Ladies and gentlemen, thank you very much for standing by and good morning, good afternoon, good evening around the world today and welcome to Prudential's Fourth Quarter 2007 Earnings Results Conference Call. Now at this point and during management's prepared remarks we do have all of your phone lines in a listen-only mode. However, later, there will be opportunities for your questions. [Operator Instructions]. And as a reminder, today's call is being recorded. So with that being said, let's get right to the fourth quarter agenda. Here with our opening remarks is Head of Investor Relations, Mr. Eric Durant. Good morning, sir and happy New Year. Please go ahead.

Good morning, Brad. Good morning to all of you and thank you for joining us. I'll run the commercial. In order to help you to understand Prudential Financial, we will make some forward-looking statements in the following presentation. It is possible that actual results may differ materially from the prediction that we make today. Additional information regarding factors that could cause such a difference appears on the section titled Forward-Looking Statements and Non-GAAP Measures of our earnings press release for the fourth quarter of 2007, which can be found on our website at www.investor.prudential.com. In addition, in managing our businesses, we use a non-GAAP measure we call adjusted operating income, to measure the performance of our financial services businesses. Adjusted operating income, excludes net investment gains and losses as adjusted and related charges and adjustments as well as results from divested businesses. Adjusted operating income also excludes recorded changes in asset values that will ultimately accrue to contract holders and recorded changes in contract holder liabilities, resulting from changes in related asset values. The comparable GAAP presentation and the reconciliation between the two for the fourth quarter are set out in our earnings press release on our website. Additional, historical information relating to the companies financial performance is also located on our website. Our program today is presentations by John Strangfeld, CEO; Rich Carbone, CFO and Mark Grier, Vice Chairman. For the Q&A, they will be joined by Bernard Winograd, Head of Domestic Businesses and former Head of our Asset Management Business and by Peter Sayre, Controller and Principal Accounting Officer. John?

Thank you, Eric. Good morning and welcome. This is my first opportunity to speak with you as Prudential CEO and I welcome this occasion. As a whole, 2007 was an excellent year for Prudential. Earnings per share increase by 21%, based on after-tax adjusted operating income, return on equity for the year reached 15.7%, up from 14.3 in 2006, again based on adjusted operating income. These results are broadly indicative of our earnings power during the year. While unusual, where market sensitive items can distort results in any given quarter, the net effect of these items on results for the full year was minimal. The fourth quarter stands apart from the year as a whole. Highly unusual dislocations in credit markets resulted in significant mark-to-market losses on investments we hold in Europe credit market instruments, and in our commercial mortgage securitization operation in the U.S. We also recorded an $18 million expense relating to the insurance guarantee fund obligations, stemming from the bankruptcy that occurred many years ago. These three items took a toll on our reported results in the quarter, but should not obscure the underlying performance of our businesses, which remains strong. In particular, I would say record sales in annuities, improved sales and flows in full-service retirement, strong flows in institutional asset management and continued growth in our international life-planner business. The volatility of financial markets is a fact of life. We are weathering this storm well. Our portfolio of businesses is well balanced and diverse. While we do have challenges in some asset classes, we have the skills we need to manage through these challenges successfully. Difficult market conditions also create opportunities for us to attract talent to our company and perhaps investment in our business. We have to wear with all to do both, which…

Thanks John. I'll begin with an overview of fourth quarter adjusted operating income for the financial services businesses. As you have seen from yesterday's release, we reported common stock earnings per share for the financial services business of $1.61 for the fourth quarter compared to $1.65 for the fourth quarter a year ago, based on adjusted operating income. Results for a number of businesses were affected by short-term swings that are clearly linked to volatile financial market conditions. Similar to the third quarter, several of our businesses recorded mark-to-market losses within adjusted operating income, amounting to $83 million pre-tax or $0.14 per share on externally managed fixed income investments in the European market. The assets... the underlying assets are mainly European corporate bonds and asset-backed securities with about 90% at investment grade and no exposure to U.S. subprime mortgage paper. The changes in market value reflect continued widening of spreads in European credit markets, rather than defaults or impairments. These are not credit losses. We hold these investments through structures that allow us to swap the underlying cash flows to currencies that are a good match for Japanese and U.S. insurance liabilities. And our accounting treatment is based on the structures. Here is an important point. If the underlying volumes were held directly, the unrealized changes in value would have been in other comprehensive income under FAS 115 rather than in the income statement. To further this point, other comprehensive income includes approximately $60 million of cumulative gains, primarily interest rate-related on the underlying positions while the mark-to-market losses that reflects spread widening are included in adjusted operating income as I noted above. Secondly, in our asset management business, widening credit spreads resulted in a pre-tax loss of $49 million or roughly $0.08 per share from the commercial mortgage securitization operation. In addition to these market-related items, we recorded an expense within corporate and other results, for the insurance guarantee fund obligation amounting to $18 million or roughly $0.03 per share. The sum of these three items was a negative of about $0.25 per share to current quarter results. In contrast, our earnings a year ago included net favorable contribution of about $0.04 per share for market sensitive or non-recurring items. Now Mark will review our business results for the quarter. Mark?

