.97931 to $16.41205 $ 17,808 1.45% 0.65 - 2.75% 18.77% to 21.33% December 31, 2005 1,934 $ 9.61029 to $ 9.66390 $ 17,885 0.76% 0.65 - 2.25% 0.79% to 2.44% December 31, 2004 2,343 $ 9.43398 to $ 9.53473 $ 21,281 1.58% 0.65 - 2.25% 8.71% to 10.50% December 31, 2003 2,644 $ 8.53761 to $ 8.77041 $ 21,792 1.51% 0.65 - 2.25% 22.74% to 24.75% Wells Fargo Advantage VT Large Company Core Fund ----------------------------------------------------------------------------------------- December 31, 2007 823 $11.98836 to $19.87608 $ 16,323 0.00% 1.40 - 2.00% 0.25% to 0.87% December 31, 2006 1,079 $11.95836 to $19.70500 $ 21,202 0.65% 1.40 - 2.00% 13.34% to 14.03% December 31, 2005 1,406 $10.55130 to $17.28105 $ 24,242 0.50% 1.40 - 2.00% -4.19% to -3.60% December 31, 2004 1,873 $11.01271 to $17.92732 $ 33,512 0.00% 1.40 - 2.00% 6.86% to 10.13% December 31, 2003 2,374 $11.65063 to $16.77690 $ 39,779 0.00% 1.40 - 1.65% 21.55% to 21.86% Wells Fargo Advantage VT International Core Fund ----------------------------------------------------------------------------------------- December 31, 2007 228 $11.22464 to $19.45215 $ 2,740 0.01% 1.25 - 2.15% 10.22% to 11.24% December 31, 2006 240 $10.10604 to $17.55826 $ 2,666 1.60% 1.25 - 2.15% 18.22% to 19.30% December 31, 2005 289 $ 8.48386 to $14.54433 $ 2,650 1.87% 1.40 - 2.15% 7.32% to 8.14% December 31, 2004 327 $ 7.84507 to $13.55206 $ 2,802 0.22% 1.40 - 2.15% 6.66% to 8.09% December 31, 2003 309 $ 7.25760 to $12.70566 $ 2,409 0.32% 1.40 - 1.65% 29.29% to 29.62% Wells Fargo Advantage VT Large Company Growth Fund ----------------------------------------------------------------------------------------- December 31, 2007 892 $ 9.20072 to $13.07668 $ 8,644 0.00% 1.40 - 2.00% 5.45% to 6.10% December 31, 2006 1,164 $ 8.67196 to $12.35658 $ 10,629 0.00% 1.40 - 2.00% 0.31% to 0.92% December 31, 2005 1,456 $ 8.59302 to $10.87742 $ 13,023 0.18% 1.40 - 2.00% 3.59% to 4.23% December 31, 2004 1,767 $ 8.24000 to $10.50024 $ 15,147 0.00% 1.40 - 2.00% 1.75% to 5.00% December 31, 2003 1,879 $ 8.09835 to $11.59446 $ 15,554 0.00% 1.40 - 1.90% 23.89% to 24.52% Wells Fargo Advantage VT Money Market Fund ----------------------------------------------------------------------------------------- December 31, 2007 1,804 $10.28542 to $13.53923 $ 24,426 4.57% 1.40 - 1.90% 2.67% to 3.20% December 31, 2006 1,927 $10.00952 to $13.11955 $ 25,268 4.25% 1.40 - 2.40% 1.84% to 2.88% December 31, 2005 2,115 $ 9.86463 to $12.75216 $ 26,963 2.47% 1.40 - 1.65% 0.85% to 1.11% December 31, 2004 2,746 $ 9.78121 to $12.61236 $ 34,621 0.68% 1.40 - 1.65% -0.96% to -0.70% December 31, 2003 3,678 $ 9.87554 to $12.70171 $ 46,714 0.52% 1.40 - 1.65% -1.16% to -0.91% Wells Fargo Advantage VT Small Cap Growth Fund ----------------------------------------------------------------------------------------- December 31, 2007 337 $12.79553 to $21.52963 $ 4,545 0.00% 1.40 - 1.90% 11.64% to 12.21% December 31, 2006 442 $11.40341 to $19.23621 $ 5,303 0.00% 1.40 - 1.90% 20.43% to 21.04% December 31, 2005 530 $ 9.42126 to $15.80703 $ 5,212 0.00% 1.40 - 1.90% 4.23% to 4.76% December 31, 2004 636 $ 8.99000 to $15.16544 $ 5,946 0.00% 1.40 - 1.90% 11.28% to 12.17% December 31, 2003 735 $ 8.01738 to $13.62765 $ 6,050 0.00% 1.40 - 1.65% 39.92% to 40.28% Wells Fargo Advantage VT Total Return Bond Fund ----------------------------------------------------------------------------------------- December 31, 2007 726 $10.77628 to $14.39016 $ 10,375 4.59% 1.40 - 2.25% 3.76% to 4.67% December 31, 2006 1,003 $10.38538 to $13.74805 $ 13,714 4.27% 1.40 - 2.25% 1.40% to 2.28% December 31, 2005 1,329 $10.24238 to $13.44215 $ 17,781 3.62% 1.40 - 2.25% -0.44% to 0.43% December 31, 2004 1,600 $10.28716 to $13.38474 $ 21,323 3.44% 1.40 - 2.25% 2.87% to 2.99% December 31, 2003 2,027 $10.85859 to $12.99668 $ 26,285 3.24% 1.40 - 1.90% 6.36% to 6.90%
A78 Note 6: Financial Highlights (Continued)
At year ended For year ended --------------------------------------------- --------------------------------------------- Units Net Investment Outstanding Unit Value Assets Income Expense Ratio** Total Return*** (000s) Lowest to Highest (000s) Ratio* Lowest -- Highest Lowest to Highest ----------- ---------------------- ---------- ---------- ----------------- ---------------- AST First Trust Balanced Target Portfolio (available March 20, 2006) ------------------------------------------------------------------------------------------- December 31, 2007 102,271 $11.01941 to $11.50219 $1,144,841 0.50% 0.65 - 3.00% 5.28% to 7.85% December 31, 2006 43,588 $10.48756 to $10.66517 $ 459,438 0.00% 0.65 - 2.75% 4.90% to 6.66% AST First Trust Capital Appreciation Target Portfolio (available March 20, 2006) ------------------------------------------------------------------------------------------- December 31, 2007 122,279 $11.20422 to $11.69500 $1,390,643 0.30% 0.65 - 3.00% 8.06% to 10.69% December 31, 2006 47,802 $10.38961 to $10.56558 $ 498,977 0.00% 0.65 - 2.75% 3.92% to 5.66% AST Advanced Strategies Portfolio (available March 20, 2006) ------------------------------------------------------------------------------------------- December 31, 2007 106,913 $11.19878 to $11.68950 $1,216,236 0.48% 0.65 - 3.00% 6.20% to 8.79% December 31, 2006 50,596 $10.55304 to $10.74480 $ 537,413 0.00% 0.65 - 2.90% 5.56% to 7.45% AST CLS Growth Asset Allocation Portfolio (available November 19, 2007) ------------------------------------------------------------------------------------------- December 31, 2007 1,178 $11.49050 to $11.51218 $ 13,543 0.00% 1.25 - 2.75% 14.93% to 15.13% AST CLS Moderate Asset Allocation Portfolio (available November 19, 2007) ------------------------------------------------------------------------------------------- December 31, 2007 787 $10.02547 to $10.04880 $ 7,899 0.00% 0.90 - 2.75% 0.28% to 0.50% AST Horizon Growth Asset Allocation Portfolio (available November 19, 2007) ------------------------------------------------------------------------------------------- December 31, 2007 484 $10.17498 to $10.20179 $ 4,932 0.00% 0.65 - 2.75% 1.77% to 2.02% AST Horizon Moderate Asset Allocation Portfolio (available November 19, 2007) ------------------------------------------------------------------------------------------- December 31, 2007 278 $10.15504 to $10.17230 $ 2,828 0.00% 1.40 - 2.75% 1.57% to 1.73% AST Niemann Capital Growth Asset Allocation Portfolio (available November 19, 2007) ------------------------------------------------------------------------------------------- December 31, 2007 502 $ 9.98557 to $10.00448 $ 5,016 0.00% 1.25 - 2.75% -0.12% to 0.06% AST Western Asset Core Plus Bond Portfolio (available November 19, 2007) ------------------------------------------------------------------------------------------- December 31, 2007 3,195 $ 9.96574 to $ 9.98760 $ 31,861 0.00% 1.00 - 2.75% -0.32% to -0.12% Columbia High Yield Fund VS (available May 1, 2006) ------------------------------------------------------------------------------------------- December 31, 2007 38 $10.80761 to $10.80761 $ 412 4.92% 1.00 - 1.00% 0.82% to 0.82% December 31, 2006 43 $10.71961 to $10.71961 $ 463 2.48% 1.00 - 1.00% 7.01% to 7.01% Columbia Asset Allocation Fund, VS ------------------------------------------------------------------------------------------- December 31, 2007 719 $16.51140 to $16.51140 $ 11,876 2.80% 1.00 to 1.00% 8.08% to 8.08% December 31, 2006 861 $15.27753 to $15.27753 $ 13,157 2.52% 1.00 - 1.00% 10.67% to 10.67% December 31, 2005 1,095 $13.80419 to $13.80419 $ 15,112 2.77% 1.00 - 1.00% 5.47% to 5.47% December 31, 2004 1,615 $13.08886 to $13.08886 $ 21,141 2.52% 1.00 - 1.00% 8.83% to 8.83% December 31, 2003 2,207 $12.02655 to $12.02655 $ 26,543 0.00% 1.00 - 1.00% 15.10% to 15.10% Columbia Federal Securities Fund, VS ------------------------------------------------------------------------------------------- December 31, 2007 178 $11.41611 to $11.41611 $ 2,037 6.47% 1.00 to 1.00% 5.12% to 5.12% December 31, 2006 195 $10.86011 to $10.86011 $ 2,116 5.66% 1.00 - 1.00% 2.68% to 2.68% December 31, 2005 325 $10.57645 to $10.57645 $ 3,436 6.05% 1.00 - 1.00% 1.56% to 1.56% December 31, 2004 472 $10.41437 to $10.41437 $ 4,911 5.52% 1.00 - 1.00% 2.86% to 2.86% December 31, 2003 781 $10.12509 to $10.12509 $ 7,913 0.00% 1.00 - 1.00% 0.93% to 0.93%
-------- * 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, consisting primarily of mortality and expense charges, for each period indicated. The A79 Note 6: Financial Highlights (Continued) 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. Investment options with a date notation indicate the effective date of that investment option in the Account, the total return is calculated for the years ended December 31, 2007, 2006, 2005, 2004 and 2003 or from the effective date of the subaccount through the end of the reporting period. Product designs within a subaccount with an effective date during a period were excluded from the range of total return for that period. Note 7: Contract Charges/Features Each Annuity funded through the Separate Account is subject to specific fees and charges, some of which are deducted as an asset-based charge by the Separate Account, while others are deducted either annually or at the time that certain transactions are made. Insurance Charge--The Insurance Charge is the combination of the mortality and expense risk charge and the administrative charge deducted by the Separate Account. The Insurance Charge is expressed as an annual charge; however the daily equivalent is deducted on a daily basis from the assets of the Separate Account. The following Insurance Charge levels apply to each Annuity product, as listed.