Thank you, Rich and John and hello everyone. I'll start with the insurance division. Adjusted operating income from our Individual Life Insurance business was $125 million for the current quarter, compared to $132 million a year ago. The amortization of differed policy acquisition costs and related items was roughly $20 million higher than a year ago. Most of our Individual Life deferred acquisition cost is amortized based on actual and expected gross profits. And we update our expected revenues each quarter, based on the end point for account values. The current quarter downturn in the equity markets, in contrast to a strong quarter for the equity markets a year earlier, was largely responsible for the unfavorable swing in back amortization. On the other hand, mortality experience for the current quarter was more favorable than a year ago. This partly offset the impact of greater back amortization on Individual Life results. Sales, excluding COLI amounted to $122 million in the current quarter, compared to $143 million a year ago. A $28 million decrease in Universal Life sales more than offset an increase of $7 million or 15% in term insurance sales. Sales for the year ago quarter benefited from large Universal Life cases with substantial initial drop in premiums, mainly sold through third party distribution. These cases tend to have a lumpy sales pattern and the year ago quarter accounted for almost 40% of our Universal Life sales for the entire year. We continue to maintain our vigilance to screen out stranger-owned life insurance, and we've avoided participation in some premium financing programs that can generate substantial large case sales in order to stay clear of this market. Our growth of term sales reflects continuing development of third party distribution relationships, including direct response agents who specialize in term insurance as…

Thanks Mark. I will now comment on net income and the investment portfolio. Net income for the financial services business was $792 million for the quarter compared to $893 million a year ago. Current quarter results include pre-tax realized net investment losses of $14 million. This compares to net realized gains of $130 million a year ago. The current quarter losses include $54 million of impairments on asset-backed securities collateralized by subprime mortgages. Only $4 million of the impairments represents expected lower cash flow or loss of principal. Credit related loses and impairments in total were $106 million in the current quarter. We also recorded $9 million of realized losses on sales of subprime paper in the quarter, or roughly $80 million of book value sold... on roughly $80 million of book value sold. These losses were a function of widening credit spreads in that market, rather than credit deterioration or downgrades. Our estimated potential credit losses for our subprime holdings remains at around $150 million after tax over a 5-year period. In stress scenarios that imply housing prices underlining these securities declined 40% from peak to trough. This estimate assumes full recovery from monoline bond insurers who currently wrap $1.6 billion of subprime bonds. In our prior characterization of potential credit losses on our subprime exposure, we did not look through the monoline wrappers, where they were attached to our holdings. We felt this was appropriate at the time. Now, in response to changes in the environment, it is improper to discuss the underlying credits with regard to the monoline wrap. Let me give you a couple of cuts on our monoline exposure. First, from the perspective of credit rating; absent any support from the monolines, we estimate that about $600 million of our total subprime holdings would be…

Indeed. Well, thank you very much gentlemen for that update and overview. We do appreciate that. And ladies and gentlemen, as you just heard, at this point that we are inviting and encouraging any questions or comments that you may have. [Operator Instructions]. And first in queue representing Morgan Stanley, we go to line of Nigel Dally. Please go ahead sir. Nigel Dally: Morgan Stanley: Hi, thank you and good morning. First with your mortgage conduit operations, mortgage spreads have continued to widen. So should we expect another loss in the first quarter and if so, is reflected in your guidance? Second is international insurance, even stripping out the abnormal loans, it's clearly the most disappointing quarter that we've seen for the full year. I think for the first three quarters on a core basis you were running around $450 million. This quarter striping out the European investment market it was below $400 million. So, perhaps if you can spend just a little more time explaining the sharp drop in the fourth quarter and how we should be thinking about the run rate from which to grow future earnings. Last, just on the buy back, clearly your stock is under pressure, down about 30% from its highest, typically in buying back your stock you've stuck to a very methodical plan, buying back exactly one quarter of your full year expectations every quarter. Does the sharp drop in the stock price lead you to reconsider that? Thanks.

Okay, Nigel, this is John Strangfeld. I think what we suggest on the first one on the mortgage continuity that we... I invite Bernard Winograd who heads up our investment... our US division and previously investment division, to specifically speak to that.