Insurance Charge Annuity Product Name ---------------- -------------------- 0.65% Choice, Choice 2000, ASAP III, XTra Credit SIX, Stagecoach ASAP III, Stagecoach Xtra Credit SIX, Optimum, Optimum Plus 1.00% AS Impact, Defined Investments Annuity, Galaxy III 1.25% ASAIA, ASVIA 1.40% PSA, ACN, ASAP, ASAP II, Harvester Variable Annuity, ASAP II Premier, Apex, Stagecoach Apex, ASL, Stagecoach Flex, ASL Premier, XTra Credit Stagecoach Extra Credit, Harvester XTra Credit, XTra Credit Premier XTra Credit FOUR, XTra Credit FOUR Premier, AS Protector, Stagecoach Variable Annuity, Stagecoach VA+ 1.65% Apex II, ASL II, ASL II Premier, Stagecoach APEX II, Optimum Four 2.25% ASAIA w/ Guarantee
Distribution Charge--The Distribution Charge is deducted by the Separate Account on four Prudential Annuities annuity contracts. The Distribution Charge is expressed as an annual charge; however the daily equivalent is deducted on a daily basis from the assets of the Separate Account. The charge is deducted for the number of years indicated below and then no longer applies.
Distribution Charge Annuity Product Name Period Deducted ------------------- -------------------- --------------- 0.60%....... ASAP III, Stagecoach ASAP III, Optimum Annuity Years 1-8 only 1.00%....... XTra Credit SIX, Stagecoach XTra Credit Annuity Years 1-10 only SIX, Optimum Plus
Annual Maintenance Fee--An Annual Maintenance Fee of up to $35 is deducted at the end of each Annuity Year and upon surrender of the Annuity. The Annual Maintenance Fee on certain contracts may be less than $35, may be zero or, under certain circumstances, may be waived based on the Account Value of the Annuity on the anniversary date when the charge is deducted. A80 Note 7: Contract Charges/Features (Continued) Transfer Fees--Transfer Fees are charged at a rate of $10 for each transfer after the 20th in each Annuity Year, as set forth in the respective prospectuses. Contingent Deferred Sales Charges--Contingent Deferred Sales Charges may apply to certain withdrawals from the annuities and upon surrender of the annuity. When applicable, Contingent Deferred Sales Charges will apply for a maximum number of years depending on the type of contract. The maximum number of years may be based on the number of years since each Purchase Payment is applied or from the issue date of the Annuity. Certain annuities do not deduct a Contingent Deferred Sales Charge upon surrender or withdrawal. Please refer to the prospectus for your annuity contract for a complete description of the Contingent Deferred Sales Charge, as well as for any exceptions to the provision that may apply to certain withdrawals during each Annuity Year. Premium Taxes--Some states and municipalities impose premium taxes, which currently range up to 3.5% on Variable Immediate Annuity contracts. Optional Benefit Charges--Prior to November 18, 2002, Prudential Annuities offered certain optional benefits as riders to the various annuity contracts where the annual charge to purchase the rider was deducted from the annuity on an annual basis in arrears. Effective as of November 18, 2002, Prudential Annuities offers riders for optional benefits whose annual charge is deducted on a daily basis from the assets in the Separate Account. The daily charge for the optional benefits is deducted in the same manner as the Insurance Charge and the Distribution Charge (if applicable). Annuity Owners who elect to purchase an optional benefit purchase units of the Separate Account that reflect the Insurance Charge, Distribution Charge (if applicable) and the charge for any optional benefit(s). Annuity owners who elected an optional benefit whose charge is deducted on an annual basis in arrears will continue to have the applicable charge deducted in this manner. Currently, Prudential Annuities offers eight different optional benefits, as follows: Guaranteed Return Option PlusSM (GRO Plus), Guaranteed Minimum Withdrawal Benefit (GMWB), Guaranteed Minimum Income Benefit (GMIB), Lifetime Five Income Benefit (LT5), Highest Anniversary Value Death Benefit (HAV), Enhanced Beneficiary Protection Death Benefit (EBP), Highest Daily Value Death Benefit (HDV) and Combination 5% Roll-Up and HAV Death Benefit (Combo 5%). Currently, the charge for GRO Plus, HAV and EBP is 0.25% per year, respectively, the charge for GMWB is 0.35% per year, the charge for HDV and Combo 5% is 0.50% per year, respectively, the charge for LT5 is 0.60% per year and the charge for GMIB is 0.50% per year of the Protected Income Value. Certain Prudential Annuities annuity contracts may not be eligible to elect all or any optional benefits. Note 8: Accumulation Unit Values Accumulation Unit Values (or "AUVs") are calculated for each Sub-account on each Valuation Day. Each Sub-account may have several different AUVs based on each combination of the Insurance Charge, Distribution Charge and each available optional benefit.