Nigel, the... we cannot give you an answer as to exactly what's going to happen in the first quarter obviously, but certainly our guidance for this year takes into account what the credit market conditions have done to all of our businesses, including the conduit business in the first month of the year. Let me just say about the mortgage business that our core skill here in our core activity is a credit skill and what... I want emphasis that what we are discussing in terms of the losses that we have been reporting here are not credit problems and in fact we continue to feel that the credit conditions for commercial real estate are pretty favorable, delinquency and default rates remain at all-time lows and we haven't seen any significant upward trend in those... in what might otherwise be indication of distress. This is a business that originates mortgages for three principal consumers. One is our own general account, which roughly speaking takes up about half of what we originate every year and the rest is divided between what we originate for the agencies Fannie Mae and Freddie and so forth. And then the last piece is this conduit market. And the conduit market has been disrupted and volatile for a couple of quarters now and continue to be so far in the first month of 2008. Our initial approach to dealing with that volatility was, as I commented it Investor Day to limit our exposure to how much net position we had relative to that kind of volatility. And as you can see in the results of the fourth quarter that approach hasn't been adequate. So, we are continuing to assess the market conditions and the way to deal with this. We rule nothing out more complete hedging, more through lending, directing more of our origination capacity to the other consumers' mortgages and potentially even withdrawing for a time from the conduit market are all possibilities that we have take into account. But we'll do that based on the dynamic assessment of where the market is, as we go forward.

Okay, Nigel, it's Mark, on the international question. First of all, I'd be thinking in terms of the year as a whole, as opposed to any particular quarter, when you take a longer term or strategic sort of view of international as you want to take. And I guess the headline is, I don't feel that we are in any respect derailed from the path that we have talked about for international. Just to highlight a couple of things Life Planner growth was around 7% which is about where it's been, and when I say about where it's been that's over the last number of years. And that Life Planner growth has been producing good results. We did have a dampening impact on sales from the discontinuation of our product in Japan but overall we feel like sales still generally are tracking Life Planner growth. We are investing for growth in international, and feel like there are more opportunities for us to think about somethings a little differently as I have mentioned on the Investor Day. Unfortunately we can't time the increases in expenses and investments with positive mortality or positive investment results. And in the fourth quarter a few of those things, the combination was a little weaker than it's generally been. But again I would be thinking in terms of the full year. I would be looking at drivers that are very much consistent with what has propelled us to the level and performance that we've seen recently, and in fact view our opportunities as still very attractive.

Okay, Nigel. It's Rich. On the share repurchase program, we run our buy back program with capital management as the objective. As such we are likely going to stick with our historical pattern of buying ratably throughout the year. Nigel Daley: Okay thank you.

And thank you very much Mr. Daley. Next in queue, we go to the line of Suneet Kamath representing Sanford Bernstein. Please go ahead.

Thanks. Just a couple of questions on the guidance again. With respect to the equity markets, I think we can use what you said in the past and what you are saying now and sort of calculate what the delta is in terms of what you expect the S&P to close at by the end of the year. And somewhere in the mid-teens in terms of the delta. But can you provide any sense in terms of how significant you are thinking is in terms of the interest rate assumptions and the credit spreads versus what you were thinking when you originally gave guidance and what sort of metrics in the market that we can look at to sort of track that over time. And then related to that, the guidance question is, when you have done your modeling assumption, and John you had mentioned that there is no change in the underlying business prospects. Have you changed the buyback price assumption, in other words, your stock is now in the 70s. You are going to buy an $800 plus million a quarter which obviously you are going to be buying it in at much lower price. Is that been reflected in the guidance? Thanks.

Okay, Suneet, this is John. Let me start with that and I will turn over part of this to Rich Carbone as well. Our stocks with regard to guidance is that given the amount... the convergence of unusual forces at work here between the equity markets and the credit markets, we made a judgment that this was... this will be appropriate to have a reduction in guidance at this time. We're... the assumptions we are making are not a prediction, but they're a basis that we think is a comfortable framework to look at 2008 which is basically unchanged equity markets from the levels at the end of January, unchanged levels of interest rates from the end of January and unchanged credit spreads from the end of January. And that from our point of view we think that's a solid and comfortable way to be looking at this... looking forward. Rich?

Well a couple of things. First yes we have reflected in the average a lower average of stock buyback price versus our original guidance and I want to give you a broader picture of how we have... came to where we are today. The guidance we provided you in December assumed that the S&P would end the year around 1,480 and then appreciate at about 2% per quarter throughout 2008. Our revised guidance today assumes the S&P stays flat to the 1/31 close of 1,387. Also five year investment rates for A and BBB corporate credits are down about a 100 basis points from the reinvestment levels we assumed in our guidance when we provided that in December. This also factored into our revised guidance. And lastly the results of the impact of continued spread widening on our new guidance.