Asset-Based Charge Level Description of When Applicable ------------ ------------------------------------------------------------------------------------------- 0.65% Choice, Choice 2000 -- No Optional Benefits. This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 2 Sub-accounts). 0.90% Choice, Choice 2000 -- One 0.25% Optional Benefit.
A81 Note 8: Accumulation Unit Values (Continued)
Asset-Based Charge Level Description of When Applicable ------------ ----------------------------------------------------------------------------------------------- 1.00% AS Impact, Defined Investments Annuity, Galaxy III -- No Optional Benefits. Choice 2000 -- with GMWB. This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 3 Sub-accounts). 1.15% Choice -- Two 0.25% Optional Benefits. Choice 2000 -- One 0.50% Optional Benefit; or Two 0.25% Optional Benefits. 1.25% ASAP III, Stagecoach ASAP III, Optimum -- No Optional Benefits. AS Impact, Defined Investments Annuity, Galaxy III -- One 0.25% Optional Benefit. Choice 2000 -- with LT5; or with GMWB and either HAV or EBP. ASAIA, ASVIA This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 7 Sub-accounts). 1.40% PSA, ACN, ASAP, ASAP II, Harvester Variable Annuity, ASAP II Premier, Apex, Stagecoach Apex, ASL, Stagecoach Flex, ASL Premier, XTra Credit, Stagecoach Extra Credit, Harvester XTra Credit, XTra Credit Premier, XTra Credit FOUR, XTra Credit FOUR Premier, AS Protector, Stagecoach Variable Annuity, Stagecoach VA+ -- No Optional Benefits. Choice -- Three 0.25% Optional Benefits. Choice 2000 -- with Combo 5% and GRO Plus; or with Three 0.25% Optional Benefits. This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 1 Sub-accounts). 1.50% ASAP III, Stagecoach ASAP III, Optimum -- One 0.25% Optional Benefit. AS Impact, Defined Investments Annuity -- Two 0.25% Optional Benefits. Choice 2000 -- with GMWB, HAV, and EBP; or with GMWB and either Combo 5% or HDV; or with LT5 and either HAV or EBP. 1.60% ASAP III, Stagecoach ASAP III, Optimum -- with GMWB. 1.65% Apex II, ASL II, ASL II Premier, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus -- No Optional Benefits. ACN, ASAP, ASAP II, Harvester Variable Annuity, ASAP II Premier, Apex, Stagecoach Apex, ASL, Stagecoach Flex, ASL Premier, XTra Credit, Stagecoach Extra Credit, Harvester XTra Credit, XTra Credit Premier, XTra Credit FOUR, XTra Credit FOUR Premier, AS Protector, Stagecoach Variable Annuity, Stagecoach VA+ -- One 0.25% Optional Benefit. This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 9 Sub-accounts). 1.75% ASAP III, Stagecoach ASAP III, Optimum -- One 0.50% Optional Benefit; or Two 0.25% Optional Benefits. Defined Investments Annuity -- Three 0.25% Optional Benefits. Choice 2000 -- with LT5, HAV and EBP; or with GMWB, HDV and EBP; or with LT5 and either Combo 5% or HDV. 1.85% ASAP III, Stagecoach ASAP III, Optimum -- with LT5; or with GMWB and either HAV or EBP. 1.90% ASL II, ASL II Premier, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus -- One 0.25% Optional Benefit. ASAP II, Apex, Stagecoach Apex, ASL, Stagecoach Flex, XTra Credit, Stagecoach Extra Credit, XTra Credit FOUR, Stagecoach VA+, Stagecoach Variable Annuity -- Two 0.25% Optional Benefits. 2.00% ASAP III, Stagecoach ASAP III, Optimum -- with Combo 5% and GRO Plus; or with Three 0.25% Optional Benefits. ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus -- with GMWB. Choice 2000 -- with LT5, HDV and EBP. 2.10% ASAP III, Stagecoach ASAP III, Optimum -- with GMWB, HAV and EBP; or with GMWB and either Combo 5% or HDV; or with LT5 and either HAV or EBP. 2.15% ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus -- One 0.50% Optional Benefit; or Two 0.25% Optional Benefits. ASAP II, Apex, Stagecoach Apex, ASL, Stagecoach Flex, XTra Credit, Stagecoach Extra Credit, XTra Credit FOUR, Stagecoach VA+, Stagecoach Variable Annuity -- Three 0.25% Optional Benefits.
A82 Note 8: Accumulation Unit Values (Continued)
Asset-Based Charge Level Description of When Applicable ------------ ------------------------------------------------------------------------------------------------ 2.25% ASAP II -- with HAV, EBP and GMWB. ASL II, ASL II Premier, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus -- with LT5; or with GMWB and either HAV or EBP. ASAIA w/ Guarantee* *This asset-based charge level was formerly applicable to annuity contracts funded through Prudential Annuities Life Assurance Corporation Variable Account B (Class 8 Sub-accounts). 2.35% ASAP III, Stagecoach ASAP III, Optimum -- with GMWB, HDV and EBP; or with LT5, HAV and EBP; or with LT5 and either Combo 5% or HDV. 2.40% ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus -- with Combo 5% and GRO Plus; or with Three 0.25% Optional Benefits. 2.50% ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus -- with GMWB, HAV and EBP; or with GMWB and either Combo 5% or HDV; or with LT5 and either HAV or EBP. 2.60% ASAP III, Stagecoach ASAP III, Optimum -- with LT5, HDV and EBP. 2.65% AS Apex II, Advanced Series LifeVest II, Stagecoach APEX II, Stagecoach Xtra Credit Six, AS Xtra Credit Six. 2.75% ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus -- with GMWB, HDV and EBP; or with LT5, HAV and EBP; or with LT5 and either Combo 5% or HDV. 3.00% ASL II, Apex II, Stagecoach Apex II, Optimum Four, XTra Credit SIX, Stagecoach XTra Credit SIX, Optimum Plus -- with LT5, HDV and EBP.