Okay, thank you.

And thank you very much Mr. Kamath, next we have Darren Arito with Deutsche Bank. Please go ahead.

Well thank you. I was hoping to get a little more information on your commercial real estate exposures within your general account. Can you just talk about how your appetite has change for commercial real estate either whole loans or commercial mortgage backed securities over the past two years?

Okay, so Darin, are you speaking about debt commercial mortgage debt activities.

That's right.

Okay, so Bernard.

Just to take one thing out of the equation for clarity sake before I get to that answer, the... our general account has a very low exposure to equity in commercial real state of less than $1 billion, most of which is invested alongside other institutional investors in co-mingled funds. So our appetite for real estate exposure has been largely in the fixed income marketplace. We have been growing the size of our exposure to commercial loans and we've been doing that in particular in the last six months in response to the market condition because we have seen as the... this is the flip side of developments in the commercial mortgage backed sector. As the availability of credit to commercial real estate from securitized lenders has shrunk. The opportunity to make loans at attractive spreads and on good terms for traditional lenders such as our own general account has grown. And so we have stepped up our origination appetite inside our general account. That said I think our overall exposure to commercial loans inside our general account is probably somewhat lower than others. The commercial mortgage backed security market on the other hand as an investment vehicle as opposed to our origination activity outside of the general account. But as an investment vehicle for the general account has been something that we found increasingly attractive as well as spreads have widened out and we have confined ourselves to the high end of the credit spectrum in the commercial mortgage backed securities market that we've... as we've invested. So nearly all of what we own in that regards is in the AAA category. I would say in general with regard to the commercial real estate market, we continue to see spreads at very wide levels, delinquencies and defaults in mortgages at very low levels. In particular our home loan portfolio, the delinquency rates and the default rates are so low as to be somewhat hard to measure in short periods of time and are a fraction of what is generally been experienced in the commercial mortgage backed securities sector even though that is also quite low by historical standards.

Darin, I'm just going to embellish Bernard's comment very briefly. The average new first mortgage LTV for us in 2007 was 62% which is about the same as has been over the last four years due to amortization and appreciation of the existing portfolio currently has an average loan to value of 53%. If you look at debt service coverage ratios for the portfolio as a whole, the average is 1.9 times and the debt service coverage over the last four years has also been very stable, very close to that level. So this is a very high quality portfolio.

Okay great. That's very helpful. Thank you.

And thank you very much Mr. Reid. And next we go to the line of Jason Zucher [ph] representing the Viva Capital, please go ahead. Mr. Zucher your line is open, if you are speaking we can't hear you, please check your mute key.

Thank you. Good morning everybody. A couple of quick questions, most of mine were answered. Can you give us an estimate for 2007, risk based capital, and then could you perhaps talk about any direct benefits you get from a lower short term rates?

Well I will play the heavy on the RBC, we haven't filed at our step blank [ph] yet, we will do so in March, is that right Peter? Step blank bar into the March and we will be happy to address your question at that time but can't do so today.

Okay.

On the second question, there is a lot of offsets and a lot of variables that go on, so while we may benefit in some areas from short term rates, we have heard another some short term rates, and I really don't want to quantify which is which.

Okay thank you. Can I follow up?

Of course.

I just wanted to follow up on the stock buybacks. I guess given that the stock is gotten a lot cheaper and you are committed to doing the $3.5 billion, you know how does it not make sense to accelerate it earlier, rather than keep it, keep the buybacks even over the course of the year?

Jason, the reason is, when we do use it at the capital manage it and we put together capital management plans, they are connected to the capital markets in bottling. So we have got certain bottling plans in place through out the year and the timing of that company coincides with our buyback program.

Okay thank you.

And just, one more comment on that, we have said from the beginning of our share repurchase program that it would be the implementation of a plan over time that we would roll out steady as she goes and we haven't responded to either perception of higher prices or perception of lower prices in our stock and I think overall it serves us very well to be predictable and consistent.

I just want another one of the thing as well. The capital market presented some unique opportunities we might change.

Okay. Thank you. That's helpful.

Thank you very much Mr. Zucher and representing Credit Suisse we have a question now from Tom Gallagher. Please go ahead sir.

Hi. I just want to make sure I understand the short term portfolio for sub-prime and as it relates to the what's wrapped in that. Can you help me understand that $2.8 billion of '06 vintage AAA sub-prime. Should we still expect that that's going to run off within two years of the original maturity or has that extended based on how prepayment conditions may have changed. That's my first question on it.