A83 Report of Independent Registered Public Accounting Firm To the Contract Owners of Prudential Annuities Life Assurance Corporation Variable Account B and the Board of Directors of Prudential Annuities Life Assurance Corporation 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 the subaccounts listed in Note 1 of the Prudential Annuities Life Assurance Corporation Variable Account B, formerly known as American Skandia Life Assurance Corporation Variable Account B, at December 31, 2007, and the results of each of their operations and the changes in each of their net assets for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the management of the Prudential Annuities Life Assurance Corporation. 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 at December 31, 2007 with the transfer agents of the investee mutual funds, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York April 7, 2008 A84 PART C OTHER INFORMATION Item 24. Financial Statements and Exhibits: (a) All financial statements are included in Parts A & B of this Registration Statement. (b) Exhibits are attached as indicated. (1) Copy of the resolution of the board of directors of Depositor authorizing the establishment of the Registrant for Separate Account B filed via EDGAR with Post-Effective Amendment No. 6 to Registration Statement No. 33-87010, filed March 2, 1998. (2) Not applicable. Prudential Annuities Life Assurance Corporation maintains custody of all assets. (3) (a) Revised Principal Underwriting Agreement between Prudential Annuities Life Assurance Corporation (formerly known as American Skandia Life Assurance Corporation) and Prudential Annuities Distributors, Inc., incorporated by reference to filing via EGAR with Post-Effective Amendment No. 14 to Registration Statement No. 333-96577, April 21, 2006. (b) Form of Revised Dealer Agreement with Prudential Annuities Distributors, Inc., filed via EDGAR with Post-Effective Amendment No. 26 to Registration Statement No. 333-96577, April 17, 2008. (4) (a) Copy of the Form of annuity contract - - to be filed by Pre-effective Amendment (b) Copy of Highest Period Value Death Benefit Endorsement, incorporated by reference to filing via EDGAR with Pre-Effective Amendment No. 1 to Registration Statement No. 333-96577, filed October 4, 2002. (c) Copy of Percentage of Growth Death Benefit Endorsement, incorporated by reference to filing via EDGAR with Pre-Effective Amendment No. 1 to Registration Statement No. 333-96577, filed October 4, 2002. (d) Copy of Guaranteed Minimum Income Benefit Endorsement, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 2 to Registration Statement No. 333-96577, filed August 6, 2003. (e) Copy of Guaranteed Minimum Withdrawal Benefit Endorsement, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 2 to Registration Statement No. 333-96577, filed August 6, 2003. (f) Copy of Rider for Combination 5% Roll-up and Highest Anniversary Value Death Benefit, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 5 to Registration Statement No. 333-96577, filed April 20, 2004. (g) Copy of Rider for Lifetime Five Income Benefit, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 7 to Registration Statement No. 333-96577, filed November 16, 2004. (h) Copy of Rider for Highest Daily Value Benefit, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 7 to Registration Statement No. 333-96577, filed November 16, 2004. (i) Copy of Rider for Spousal Lifetime Five Income Benefit, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 10 to Registration Statement No. 333-96577, filed November 16, 2005. (j) Copy of Rider for Highest Daily Lifetime Seven Income Benefit and Spousal Highest Daily Lifetime Seven Income Benefit, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 25 to Registration Statement No. 333-96577, filed December 18, 2007. (k) Copy of Rider for Highest Daily Guaranteed Return Option, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 25 to Registration Statement No. 333-96577, filed December 18, 2007. (5) Form of application used with the Annuity: to be filed by Pre-effective Amendment (6) (a) Copy of the amended certificate of incorporation of Prudential Annuities Life Assurance Corporation filed via EDGAR with Registration Statement No. 33-44202, filed March 14, 2008. (b) Copy of the amended and restated By-Laws of Prudential Annuities Life Assurance Corporation filed via EDGAR with Registration Statement No. 33-44202, filed March 14, 2008. (7) Forms of Annuity Reinsurance Agreements between Depositor and: (a) The Prudential Insurance Company of America for GMWB, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 9 to Registration Statement No. 333-96577, filed April 18, 2005. (b) Pruco Reinsurance Ltd for Lifetime Five Withdrawal Benefit, incorporated by reference to filing via EDGAR with post-Effective Amendment No.14 to Registration Statement No. 333-96577 filed April 21, 2006. (c) Pruco Reinsurance Ltd. for Spousal Lifetime Five Optional Living Benefit, incorporated by reference to filing via EDGAR with post-Effective Amendment No.14 to Registration Statement No. 333-96577 filed April 21, 2006. (d) Pruco Reinsurance Ltd. for Highest Daily GRO incorporated by reference to filing via EDGAR with Pre-Effective Amendment No. 1 to Registration Statement No. 333-148265. FILED HEREWITH. (e) Pruco Reinsurance Ltd. for Highest Daily Lifetime Seven Income Benefit and, Spousal Highest Daily Lifetime Seven Income Benefit incorporated by reference to filing via EDGAR with Pre-Effective Amendment No. 1 to Registration Statement No. 333-148265. FILED HEREWITH. (8) Forms of Agreements between Depositor and: (a) Advanced Series Trust incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 4 to Registration Statement No. 33-87010, filed February 25, 1997. (b) First Defined Portfolio Fund LLC, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 7 to Registration Statement No. 33-86866, filed April 26, 2000. (c) Evergreen Variable Annuity