It might have extended a bit because of the prepayment delays. It's an extension of prepaid.

Okay. So that may be around for a bit longer than the original two years, maybe another year or two. Would that be fair to say?

I don't think we calculated that.

Okay. The... and is this the portfolio where you had commented on there $600 million of below investment grade wrapped securities?

That $600 million is probably sprinkled between the two portfolios. Most of it is likely in the short term portfolio but I can't say for sure that none of it isn't into the 3 to 4-year portfolio which is more finance with general account liabilities.

Okay.

Tom, one quick it's Eric. One quick comment. As you know under the investment policy the original effective maturity of investments and the short term portfolio is less than two years. Okay? And the average expected maturity of that portfolio today is well within that two year criterion?

Okay, thanks.

And any follow ups Mr. Gallagher.

No, that's all.

Okay, very good, sir. Thank you. We go to the line now of Jeff Schuman with KBW, please go ahead.

Thank you. I wanted to just follow up on little bit more with Bernard, on the securitization and conduit activity. We don't have a large visibility into the financials there. I was just wondering just for illustration purposes if we assume that you did withdraw from the conduit activity, what is the fixed cost associated with that. How much of the loss could go away if you completely withdrew?

With virtually all go away because as I say this is the business system that originates mortgages for three different markets and the fixed costs is not associated with the activity in anyone of those markets.

I guess it would seem then between... this is pretty easy to fix, if you just can solve part of the problem by withdrawing or part of it by profiling some more of the business and attractive rate environment, you would seem a fairly manageable situation?

We agree with you. We think it is a fairly manageable situation. We think the current market conditions have been brutal and we anticipated that they were not going to be decline and therefore limited the total inventory we'd have at risk at any moment in time. And found that was not an adequate solution that the markets were more volatile than we had expected. But we agree with you that there are more tools available to us to manage this risk and we are assessing which of those makes the most sense.

Great. Thank you very much.

And thank you Mr. Shuman. And next we go to the line of Ed Spehar, Mr. Spehar representing Merrill Lynch. Please go ahead, sir.

Thank you. I had a couple of questions just on the Life Planner business. Going back to the full year growth and the fourth quarter the full year I think was up 10% if you adjust out the European investments piece and flat in the fourth quarter. And Mark I think you comment on some of the things that may be led to lower than normal results but I guess Life Planner growth and sales growth; those wouldn't be things that I would think would be material from an earnings standpoint. So as certainly in one year. And so I'm wondering can you give us any more color on some of the comments you made on terms of investing for growth or timing of expenses and how to think about what impact that might have had?

Yes. When I was talking about Life Planner growth and sales growth I was more in the context of the question about whether or not our longer term outlook is any different than its been. And the point of that was that I believe the drivers are consistent with the performance that we have been registering. Yes in terms of things like higher expenses we are investing in technology, we are investing in products, we are investing in the brand. As you have seen in Gibraltar, we are investing in people to shore up the bank distribution channel. We do see opportunities to think a little more broadly beyond protection life. We do see geographic opportunities in international. So, the spending has come and accelerated through the second half of the year on initiatives, and generally what I would characterize as investing for the future as opposed to fixing something that's broken. We also, as I mentioned, had some variable income I guess you might call it in international that was lower this year. I referred to it in my prepared remarks as non-coupon items that was lower than it's been. So, we had some negative their relative to what we have seen in prior years. But again, overall, the drivers are in pretty good shape and the picture looks pretty good. And the items this year, I think as I said in my remarks or early question, we might like to match the spending with the favorable positive nonrecurring items, but that's not the way it works, and we were spending more money and had a few things also squeeze us a bit. But the fundamentals are still very good.

Okay, and if I could follow up on the guidance. It's still not clear to me, how much of the CMBS-related spread widening loss expectation is in guidance for '08. Did you... clarify that or can you give us anything on it.

It's Eric, and no we didn't clarify. What we did say or intended to say was that the change in market conditions in the first month of the year is reflected in our guidance for the commercial mortgage conduit as well as our other businesses but we didn't provide a number for the result for that business which by the way lost $62 million pretax in 2007 as a whole.

Okay, and I guess just finally a comment. I would content that nine times '08 earnings would fall into Rich's unique opportunity category.

Point taken.

And thank you very much. Mr. Spehar. Citadel Investment Group's Dan Johnson has our next question. Please go ahead sir.