Trust, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 9 to Registration Statement No. 33-87010, filed April 26, 2000. (d) INVESCO Variable Investment Funds, Inc., incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 9 to Registration Statement No. 33-87010, filed April 26, 2000. (e) ProFunds VP, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 9 to Registration Statement No. 33-87010, filed April 26, 2000. (f) Wells Fargo Variable Trust, incorporated by reference to filing via EDGAR to Registration Statement No. 333-49478, filed November 7, 2000. (g) Prudential Series Fund, Inc., incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 15 to Registration Statement No. 33-87010, filed April 26, 2001. (h) Revised Nationwide Variable Investment Trust, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 20 to Registration Statement No. 333-96577, filed April 20, 2007. (i) A I M Variable Insurance Funds, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 9 to Registration Statement No. 333-96577, filed April 18, 2005. (j) ProFunds VP, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 20 to Registration Statement No. 333-96577, filed April 20, 2007. (k) Sample Rule 22c-2 Agreement, incorporated by reference to filing via EDGAR with Post-Effective Amendment No. 20 to Registration Statement No. 333-96577, filed April 20, 2007. (l) Form of Email notice re: change of Depositor name to Prudential Annuities Life Assurance Corporation: filed via EDGAR with Post-Effective Amendment No. 26, April 17, 2008. (m) Franklin Templeton Variable Insurance Products Trust filed via EDGAR to Post-Effective Amendment No. 26 with Registration Statement 333-96577, filed April 17, 2008. (9) Opinion and Consent of Counsel: filed herewith (10) Consent of PricewaterhouseCoopers LLP: filed herewith Amendment (11) Not applicable. (12) Not applicable. Item 25. Directors and Officers of the Depositor:
Name and Principal Business Address Position and Offices with Depositor ----------------------------------- ----------------------------------- June Amori Vice President One Corporate Drive, Shelton, Connecticut 06484-6208 James J. Avery, Jr. Director 213 Washington Street Newark, New Jersey 07102-2992 Kenneth Y. Tanji Executive Vice President, Chief 213 Washington Street, Financial Officer and Director Newark, New Jersey, 07102-2917 Robert E. Causey Vice President 2 Gateway Center Newark, New Jersey 07102-5005 Lisa V. Chow Vice President 751 Broad Street Newark, New Jersey 07102-3714 Timothy S. Cronin Senior Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Donald M. Desiderato Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Thomas J. Diemer Vice President 2 Gateway Center Newark, New Jersey 07102-5005 John Doscher Vice President and Chief Compliance 751 Broad Street Officer Newark, New Jersey 07102-3714 Rebecca Dunne Vice President 751 Broad Street Newark, New Jersey 07102-3714 Joseph D. Emanuel Senior Vice President, Chief Legal One Corporate Drive Officer and Corporate Secretary Shelton, Connecticut 06484-6208 Bruce Ferris Executive Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Anne Fifick Vice President, Asset Liability & Risk 2 Gateway Center Management Newark, New Jersey 07102-5005 Noreen Fierro Vice President and Anti-Money 751 Broad Street Laundering Officer Newark, New Jersey 07102-3714 Joseph M. Fuschillo Executive Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Helen M. Galt Director 213 Washington Street Newark, New Jersey 07102-2992 George M. Gannon Senior Vice President 751 Broad Street Newark, New Jersey 07102-3714 Craig Gardner Vice President, 2 Gateway Center Newark, New Jersey 07102-5005 Brian Giantonio Vice President, Corporate Counsel One Corporate Drive Shelton, Connecticut 06484-6208 John Gies Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Helene Gurian Vice President 751 Broad Street Newark, New Jersey 07102-3714 Jacob Herschler Senior Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Gary A. Hogard Vice President 2101 Welsh Road Dresher, Pennsylvania 19025 Suzanne Hurel Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Bernard J. Jacob Director and Treasurer 213 Washington Street Newark, New Jersey 07102-2917 Daniel O. Kane Senior Vice President, Chief Actuary 213 Washington Street Newark, New Jersey 07102-2992 Patricia Kelley Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Helayne F. Klier Vice President 2101 Welsh Road Dresher, Pennsylvania 19025 Joseph LaTorre Vice President 2101 Welsh Road Dresher, Pennsylvania 19025 Alex Macgillivray Executive Vice President One Corporate Drive Shelton, Connecticut 06484 Lesley B. Mann Vice President 213 Washington Street Newark, New Jersey 07102-2992 Steven P. Marenakos Senior Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Audrey S. Nazulme Vice President 2101 Welsh Road Dresher, Pennsylvania 19025 David R. Odenath, Jr. Chief Executive Officer, President and 213 Washington Street Director Newark, New Jersey 07102-2992 Robert O'Donnell Senior Vice President One Corporate Drive, Shelton, Connecticut 06484-6208 Steven L. Putterman Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Polly Rae Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Yvonne Rocco Senior Vice President 213 Washington Street Newark, New Jersey 07102-2992 Shirley Shao Senior Vice President 213 Washington Street Newark, New Jersey 07102-2992 Mark Sieb Vice President 213 Washington Street Newark, New Jersey 07102-2992 Rick C. Singmaster Executive Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Charles C. Sprague Vice President, Corporate Counsel 751 Broad Street Newark, New Jersey 07102-3714 Karen M. Stier Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Karen Stockla Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Kimberly Supersano Vice President One Corporate Drive Shelton, Connecticut 06484-6208 Kenneth Tanji Director, Executive Vice President and 213 Washington Street Chief Financial Officer Newark, New Jersey 07102-2992 Neelay B. Vaidya Vice President 751 Broad Street Newark, New Jersey 07102-3714 Eva M. Vitale Vice President One Corporate Drive Shelton, Connecticut 06484-6208