Great. Thanks many have been answered, but just talk a little bit about three questions. In the mortgage commercial mortgage production environment, obviously, we've focused a lot on the pain side of that what's going on in terms of for business that we are producing and keeping for our own account. What's going on with the expected return environment and is that driven by just macro-credit conditions, lack of competitors versus the last few years, et cetera. So, a little bit of an update on the opportunity out of Venice [ph] at the moment. That's number one. Number two, can you give us a little bit of sense as to what you're thinking about in Gibraltar, in terms of sales via the bank so far. Maybe some color on number of banks or branches you have existing relationships in, when you think that might bear fruit, and... let's go with those two.

Okay, Dan, so on the first one, we'll turn it to Bernard to talk about the mortgage environment.

The mortgages that we are originating for our own account. We are originating at wider spreads and on better terms than we have been able to do for several years. And we have therefore accelerated the pace at which we are acquiring commercial mortgages of that kind for our own account. The principle reason that's happening is because of the disruption to the market, a part of the market, that has been available to borrowers, that is backed by securitization. Securitization has in the past few years represented take-up... a way to net consumer mortgage debt that has been two to three times the size of the combined appetite of insurance companies altogether for long-term paper. And so the disruption to that marketplace has caused a significant drop in their share, and therefore a considerable improvement, if you will, in the terms of trade for those of us who are lending for own account. Obviously the benefit of that will be reflected in higher returns in the general account over the terms of those mortgages. It won't be the kind of periodic one-time gains that we experienced when the same, when the conduit business was functioning properly but that is exactly the good side of this environment that we find ourselves in.

Can you give us a sense as to what sort of spread expansion we are getting as a result of this change?

Well it depends on the period over which you measure it, but you know it's certainly a 100 basis points in over the past nine months.

Great, thanks, and then on to Japan Bank, and then I wanted to follow-up with certain international expenses. And I'll have a question on that too.

All right, on bank channel sales in Gibraltar, our largest relationship is with Bank of Tokyo, and so that will be a key. We also have a number of regional bank relationships as well as some smaller banks. We have a wide range of opinions about how this might go, and it's still too early. We have not talked specifically about what we think we can sell here. The bank channel has been pretty successful with respect to some of the annuity products that have been introduced. We are a little more cautious in extrapolating that experience to Protection, Life; which is why we feel like we need to learn a little more before we can layout real specific expectations. But I will tell you that a materially good outcome here would be a positive variance to the outlook that we have been talking about. Now, again, you know that immediate sales in Life Insurance aren't necessarily current year earnings, but there is upside relative to the general things that we have discussed in international insurance if this goes well. And again we are still learning and don't have anything we are ready to talk about in public yet.

And the reason I ask is it looks like, both, in Gibraltar and the Life Planner business. We have fairly elevated expenses which we have touched on, including advertising expense. I mean how recurring is this level of expenses is going to be as we go into '08, because they are up from, especially in the Planner business, quite a bit?

We expect to be returning to more normal level of expenses as we move through the year. Some of these are in the nature of one-time. We also... and I don't know if I can quantify it for you... have an impact on that line of the appreciation of the yen. And so there are, really... there are two things going on there, I didn't talk about the pure financial side, because I wanted to make the business case of investments. But there is an appreciation of the yen as we translate that line item. And maybe Rich or Peter can say something about that?

I will just say in the current quarter... this is Peter... that the foreign exchange re-measurement between Gibraltar and Prudential Japan is about $15 million.

Okay. And just a reminder, our average yen for next year is --

For translation of results?

Yes

106.

for that quarter general income. These are on these basically on the monetary asset that get translated at the current quarter's results. It's little disconnect between the planned head rate as to the foreign exchange re-measurement of the monetary assets.

Yes, let me just clarify that a little bit. Right individual line items in that financial statements are translated at the average exchange rate for the period. So with the appreciating yen, you're seeing all of the expense lines and all of the revenue lines going up as a result in part and parcel because of the translation rate adjustment. Okay, next year when we... and we get the hedge effect of translating the entire P&L at the hedge rate by marking that through to market through the other revenue line in those financial statements. So let me say that again. All the individual line items translated the actual average exchange rate, we net it down to the hedge rate by running the whole impact through the other revenue line. So the expense increase that Mark was just addressing, does... is impacted by the appreciation of yen. And I think it was like $7 million or $8 million, but I shouldn't be held for that. We didn't get that to your head... get that to you some other important time.

Thank you very much.

And thank you Mr. Johnson. Next we go to the line of Eric Berg with Lehman Brothers. Please go ahead.

Thank you very much. Bernard, in terms of the $49 million loss in the conduit, in the commercial mortgage backed securities... securitization area. Should we think of that as effectively the hedge ineffectiveness or the ineffectiveness associated with the hedge of the mortgages that were waiting to be securitized and were in the warehouse. Is that where the $49 million comes from the hedge ineffectiveness?

Well, Eric that's the part of it. But the bigger part of it would be whatever decision we made as to which exposures we were going to leave unhedged because we mistakenly judge the hedges to be uneconomic. So for example you may recall that at investor day that I said our policy was to not run more than a billion dollars of net exposure in inventory to... in this business. And we had roughly $750 million of net exposure at the end of the third quarter and roughly $750 million at the end of the year. We were at those levels through a combination of that which we had already closed on and therefore was an inventory and that which was in the pipeline where we had taken an application but not yet closed in a row with the borrower and which is harder to hedge. And where the hedges are more expensive. So yes there is some hedge ineffectiveness there. It is not possible to perfectly hedge this exposure. But there was also as I said a policy of managing this risk by limiting it that proved to be inadequate because the degree of movement we got in the markets have made our judgment about where the right limits were to look inappropriate and with the benefit of hindsight.

And does the loss also have to do with the fact that even if you were perfectly hedged, to the extent that the market has shut down, you have these costs of inside the business that are not being absorbed by the profits on the business?

No that's really not as much of an issue because this conduit activity is merely an aspect of the overall lending activity. We originate upwards over $10 billion a year, of commercial mortgages and we can vary which of various mouths we feed, if you will with what we originate depending upon market conditions. And we judge the fixed cost structure relative to the total field force necessary to originate the overall level. Now you know if we thought we were going from upwards of $10 billion to less $5 billion, yes of course. We'd have to be reducing the size of the fixed overhead. But that's not our view, of what we will be doing in terms of origination activity. We will instead see a change in the mix of originations, activity rather than an absolute reduction in the level of origination activity. Well at whatever level of... whatever reduction we might have would not be large enough to trigger a significant change in our fixed cost infrastructure.

Last question maybe for Rich. How should we think of the impact on the profitability on your annuity business from the call it doubling over the last year in volatility in the stock market, at least in short dated volatility, in the cost of hedging?

Eric it's Mark. Our hedging structures in the equity businesses are longer term. So we are not as subject to variations in near term volatility which is really where the big moves have come. We are exposed to long dated volatility in both the underlying benefits that are attached to the products as well as in the hedges that we design. If you recall, we take what we call a structural approach to hedging using long dated options that have various configurations. They would have at one point been called exotic options that we think match our liabilities very well. And experience has borne that out. So one reason that you don't see us talking a lot about difficulty in hedging is that long-term volatility has not moved as much.

I just want to add one thing to that answer, it's Bernard again. I think one of the intriguing things to watch in the annuity business for us, over the next few years is...the whether the nature of the annuity businesses, reaction to volatile equity markets will change in light of the increasing prevalence of guaranteed structures. Traditionally, the annuity business and its new volume has shrunk. When equity markets get volatile, we are not seeing that to the same degree at the moment. We can't... we don't yet have an update to know whether that's simply due to the timing of new product introductions on our part, market share gains on our part, or whether it reflects the fact that if the annuity is being sold as a vehicle that provides greater protection against the downside. It's sales performance will be considerably different in volatile market environments than it has in particularly down... downward equity markets, than it has been historically. Which is a way too early to render a verdict on that. But it is something worth watching.

Eric it's Mark again. Just two more technical things. Just to remind you that we do put our hedging results through AOI. They have included in the business along with the other side of the deal, which is the valuation of the living benefits. And secondly, our hedging cost today is still within the range that we have assumed in our pricing strategy.

Thanks to both of you. That was helpful.

And thank you very much Mr. Berg, representing Tudor Investment Corporation we go to the line of Peter Monaco [ph] now. Please go ahead, sir.

Good morning everybody. Thanks for your time.

Hi Peter.

Against the backdrop of the last few several months and particularly on days like today, I find myself meeting a regular sanity check. So I was wondering, if you'd help me. I presume you'll absent circumstances truly beyond your control have confidence in your ability to grow adjusted operating income of your businesses, mid single digits on a consolidated basis. I presume that, that $10.5 billion over 3 years in buybacks, will be done absent a truly compelling acquisition opportunity. I presume it will probably happen somewhat above the current price. If all of that is true adjusted operating income will be 20% or so higher in 2010 relative to 2007. And the average share count in 2010 would be approximately 25% below the year-end '07 share balance. The combination of the two simple math is EPS in 2010 that is some 60% higher than the adjusted operating EPS in 2007. Am I doing anything wrong?

Well without commenting on the merits of your assumption, the direction that you are going is the direction that we have talked about for the company since we went public.

Thank you.