Item 26. Persons Controlled by or Under Common Control with the Depositor or Registrant: The Depositor does not directly or indirectly control any person. The following persons are under common control with the Depositor by Prudential Annuities, Inc.: (1) Prudential Annuities Life Assurance Corporation Variable Account B ("Variable Account B"): Variable Account B was established under the laws of the State of Connecticut and is registered with the U.S. Securities and Exchange Commission under the Investment Company Act of 1940 as a unit investment trust, which is a type of investment company. Assets in Variable Account B may support obligations created in relation to the annuity contracts described in the Prospectus of this Registration Statement or other annuity contracts we offer. (2) Prudential Annuities Life Assurance Corporation ("PALAC"): The organization is a stock life insurance company domiciled in Connecticut with licenses in all 50 states and the District of Columbia. PALAC is a wholly-owned subsidiary of Prudential Annuities, Inc. (3) Prudential Annuities Information Services and Technology Corporation ("PAIST"): The organization is a general business corporation organized in the State of Delaware and is an affiliate of PALAC. Its primary purpose is to provide various types of business services to Prudential Annuities, Inc. and all of its subsidiaries including computer systems acquisition, development and maintenance, human resources acquisition, development and management, accounting and financial reporting services and general office services. (4) Prudential Annuities Distributors, Inc. ("PAD"): The organization is a general business corporation organized in the State of Delaware and is an affiliate of PALAC. It was formed primarily for the purpose of acting as principal underwriter of PALAC's variable annuities (5) AST Investment Services, Inc. The organization is a general business corporation organized in the State of Connecticut and is an affiliate of PALAC. Its primary role is to act as investment manager for certain mutual funds to be made available primarily through the variable insurance products of Prudential Annuities Life Assurance Corporation. In addition to the affiliates and/or subsidiaries shown above, PALAC holds all of the voting securities of Advanced Series Trust, a managed, open-end investment company organized as a Massachusetts business trust, other than those securities held in separate accounts of Kemper Investors Life Insurance Company ("Kemper") in support of variable life insurance policies issued by Kemper. The shares of this investment company are voted in accordance with the instructions of persons having interests in the unit investment trust, and PALAC and Kemper vote the shares they hold directly in the same manner that they vote the shares that they hold in their separate accounts. The subsidiaries of Prudential Financial, Inc. are listed under Exhibit 21.1 of the Annual Report on Form 10-K of Prudential Financial, Inc., Registration No. 001-16707, filed February 27, 2008, the text of which is hereby incorporated by reference. Item 27. Number of Contract Owners: NONE. Item 28. Indemnification: Under Section 33-320a of the Connecticut General Statutes, the Depositor must indemnify a director or officer against judgments, fines, penalties, amounts paid in settlement and reasonable expenses including attorneys' fees, for actions brought or threatened to be brought against him in his capacity as a director or officer when certain disinterested parties determine that he acted in good faith and in a manner he reasonably believed to be in the best interests of the Depositor. In any criminal action or proceeding, it also must be determined that the director or officer had no reason to believe his conduct was unlawful. The director or officer must also be indemnified when he is successful on the merits in the defense of a proceeding or in circumstances where a court determines that he is fairly and reasonably entitled to be indemnified, and the court approves the amount. In shareholder derivative suits, the director or officer must be finally adjudged not to have breached this duty to the Depositor or a court must determine that he is fairly and reasonably entitled to be indemnified and must approve the amount. In a claim based upon the director's or officer's purchase or sale of the Registrants' securities, the director or officer may obtain indemnification only if a court determines that, in view of all the circumstances, he is fairly and reasonably entitled to be indemnified and then for such amount as the court shall determine. The By-Laws of Prudential Annuities Life Assurance Corporation ("PALAC") also provide directors and officers with rights of indemnification, consistent with Connecticut Law. The foregoing statements are subject to the provisions of Section 33-320a. Directors and officers of PALAC and PAD can also be indemnified pursuant to indemnity agreements between each director and officer and Prudential Annuities, Inc., a corporation organized under the laws of the state of Delaware. The provisions of the indemnity agreement are governed by Section 45 of the General Corporation Law of the State of Delaware. The directors and officers of PALAC and PAD are covered under a directors and officers liability insurance policy. Such policy will reimburse PALAC or PAD, as applicable, for any payments that it shall make to directors and officers pursuant to law and, subject to certain exclusions contained in the policy, will pay any other costs, charges and expenses, settlements and judgments arising from any proceeding involving any director or officer of PALAC or PAD, as applicable, in his or her past or present capacity as such. Registrant hereby undertakes as follows: Insofar as indemnification for liabilities arising under the Securities Act of 1933 (the "Act") may be permitted to directors, officers and controlling persons of Registrant pursuant to the foregoing provisions, or otherwise, Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and, therefore, is unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, unless in the opinion of Registrant's counsel the matter has been settled by controlling precedent, Registrant will submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 29. Principal Underwriters: (a) Prudential Annuities Distributors, Inc. ("PAD"), a subsidiary of Prudential Annuities, Inc., serves as distributor and principal underwriter for variable annuities and variable life insurance policies issued by Prudential Annuities Life Assurance Corporation. PAD also serves as distributor and principal underwriter for Advanced Series Trust . (b) Directors and officers of PAD:
POSITIONS AND OFFICES POSITIONS AND OFFICES NAME WITH UNDERWRITER WITH REGISTRANT ---- ------------------------------- --------------------- George M. Gannon President, Chief Executive None 2101 Welsh Road Officer, Director and Chief Dresher, Pennsylvania 19025-5001 Operations Officer John T. Doscher Senior Vice President and Chief None 751 Broad Street Compliance Officer Newark, New Jersey 07102-3714 David R. Odenath Director None 751 Broad Street Newark, New Jersey 07102-3714 Jacob M. Herschler Director None One Corporate Drive Shelton, Connecticut 06484 Steven P. Marenakos Director None One Corporate Drive Shelton, Connecticut 06484 Robert F. O'Donnell Director None One Corporate Drive Shelton, Connecticut 06484 Kenneth Y. Tanji Director None 213 Washington Street Newark, New Jersey 07102-2917 Bruce Ferris Executive Vice President and None One Corporate Drive Director Shelton, Connecticut 06484 Fuschillo Joseph M. Executive Vice President and None One Corporate Drive Director Shelton, Connecticut 06484 Adam Scaramella Vice President, Secretary and None 2101 Welsh Road Chief Legal Officer Dresher, Pennsylvania 19025-5001 Margaret R. Horn Chief Financial Officer None 213 Washington Street Newark, New Jersey 07102-2917
(c) Commissions received by PAD during last fiscal year with respect to annuities issued through the registrant Separate Account B.
Net Underwriting Discounts Compensation on Brokerage Name of Principal Underwriter and Commissions Redemption Commissions Compensation ----------------------------- --------------- ---------- ----------- ------------ Prudential Annuities Distributors, Inc.... $512,269,247 $-0- $-0- $-0-
Item 30. Location of Accounts and Records: Accounts and records are maintained by PALAC at its principal office in Shelton, Connecticut. Item 31. Management Services: None Item 32. Undertakings: (a) Registrant hereby undertakes to file a post-effective amendment to this Registration Statement as frequently as is necessary to ensure that the audited financial statements in the Registration Statement are never more than 16 months old so long as payments under the annuity contracts may be accepted and allocated to the Sub-accounts of Separate Account B. (b) To fulfill its obligation to deliver a Statement of Additional Information ("SAI") on request, Registrant undertakes to either (a) include within its application and enrollment forms a box that, if checked, will request an SAI or (b) include a post card or similar communication within the prospectus that can be returned to request an SAI. (c) Registrant hereby undertakes to deliver any Statement of Additional Information and any financial statements required to be made available under this form promptly upon written or oral request. (d) Prudential Annuities Life Assurance Corporation hereby represents that the fees and charges deducted under the Annuity in the aggregate, are reasonable in relation to the services rendered, the expenses expected to be incurred, and the risks assumed under the Annuity. (e) With respect to the restrictions on withdrawals for Texas Optional Retirement Programs and Section 403(b) plans, we may rely upon: 1) a no-action letter dated November 28, 1988 from the staff of the Securities and Exchange Commission to the American Council of Life Insurance with respect to annuities issued under Section 403(b) of the code, the requirements of which have been complied with by us; and 2) Rule 6c-7 under the 1940 Act with respect to annuities made available through the Texas Optional Retirement Program, the requirements of which have been complied with by us. As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION VARIABLE ACCOUNT B Registrant By: Prudential Annuities Life Assurance Corporation /s/ C. Christopher Sprague --------------------------------------- C. Christopher Sprague, Vice President, Corporate Counsel PRUDENTIAL ANNUITIES LIFE ASSURANCE CORPORATION Depositor /s/ C. Christopher Sprague --------------------------------------- C. Christopher Sprague, Vice President, Corporate Counsel As required by the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the date indicated. Signature Title Date --------- ----- ---- (Principal Executive Officer) May 2, 2008 David R. Odenath* Chief Executive Officer ----------------- and President David R. Odenath (Principal Financial Officer and Principal Accounting Officer) Kenneth Y. Tanji* Executive Vice President ----------------- and Chief Financial Officer Kenneth Y. Tanji (Board of Directors) James Avery* Kenneth Y. Tanji* Helen Galt* ----------------- ------------------ ----------- James Avery Kenneth Y. Tanji Helen Galt David R. Odenath* Bernard J. Jacob* ----------------- ------------------ David R. Odenath Bernard J. Jacob By: /s/ C. Christopher Sprague -------------------------- C. Christopher Sprague ---------- * Executed by C. Christopher Sprague on behalf of those indicated pursuant to Power of Attorney EXHIBITS 7 (d) Reinsurance Agreement for HD GRO 7 (e) Reinsurance Agreement for HD7 and SHD7 9 Opinion and Consent of Counsel 10 Consent of PricewaterhouseCoopers LLP