Thank you very much Mr. Monaco. And next we go to the line of Tamara Kravec representing Banc of America Securities. Please go ahead Tamara.

Thank you, good morning. Most of my questions have been answered. I just wanted to see if you could touch on the effective tax rate in the quarter, given that it was much lower than what we have seen in first nine months of 2007?

Let me talk to that basically, it's primarily driven by the lower pre-tax income and the effective tax rate drops as a result of that. It does have a slightly more foreign tax credits in the quarter.

Okay and those were generated by losses or...

No, no just in our investment portfolio.

Okay. All right. Okay, thank you.

And thank you very much Ms. Kravec. Well Mr. Strangfeld and our host panel taking a quick look at the clock, it looks like, we have time for one more question. So next in queue is Andrew Kligerman with UBS. Please go ahead.

Oh my gosh, I made it. Anyway couple of quick clarifications. One when John talked about an unchanging market is that... in guidance does that mean that you are expecting the market to stay flat for the year as January to flat till the end of the year that's the first question?

Yes, I would say Andrew this is John, I would say that's not a prediction, that's an assumption.

That is an assumption, Okay, great and then Rich, with regard to those investment marks, that went through the income statement on those European... from that firm in Europe or assets that are based in Europe, I am not quite sure. Could you quantify those assets? How big is that asset base? I think you said it, but I want to make sure.

$1.8 billion.

$1.8 billion, and then the next item in the retirement division you talked about $11 million lowering... $11 million less of investment income from joint venture income. Could you give us what the asset base is in terms of joint venture income and what the return was in the quarter?

That's something Andrew we do not have at our fingertips here right now.

Okay. I'll follow up. Maybe and then just lastly Mark, I thought it was pretty exciting to see that retirement went to a positive net flows of $454 million. Mark you gave a little color around the income flex product and three large cases. Do you feel like this positive flow that we saw in the fourth quarter, is that sustainable into 2008? Or are you somewhat cautious on the outlook for flows?

Andrew this is John. I'll take that. This has been a situation where when we talk about the floor we have been acknowledging a trend line that we thought was the right one but a slope that wasn't as steep as we'd like, namely negative flows during integration in '05, a push in '06 and positive flows in '07. And that's indeed what we have here. The fourth quarter clearly reflected encouraging progress, and we are confident in this business system. This is the business that will have some variation quarter by quarter because of the size of some of the large accounts. But this is not a fluke. We are feeling good about where this business is going, the steps we are taking and in the long term prospects that flows. As for IncomeFlex that is still the product is in the pilot phase. What I can say is that we believe in it. When you look at the need of plan participants we think this makes a lot of sense. We have had 20 DC plans signed up for that IncomeFlex option at this stage. We are still piloting it with those plans. But we believe this is going to have... considerably more potential and more measurable potential as we move out over time.

Thanks a lot.

And thank you very much Mr. Kligerman. And well, with that Mr. Strangfeld and our host panel, I will turn the call back to you for any closing remarks.

Thank you. I would like to make one or two closing remarks but Rich has one comment. Clarification he wanted to make.

I want to clarify the change in G&A expense as a result of the translation. So in the plan model, in the Life Plan model, G&A expense is up year-over-year by $12 million as a result of translating at a higher yen. And in the Gibraltar G&A line, G&A expenses up $7 million from translating at a higher average yen for the period.

Thank you Rich. So this is back to John. I just want to sum this up briefly. I know he is talking an awful lot about markets and assets and the like. But as we think about it, we think 2007 was an excellent year for Prudential. Underneath the noise in the fourth quarter, it's clear that our businesses are continuing to perform well. Market conditions are challenging. But the sky is not falling, and we will manage through this environment. And we will see opportunities to add talent and perhaps to strengthen our business in other ways. Our balance sheet is exceptionally strong. It undercuts our ability to pursue opportunities and return excess capital to our shareholders. We are confident that our guidance for the '08 earnings per share of $7.50 to $7.80 is achievable even if conditions in the financial markets do not improve over the balance of the year. So, thank you for being with us today and we hope you will be able to join us in May.

And thank you very much everyone and ladies and gentlemen, Mr. Strangfeld is not [ph] in today's conference available due to ties. Replays will be starting at 1 p.m. Eastern Standard Time, February the 7th all the way through 11:59 p.m. February the 14th. To access AT&T's executive replay service, please dial toll free 800-475-6701 and at the voice prompt enter today's conference ID 904641. Internationally you may access the replay as well by dialing 320-365-3844 again with the conference ID of 904641. And that does conclude our earnings results for this fourth quarter 2007. Thank you very much for your participation as well as for using AT&T's executive teleconference service. You may now disconnect.